AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 3, 1996
REGISTRATION NO. 333-.....
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CASTLE DENTAL CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 802
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
76-0486898
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
JACK H. CASTLE, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1360 POST OAK BOULEVARD
SUITE 1300
HOUSTON, TEXAS 77056
(713) 513-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
WILLIAM D. GUTERMUTH WILLIAM J. GRANT, JR.
BRACEWELL & PATTERSON, L.L.P. WILLKIE FARR & GALLAGHER
SOUTH TOWER PENNZOIL PLACE ONE CITICORP CENTER
711 LOUISIANA STREET, SUITE 2900 153 EAST 53RD STREET
HOUSTON, TEXAS 77002-2781 NEW YORK, NEW YORK 10022-4677
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value......... 6,325,000 $10.00 $63,250,000 $21,811
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</TABLE>
(1) Includes 825,000 shares which may be purchased by the underwriters pursuant
to an over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the rules and regulations under the Securities Act of 1933,
as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
CASTLE DENTAL CENTERS, INC.
Cross-Reference Sheet between items in Part I of Registration Statement of Form
S-1
and location in the Prospectus pursuant to Item 501(b) of Regulation S-K.
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ---------------------------------------- --------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Cover Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front and Outside Back Cover Pages; Additional
Information
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Outside Front Cover Page; Prospectus Summary; Risk
Factors; Business; Selected Historical and Pro Forma
Financial Data
4. Use of Proceeds.................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page; Underwriting
6. Dilution........................... Dilution
7. Selling Security Holders........... Principal and Selling Stockholders
8. Plan of Distribution............... Outside Front Cover Page; Underwriting
9. Description of Securities to be
Registered......................... Prospectus Summary; Risk Factors; Description of Capital
Stock
10. Interests of Named Experts and
Counsel............................ Legal Matters; Experts
11. Information with Respect to the
Registrant......................... Outside Front Cover Page; Prospectus Summary; Risk
Factors; Selected Historical and Pro Forma Financial
Data; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Certain Transactions; Principal and Selling
Stockholders; Description of Capital Stock; Dilution;
Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act
Liabilities........................ Not Applicable
</TABLE>
********************************************************************************
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
********************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 1996
PROSPECTUS
5,500,000 SHARES
[LOGO]
COMMON STOCK
------------------
Of the 5,500,000 shares of Common Stock offered hereby, 5,000,000 shares
are being offered by Castle Dental Centers, Inc. (the "Company"), and 500,000
shares are being offered by the Selling Stockholders named under "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of the shares of Common Stock by the Selling Stockholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price for the Common Stock will be $10.00 per share. See "Underwriting" for
information relating to the factors considered in determining the initial public
offering price. Application has been made to list the Common Stock on the Nasdaq
Stock Market's National Market under the symbol "CASL."
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 8.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this offering estimated at $1,000,000 payable
by the Company.
(3) The Company and the Selling Stockholders have granted to the Underwriters
a 30-day option to purchase up to an additional 550,000 shares and 275,000
shares, respectively, of Common Stock on the same terms set forth above
solely to cover over-allotments, if any. If the Underwriters exercise such
option in full, the total Price to Public, Underwriting Discounts and
Commission, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1996 at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SOUTHCOAST CAPITAL
CORPORATION
, 1996
CASTLE DENTAL CENTERS, INC.
[Graphics -- Map of the United States showing locations of the Company's
headquarters and regional office locations. Locations identified include actual
locations as of the date of the prospectus as well as locations to be acquired
in pending transactions.]
CASTLE DENTAL CENTER 2/5 AND CASTLE DENTAL CENTERS 2/5 ARE REGISTERED
TRADEMARKS OF CASTLE DENTAL CENTERS, INC.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR
INFORMATION THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS.
THE COMPANY
Castle Dental Centers, Inc. (the "Company") is one of the largest providers
of dental practice management services to general, orthodontic and
multi-specialty dental practices in the United States. The Company currently
conducts operations in the states of Texas, Florida and Tennessee and has
entered into definitive agreements to acquire certain assets of and manage
dental practices headquartered in Long Island, New York, serving the New York
metropolitan area, and Little Rock, Arkansas, with offices in Arkansas, Oklahoma
and Louisiana. The Company develops integrated dental networks through
affiliations with dental practices providing quality care in selected markets
across the United States with a view to achieving broad geographic coverage
within those markets. The Company seeks to achieve operating efficiencies by
consolidating and integrating affiliated practices into regional networks,
realizing economies of scale in such areas as marketing, administration and
purchasing and enhancing the revenues of its affiliated dental practices by
increasing both patient visits and the range of specialty services offered. As
of August 30, 1996, the Company provided management services to 35 dental
centers with approximately 85 affiliated dentists, orthodontists and other
dental specialists. Upon consummation of the New York and Arkansas transactions,
the Company will manage 56 dental centers with approximately 215 affiliated
dentists, orthodontists and other dental specialists.
The Company was formed in 1981 by Jack H. Castle, D.D.S. and Jack H.
Castle, Jr., as a single location, multi-specialty dental practice in Houston,
Texas. From 1982 through 1996, the Company expanded to a total of nine locations
with 35 dentists in the Houston metropolitan area. During this period the
Company developed, implemented and refined the integrated dental network
approach which it intends to utilize as a basis for its national expansion.
The Company's objective is to make each of its dental networks the leading
group dental care provider in each market it serves. The Company applies
traditional retail principles of business and marketing techniques to the
practice of dentistry, including locating practices in high-profile locations,
offering more affordable fees and payment plans, expanding the range of services
offered, increasing market share through aggressive advertising and offering
extended office hours. By using the Castle Dental Centers' approach to managing
affiliated dental practices, the Company believes it will enable affiliated
dentists, orthodontists and other dental specialists to focus on delivering
quality patient care and to realize significantly greater productivity than
traditional individual and small-group dental practices.
The Company believes that the provision of a full range of dental services
through an integrated network is attractive to managed care payors and intends
to continue to pursue managed care contracts. The Company currently maintains an
aggregate of ten capitated contracts and preferred provider arrangements
covering approximately 21,000 members and, upon consummation of the New York
Acquisition, the Company will have an aggregate of 60 capitated contracts and
preferred provider arrangements covering approximately 58,000 members. The
Company believes that the continued development of its networks will assist it
in negotiating national and regional capitated arrangements with managed care
payors.
The Company intends to utilize the practice management principles employed
in its Houston operations to establish a consistent national identity for its
business. Moreover, the Company believes that its experience and expertise in
managing multi-specialty dental group practices, as well as the development of
name recognition associated with the name "Castle Dental Centers," will
provide its affiliated dental practices with a competitive advantage in
attracting and retaining patients and realizing practice efficiencies.
3
Dental care services in the United States are generally delivered through a
fragmented system of local providers, primarily sole practitioners, or small
groups of dentists, orthodontists or other dental specialists, practicing at a
single location with a limited number of professional assistants and business
office personnel. However, dental, orthodontic and other specialty practices
have followed the trend of the health care industry generally and are
increasingly forming larger group practices in which a separate professional
management team handles personnel, management, billing, marketing and other
business functions. The Company believes that this trend will continue. The
annual aggregate domestic market for dental services is estimated to be
approximately $46.5 billion for 1995, representing approximately 4.2% of total
health care expenditures in the United States, and is projected to reach $79.1
billion by 2005. The dental services market has grown at a compound annual
growth rate of approximately 8.0% from 1980 to 1995, and is projected to grow at
a compound annual growth rate of approximately 6.0% through the year 2005.
There presently are nine Castle Dental Centers operating in the Houston,
Texas area and four additional centers in Houston in various stages of
development. In May 1996, the Company acquired the assets of and entered into
long-term management agreements with 1st Dental Care, P.A., a dental practice
with 12 locations in the Tampa/Clearwater, Florida area, and Mid-South Dental
Centers, P.C., a dental practice with six dental centers in various locations in
Tennessee. In August 1996, the Company increased its dental practices under
management in Texas by acquiring the assets of Horizon Dental Centers, a dental
practice with four dental centers in Fort Worth, Texas and four dental centers
in Austin, Texas (collectively with the acquisition of 1st Dental Care and
Mid-South Dental Centers, the "Completed Acquisitions"). The Company has
entered into a definitive agreement to acquire certain assets of and enter into
a long-term management agreement with American Dental Centers, a dental practice
based in Long Island, New York with 12 dental centers in the New York
metropolitan area (the "New York Acquisition"). The Company has also entered
into a definitive agreement to acquire certain assets of and enter into a
long-term management agreement with United DentalCare, a dental practice based
in Little Rock, Arkansas that operates nine dental centers in Arkansas, Oklahoma
and Louisiana (the "Arkansas Acquisition"). The New York Acquisition and the
Arkansas Acquisition are referred to collectively as the "Pending
Acquisitions," and together with the Completed Acquisitions, the "Acquisition
Transactions." The New York Acquisition is expected to close contemporaneously
with, and is mutually conditioned on, the closing of this offering, and the
Arkansas Acquisition is expected to close within 30 days of the closing of this
offering.
The Company's strategy is to develop integrated networks for the provision
of dental services through practice affiliations that provide quality,
cost-effective dental care in target markets. Key elements of this strategy are
to (i) provide high-quality, comprehensive, one-stop family dental health care;
(ii) actively pursue acquisitions and DE NOVO development in target markets;
(iii) apply traditional retail principles of business to dental care; and (iv)
market its networks to managed care entities.
4
THE OFFERING
Common Stock offered by:
The Company........................ 5,000,000 Shares(1)(2)
The Selling Stockholders........... 500,000 Shares(1)
Common Stock to be outstanding after the
offering.............................. 11,541,980 Shares(1)(3)
Use of Proceeds......................... To fund acquisitions and development
programs, repay indebtedness, prepay
deferred compensation obligations and
increase available working capital.
See "Use of Proceeds."
Proposed Nasdaq National Market
symbol................................ CASL
- ------------
(1) Does not include up to 550,000 shares and 275,000 shares that may be sold by
the Company and the Selling Stockholders, respectively, pursuant to the
Underwriters' over-allotment option. See "Underwriting."
(2) At an assumed public offering price of $10.00 per share, the net proceeds to
the Company from this offering are estimated to be approximately $45.5
million (approximately $50.6 million if the Underwriters' over-allotment
option is exercised in full), after deducting the underwriting discounts and
commissions and estimated offering expenses.
(3) Gives effect to the conversion of 1,244,737 shares of Series A Convertible
Preferred Stock into 1,244,737 shares of Common Stock, which will be
effected simultaneously with and is conditioned upon this offering, and the
issuance of 685,000 shares of Common Stock in connection with the Pending
Acquisitions and excludes an aggregate of up to 933,415 shares issuable on
(i) the exercise of options to purchase an aggregate of 680,500 shares of
Common Stock which the Company has granted or expects to grant at or shortly
after the closing of this offering under the Company's Omnibus Stock and
Incentive Plan (the "Plan") and the Non-Employee Directors Stock Option
Plan (the "Directors' Plan"); (ii) the exercise of a warrant held by
GulfStar Investments, Ltd. to purchase 113,158 shares of Common Stock (the
"GulfStar Warrant"); and (iii) up to 139,757 shares of Common Stock
presently issuable on the conversion of two Seller Notes (as hereinafter
defined). Also assumes that the 75,000 shares of Common Stock held in escrow
in connection with the Horizon Dental Centers acquisition are released to
the record holder thereof.
5
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient revenues.................... $ 9,637 $ 13,978 $ 15,053 $ 17,083 $ 18,257 $ 9,082 $ 10,707
Expenses:
Dentists' salaries.................... 1,596 2,223 2,684 2,853 3,345 1,611 1,869
Clinical salaries..................... 1,102 946 1,529 1,811 1,879 884 1,534
Dental supplies and laboratory fees... 860 1,403 1,565 1,907 2,185 1,086 1,352
Rental and lease expense.............. 477 411 504 681 836 381 486
Advertising and marketing............. 1,005 580 729 1,062 959 420 533
Depreciation and amortization......... 143 193 245 309 336 167 334
Other operating expenses.............. 1,428 1,915 1,871 2,205 2,260 1,275 1,175
General and administrative............ 3,232 5,085 4,947 5,319 9,109 2,920 2,415
--------- --------- --------- --------- --------- --------- ---------
Total expenses.................... 9,843 12,756 14,074 16,147 20,909 8,744 9,698
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)................. (206) 1,222 979 936 (2,652) 338 1,009
Interest expense........................ 135 182 130 112 87 5 1,066
Other expense (income)(3)............... -- -- -- -- -- -- (107)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....... (341) 1,040 849 824 (2,739) 333 50
Provision (benefit) for income taxes.... -- -- 40 43 (325) -- 19
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)(4).................... $ (341) $ 1,040 $ 809 $ 781 $ (2,414) $ 333 $ 31
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share............. $ (.06) $ .19 $ .15 $ .14 $ (.39) $ .06 $ .01
========= ========= ========= ========= ========= ========= =========
Weighted average outstanding
shares(5)............................. 5,515 5,515 5,515 5,515 6,115 5,515 6,169
========= ========= ========= ========= ========= ========= =========
</TABLE>
PRO FORMA(1)(2)
-----------------------
SIX
YEAR MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30,
------------ --------
1995 1996
------------ --------
STATEMENT OF OPERATIONS DATA:
Net patient revenues.................... $ 54,026 $28,753
Expenses:
Dentists' salaries.................... 10,742 5,332
Clinical salaries..................... 12,303 6,985
Dental supplies and laboratory fees... 6,317 3,030
Rental and lease expense.............. 3,141 1,461
Advertising and marketing............. 1,898 1,017
Depreciation and amortization......... 2,472 1,287
Other operating expenses.............. 4,014 2,190
General and administrative............ 8,269 3,943
------------ --------
Total expenses.................... 49,156 25,245
------------ --------
Operating income (loss)................. 4,870 3,508
Interest expense........................ 657 630
Other expense (income)(3)............... 95 (109 )
------------ --------
Income (loss) before income taxes....... 4,118 2,987
Provision (benefit) for income taxes.... 1,606 1,165
------------ --------
Net income (loss)(4).................... $ 2,512 $ 1,822
============ ========
Net income (loss) per share............. $ .22 $ .16
============ ========
Weighted average outstanding
shares(5)............................. 11,478 11,478
============ ========
JUNE 30, 1996
------------------------
PRO FORMA AS
ACTUAL ADJUSTED(6)
--------- ------------
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 2,095 $ 5,441
Working capital......................... 816 6,741
Total assets............................ 22,358 63,196
Long-term debt and capital lease
obligations, less current portion..... 15,558 5,148
Redeemable preferred stock(7)........... 2,928 --
Total stockholders' equity (net capital
deficiency)........................... (4,117) 52,131
- ------------
(1) Gives effect to (i) the sale of 5,000,000 shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $10.00
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds," (ii) the Acquisition Transactions and (iii) the
Reorganization (as hereinafter defined), as if each of such transactions had
occurred as of January 1, 1995. See "Unaudited Pro Forma Combined Financial
Information."
(2) The pro forma statements of operations do not reflect a $1,895,000
extraordinary loss on retirement of the Company's 12% Senior Subordinated
Notes ("Senior Subordinated Notes"), net of income tax effect of
$1,211,000, which will be recognized in the period this offering is
completed.
(3) Represents primarily gain or loss on sale of assets and interest income.
(4) Prior to the Reorganization, significant operations of the Company were
conducted through a subchapter S corporation and accordingly were not
subject to federal and state income taxes (see Notes 1 and 6 to the
Company's Audited Combined Financial Statements). If all of the Company's
operations had been subject to income taxes, net income (loss) would have
been ($220,000), $660,000, $546,000, $515,000, ($1,698,000) and $210,000 for
the years ended December 31, 1991, 1992, 1993, 1994, 1995 and for the six
months ended June
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
6
30, 1995, respectively. Subsequent to December 31, 1995, the Company's
operations are subject to income taxes and such taxes have been reflected in
the historical consolidated statement of operations data for the six-month
periods ended June 30, 1996. See "Unaudited Pro Forma Combined Financial
Information."
(5) Shares used in calculating net income per share include the weighted average
outstanding shares plus the number of shares (at an assumed public offering
price of $10.00 per share) for the year ended December 31, 1995 and the six
months ended June 30, 1996, the proceeds of which would be necessary to
repay the portion of the Company's debt that funded the $6,000,000 payment
to Jack H. Castle, D.D.S. in connection with the Reorganization. See
"Unaudited Pro Forma Combined Financial Information" and "Certain
Transactions." Historical weighted average shares outstanding and net
income (loss) per share were 5,515,000 and $(.44), respectively, for the
year ended December 31, 1995 and 5,569,000 and $.01, respectively, for the
six months ended June 30, 1996.
(6) Gives effect to (i) the sale of 5,000,000 shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $10.00
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds," (ii) the conversion of the Series A Convertible
Preferred Stock into 1,244,737 shares of Common Stock, and (iii) the
Acquisition Transactions entered into or pending subsequent to June 30,
1996, as if each of such transactions had occurred as of June 30, 1996.
(7) Represents 1,244,737 shares of Series A Convertible Preferred Stock.
THE COMPANY WAS ORGANIZED IN DECEMBER 1995 TO SUCCEED TO THE BUSINESS OF
FAMILY DENTAL SERVICES OF TEXAS, INC., A TEXAS CORPORATION ("FAMILY DENTAL")
WHOLLY-OWNED BY MEMBERS OF AND ENTITIES CONTROLLED BY MEMBERS OF THE FAMILY OF
JACK H. CASTLE, D.D.S. (THE "CASTLE FAMILY"). SEE "PRINCIPAL AND SELLING
STOCKHOLDERS." UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS TO
CASTLE DENTAL CENTERS, INC., ITS PREDECESSOR, FAMILY DENTAL, AND ITS
WHOLLY-OWNED SUBSIDIARIES, AND THE TERMS "AFFILIATED DENTAL PRACTICES" AND
"AFFILIATED PRACTICES" REFER TO DENTAL PRACTICES TO WHICH THE COMPANY PROVIDES
MANAGEMENT SERVICES PURSUANT TO A MANAGEMENT SERVICES AGREEMENT. UNLESS
OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT
THE UNDERWRITERS' OVER-ALLOTMENT OPTION HAS NOT BEEN EXERCISED.
7
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" such as statements concerning
future capital resources, certain statements contained in "Business" such as
statements concerning the Company's future acquisitions and market development,
the Company's intentions with respect to the affiliation and integration of
dental centers, the future of the dental health care industry and other
statements contained herein regarding matters that are not historical facts are
forward-looking statements (as such term is defined in the Securities Act of
1933, as amended (the "Securities Act")), and because such statements involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to, those
discussed herein under "Risk Factors."
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the factors listed below in
evaluating an investment in the shares of Common Stock offered hereby.
ACQUISITION STRATEGY AND LIMITATION ON GROWTH; NEW YORK ACQUISITION
The Company's strategy is to develop comprehensive dental networks through
practice affiliations. Key elements of this strategy are the acquisition of the
assets of dental practices and the introduction of specialty dental services in
target market areas, the entry into management services relationships with such
groups and the utilization of the acquired practices as a base from which to
expand in the target markets. Identifying candidates to become affiliated
practices and proposing, negotiating and implementing economically feasible
affiliations with such groups can be a lengthy, complex and costly process.
There can be no assurance that the Company will successfully establish practice
affiliations with additional dental practices. In addition, the Company's
ability to expand is dependent on factors such as its ability to attract
additional dentists to affiliated dental practices, to adapt or adjust the
Company's structure to comply with present or future state legal requirements
affecting the Company's contractual arrangements with dental, orthodontic or
other specialty practice groups, and to obtain regulatory approval and comply
with regulatory and licensing requirements applicable to dentists and facilities
operated and services offered by dentists. Moreover, the Company's ability to
expand may be limited by state licensing requirements which do not normally
provide for reciprocity among states with respect to licensure of dentists.
Unless otherwise required by law, the Company does not intend to seek
stockholder approval for future acquisitions, and the stockholders of the
Company will be dependent upon management's judgment with respect to such
transactions. There can be no assurance that the Company will be able to achieve
planned growth, that the assets of dental practices will continue to be
available for acquisition by the Company, that the Company will be able to
realize expected operating and economic efficiencies from recent and pending
acquisitions, or that the addition of such practice groups will be profitable.
See "-- Integration of Affiliated Dental Practices and Management Information
Systems," "Business -- Dental Network Development" and "Business -- Operations."
The Company has entered into definitive agreements with respect to the New
York Acquisition and the Arkansas Acquisition. While the New York Acquisition is
mutually conditioned on the closing of this offering and the Arkansas
Acquisition is expected to close within 30 days of the closing of this offering,
there can be no assurance that either of these transactions will be consummated.
In addition, delays in consummating future transactions may create fluctuations
in quarterly results. The New York Acquisition represents a significant
acquisition, both in terms of purchase price and revenues. The American Dental
Centers practice is heavily dependent on arrangements with certain labor
organizations and welfare funds and other payor groups, as well as an insurance
company owned by the seller of American Dental Centers which will not be
acquired by the Company. The Company will enter into certain contractual
relationships with such insurance company; however, there can be no assurance
that the Company's business with the insurance company will continue in the same
manner as in the past. Such a major acquisition represents
8
significant risks; additionally, the Company has had no prior experience in the
New York metropolitan area and the Company will be dependent on the seller to
maintain and expand the Company's revenue base in the New York metropolitan
area.
GOVERNMENT REGULATION
The dental industry is regulated extensively at both the state and federal
levels. The laws of many states prohibit non-dental entities (such as the
Company) from practicing dentistry, owning or controlling the professional
assets of a dental practice, employing dentists or controlling the content of a
dentist's advertising or method of practice or sharing professional fees with
non-dental entities. The laws of many states also prohibit dental practitioners
from paying any portion of fees received for dental services in consideration
for the referral of a patient. In addition, many states impose limits on the
tasks that may be delegated by dentists to dental assistants. The Company does
not control the practice of dentistry within its affiliated dental practices and
believes that its operations comply with the laws of the jurisdictions to which
it is subject, but there can be no assurance that a review of the Company's
business relationships by courts or other regulatory authorities will not result
in determinations that could prohibit or otherwise adversely affect the
operations of the Company or that the regulatory environment will not change,
requiring the Company to reorganize or restrict its existing or future
operations. The Company has not sought judicial or regulatory interpretation
with respect to the way it conducts its business, and has not received a legal
opinion as to its compliance with all applicable laws. These laws and their
interpretation vary from state to state and are enforced by regulatory
authorities with broad discretion. There can be no assurance that the legality
of the Company's business or its relationship with affiliated dental practices
will not be successfully challenged or that the enforceability of the provisions
of the management services agreement will not be limited. The laws and
regulations of certain states in which the Company may seek to expand may
require the Company to change the form of relationships entered into with dental
practices in a manner which may restrict the Company's operations or how
providers may be paid in those states or may prevent the Company from acquiring
the non-dental assets of such practices or managing dental practices in those
states. Similarly, there can be no assurance that the laws and regulations of
the states in which the Company presently maintains operations will not change
or be interpreted in the future either to restrict or adversely affect the
Company's existing or future relationships with dental practitioners in those
states.
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care contracts. The
application of state insurance laws to other than various types of fee for
service arrangements is an unsettled area of law with little guidance available.
As the Company or its affiliated practices contract with third-party payors,
including self-insured plans, for certain non-fee for service basis
arrangements, the Company may become subject to state insurance laws.
Specifically, in some states, regulators may determine that the Company or the
affiliated dental practices are engaged in the business of insurance,
particularly if they contract directly with self-insured employers or another
entity that is not licensed to engage in the business of insurance. To the
extent that the Company or the affiliated practices are determined to be engaged
in the business of insurance, the Company may be required to change the form of
its relationships with third-party payors and the Company's revenues may be
adversely affected.
The United States Congress has considered various types of health care
reform, including comprehensive revisions to the current health care system. It
is uncertain what legislative proposals will be adopted in the future, if any,
or what actions federal or state legislatures or third party payors may take in
anticipation of or in response to any health care reform proposals or
legislation. Health care reform legislation adopted by Congress could have a
material adverse effect on the operations of the Company, and changes in the
health care industry, such as the growth of managed care organizations and
provider networks, may result in lower payment levels for the services of dental
practitioners affiliated with dental practices managed by the Company, and lower
profitability for affiliated practices. See "Business -- Government Regulation."
9
RELIANCE ON AFFILIATED DENTAL PRACTICES
The Company receives fees for management services provided to its
affiliated dental practices under management services agreements. However, the
Company is an independent manager only and does not employ dentists,
orthodontists or other specialists or in any way control the practices of the
dentists, orthodontists or other specialists employed by the affiliated dental
practices. In many cases, a significant portion of the Company's management
services revenue is dependent on revenue generated by the affiliated dental
practices, whether directly or indirectly. Accordingly, the performance of
dentists, orthodontists or other specialists employed by such dental practices
affects the Company's profitability. Should the Company's affiliated dental
practices experience difficulty in hiring or retaining qualified dentists,
orthodontists or other specialists, or should the revenues of affiliated dental
practices decrease materially, it could have a material adverse effect on the
financial performance of the Company.
INTEGRATION OF AFFILIATED DENTAL PRACTICES AND MANAGEMENT INFORMATION SYSTEMS
Although the Company has been in operation since 1981, prior to May 1996,
the Company's operations were conducted entirely in the Houston, Texas area, and
the Company has limited experience in managing affiliated dental practices
outside of the Houston, Texas area. The entry of the Company into new geographic
markets by acquisition will require the Company to maintain and establish payor
and client relationships which may be different in nature than those which the
Company has historically had and the Company will need to attract and retain
competent and experienced management personnel in each market it enters. The
Company may also be dependent on former owners and management to maintain its
payor and customer relationships. In addition, the expansion into new markets
requires the implementation of new or expanded reporting and tracking systems,
management information systems and other operating systems. There can be no
assurance that the Company will be able to expand its organizational structure,
maintain or establish such relationships or attract the management and other
personnel necessary to permit it to integrate into its existing operations
affiliated dental practices located outside of the Houston, Texas area.
In connection with its expansion into new market areas, the Company will be
required to interface its financial information system with existing practice
management systems at the affiliated dental practices, which may be different
from those used by the Company. Any significant delay or increase in expense
associated with the conversion and integration of management information systems
used by affiliated dental practices could have a material adverse effect on the
successful integration of affiliated dental practices. See " -- Acquisition
Strategy and Limitation on Growth; New York Acquisition."
NEED FOR ADDITIONAL FINANCING
The Company's acquisition and expansion programs will require substantial
capital resources. Capital is needed not only for the acquisition of the assets
of affiliated dental practices, but also for the effective integration,
operation and expansion of the affiliated practices. The affiliated practices
may require capital for renovation and expansion and for the addition of dental
equipment and technology. The Company believes that its existing cash resources
together with the net proceeds from this offering, cash flow from operations and
borrowings available under the Bank Credit Facility (as hereinafter defined)
will be sufficient to meet the Company's anticipated acquisition, expansion and
working capital needs for the next 18 months. Thereafter, however, the Company
may be required either to raise additional capital or curtail its expansion
plans. The Company may obtain such financing through additional borrowings or
the issuance of additional equity or debt securities, either of which could have
an adverse effect on the value of the shares of Common Stock offered by this
Prospectus. Although the Company currently believes that it will be able to
secure additional financing, there can be no assurance that the Company will be
able to raise additional capital when needed on satisfactory terms or at all.
Any limitation on the Company's ability to obtain additional financing or
complete a public offering could have a material adverse effect on the Company.
COMPETITION
The Company is under competitive pressures for the acquisition of the
assets of, and the provision of management services to, additional dental
practices. Management is aware of several companies with
10
established operating histories and greater resources than the Company which are
pursuing the acquisition of general and specialty dental practices and the
management of such practices. Additionally, affiliated dental practices compete
locally with sole practitioners and group practices of dental, orthodontic and
other specialty services in the Company's markets. There can be no assurance
that the Company or its affiliated dental practices will be able to compete
effectively with such competitors, that additional competitors will not enter
the market or that such competition will not make it more difficult to acquire
and provide management services to dental practices on terms beneficial to the
Company. See "Business -- Competition."
RISKS RELATED TO GOODWILL
As of June 30, 1996, the Company's total pro forma adjusted assets were
approximately $63.2 million, of which approximately $44.4 million, or 70%, was
goodwill, net of accumulated amortization. Goodwill is the excess of the
purchase price over the fair market value of the net assets of acquired
businesses (which net assets include any separately identifiable intangible
assets). There can be no assurance that the value of the goodwill will ever be
realized by the Company. Goodwill is being amortized on a straight-line basis
over a 40-year period.
All of the goodwill on the Company's pro forma adjusted balance sheet as of
June 30, 1996 is related to the Acquisition Transactions with $27.7 million
being attributable to the Pending Acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company
evaluates each acquisition and establishes an appropriate amortization period
based on the underlying facts and circumstances. Subsequent to each acquisition,
the Company continuously reevaluates such facts and circumstances to determine
if the related goodwill continues to be realizable and if the amortization
period continues to be appropriate.
Amortization of the goodwill on the Company's pro forma adjusted balance
sheet as of June 30, 1996 will produce an annual amortization expense of
approximately $1.1 million. Of this amount, the Pending Acquisitions are
expected to produce annual amortization expense of approximately $689,000.
Purchases of additional businesses which result in the recognition of additional
goodwill would cause amortization expense to increase further. Although the net
unamortized balance of goodwill on the Company's pro forma balance sheet as of
June 30, 1996 was not considered to be impaired, any future determination that a
significant impairment has occurred would require the write-off of the impaired
portion of unamortized goodwill, which would have a material adverse effect on
the Company's results of operations. See "Unaudited Pro Forma Combined
Financial Information."
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; CAPITATED FEE REVENUE
The Company believes that its success will be dependent, in part, on its
ability to negotiate, on behalf of the affiliated practices, contracts with
health maintenance organizations ("HMOs"), insurance companies, self insurance
plans and other private third-party payors pursuant to which services will be
provided on some type of fee-for-service or capitated basis by some or all of
its affiliated practices. Under certain capitated contracts, the health care
provider accepts a predetermined amount per patient per month as its sole
payment in exchange for providing certain necessary covered services to
enrollees. Such contracts shift much of the risk of providing health care from
the payor to the provider. Under certain other capitated contracts, the
predetermined amount may be subject to periodic adjustment to limit the risk
that may be shifted from the payor to the provider. For the 12 months ended
December 31, 1995 and the six months ended June 30, 1996, the Company derived
approximately 13% and 15% of total pro forma adjusted net patient revenues,
respectively, from such capitated contracts. To the extent the Company enters
into additional managed care contracts, the Company may expect greater
predictability of revenues but greater unpredictability of expenses. There can
be no assurance that the Company will be able to negotiate on behalf of the
affiliated practices satisfactory arrangements on a capitated basis, whether
risk-sharing or otherwise. In addition, to the extent that patients or enrollees
covered by certain of such contracts require more frequent or extensive care
than is anticipated, operating margins may be reduced, or the revenues derived
from such agreements may be insufficient to cover the costs of the services
provided. As a result,
11
affiliated practices may incur additional costs which would reduce or eliminate
any earnings under these contracts.
Following the New York Acquisition, the Company will have a significant
presence in the New York metropolitan area. For the year ended December 31,
1995, in excess of 70% of the annual net patient revenues of American Dental
Centers was derived from capitated contracts or preferred provider arrangements,
and the 9 largest relationships of this type accounted for approximately 54% of
the net patient revenues of American Dental Centers. The majority of these
arrangements are terminable by either party at the end of each year or on 30 to
90 days prior notice, and certain of the preferred provider relationships are
terminable by either party at any time. The unreplaced loss of one or more of
the largest capitated care or preferred provider arrangements by American Dental
Centers could have a material adverse effect on the Company's business and
prospects.
DEPENDENCE UPON SENIOR EXECUTIVES
The Company is dependent upon the continued services of its executive
officers, especially its Chairman and Chief Executive Officer, Jack H. Castle,
Jr. Additionally, following the New York Acquisition, the Company will be
dependent upon the continued services of Jules V. Lane D.D.S., the owner of
American Dental Centers to facilitate the integration of American Dental Centers
with the Company. The loss of the services of Jack H. Castle, Jr., Jules V. Lane
D.D.S. or any of the Company's other senior executive officers could have a
material adverse effect on the Company's business and prospects. Certain of the
Company's senior executive officers, including Jack H. Castle, Jr., do not have
an employment agreement and are not otherwise subject to a covenant not to
compete or other agreement which would restrict their ability to compete against
the Company should their employment by the Company be terminated for any reason.
See "Management."
POTENTIAL LIABILITY AND INSURANCE
Due to the nature of its business, the Company from time to time becomes
involved as a defendant in medical malpractice lawsuits brought against
affiliated dental practices or dentists employed by such practices. In addition,
the Company could be involved in litigation in which it is alleged that the
Company has been negligent in performing its duties under management services
agreements. The Company maintains professional and general liability insurance
in amounts deemed appropriate by management based upon its assessment of
historical claims and the nature and risks of its business. There can be no
assurance, however, that an existing or future claim or claims will not exceed
the limits of available insurance coverage, that any insurer will remain solvent
and able to meet its obligations to provide coverage for any such claim or
claims or that such coverage will continue to be available or available with
sufficient limits and at a reasonable cost to insure adequately and economically
the Company's operations in the future. A judgment against the Company in excess
of such coverage could have a material adverse effect on the Company.
CONTROL BY CASTLE FAMILY
Following the closing of this offering, members of the Castle Family will
beneficially own approximately 31% (27%, if the Underwriters' over-allotment
option is exercised in full) of the outstanding shares of Common Stock. As a
result, following the closing of this offering, if the Castle Family were to
vote as a group, the Castle Family could exert a significant influence over the
outcome of corporate actions requiring stockholder approval and the election of
the Company's Board of Directors. In addition, this ownership may have the
effect of discouraging unsolicited offers to acquire the Company. See "Principal
and Selling Stockholders."
NO PRIOR MARKET FOR COMMON STOCK: POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or if a trading market does develop, that it will continue after this
offering. The initial public offering price of the Common Stock will be
determined
12
through negotiations between the Company and the Underwriters. See
"Underwriting" for a description of the factors to be considered in determining
the initial public offering price. The market price of the Common Stock could be
subject to significant fluctuations in response to variations in financial
results or announcements of material events by the Company or its competitors.
Regulatory changes, developments in the health care industry or changes in
general conditions in the economy or the financial markets could also adversely
affect the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following this offering.
After giving effect to the shares of Common Stock offered hereby, the
closing of the Pending Acquisitions and the conversion of the Series A
Convertible Preferred Stock upon the closing of this offering, the Company will
have outstanding 11,541,980 shares of Common Stock. Of these shares, the
5,500,000 shares (6,325,000 shares if the Underwriters' over-allotment option is
exercised in full) of Common Stock sold in this offering will be freely tradable
without restriction or limitation under the Securities Act of 1933, as amended
(the "Securities Act"), except to the extent such shares are subject to the
agreement with the Underwriters described below, and except for any shares
purchased by "affiliates," as that term is defined under the Securities Act, of
the Company. The remaining 6,041,980 shares are "restricted securities" within
the meaning of Rule 144 adopted under the Securities Act ("Rule 144"). The
restricted shares were issued and sold by the Company in private transactions in
reliance upon exemptions from registration under the Securities Act.
The Company, its directors and executive officers and all of the
stockholders of the Company have agreed that, for a period of 180 days after the
date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock, except in the case of the Company,
in certain limited circumstances, including issuing up to 2,000,000 shares of
Common Stock in connection with acquisitions to parties that agree to be bound
by the same restrictions on offers and sales.
The Company anticipates that prior to the consummation of this offering,
the Company will have outstanding under the Plan and the Directors' Plan options
to purchase an aggregate of approximately 480,500 shares of Common Stock, and at
or shortly following consummation of this offering the Company anticipates that
it will issue options to purchase up to 200,000 shares of its Common Stock under
the Plan. The Company intends to register the shares issuable upon exercise of
options granted under the Plan and the Directors' Plan and, upon such
registration, such shares will be eligible for resale in the public market
without restriction, except for Directors and other Affiliates of the Company
who will be subject to volume limitations under Rule 144. The Company will also
have outstanding the GulfStar Warrant, which is presently exercisable for
113,158 shares of Common Stock at $5.50 per share, and two Seller Notes
presently convertible into 139,757 shares of Common Stock at a conversion price
of $6.75 per share, all of which shares will be eligible for resale subject to
the volume, holding period and certain other limitations of Rule 144 upon their
exercise or conversion, as applicable. See "Shares Eligible for Future Sale" and
"Management -- Stock Option Plans."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-laws and of Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company and
limit the price that certain investors might be willing to pay in the future for
shares of the Common Stock. The Company's Certificate of Incorporation provides
for "blank check" preferred stock which may be issued without stockholder
approval and certain provisions of the Company By-laws restrict the right of the
stockholders to call a special meeting of stockholders, to nominate directors,
to submit proposals to be considered at stockholders' meetings and to adopt
amendments to the By-laws. The Company also is subject to Section 203 of the
Delaware General Corporation Law which, subject to
13
certain exceptions, prohibits a Delaware corporation from engaging in any of a
broad range of business combinations with any "interested stockholder" for a
period of three years following the date that such stockholder became an
interested stockholder. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $9.39 per share. See "Dilution." In the
event the Company issues additional Common Stock in the future, including shares
that may be issued in connection with future acquisitions, purchasers of Common
Stock in this offering may experience further dilution in the net tangible book
value per share of the Common Stock of the Company.
14
THE COMPANY
Castle Dental Centers, Inc. was formed as a Delaware corporation in
December 1995 to succeed to the business of Family Dental, a Texas corporation,
which was wholly-owned by the Castle Family. The Company is a holding company
and conducts its business through a number of wholly-owned subsidiaries. The
Company's executive offices are located at 1360 Post Oak Boulevard, Suite 1300,
Houston, Texas 77056, and its telephone number is (713) 513-1400.
USE OF PROCEEDS
The net proceeds from the sale of the 5,000,000 shares of Common Stock
offered by the Company hereby are estimated to be approximately $45.5 million
(approximately $50.6 million if the Underwriters' over-allotment option is
exercised in full) after deducting the underwriting discounts and commissions
and estimated offering expenses based on an assumed initial public offering
price of $10.00 per share. The Company will not receive any proceeds from Common
Stock sold by the Selling Stockholders.
The Company has entered into definitive purchase agreements relating to the
New York Acquisition and the Arkansas Acquisition. Approximately $20.0 million
of the net proceeds of this offering will be used to fund the cash portion of
the purchase price of the New York Acquisition, and $2.6 million of the net
proceeds of this offering will be used to fund the cash portion of the purchase
price of the Arkansas Acquisition.
The Company also intends to use approximately $7.5 million of the net
proceeds to repay the Company's 12% Senior Subordinated Notes due in 2002 (the
"Senior Subordinated Notes"). The Senior Subordinated Notes were issued by the
Company in December 1995 to provide funds for acquisitions of affiliated dental
practices.
The Company intends to use approximately $6.2 million of the net proceeds
to repay a portion of the total indebtedness outstanding under the Amended and
Restated Credit Agreement (the "Bank Credit Facility") between the Company and
NationsBank of Texas, N.A. ("NationsBank") which was incurred to finance certain
of the Company's acquisitions. The Bank Credit Facility provides for a term
loan, revolving credit facility and advancing term loan which expire or mature,
as applicable, on June 15, 2001, June 30, 1997 and June 30, 2001, respectively,
and bear interest at variable rates which are based upon (a) either (i)
NationsBank's base rate or (ii) the London interbank offering rates ("LIBOR")
plus (b) a margin which varies according to (i) the ratio of the Company's
funded debt to EBITDA, each as defined in the Bank Credit Facility, (ii) the
type of loan (i.e. base rate or LIBOR loan) and (iii) whether the loan is a term
loan, revolving credit loan or advancing term loan. As of June 30, 1996, the
interest rate on the Bank Credit Facility was 8.94%. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and Note 2 to the Company's Audited Financial
Statements included elsewhere in this Prospectus for a description of the
interest rate and other terms of the Bank Credit Facility.
Approximately $4.5 million of the net proceeds will be used to retire
seller financed subordinated debt issued by the Company to acquire affiliated
dental practices ("Seller Notes"). The Seller Notes mature at various times from
May 2001 to August 2001, and are accelerated at the closing of this offering.
Three of these Seller Notes, in the aggregate principal amount of approximately
$3.54 million, bear interest at 10% per annum. The remaining two Seller Notes,
in the aggregate principal amount of approximately $960,000, bear interest at
the rate of 6.36% per annum. An aggregate of $943,363 of the Seller Notes is
convertible at the option of the holder into shares of the Company's Common
Stock at a conversion price of $6.75 per share, subject to antidilution
adjustments and automatic annual increase in conversion price.
Approximately $2.4 million of the proceeds will be used to prepay all
amounts owed by the Company to Jack H. Castle, D.D.S. pursuant to a Deferred
Compensation Agreement with Dr. Castle, effective as of December 18, 1995, which
agreement provides for quarterly payments in the amount of $131,500 to be made
to Dr. Castle until December 31, 2000. The Deferred Compensation Agreement with
Dr. Castle was
15
entered into in connection with the acquisition by the Company of the non-dental
assets of Jack H. Castle, D.D.S., Inc. in December 1995, of which Dr. Castle was
the sole owner.
The Company plans to use the balance of the net proceeds for acquisitions,
market development, working capital and general corporate purposes. The Company
is currently in discussions with several potential acquisition candidates, but
except as otherwise described herein has not entered into any binding agreements
with respect to any acquisitions. Pending such uses, the net proceeds will be
invested in short-term, fixed income obligations of investment grade.
DIVIDEND POLICY
The Company has never paid cash dividends and does not anticipate paying
cash dividends in the foreseeable future. It is the present intention of the
Board of Directors to reinvest all earnings in the business of the Company to
support the future growth of its operations. The Bank Credit Facility currently
prohibits the payment of cash dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
16
DILUTION
The net tangible book value of the Company at June 30, 1996, was
approximately $(15.9) million, or $(3.73) per share of Common Stock. Net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the number of shares of
Common Stock issued and outstanding. Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in this offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of this offering.
Shares of Common Stock sold in this offering by Selling Stockholders are
included in the calculation of shares of Common Stock outstanding, but the
proceeds from the sale of those shares do not increase the Company's
stockholders' equity. After giving effect to the sale of 5,000,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $10.00 per share), the application of the estimated net
proceeds therefrom as described under "Use of Proceeds," and the consummation of
the Pending Transactions, the pro forma net tangible book value of the Company
as of June 30, 1996 would have been $6.9 million or $0.61 per share. This
represents an immediate increase in pro forma net tangible book value of $4.34
per share to stockholders as of June 30, 1996, and an immediate dilution in pro
forma net tangible book value of $9.39 per share to purchasers of Common Stock
in this offering. The following table illustrates the dilution per share:
Assumed initial public offering price
per share............................ $ 10.00
---------
Net tangible book value per
share as of June 30, 1996...... $ (3.73)
Increase in net tangible book
value per share attributable to
this offering(1)............... 4.34
---------
Pro forma net tangible book value per
share after this offering.......... 0.61
---------
Dilution per share to new
investors(2)....................... $ 9.39
=========
- ------------
(1) After deduction of underwriting discounts and commissions and estimated
offering expenses.
(2) Determined by subtracting the pro forma net tangible book value per share
after this offering from the amount of cash paid by a new investor for a
share of Common Stock.
The following table shows, on a pro forma basis as of June 30, 1996, the
difference between existing stockholders (including shares issued in connection
with Pending Acquisitions and upon conversion of the Series A Convertible
Preferred Stock) and new investors with respect to the number of shares
purchased from the Company, the aggregate cash consideration paid (based, in the
case of new investors, on an assumed public offering price of $10.00 per share)
and the average price per share paid to the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------- -------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 6,541,980 56.7% $ 8,336,000 14.3% $ 1.27
------------ ------- -------------- ------- ---------
New investors........................ 5,000,000 43.3% 50,000,000 85.7% $ 10.00
------------ ------- -------------- ------- ---------
Total................................ 11,541,980 100.0% 58,336,000 100.0%
============ ======= ============== =======
</TABLE>
The foregoing tables assume no exercise of outstanding options or warrants
or conversion of outstanding convertible Seller Notes into Common Stock. As of
the date of this Prospectus, there are 380,500 shares of Common Stock issuable
upon the exercise of stock options granted to certain officers and key employees
of the Company and other eligible participants under the Plan, and 100,000
shares of Common Stock issuable upon the exercise of options granted to
Directors under the Directors' Plan. The exercise prices of such options range
from $5.00 to the initial public offering price per share. Additionally, the
Company has outstanding two Seller Notes convertible into an aggregate of
139,757 shares of Common Stock at a conversion price of $6.75 per share, and a
warrant to purchase 113,158 shares of Common Stock at an exercise price of $5.50
per share, all of which are subject to adjustment on the occurrence of certain
events.
17
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization as of June 30, 1996, giving
effect to the Acquisition Transactions entered into or pending subsequent to
June 30, 1996 as if such transactions had occurred as of such date, as adjusted
to give effect to the sale of the shares of Common Stock offered by the Company
hereby (at an assumed initial public offering price of $10.00 per share), the
application of the net proceeds therefrom as described under "Use of Proceeds"
and the issuance of 1,244,737 shares of Common Stock upon conversion of the
Series A Convertible Preferred Stock, as if each of such events had occurred as
of June 30, 1996.
JUNE 30, 1996
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
Current portion of long-term debt and
capital lease obligations.......... $ 3,186 $ 2,977
========= ===========
Long-term debt and capital lease
obligations, less current
portion............................ $ 15,558 $ 5,148
Redeemable Preferred Stock; $.001 par
value; 1,244,737 authorized, issued
and outstanding actual; no shares
issued and outstanding pro forma as
adjusted(1)........................ 2,928 --
Stockholders' equity (net capital
deficiency):
Common Stock, $.001 par value;
20,000,000 shares authorized;
4,275,243 shares issued and
outstanding actual and
11,541,980 shares issued and
outstanding pro forma as
adjusted(2)..................... 4 10
Additional paid-in capital......... 1,689 59,826
Accumulated deficit................ (5,810) (7,705)
--------- -----------
Total stockholders' equity
(net capital deficiency)..... (4,117) 52,131
--------- -----------
Total capitalization......... $ 14,369 $57,279
========= ===========
- ------------
(1) Represents the Series A Convertible Preferred Stock of the Company which
will be converted into 1,244,737 shares of Common Stock upon consummation of
this offering. See " Description of Capital Stock."
(2) Excludes an aggregate of up to 933,415 shares issuable on (i) the exercise
of options to purchase an aggregate of 680,000 shares of Common Stock which
the Company has granted or expects to grant at or shortly after the closing
of this offering under the Company's Omnibus Stock and Incentive Plan and
the Directors' Plan; (ii) the exercise of the GulfStar Warrant; and (iii) up
to 139,757 shares presently issuable on the conversion of two Seller Notes.
Also assumes that the 75,000 shares of Common Stock held in escrow in
connection with the Horizon Dental Centers acquisition are released to the
record holder thereof.
18
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data of the Company should be read in
conjunction with the related financial statements, notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The selected historical
financial data set forth below as of December 31, 1994 and 1995 and for each of
the periods ended December 31, 1993, 1994 and 1995 have been derived from the
audited combined financial statements of the Company for such periods included
elsewhere herein. The selected historical financial data set forth below as of
June 30, 1996 and for the six months ended June 30, 1995 and 1996 have been
derived from the Company's unaudited condensed consolidated financial statements
included elsewhere herein, which were prepared on the same basis as the audited
combined financial statements and which, in the opinion of management, include
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information set forth below. The selected historical
financial data as of December 31, 1991, 1992 and 1993 and for the years ended
December 31, 1991 and 1992 have been derived from the Company's financial
records, which were prepared on the same basis as the audited combined financial
statements and which, in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the information set forth below. The selected pro forma combined financial data
set forth below as of June 30, 1996 and for the year ended December 31, 1995 and
for the six months ended June 30, 1996 have been derived from the unaudited pro
forma combined financial statements of the Company. The pro forma statement of
operations data give effect to (i) the sale of 5,000,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$10.00) and the application of net proceeds therefrom as described under "Use of
Proceeds," (ii) the Acquisition Transactions and (iii) the Reorganization, as if
each of such transactions had occurred as of January 1, 1995. The pro forma
balance sheet data give effect to (i) the sale of 5,000,000 shares of Common
Stock offered by the Company hereby (at an assumed initial public offering price
of $10.00) and the application of net proceeds therefrom as described under "Use
of Proceeds," (ii) the conversion of the Series A Convertible Preferred Stock
into 1,244,737 shares of Common Stock and (iii) the Acquisition Transactions
entered into or pending subsequent to June 30, 1996, as if each of such
transactions had occurred as of June 30, 1996. The selected pro forma financial
data are not necessarily indicative of the actual results of operations or
financial position that would have been achieved had such transactions and this
offering been completed at the dates specified, nor are the statements
necessarily indicative of the Company's future results of operations or
financial position. See "Unaudited Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
PRO
FORMA(1)(2)
------------
HISTORICAL
--------------------------------------------------------------------------- YEAR
SIX MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, DECEMBER 31,
----------------------------------------------------- -------------------- ------------
1991 1992 1993 1994 1995 1995 1996 1995
--------- --------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net patient revenues.................... $ 9,637 $ 13,978 $ 15,053 $ 17,083 $ 18,257 $ 9,082 $ 10,707 $ 54,026
Expenses:
Dentists' salaries.................... 1,596 2,223 2,684 2,853 3,345 1,611 1,869 10,742
Clinical salaries..................... 1,102 946 1,529 1,811 1,879 884 1,534 12,303
Dental supplies and laboratory fees... 860 1,403 1,565 1,907 2,185 1,086 1,352 6,317
Rental and lease expense.............. 477 411 504 681 836 381 486 3,141
Advertising and marketing............. 1,005 580 729 1,062 959 420 533 1,898
Depreciation and amortization......... 143 193 245 309 336 167 334 2,472
Other operating expenses.............. 1,428 1,915 1,871 2,205 2,260 1,275 1,175 4,014
General and administrative............ 3,232 5,085 4,947 5,319 9,109 2,920 2,415 8,269
--------- --------- --------- --------- --------- --------- --------- ------------
Total expenses.................... 9,843 12,756 14,074 16,147 20,909 8,744 9,698 49,156
--------- --------- --------- --------- --------- --------- --------- ------------
Operating income (loss)................. (206) 1,222 979 936 (2,652) 338 1,009 4,870
Interest expense........................ 135 182 130 112 87 5 1,066 657
Other expense (income)(3)............... -- -- -- -- -- -- (107) 95
--------- --------- --------- --------- --------- --------- --------- ------------
Income (loss) before income taxes....... (341) 1,040 849 824 (2,739) 333 50 4,118
Provision (benefit) for income taxes.... -- -- 40 43 (325) -- 19 1,606
--------- --------- --------- --------- --------- --------- --------- ------------
Net income (loss)(4).................... $ (341) $ 1,040 $ 809 $ 781 $ (2,414) $ 333 $ 31 $ 2,512
========= ========= ========= ========= ========= ========= ========= ============
Net income (loss) per share(5).......... $ (.06) $ .19 $ .15 $ .14 $ (.39) $ .06 $ .01 $ .22
========= ========= ========= ========= ========= ========= ========= ============
Weighted average outstanding
shares(5)............................. 5,515 5,515 5,515 5,515 6,115 5,515 6,169 11,478
========= ========= ========= ========= ========= ========= ========= ============
</TABLE>
SIX
MONTHS
ENDED
JUNE 30,
--------
1996
--------
STATEMENT OF OPERATIONS DATA:
Net patient revenues.................... $28,753
Expenses:
Dentists' salaries.................... 5,332
Clinical salaries..................... 6,985
Dental supplies and laboratory fees... 3,030
Rental and lease expense.............. 1,461
Advertising and marketing............. 1,017
Depreciation and amortization......... 1,287
Other operating expenses.............. 2,190
General and administrative............ 3,943
--------
Total expenses.................... 25,245
--------
Operating income (loss)................. 3,508
Interest expense........................ 630
Other expense (income)(3)............... (109 )
--------
Income (loss) before income taxes....... 2,987
Provision (benefit) for income taxes.... 1,165
--------
Net income (loss)(4).................... $ 1,822
========
Net income (loss) per share(5).......... $ .16
========
Weighted average outstanding
shares(5)............................. 11,478
========
(TABLE CONTINUED ON FOLLOWING PAGE)
19
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, -----------------------
----------------------------------------------------- PRO FORMA AS
1991 1992 1993 1994 1995 ACTUAL ADJUSTED(6)
--------- --------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 150 $ 292 $ 34 $ 22 $ 6,439 $ 2,095 $ 5,441
Working capital......................... 653 2,247 773 1,212 6,208 816 6,741
Total assets............................ 3,012 5,087 4,130 4,711 12,677 22,358 63,196
Long-term debt and capital lease
obligations, less current portion..... 1,052 785 496 162 9,512 15,558 5,148
Redeemable Preferred Stock(7)........... -- -- -- -- 2,928 2,928 --
Total stockholders' equity (net capital
deficiency)........................... 622 2,631 1,796 2,577 (5,743) (4,117) 52,131
</TABLE>
- ------------
(1) Gives effect to (i) the sale of the 5,000,000 shares of Common Stock offered
by the Company hereby (at an assumed initial public offering price of $10.00
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds," (ii) the Acquisition Transactions, and (iii) the
Reorganization, as if each of such transactions had occurred as of January
1, 1995. See "Unaudited Pro Forma Combined Financial Information."
(2) The pro forma statements of operations do not reflect a $1,895,000
extraordinary loss on retirement of the Senior Subordinated Notes, net of
income tax effect of $1,211,000, which will be recognized in the period this
offering is completed.
(3) Represents primarily gain or loss on sale of assets and interest income.
(4) Prior to the Reorganization, significant operations of the Company were
conducted through a subchapter S corporation and accordingly were not
subject to federal and state income taxes (see Notes 1 and 6 to the
Company's Audited Combined Financial Statements). If all of the Company's
operations had been subject to income taxes, net income (loss) would have
been ($220,000), $660,000, $546,000, $515,000, ($1,698,000) and $206,000 for
the years ended December 31, 1991, 1992, 1993, 1994, 1995 and for the six
months ended June 30, 1995, respectively. Subsequent to December 31, 1995,
the Company's operations are subject to income taxes and such taxes have
been reflected in the historical consolidated statement of operations data
for the six-month periods ended June 30, 1996. See "Unaudited Pro Forma
Combined Financial Information."
(5) Shares used in calculating net income per share include the weighted average
outstanding shares plus the number of shares (at an assumed public offering
price of $10.00 per share) for the year ended December 31, 1995 and the six
months ended June 30, 1996, the proceeds of which would be necessary to
repay the portion of the Company's debt that funded the $6,000,000 payment
to Jack H. Castle, D.D.S. in connection with the Reorganization. See
"Unaudited Pro Forma Combined Financial Information" and "Certain
Transactions." Historical weighted average shares outstanding and net income
(loss) per share were 5,515,000 and $(.44), respectively, for the year ended
December 31, 1995 and 5,569,000 and $.01, respectively, for the six months
ended June 30, 1996.
(6) Gives effect to (i) the sale of 5,000,000 shares of Common Stock offered by
the Company hereby (at an assumed initial public offering price of $10.00
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds," (ii) the conversion of the Series A Convertible
Preferred Stock into 1,244,737 shares of Common Stock and (iii) the
Acquisition Transactions entered into or pending subsequent to June 30,
1996, as if each of such transactions had occurred as of June 30, 1996.
(7) Represents 1,244,737 shares of Series A Convertible Preferred Stock.
20
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet as of June 30,
1996 and the Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 have been
prepared to reflect adjustments to the Company's historical financial position
and results of operations to give effect to the transactions described below.
The Unaudited Pro Forma Combined Balance Sheet reflects such transactions as if
they had occurred as of June 30, 1996, and the Unaudited Pro Forma Combined
Statements of Operations for the year ended December 31, 1995 and the six months
ended June 30, 1996 reflect such transactions as if they had occurred as of
January 1, 1995.
Effective December 31, 1995, as part of a reorganization and
recapitalization plan (collectively with the financing arrangements discussed in
the following paragraph, the "Reorganization"), the Company merged with and
succeeded to the business of Family Dental. Family Dental was formed in 1981 to
provide management services to Jack H. Castle, D.D.S., Inc., a professional
corporation, which operated a dental practice in Houston, Texas. In December
1995, the Company acquired all the outstanding stock and certain assets of Jack
H. Castle, D.D.S., Inc. and entered into an agreement to provide practice
management services to a newly-established professional corporation, Jack H.
Castle, D.D.S., P.C., which succeeded to the dental practice of the professional
corporation acquired by the Company. See Notes 1, 2 and 9 to the Company's
Audited Combined Financial Statements and "Certain Transactions."
In connection with the Reorganization, the Company entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement") with three
investors represented by Pecks Management Partners Ltd. (the "Pecks Investors")
pursuant to which the Company issued 1,244,737 shares of Series A Convertible
Preferred Stock and the Senior Subordinated Notes. At the same time, the Company
entered into the Bank Credit Facility with NationsBank, which provided for a
term loan of $6.0 million and a revolving credit facility of $3.0 million. In
May 1996 the Company amended the Bank Credit Facility to, among other things,
increase the amount available under the term loan to $16.0 million See Notes 2,
4 and 10 to the Company's Combined Financial Statements.
In May 1996, the Company acquired the assets and assumed certain
liabilities of 1st Dental Care headquartered in Clearwater, Florida and
Mid-South Dental Centers headquartered in Nashville, Tennessee, and entered into
management services agreements with each of those groups. In August 1996, the
Company increased its dental practices under management in Texas by acquiring
the assets and assuming certain liabilities of Horizon Dental Centers, a group
dental practice with four offices in Fort Worth, Texas and four offices in
Austin, Texas. Additionally, the Company has entered into definitive agreements
with respect to the New York Acquisition and the Arkansas Acquisition. The New
York Acquisition is expected to close contemporaneously with, and is mutually
conditioned upon, the closing of this offering, and the Arkansas Acquisition is
expected to close within 30 days of the closing of this offering.
The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996 gives
effect to (i) the sale of 5,000,000 shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $10.00 per share)
and the application of the net proceeds therefrom, as described in "Use of
Proceeds," (ii) the conversion of the Series A Convertible Preferred Stock into
1,244,737 shares of Common Stock and (iii) the Acquisition Transactions entered
into or pending subsequent to June 30, 1996, as if each of such transactions had
occurred as of June 30, 1996. The Unaudited Pro Forma Combined Statements of
Operations for the year ended December 31, 1995 and the six months ended June
30, 1996, give effect to (i) the sale of 5,000,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$10.00 per share) and the application of net proceeds therefrom as described in
"Use of Proceeds," (ii) the Acquisition Transactions and (iii) the
Reorganization, as if each of such transactions had occurred as of January 1,
1995.
The pro forma combined financial statements have been prepared by the
Company based on the historical financial statements of the Company and the
dental practices acquired or to be acquired in the Acquisition Transactions, the
financial statements of which are included elsewhere in this Prospectus. These
pro forma combined financial statements are presented for illustrative purposes
only and are not necessarily indicative of the results that would have been
obtained if the transactions had occurred on the dates indicated or that may be
realized in the future. The pro forma information should be read in conjunction
with the Company's Audited Combined Financial Statements and the Unaudited
Condensed Consolidated Interim Financial Statements and the Notes thereto and
the historical financial statements of the dental practices acquired or to be
acquired in the Acquisition Transactions and the notes thereto included
elsewhere in this Prospectus.
21
CASTLE DENTAL CENTERS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ------------------------------------ HISTORICAL -----------
---------------------- COMPLETED ------------ PENDING
COMPLETED ACQUISITION OFFERING PENDING ACQUISITIONS
COMPANY ACQUISITION ADJUSTMENTS ADJUSTMENTS ACQUISITIONS ADJUSTMENTS
(A) (B) (B) COMBINED (C) (D) (D)
------- ------------ ----------- -------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $2,095 $ 208 $ (333) $ 1,970 $ 25,913 $4,017 $ (3,859)
(22,600)
Short-term investments............. -- -- -- -- -- 27 --
Patient receivables, net........... 4,442 168 -- 4,610 -- 923 --
Other current assets............... 296 4 -- 300 1,211 146 --
------- ------------ ----------- -------- ----------- ------------ -----------
Total current assets........ 6,833 380 (333) 6,880 27,124 5,113 (26,459)
------- ------------ ----------- -------- ----------- ------------ -----------
Property and equipment, net.......... 3,488 24 100 3,612 -- 1,174 350
Other assets, net.................... 11,820 -- 5,794 17,614 (290) 133 27,728
Note receivable -- shareholder....... -- 600 (600) -- -- -- --
Deferred income taxes................ 217 -- -- 217 -- -- --
------- ------------ ----------- -------- ----------- ------------ -----------
Total assets..................... $22,358 $1,004 $ 4,961 $28,323 $ 26,834 $6,420 $ 1,619
======= ============ =========== ======== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
and capital leases............... $3,186 $ 509 $ (409) $ 3,286 $ (608) $ 299 $ --
Accounts payable and accrued
liabilities...................... 2,831 6 (6) 2,831 (527) 1,751 (1,115)
------- ------------ ----------- -------- ----------- ------------ -----------
Total current liabilities... 6,017 515 (415) 6,117 (1,135) 2,050 (1,115)
------- ------------ ----------- -------- ----------- ------------ -----------
Long-term debt and capital lease
obligations, less current
portion............................ 15,558 403 2,597 18,558 (13,664) 254 --
Other long-term liabilities.......... 1,972 -- -- 1,972 (1,972) -- --
Redeemable preferred stock........... 2,928 -- -- 2,928 (2,928)(F) -- --
Common stock......................... 4 10 (10) 4 6 21 (21)
Additional paid-in capital........... 1,689 -- 2,865 4,554 45,494 11 6,839
2,928(F)
Retained earnings (accumulated
deficit)........................... (5,810 ) 76 (76) (5,810 ) (1,895) 4,084 (4,084)
------- ------------ ----------- -------- ----------- ------------ -----------
Total liabilities and stockholders'
equity............................. $22,358 $1,004 $ 4,961 $28,323 $ 26,834 $6,420 $ 1,619
======= ============ =========== ======== =========== ============ ===========
</TABLE>
AS ADJUSTED
(E)
-----------
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 5,441
Short-term investments............. 27
Patient receivables, net........... 5,533
Other current assets............... 1,657
-----------
Total current assets........ 12,658
-----------
Property and equipment, net.......... 5,136
Other assets, net.................... 45,185
Note receivable -- shareholder....... --
Deferred income taxes................ 217
-----------
Total assets..................... $63,196
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
and capital leases............... $ 2,977
Accounts payable and accrued
liabilities...................... 2,940
-----------
Total current liabilities... 5,917
-----------
Long-term debt and capital lease
obligations, less current
portion............................ 5,148
Other long-term liabilities.......... --
Redeemable preferred stock........... --
Common stock......................... 10
Additional paid-in capital........... 59,826
Retained earnings (accumulated
deficit)........................... (7,705)
-----------
Total liabilities and stockholders'
equity............................. $63,196
===========
22
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(A) Represents the June 30, 1996 historical consolidated balance sheet of the
Company, which includes 1st Dental Care and Mid-South Dental Centers,
acquired in May 1996.
(B) Represents the June 30, 1996 historical combined balance sheet of Horizon
Dental Centers, which was acquired in August 1996, and the purchase
adjustments thereto.
The estimated fair value of the assets acquired in the Horizon Dental
Centers acquisition is summarized, as follows:
IN THOUSANDS
------------
Patient receivables, net................ $ 168
Other current assets.................... 4
Property and equipment.................. 124
Excess of cost over fair value of net
assets acquired....................... 5,794
------------
$6,090
============
The acquisition price for the Horizon Dental Centers acquisition was funded
as follows:
IN THOUSANDS
------------
Cash.................................... $ 125
Fair market value of 337,000 shares of
Common Stock.......................... 2,865
Current portion of long-term debt and
capital leases........................ 100
Long-term debt.......................... 3,000
------------
$6,090
============
The value of the Common Stock issued was based upon management's estimate
of the fair market value thereof as of the date of the purchase agreement
relating to the Horizon Dental Centers acquisition ($8.50 per share). The
long-term debt consists of (i) $1.0 million in Seller Notes, payable in
quarterly installments plus interest at 10% through December 2001, and (ii)
$2.1 million in additional debt incurred under the Bank Credit Facility
(see Note 10 to the Company's combined financial statements). The excess of
cost over the fair value of the net assets acquired will be amortized over
the term of the management services agreement entered into in connection
with the acquisition, which is 40 years.
(C) Represents the issuance of 5,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $10.00 per
share and the use of proceeds therefrom as follows:
IN THOUSANDS
------------
Gross proceeds of the offering.......... $ 50,000
Underwriting discounts and
commissions........................... (3,500)
Expenses related to the offering........ (1,000)
------------
Net proceeds....................... 45,500(1)
Repayment of long-term debt, including
current portion....................... (17,088)(2)
Prepayment of amounts due under the
Deferred Compensation Agreement
(current portion $527, long-term
portion $1,972)....................... (2,499)
------------
Net increase in cash and cash
equivalents...................... $ 25,913
============
The Company plans to use the net increase in cash and cash equivalents for
acquisitions, market development, working capital and general corporate
purposes. Pending those uses, the net increase in cash and cash equivalents
will be invested in short-term, fixed-income obligations of investment
grade.
(FOOTNOTES ON FOLLOWING PAGE)
23
(1) The Common Stock to be issued will affect pro forma equity, as
follows:
IN THOUSANDS
------------
Common stock........................ $ 6
Additional paid-in capital.......... 45,494
------------
$ 45,500
============
(2) The repayment of long-term debt will affect pro forma assets and
liabilities, as follows:
IN THOUSANDS
------------
Other current assets................ $ 1,211(a)
Other assets........................ (290)(b)
Current portion of long-term debt... 608
Long-term debt, net of unamortized
discount of $2,877................. 13,664
Retained earnings................... 1,895(c)
------------
Cash paid................... $ 17,088
============
- ------------
(a) To reflect taxes receivable relating to the extraordinary loss
on retirement of the Senior Subordinated Notes.
(b) To write off deferred financing costs related to the retirement
of the Senior Subordinated Notes.
(c) To reflect the reduction in retained earnings for the
extraordinary loss on retirement of the Senior Subordinated
Notes, net of income tax effect of $1,211,000.
(D) Represents the June 30, 1996 historical combined balance sheets of the
group dental practices to be acquired in the Pending Acquisitions, and the
purchase adjustments thereto.
The estimated fair value of the assets to be acquired in the Pending
Acquisitions is summarized below:
IN THOUSANDS
------------
Cash.................................... $ 158
Short-term investments.................. 27
Patient receivables, net................ 923
Other current assets.................... 146
Property and equipment.................. 1,524
Excess of cost over fair value of net
assets acquired....................... 27,861
Current portion of long-term debt and
capital leases assumed................ (299)
Accounts payable and accrued liabilities
assumed............................... (636)
Long-term debt and capital lease
obligations assumed................... (254)
------------
$ 29,450
============
The aggregate acquisition price for the Pending Acquisitions will be funded
as follows:
IN THOUSANDS
------------
Cash.................................... $ 22,600
Fair market value of 685,000 shares of
Common Stock.......................... 6,850
------------
$ 29,450
============
The value of the Common Stock to be issued is based upon an assumed initial
public offering price of $10.00 per share.
Pursuant to the terms of the Arkansas Acquisition agreement, additional
consideration may be payable based upon the pre-tax earnings of that
practice through December 31, 1996. Additional consideration, if any, will
be recorded as excess of cost over fair value of net assets acquired when
paid.
24
(E) The Arkansas Acquisition is expected to close within 30 days of the
closing of this offering, however, there can be no assurance that the
acquisition will be consummated. Without giving effect to the Arkansas
Acquisition the Company's pro forma as adjusted balance sheet data would
be as follows:
JUNE 30, 1996
--------------
(IN THOUSANDS)
Cash and cash equivalents.......... $ 8,041
Working capital.................... 9,655
Total assets....................... 60,652
Long-term debt and capital lease
obligations, less current
portion........................... 4,894
Total stockholders' equity......... 50,281
(F) Represents conversion of the Series A Convertible Preferred Stock into
1,244,737 shares of Common Stock.
25
CASTLE DENTAL CENTERS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ---------------------------------------- HISTORICAL
---------------------- COMPLETED -------------
COMPLETED ACQUISITIONS & OFFERING PENDING
COMPANY ACQUISITIONS REORGANIZATION ADJUSTMENTS ACQUISITIONS
(A) (B) ADJUSTMENTS COMBINED (C) (D)
------- ------------ --------------- -------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net patient revenues.................... $18,257 $ 17,330 $-- $35,587 $-- $18,439
Expenses:
Dentists' salaries.................. 3,345 2,141 1,048(F) 6,534 -- 4,208
Professional fees and clinic
expenses.......................... -- 3,012 (3,012)(G) -- -- --
Clinical salaries................... 1,879 4,149 753(G) 6,781 -- 5,522
Dental supplies and laboratory
fees.............................. 2,185 1,375 904(G) 4,464 -- 1,853
Management fees..................... -- 1,249 (1,249)(H) -- -- --
Rental and lease expense............ 836 1,214 140(I) 2,190 -- 951
Advertising and marketing........... 959 503 34(J) 1,496 -- 402
Depreciation and amortization....... 336 385 548(K) 1,269 -- 444
Other operating expenses............ 2,260 660 -- 2,920 -- 1,094
General and administrative.......... 9,109 2,001 (4,534)(L) 6,576 -- 4,031
------- ------------ --------------- -------- ----------- -------------
Total expenses................. 20,909 16,689 (5,368) 32,230 -- 18,505
------- ------------ --------------- -------- ----------- -------------
Operating income (loss)................. (2,652 ) 641 5,368 3,357 -- (66)
Interest expense........................ 87 215 2,208(M) 2,510 (1,878) (O) 25
Other expense (income).................. -- 95 -- 95 -- --
------- ------------ --------------- -------- ----------- -------------
Income (loss) before income taxes....... (2,739 ) 331 3,160 752 1,878 (91)
Provision (benefit) for income taxes.... (325 ) -- 618(Q) 293 732(Q) --
------- ------------ --------------- -------- ----------- -------------
Net income (loss)....................... $(2,414) $ 331 $ 2,542 $ 459 $ 1,146 $ (91)
======= ============ =============== ======== =========== =============
Net income (loss) per share............. $ (.39 )(R) $ .07
======= ========
Weighted average outstanding shares..... 6,115 (R) 6,506
======= ========
</TABLE>
PRO FORMA
---------------------------
PENDING
ACQUISITIONS AS ADJUSTED
ADJUSTMENTS (E)
------------- -----------
Net patient revenues.................... $-- $54,026
Expenses:
Dentists' salaries.................. -- 10,742
Professional fees and clinic
expenses.......................... -- --
Clinical salaries................... -- 12,303
Dental supplies and laboratory
fees.............................. -- 6,317
Management fees..................... -- --
Rental and lease expense............ -- 3,141
Advertising and marketing........... -- 1,898
Depreciation and amortization....... 759(K) 2,472
Other operating expenses............ -- 4,014
General and administrative.......... (2,338)(L) 8,269
------------- -----------
Total expenses................. (1,579) 49,156
------------- -----------
Operating income (loss)................. 1,579 4,870
Interest expense........................ 657
Other expense (income).................. -- 95
------------- -----------
Income (loss) before income taxes....... 1,579 4,118
Provision (benefit) for income taxes.... 581(Q) 1,606
------------- -----------
Net income (loss)....................... $ 998 $ 2,512
============= ===========
Net income (loss) per share............. $ .22
===========
Weighted average outstanding shares..... 11,478
===========
26
CASTLE DENTAL CENTERS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ------------------------------------------ HISTORICAL
----------------------- COMPLETED -------------
COMPLETED ACQUISITIONS & OFFERING PENDING
COMPANY ACQUISITIONS REORGANIZATION ADJUSTMENTS ACQUISITIONS
(A) (B) ADJUSTMENTS COMBINED (C) (D)
------- ------------- --------------- --------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net patient revenues.................... $10,707 $ 7,663 $-- $18,370 $ -- $10,383
Expenses:
Dentists' salaries.................. 1,869 832 578(F) 3,279 -- 2,123
Professional fees and clinic
expenses.......................... -- 1,506 (1,506)(G) -- -- --
Clinical salaries................... 1,534 1,696 376(G) 3,606 -- 3,379
Dental supplies and laboratory
fees.............................. 1,352 453 452(G) 2,257 -- 773
Management fees..................... -- 490 (490)(H) -- -- --
Rental and lease expense............ 486 512 --(I) 998 -- 463
Advertising and marketing........... 533 272 22(J) 827 -- 190
Depreciation and amortization....... 334 129 230(K) 693 (44)(N) 259
Other operating expenses............ 1,175 367 -- 1,542 -- 648
General and administrative.......... 2,415 867 87(L) 3,369 -- 1,818
------- ------------- --------------- --------- ------------ -------------
Total expenses................. 9,698 7,124 (251) 16,571 (44) 9,653
------- ------------- --------------- --------- ------------ -------------
Operating income (loss)................. 1,009 539 251 1,799 44 730
Interest expense........................ 1,066 108 401(M) 1,575 (966) (O) 21
Other expense (income).................. (107 ) -- -- (107) -- (2)
------- ------------- --------------- --------- ------------ -------------
Income (loss) before income taxes....... 50 431 (150) 331 1,010 711
Provision (benefit) for income taxes.... 19 -- 110(Q) 129 394(Q) --
------- ------------- --------------- --------- ------------ -------------
Net income (loss)....................... $ 31 $ 431 $ (260) $ 202 $ 616 $ 711
======= ============= =============== ========= ============ =============
Net income (loss) per share............. $ .01 (R) $ .03
======= =========
Weighted average outstanding shares..... 6,169 (R) 6,506
======= =========
</TABLE>
PRO FORMA
---------------------------
PENDING
ACQUISITIONS AS ADJUSTED
ADJUSTMENTS (E)
------------- -----------
Net patient revenues.................... $-- $28,753
Expenses:
Dentists' salaries.................. (70)(P) 5,332
Professional fees and clinic
expenses.......................... -- --
Clinical salaries................... -- 6,985
Dental supplies and laboratory
fees.............................. -- 3,030
Management fees..................... -- --
Rental and lease expense............ -- 1,461
Advertising and marketing........... -- 1,017
Depreciation and amortization....... 379(K) 1,287
Other operating expenses............ -- 2,190
General and administrative.......... (1,244)(L) 3,943
------------- -----------
Total expenses................. (935) 25,245
------------- -----------
Operating income (loss)................. 935 3,508
Interest expense........................ 630
Other expense (income).................. -- (109)
------------- -----------
Income (loss) before income taxes....... 935 2,987
Provision (benefit) for income taxes.... 642(Q) 1,165
------------- -----------
Net income (loss)....................... $ 293 $ 1,822
============= ===========
Net income (loss) per share............. $ .16
===========
Weighted average outstanding shares..... 11,478
===========
27
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(A) Represents the historical Consolidated Statements of Operations data of the
Company, which includes the operations of 1st Dental Care and Mid-South
Dental Centers, acquired in May 1996, from the dates of acquisition.
(B) Represents the combined historical statements of operations data of the
affiliated dental practices acquired in the Completed Acquisitions for the
year ended December 31, 1995 and the six months ended June 30, 1996 or the
period from January 1, 1996 through the acquisition date, as appropriate.
The historical statements of operations represent continuing operations
and do not include a $112,000 extraordinary gain recognized by 1st Dental
Care for the year ended December 31, 1995.
(C) Offering adjustments represent those adjustments resulting from this
offering that will affect the historical statements of operations on a
continuing basis. The pro forma statements of operations do not reflect
the $1,895,000 extraordinary loss on retirement of the Senior Subordinated
Notes, net of income tax effect of $1,211,000, that will be recognized in
the period this offering is completed.
(D) Represents the combined historical statements of operations data of the
Pending Acquisitions for the year ended December 31, 1995 and the six
months ended June 30, 1996.
(E) The Arkansas Acquisition is expected to close within 30 days of the
closing of this offering. However, there can be no assurance that the
acquisition will be consummated. Without giving effect to the Arkansas
Acquisition, the pro forma statement of operations data would be as
follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net patient revenues............... $50,878 $ 26,743
Net income (loss).................. 2,579 1,543
Net income (loss) per share........ $ .23 $ .14
(F) Represents (i) adjustments to historical compensation paid to the owner of
an acquired dental practice in excess of amounts due under the terms of an
employment agreement entered into in connection with the acquisition of
such dental practice, and (ii) allocation of professional fees and clinic
expenses of an acquired dental practice as described in note G, as
follows:
COMPLETED ACQUISITIONS
-------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
Reduction in owner's
compensation..................... $ (307) $ (100)
Allocation of professional fees.... 1,355 678
-------- -------
$ 1,048 $ 578
======== =======
(G) Represents the allocation of historical professional fees and clinic
expenses for an acquired dental practice, based on historical percentages
of the Company, for the following income statement captions:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
INCOME STATEMENT CAPTIONS ALLOCATION DECEMBER 31, 1995 JUNE 30, 1996
- ---------------------------------------- ---------- ----------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Dentists' salaries................. 45% $ 1,355 $ 678
Clinical salaries.................. 25% 753 376
Dental supplies and laboratory
fees............................. 30% 904 452
-------- --------
$ 3,012 $1,506
======== ========
</TABLE>
28
(H) Represents the elimination of management fees paid to the owner of an
acquired dental practice that will not be incurred pursuant to the terms of
the acquisition agreement. See notes I, J, K and L for increased expenses
related to the management fees.
(I) Represents additional rents that will be incurred by the Company that were
formerly paid by the owner of an acquired dental practice. The increase
will be partially offset by a reduction in rents that were formerly paid
to the owner of another acquired dental practice prior to its acquisition
by the Company.
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
Reduction for excess rent
payments......................... $ (64) $ (39)
Additional rent expense to be
incurred by the Company.......... 204 39
------ ------
$ 140 $ --
====== ======
(J) Represents increased expenses for advertising and marketing services that
will be incurred by the Company. Such services were historically provided
by the owner of an acquired dental practice prior to its acquisition by
the Company.
(K) Represents (i) an increase in amortization of goodwill associated with the
Acquisition Transactions, and (ii) adjustments to depreciation based upon
the purchase price allocation to property and equipment.
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
Amortization of goodwill........... $ 1,114 $ 528
Depreciation adjustment............ 193 81
----------------- -------
$ 1,307 $ 609
================= =======
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
Completed Acquisitions............. $ 548 $ 230
Pending Acquisitions............... 759 379
----------------- -------
Total......................... $ 1,307 $ 609
================= =======
(L) Represents adjustments to compensation and other overhead expenses in
accordance with amounts due under the terms of employment and management
service agreements entered into in connection with the Acquisition
Transactions and the Reorganization.
29
(M) Represents adjustments to interest expense for additional debt issued in
connection with the Completed Acquisitions and the Reorganization. The
interest expense was computed based upon actual interest rates on the
Senior Subordinated Notes and Seller Notes and average interest rates on
the debt outstanding under the Bank Credit Facility. Such adjustments were
partially offset by a reduction in interest expense on debt either paid or
not assumed in connection with the Completed Acquisitions. The reduction
was based on actual interest expense recorded on the respective debt.
Interest on the various components was as follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
Seller Notes (6.34% - 10%)......... $ 448 $ 187
Bank Credit Facility (average
8.75%)........................... 1,037 292
Senior Subordinated
Notes -- (12%)................... 871 --
Interest on acquisition debt paid
or not assumed................... (148) (78)
----------------- -------
$ 2,208 $ 401
================= =======
(N) Represents the elimination of amortization associated with deferred
financing costs related to debt that will be repaid upon consummation of
this offering. As a majority of the deferred financing costs were incurred
in December 1995 as part of the Reorganization, there was no amortization
related to these costs recorded during 1995.
(O) Represents reductions to interest expense related to debt that will be
repaid from the net proceeds of this offering. The adjustments are based
upon actual amounts expensed or otherwise reflected in the pro forma
adjustments. Interest on the various components was as follows:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
(IN THOUSANDS)
Seller Notes (6.34% - 10%)......... $ (448) $ (224)
Senior Subordinated Notes (12%).... (900) (450)
Bank Credit Facility (average
8.75%)........................... (530) (292)
----------------- -------
$(1,878) $ (966)
================= =======
(P) Represents a reduction in historical compensation paid to the owner of a
dental practice to be acquired in excess of amounts due under the terms of
an employment agreement to be entered into in connection with the
acquisition of such dental practice.
(Q) Represents adjustments to accrue income taxes on earnings untaxed at the
corporate level and to reflect tax effects of adjustments described above
based on an effective tax rate of 39%.
(R) Shares used in calculating net income per share include the weighted
average shares outstanding plus the number of shares (at an assumed public
offering price of $10.00 per share), the proceeds of which would be
necessary to repay the portion of the Company's debt that funded the
$6,000,000 payment to Jack H. Castle, D.D.S. in connection with the
Reorganization. Historical weighted average shares outstanding and net
income (loss) per share were 5,515,000 and $(.44), respectively, for the
year ended December 31, 1995 and 5,569,000 and $.01, respectively, for the
six months ended June 30, 1996.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Audited Combined Financial Statements, Unaudited Condensed Consolidated Interim
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
OVERVIEW
From its inception in 1981 until 1990, the Company opened three dental
centers in Houston, Texas. Beginning in 1991, the Company began an expansion
program, opening five new dental centers by the end of 1995. At the end of 1995,
the Company managed eight dental centers with 37 affiliated dentists in the
Houston metropolitan area, with net patient revenues of $18.3 million. Each of
the Company's centers in Houston was developed DE NOVO, by identifying a
desirable location, entering into a lease agreement, and building out the leased
space to the Company's specifications. The Company staffs DE NOVO dental centers
with a combination of experienced Company personnel and new employees. The
Company opened its ninth dental center in April 1996.
Beginning in the first quarter of 1996, the Company began to identify group
dental practices outside of Houston, Texas as potential acquisition candidates
with a view to expanding the Company's operations into new markets. Since May
1996, the Company has completed the acquisition of three affiliated dental
practices and has entered into definitive agreements to acquire two others. As a
result of the recent rapid expansion of the business through acquisitions and
the Company's limited period of affiliation with these practices, the Company
believes that period-to-period comparisons set forth below may not necessarily
be meaningful nor representative of future results. For additional information
regarding the pro forma financial effect of the Company's acquisitions, see
"Unaudited Pro Forma Combined Financial Information."
ACQUISITION AND AFFILIATION SUMMARY
Since May 1, 1996, the Company has completed the acquisition of 1st Dental
Care, Mid-South Dental Centers and Horizon Dental Centers, three affiliated
dental practices that have expanded its market presence into the
Tampa/Clearwater area in Florida, the Nashville and Chattanooga areas in
Tennessee, and the Austin and Fort Worth areas in Texas, respectively. In
addition, the Company has entered into definitive agreements with respect to the
New York Acquisition and the Arkansas Acquisition. The New York Acquisition is
expected to occur contemporaneously with, and is mutually conditioned on, the
closing of this offering, and the Arkansas Acquisition is expected to close
within 30 days thereafter.
The acquisition of affiliated dental practices in Florida, Tennessee and
Texas added 26 dental centers with 53 affiliated dentists to the Company for an
aggregate consideration of approximately $9.3 million in cash, $4.5 million in
Seller Notes and 612,243 shares of the Company's Common Stock. An aggregate of
$943,363 of the Seller Notes is convertible into Common Stock at a conversion
price of $6.75 per share, subject to antidilution adjustments and automatic
annual increase in conversion price. An aggregate of 75,000 shares of Common
Stock is being held in escrow in connection with the acquisition of Horizon
Dental Centers, which shares will be released if certain earnings milestones are
met. The purchase price for the New York Acquisition is $20.0 million in cash
and $5.0 million in shares of Common Stock valued at the initial public offering
price and the purchase price for the Arkansas Acquisition is $2.6 million in
cash and 185,000 shares of Common Stock. The Company will also assume debt
obligations of $553,000 in connection with the Arkansas Acquisition. Under the
terms of the definitive agreement for the Arkansas Acquisition, additional cash
consideration will be paid if the acquired practice achieves specified operating
results subsequent to the completion of the transaction. Upon completion of the
New York Acquisition and the Arkansas Acquisition, the Company will manage 56
dental centers with approximately 215 affiliated dentists in seven states.
The Company currently is in discussions with a number of dentists and
owners of group dental practices concerning the potential for future affiliation
with the Company. There can be no assurance that these discussions will result
in new practice affiliations in the near future or at all.
31
RESULTS OF OPERATIONS
The following table sets forth the percentages of revenue represented by
certain items reflected in the Company's Statements of Operations. The
information that follows represents the historical results of the Company and
does not include results of any of the acquisitions that the Company has
completed since May 1996, nor the Pending Acquisitions discussed herein. The
information that follows should be read in conjunction with the Audited Combined
Financial Statements of the Company and notes thereto, as well as the Unaudited
Pro Forma Combined Financial Information, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net patient revenues................. 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Dentists' salaries................. 17.8 16.7 18.3 17.7 17.5
Clinical salaries.................. 10.2 10.6 10.3 9.7 14.3
Dental supplies and laboratory
fees............................ 10.4 11.2 12.0 12.0 12.6
Rental and lease expense........... 3.3 4.0 4.6 4.2 4.5
Advertising and marketing.......... 4.8 6.2 5.3 4.6 5.0
Depreciation and amortization...... 1.6 1.8 1.8 1.8 3.1
Other operating expenses........... 12.4 12.9 12.4 14.0 11.0
General and administrative......... 32.9 31.1 49.9 32.2 22.6
--------- --------- --------- --------- ---------
93.4 94.5 114.6 96.2 90.6
--------- --------- --------- --------- ---------
Operating income (loss).............. 6.6 5.5 (14.6) 3.8 9.4
Interest expense..................... 0.9 0.7 0.5 0.1 10.0
Other expense (income)............... -- -- -- -- (1.0)
--------- --------- --------- --------- ---------
Income (loss) before income taxes.... 5.7 4.8 (15.1) 3.7 0.4
Provision (benefit) for income
taxes.............................. 0.3 0.3 (1.8) -- 0.2%
--------- --------- --------- --------- ---------
Net income (loss).................... 5.4% 4.5% (13.3)% 3.7% 0.2%
========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company acquired the assets of and entered into management agreements
with two group dental practices in May 1996, the results of which are included
in the Company's operating results from the dates of acquisition. Changes in
results of operations from the first six months of 1995 to the first six months
of 1996 were caused primarily by affiliations with these two group dental
practices. For periods prior to 1996, the Company's operations were conducted
entirely in Houston, Texas.
NET PATIENT REVENUES -- Net patient revenues increased from $9.1 million
for the six months ended June 30, 1995 to $10.7 million for the six months ended
June 30, 1996, an increase of $1.6 million or 17.9%. Approximately $1.4 million
of the increase was attributable to the acquisition of 1st Dental Care,
headquartered in Clearwater, Florida, and Mid-South Dental Centers,
headquartered in Nashville, Tennessee, that the Company completed on May 19 and
May 31, 1996, respectively, with the remaining $200,000 primarily attributable
to the opening of the Company's ninth dental center in Houston in April 1996.
DENTISTS' SALARIES -- Dentists' salaries, which include salaries and
incentive compensation paid to affiliated dentists, increased from $1.6 million
for the six months ended June 30, 1995 to $1.9 million for the six months ended
June 30, 1996, an increase of $258,000 or 16%. The increase resulted primarily
from the addition of dentists' compensation at the 18 dental offices acquired in
Florida and Tennessee. Expressed as a percentage of net patient revenues,
dentists' salaries decreased from 17.7% to 17.5% for the six months ended June
30, 1995 and 1996, as the growth in net patient revenues was greater relatively
than the increase in dentists' salaries.
CLINICAL SALARIES -- Salaries and wages paid to clinical staffs increased
from $884,000 for the six months ended June 30, 1995 to $1.5 million for the six
months ended June 30, 1996, an increase of
32
$651,000 or 73.6%. The addition of the clinical staff salaries in Florida and
Tennessee accounted for $452,000 of the increase, with the remaining $200,000
attributable to increased staff levels in anticipation of the opening of the
ninth dental center in Houston in April 1996. Expressed as a percentage of net
patient revenues, clinical salaries increased from 9.7% to 14.3% for the six
months ended June 30, 1995 and 1996, respectively.
DENTAL SUPPLIES AND LABORATORY FEES -- Dental supplies and laboratory fees
increased from $1.1 million for the six months ended June 30, 1995 to $1.4
million for the six months ended June 30, 1996, an increase of $266,000 or
24.5%. Dental supplies and laboratory fees at the Florida and Tennessee
operations accounted for $130,000 of the increase from the first six months of
1995 to the first six months of 1996. The use of higher cost materials to enable
general dentists to perform certain specialized procedures and the stocking of
the Company's newly-opened dental center in Houston accounted for most of the
remaining increase. Expressed as a percentage of net patient revenues, dental
supplies and laboratory fees increased from 12.0% to 12.6% for the six months
ended June 30, 1995 and 1996, respectively.
RENTAL AND LEASE EXPENSE -- Rental and lease expense increased from
$381,000 for the six months ended June 30, 1995 to $486,000 for the six months
ended June 30, 1996, an increase of $105,000 or 27.5%. Rental expense in Florida
and Tennessee of $77,000 in the period since the acquisitions were completed in
May 1996 accounted for most of the increase. Expressed as a percentage of net
patient revenues, rental and lease expense increased from 4.2% to 4.5% for the
six months ended June 30, 1995 and 1996, respectively.
ADVERTISING AND MARKETING -- Advertising and marketing expense increased
from $420,000 for the six months ended June 30, 1995 to $533,000 for the six
months ended June 30, 1996, an increase of $112,000 or 26.8%. Higher
expenditures for television advertising and a direct mail advertising campaign
conducted in conjunction with the opening of a new dental center in Houston in
April accounted for most of the $71,000 increase in advertising expense, with
the Florida and Tennessee acquisitions adding $41,000. Expressed as a percentage
of net patient revenues, advertising and marketing expense increased from 4.6%
to 5.0% for the six months ended June 30, 1995 and 1996, respectively.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization increased
from $167,000 for the six months ended June 30, 1995 to $334,000 for the six
months ended June 30, 1996, an increase of $167,000 or 100%. Higher depreciation
expense resulted from capital expenditures in late 1995 at the Company's new
corporate office and the relocation of one of the Company's dental centers. In
addition, the acquisition of the Florida and Tennessee operations added
depreciation expense of $35,000 and goodwill amortization of $29,000 in the 1996
period.
OTHER OPERATING EXPENSES -- Other operating expenses decreased from $1.3
million for the six months ended June 30, 1995 to $1.2 million for the six
months ended June 30, 1996, a decrease of $100,000, or 7.8%. Other operating
expenses include certain expenses related to the operation of the Company's
dental centers and bad debt expense incurred in the financing of patient
receivables at the affiliated dental practices. Lower bad debt expense resulting
from improved credit and collection procedures accounted for the reduction,
partially offset by the addition of $64,000 of other operating expenses at the
Company's newly acquired dental centers in Florida and Tennessee. Expressed as a
percentage of net patient revenues, other operating expenses decreased from
14.0% to 11.0% for the six months ended June 30, 1995 and 1996, respectively.
GENERAL AND ADMINISTRATIVE -- General and administrative expense decreased
from $2.9 million for the six months ended June 30, 1995 to $2.4 million for the
six months ended June 30, 1996, a decrease of $506,000 or 17.3%. Reduced
compensation paid to the Company's owners accounted for most of the decrease in
general and administrative expense. This was partially offset by the addition of
$187,000 in general and administrative expense incurred at the Florida and
Tennessee group dental practices in the 1996 period. Expressed as a percentage
of net patient revenues, general and administrative expense decreased from 32.2%
to 22.6% for the six months ended June 30, 1995 and 1996, respectively.
INTEREST EXPENSE -- Net interest expense increased from $5,000 for the six
months ended June 30, 1995 to $1.1 million for the six months ended June 30,
1996. In the period from December 1995 through
33
May 1996, the Company borrowed approximately $17.5 million in order to fund the
Reorganization and the acquisition of affiliated dental practices in Florida and
Tennessee, resulting in increased net interest expense in the first half of
1996. In addition, the amortization of the discount on the Senior Subordinated
Notes was $261,000 in the six-month period ended June 30, 1996.
INCOME TAXES -- Prior to 1996, the Company did not accrue significant
corporate income taxes because a major portion of the Company's operations was
conducted through a Subchapter S corporation, which resulted in no corporate
income taxes being assessed against the profits of that company. Subsequent to
the Reorganization in December 1995, all of the Company's operations became
subject to corporate income taxes. For the six months ended June 30, 1996, the
provision for income taxes was $19,000 based on an estimated tax rate of 39.0%.
Income taxes accrued for prior periods related solely to the dental practice
management operations.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
NET PATIENT REVENUES -- Net patient revenues increased from $17.1 million
for the year ended December 31, 1994 to $18.3 million for the year ended
December 31, 1995, an increase of $1.2 million or 6.9%. This increase was
primarily attributable to the opening of the Company's eighth dental center in
October 1994.
DENTISTS' SALARIES -- Dentists' salaries increased from $2.9 million for
the year ended December 31, 1994 to $3.3 million for the year ended December 31,
1995, an increase of $492,000 or 17.2%. The hiring of additional dentists to
staff the Company's eighth dental center and an increase in patient services
resulted in the increase in dentists' salaries. Expressed as a percentage of net
patient revenues, dentists' salaries increased from 16.7% to 18.3% for the years
ended December 31, 1994 and 1995, respectively.
CLINICAL SALARIES -- Clinical salaries increased from $1.8 million for the
year ended December 31, 1994 to $1.9 million for the year ended December 31,
1995, an increase of $68,000 or 3.8%. The increase resulted from the addition of
the eighth dental center in October 1994. Expressed as a percentage of net
patient revenues, clinical salaries decreased from 10.6% to 10.3% for the years
ended December 31, 1994 and 1995, respectively, as a result of more efficient
scheduling and the increase in net patient revenues from the eighth dental
center.
DENTAL SUPPLIES AND LABORATORY FEES -- Dental supplies and laboratory fees
increased from $1.9 million for the year ended December 31, 1994 to $2.2 million
for the year ended December 31, 1995, an increase of approximately $278,000 or
14.6%. The increased level of patient services and costs associated with the
opening of the Company's eighth center accounted for most of the increase.
Expressed as a percentage of net patient revenues, dental supplies and
laboratory expense increased from 11.2% to 12.0% for the years ended December
31, 1994 and 1995, respectively.
RENTAL AND LEASE EXPENSE -- Rental and lease expense increased from
$681,000 for the year ended December 31, 1994 to $836,000 for the year ended
December 31, 1995, an increase of $155,000 or 22.8%. The increase resulted from
the opening of the eighth dental center in late 1994, the opening of the
Company's new corporate office in April 1995, and the moving of one of the
Company's dental centers to a larger facility, which resulted in a duplication
of lease payments at the old facility through the end of 1995. Expressed as a
percentage of net patient revenues, rental and lease expense increased from 4.0%
to 4.6% for the years ended December 31, 1994 and 1995, respectively.
ADVERTISING AND MARKETING -- Advertising and marketing expense decreased
from $1.1 million for the year ended December 31, 1994 to $959,000 for the year
ended December 31, 1995, a decrease of $103,000, or 9.7%. Reduced expenditures
for television advertising and the absence of direct mail costs incurred in
connection with opening of the eighth center in the fourth quarter of 1994
resulted in lower 1995 spending. Expressed as a percentage of net patient
revenues, advertising and marketing expense decreased from 6.2% to 5.3% for the
years ended December 31, 1994 and 1995 respectively.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization expense
increased from $309,000 for the year ended December 31, 1994 to $336,000 for the
year ended December 31, 1995, an increase of 27,000 or 8.7%. Capital
expenditures incurred in the opening of the Company's eighth dental center in
the
34
fourth quarter of 1994 and the moving of the corporate office to a new location
resulted in higher depreciation and amortization expense in 1995.
OTHER OPERATING EXPENSES -- Other operating expenses increased from $2.2
million for the year ended December 31, 1994 to $2.3 million for the year ended
December 31, 1995, an increase of $55,000, or 2.5%. Expressed as a percentage of
net patient revenues, other operating expense decreased from 12.9% to 12.4% for
the years ended December 31, 1994 and 1995, respectively.
GENERAL AND ADMINISTRATIVE -- General and administrative expense increased
from $5.3 million for the year ended December 31, 1994 to $9.1 million for the
year ended December 31, 1995, an increase of $3.8 million or 71.3%. The increase
resulted primarily from higher compensation paid to the Company's owners,
including $2.6 million under the Deferred Compensation Agreement entered into in
connection with the Reorganization. The Company also incurred higher costs
related to the corporate office opened in mid-1995 and higher administrative
personnel costs. Expressed as a percentage of net patient revenues, general and
administrative expense increased from 31.1% to 49.9% for the years ended
December 31, 1994 and 1995, respectively.
INCOME TAXES -- In 1995 and 1994, significant operations of the Company
were conducted through a subchapter S corporation, which resulted in no
corporate income taxes being assessed against the profits of that company.
Subsequent to the Reorganization in December 1995, all of the Company's
operations became subject to corporate income taxes. The Company recognized a
benefit for income taxes of $325,000 in the year ended December 31, 1995,
reflecting primarily the charge for deferred compensation offset by a deferred
tax liability of $728,000 realized upon the loss of subchapter S status for
income tax purposes. This compared to a provision for income taxes of $43,000
for the prior year.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET PATIENT REVENUES -- Net patient revenues increased from $15.1 million
for the year ended December 31, 1993 to $17.1 million for the year ended
December 31, 1994, an increase of $2.0 million, or 13.5%. The addition of the
Company's sixth and seventh dental centers in May and August 1993, respectively,
and the opening of the eighth dental center in October 1994 accounted for the
increase in net patient revenues.
DENTISTS' SALARIES -- Dentists' salaries increased from $2.7 million for
the year ended December 31, 1993 to $2.9 million for the year ended December 31,
1994, an increase of $169,000, or 6.3%. The opening of the new dental centers
accounted for most of the increase. Expressed as a percentage of net patient
revenues, however, dentists' salaries decreased from 17.8% to 16.7% for the
years ended December 31, 1993 and 1994, respectively, as the growth in net
patient revenues exceeded the increase in dentists' compensation.
CLINICAL SALARIES -- Clinical salaries increased from $1.5 million for the
year ended December 31, 1993 to $1.8 million for the year ended December 31,
1994, an increase of $282,000, or 18.4%. Increased staffing necessary to open
new centers and higher personnel costs accounted for the increase. Expressed as
a percentage of net patient revenues, clinical salaries increased from 10.2% to
10.6% for the years ended December 31, 1993 and 1994, respectively.
DENTAL SUPPLIES AND LABORATORY FEES -- Dental supplies and laboratory fees
increased from $1.6 million for the year ended December 31, 1993 to $1.9 million
for the year ended December 31, 1994, an increase of approximately $342,000 or
21.9%. The increased level of net patient revenues and costs associated with the
new dental centers opened in 1993 and 1994 accounted for the increase. Expressed
as a percentage of net patient revenues, dental supplies and laboratory fees
increased from 10.4% to 11.2% for the years ended December 31, 1993 and 1994,
respectively.
RENTAL AND LEASE EXPENSE -- Rental and lease expense increased from
$504,000 for the year ended December 31, 1993 to $681,000 for the year ended
December 31, 1994, an increase of $177,000 or 35.1%. The increase resulted from
the opening of the new dental centers in 1993 and 1994. Expressed as a
percentage of net patient revenues, rental and lease expense increased from 3.3%
to 4.0% for the years ended December 31, 1993 and 1994, respectively.
35
ADVERTISING AND MARKETING -- Advertising and marketing expense increased
from $729,000 for the year ended December 31, 1993 to $1,062,000 for the year
ended December 31, 1994, an increase of $333,000, or 45.7%. Production costs
associated with a new television advertising campaign and increased television
advertising frequency accounted for the increase. Expressed as a percentage of
net patient revenues, advertising and marketing expense increased from 4.8% to
6.2% for the years ended December 31, 1993 and 1994, respectively.
DEPRECIATION AND AMORTIZATION -- Depreciation and amortization increased
from $245,000 for the year ended December 31, 1993 to $309,000 for the year
ended December 31, 1994, an increase of $64,000, or 26.1%. Capital expenditures
for leasehold improvements and dental equipment to open the Company's sixth,
seventh and eighth dental centers in 1993 and 1994 accounted for higher
depreciation expenses in 1994. Expressed as a percentage of net patient
revenues, depreciation and amortization increased from 1.6% to 1.8% for the
years ended December 31, 1993 and 1994, respectively.
GENERAL AND ADMINISTRATIVE -- General and administrative expense increased
from $4.9 million for the year ended December 31, 1993 to $5.3 million for the
year ended December 31, 1994, an increase of $372,000 or 7.5%. The hiring of
additional personnel necessary to support the new dental centers added in 1993
and 1994 accounted for most of the increase. Expressed as a percentage of net
patient revenues, however, general and administrative expense decreased from
32.9% to 31.1% for the years ended December 31, 1993 and 1994, respectively, as
the growth in net patient revenues exceeded the increase in general and
administrative expense.
INCOME TAXES -- In 1993 and 1994, significant operations of the Company
were conducted through a subchapter S corporation, which resulted in no
corporate income taxes being assessed against the profits of that company. As a
result, the provision for income taxes was approximately $40,000 in each year,
approximately $260,000 less than the provision would have been if all of the
Company's income had been subject to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Prior to December 1995, the Company financed its operations and expansion
primarily through the use of internally generated funds, capital lease
obligations and bank borrowings. In December 1995, as part of the
Reorganization, the Company entered into the Securities Purchase Agreement with
the Pecks Investors and a Bank Credit Facility with NationsBank. A total of
$13.5 million was raised in these transactions, of which $6.0 million was used
to acquire the stock of Jack H. Castle, D.D.S., Inc. as part of the
Reorganization. The balance of the proceeds, net of expenses, was dedicated to
fund the Company's development and acquisition programs and to provide working
capital. As of June 30, 1996, the Company had available net working capital of
$816,000 which included $2.1 million in cash and cash equivalents.
The Bank Credit Facility with NationsBank initially included a $6 million
term loan and a $3 million revolving line of credit. Principal payments of
$300,000 are payable quarterly, commencing June 15, 1996 through March 15, 2001.
On May 31, 1996, the Bank Credit Facility was amended and restated to increase
the term loan facility to $16.0 million. The additional $10 million advancing
term loan is to be utilized to fund acquisitions. Additional advances under the
term loan are repayable in quarterly installments commencing on September 15,
1996. The term loans bear interest at variable rates which are based upon (a)
either (i) NationsBank's base rate or (ii) LIBOR plus (b) a margin which varies
according to (i) the ratio of the Company's funded debt to EBITDA, each as
defined in the Bank Credit Facility, and (ii) the type of loan (i.e. base rate
or LIBOR loan) and (iii) whether the loan is a term loan, revolving credit loan
or advancing term loan. As of June 30, 1996, the Company had borrowed $3,950,000
of this facility to fund the Florida and Tennessee acquisitions. In August 1996,
the Company borrowed an additional $2.1 million under the advancing term loan to
fund the acquisition of Horizon Dental Centers. The $3.0 million revolving line
of credit is available to be used for working capital requirements and
acquisitions. It bears interest at the same rate as the term loan and expires
June 30, 1997. A commitment fee is payable quarterly at rates ranging from 0.25%
to 0.5% of the unused amounts for such quarter. As of August 22, 1996, there was
$3.0 million available under the revolving line of credit. The Bank Credit
Facility is collateralized by substantially all of the Company's assets and is
personally guaranteed by Jack H. Castle, Jr. The Company
36
intends to repay approximately $6.2 million of the advancing term loan from the
proceeds of this offering, and will have approximately $5.4 million remaining
outstanding under the term loan.
On December 19, 1995, the Company issued $7.5 million in Senior
Subordinated Notes to the Pecks Investors. Interest is payable quarterly in
arrears with principal payable in two installments of $3.75 million each on
December 18, 2001 and 2002. In conjunction with the placement of the Senior
Subordinated Notes, the Company issued 1,244,737 shares of Series A Convertible
Preferred Stock to the Pecks Investors. The Series A Convertible Preferred Stock
is mandatorily redeemable at the holders' option upon a change of control in the
Company's ownership, or after December 18, 2001, if no secondary market exists
for the Series A Convertible Preferred Stock. The Series A Convertible Preferred
Stock is convertible into 1,244,737 shares of Common Stock, subject to
antidilution adjustments. The holders of Series A Convertible Preferred Stock
have advised the Company that they intend to convert the Series A Convertible
Preferred Stock into Common Stock, simultaneously with, and conditioned on, the
completion of this offering. The value of the Series A Convertible Preferred
Stock, $3.1 million, has been recorded as a discount to the Senior Subordinated
Notes and is being amortized over the life of the Senior Subordinated Notes.
Upon repayment of the Senior Subordinated Notes and conversion of the Series A
Convertible Preferred Stock at the closing of this offering, the Company will
recognize an extraordinary loss of $1.9 million on the retirement of the Senior
Subordinated Notes, net of income tax effect of $1.2 million.
The Bank Credit Facility and the Securities Purchase Agreement contain
affirmative and negative covenants that require the Company to maintain certain
financial ratios, limit the amount of additional indebtedness, limit the
creation or existence of liens and set certain restrictions on acquisitions,
mergers and sales of assets. The covenants in the Securities Purchase Agreement
expire on the repayment of the Senior Subordinated Notes.
In the aggregate, for the Completed Acquisitions, the Company paid
consideration consisting of $9.3 million in cash, $4.5 million in Seller Notes
and 433,163 shares of Common Stock. The Company also assumed debt of
approximately $600,000 consisting mostly of capital lease obligations. The cash
portion of the Pending Acquisitions will be funded with the proceeds of this
offering and will consist of $22.6 million. The Company will also assume debt
obligations of $553,000 in connection with the Arkansas Acquisition.
The Company intends to acquire the assets of additional dental practices
and to fund this growth, in part, with existing cash, cash flow from operations,
proceeds from this offering, seller financing and borrowings under the Bank
Credit Facility. The Company is presently negotiating with NationsBank to
increase the total amount available under the Bank Credit Facility to $25
million following completion of this offering, which would result in the Company
having borrowing availability of approximately $19.6 million. The Company
believes it will be able to fund its acquisition, expansion and working capital
needs for the next 18 months through use of its existing cash resources, cash
flow from operations, proceeds from this offering and the Bank Credit Facility.
Thereafter, the Company may raise capital through the issuance of additional
debt or the issuance of securities in public or private transactions to fund
future expansions. There can be no assurance that NationsBank will agree to
increase the amount available under the Bank Credit Facility or that acceptable
financing for future acquisitions or expansion of existing dental networks can
be obtained. See "Unaudited Pro Forma Combined Financial Information" for
additional information concerning the effects on the financial condition of the
Company of the net proceeds of this offering.
37
BUSINESS
OVERVIEW
The Company is one of the largest providers of dental practice management
services to general, orthodontic and multi-specialty dental practices in the
United States. The Company currently conducts operations in the states of Texas,
Florida and Tennessee and has entered into definitive agreements to acquire
certain assets of and manage dental practices headquartered in Long Island, New
York, serving the New York metropolitan area, and Little Rock, Arkansas, with
offices in Arkansas, Oklahoma and Louisiana. The Company develops integrated
dental networks through affiliations with dental practices providing quality
care in selected markets across the United States with a view to achieving broad
geographic coverage within those markets. The Company seeks to achieve operating
efficiencies by consolidating and integrating affiliated practices into regional
networks, realizing economies of scale in such areas as marketing,
administration and purchasing and enhancing the revenues of its affiliated
dental practices by increasing both patient visits and the range of specialty
services offered. As of August 30, 1996, the Company provided management
services to 35 dental centers with approximately 85 affiliated dentists,
orthodontists and other dental specialists. Upon consummation of the New York
Acquisition and the Arkansas Acquisition, the Company will manage 56 dental
centers with approximately 215 affiliated dentists, orthodontists and other
dental specialists.
The Company was formed in 1981 by Jack H. Castle, D.D.S. and Jack H.
Castle, Jr., as a single location, multi-specialty dental practice in Houston,
Texas. From 1982 through 1996, the Company expanded to a total of nine locations
with 35 dentists in the Houston metropolitan area. During this period the
Company developed, implemented and refined the integrated dental network
approach which it intends to utilize as a basis for its national expansion.
The Company's objective is to make each of its dental networks the leading
group dental care provider in each market it serves. Since its formation, the
Company has applied traditional retail principles of business and marketing
techniques to the practice of dentistry, including locating practices in
high-profile locations, offering more affordable fees and payment plans,
expanding the range of services offered, increasing market share through
aggressive advertising and offering extended office hours. By using the Castle
Dental Centers' approach to managing affiliated dental practices, the Company
believes it will enable affiliated dentists, orthodontists and other dental
specialists to focus on delivering quality patient care and to realize
significantly greater productivity than traditional individual and small-group
dental practices.
The Company believes that the provision of a full range of dental services
through an integrated network is attractive to managed care payors and intends
to continue to pursue managed care contracts. The Company currently maintains an
aggregate of ten capitated contracts and preferred provider arrangements
covering approximately 21,000 members and, upon consummation of the New York
Acquisition, the Company will have an aggregate of 60 capitated contracts and
preferred provider arrangements covering approximately 58,000 members. The
Company believes that the continued development of its networks will assist it
in negotiating national and regional capitated arrangements with managed care
payors or other arrangements.
The Company intends to utilize the practice management principles employed
in its Houston operations to establish a consistent national identity for its
business. Moreover, the Company believes that its experience and expertise in
managing multi-specialty dental group practices, as well as the development of
name recognition associated with the name "Castle Dental Centers," will
provide its affiliated dental practices with a competitive advantage in
attracting and retaining patients and realizing practice efficiencies.
There presently are nine Castle Dental Centers operating in the Houston,
Texas area and four additional centers in Houston in various stages of
development. In May 1996, the Company acquired the assets of and entered into
long-term management agreements with 1st Dental Care, P.A., a dental practice
with 12 locations in the Tampa/Clearwater, Florida area, and Mid-South Dental
Centers, P.C., a dental practice with six dental centers in various locations in
Tennessee. In August 1996, the Company increased
38
its dental practices under management in Texas by acquiring the assets of
Horizon Dental Centers, a dental practice with four dental centers in Fort
Worth, Texas and four dental centers in Austin, Texas.
The Company has entered into definitive agreements to acquire certain
assets of and enter into long-term management agreements with American Dental
Centers, a dental practice based in Long Island, New York with 12 dental centers
in the New York metropolitan area, and United DentalCare, a dental practice
based in Little Rock, Arkansas that operates nine dental centers in Arkansas,
Oklahoma and Louisiana. The New York Acquisition is expected to close
contemporaneously with, and is mutually conditioned on, the closing of this
offering, and the Arkansas Acquisition is expected to close within 30 days of
the closing of this offering.
INDUSTRY BACKGROUND
Dental care services in the United States are generally delivered through a
fragmented system of local providers, primarily sole practitioners, or small
groups of dentists, orthodontists or other dental specialists, practicing at a
single location with a limited number of professional assistants and business
office personnel. According to the American Dental Association 1995 Survey of
Dental Practice ("ADA Survey"), there were approximately 150,800 actively
practicing dental professionals in the U.S., of which approximately 8,900 were
practicing orthodontists. Nearly 81% of the nation's private practitioners works
either as sole practitioners or in a practice with one other dentist. The
balance of these dentists practice in about 4,700 groups of three or more
dentists. However, dental, orthodontic and other specialty practices have
followed the trend of the health care industry generally and are increasingly
forming larger group practices.
The annual aggregate domestic market for dental services is estimated to be
approximately $46.5 billion for 1995, representing approximately 4.2% of total
health care expenditures in the United States, and is projected to reach $79.1
billion by 2005. Within the total market for dental services in the United
States, there are, in addition to general dentistry, a number of specialties,
including orthodontics (the straightening of teeth and remedy of occlusion),
periodontics (gum care), endodontics (root canal therapy), oral surgery (tooth
extraction) and pedodontics (care of children's teeth). The dental services
market has grown at a compound annual growth rate of approximately 8.0% from
1980 to 1995, and is projected to grow at a compound annual growth rate of
approximately 6.0% through the year 2005. In contrast to other health care
expenditures, dental services are primarily paid for by the patient. According
to the U.S. Department of Health and Human Services, in 1995, consumer
out-of-pocket expenditures accounted for 53% of the payment for dental services,
compared to 19% for other medical services.
The Company believes that the growth in the dental industry has largely
been driven by four factors: (i) an increase in the availability and types of
dental insurance; (ii) an increasing demand for dental services from an aging
population; (iii) the evolution of technology which makes dental care less
traumatic; and (iv) an increased focus on preventive and cosmetic dentistry.
Concerns over the accelerating cost of health care have resulted in the
increasing importance of managed care in the dental industry. Managed care
typically involves a third party (frequently the payor) assuming responsibility
for ensuring that health care is provided in a high-quality, cost-effective
manner. According to industry sources, approximately 18.6% of the estimated
118.5 million people covered by dental benefits in 1995 was enrolled in managed
care programs. It is estimated that managed care's penetration of this group
will increase to 35% of the 131 million people expected to be covered by dental
benefits in the year 2000. Enrollment in managed dental care plans, according to
the National Association of Dental Plans, is estimated to have grown from 7.8
million patients in 1990 to 22.8 million patients in 1995.
The Company believes that the provision of dental, orthodontic and other
specialty care will follow the pattern set by other segments of the health care
industry, moving away from the sole practitioner model to a group practice
environment in which a separate professional management team handles personnel,
management, billing, marketing and other business functions. The trends which
are leading dentists to affiliate with dental practice management companies
include: (i) the increasingly capital intensive nature of acquiring and
39
maintaining state-of-the-art dental equipment, laboratory and clinical
facilities; (ii) the growing need to develop and maintain specialized management
information and billing systems to meet the increasing demands of payors; and
(iii) the increasingly more complicated, competitive and regulated business
environment for dentists.
BUSINESS STRATEGY
The Company's strategy is to develop integrated networks for the provision
of dental services through practice affiliations that provide quality,
cost-effective dental care in target markets. Key elements of this strategy are
to:
PROVIDE HIGH-QUALITY, COMPREHENSIVE, ONE-STOP FAMILY DENTAL HEALTH
CARE. The prototypical Castle Dental Center provides general dentistry
as well as a full range of dental specialities (including orthodontics,
pedodontics, periodontics, endodontics, oral surgery and implantology),
thereby allowing the majority of specialty referrals to remain in-house
within the Company's network of facilities. By bringing together
multi-specialty dental services within a single practice, the Company is
able to realize operating efficiencies and economies of scale and to
promote increased productivity, higher utilization of professionals and
facilities, and the sharing of dental specialists among multiple
locations. The Company's practice model also incorporates quality
assurance and quality control programs, including the establishment of
committees and policy boards to oversee the clinical aspects of the
provision of dental services, peer review and continuing education and
technique enhancement. The Company believes that its multi-specialty
strategy significantly differentiates it from both individual and
multi-center practices that typically offer only general dentistry,
orthodontics or other single specialty dental services.
DEVELOP COMPREHENSIVE DENTAL NETWORKS IN TARGET MARKETS. The Company
intends to build its networks through acquisition of existing practices
and DE NOVO development of additional practices within target markets.
The Company seeks to consolidate and integrate its affiliated practices
to establish regional dental care networks. The Company believes this
network system will enable it to reduce the operating costs of its
affiliated practices by centralizing certain functions such as
telemarketing and advertising, billing and collections, payroll and
accounting and by negotiating regional and national contracts for
supplies, equipment, services and insurance. Once practice affiliations
are established in a market, the Company seeks to assist the affiliated
practices in expanding its range of services to make available specialty
dental services not previously offered.
APPLY TRADITIONAL RETAIL PRINCIPLES OF BUSINESS TO DENTAL CARE. The
Company believes it can enhance revenues and profitability by applying
traditional retail principles of business to the provision of dental
services in its target markets. These principles include professionally
produced broadcast and print advertisements targeting specific
audiences, and extended hours of operation which are convenient for
patients, including weekend and evening hours. As part of its retail-
oriented strategy, the Company will seek to establish or, where
appropriate, relocate each Castle Dental Center in a convenient location
in or near a high-profile neighborhood retail area and utilize
innovative sales and marketing programs designed to achieve strong name
recognition and increase patient visits. In addition, the Company
stresses the breadth and affordability of its services, and works
closely with patients to establish treatment schedules and affordable
payment plans tailored to the patients' needs.
MARKET ITS NETWORKS TO MANAGED CARE ENTITIES. The Company believes that
managed care will play an increasing role in the provision of dental
services and therefore intends to market the services of its dental
practice networks to the managed care community. The Company believes
that contracting with managed care entities will facilitate entry into
new markets and the expansion of existing networks by providing a source
of patients to dentists with whom the Company is seeking to affiliate.
In addition, such contracts, including capitated contracts, enable the
Company to leverage its infrastructure and marketing efforts by
increasing patient visits.
40
DENTAL NETWORK DEVELOPMENT
The Company seeks to build its dental networks through acquisition of
existing dental practices and the DE NOVO development of dental practices in
high-profile retail environments.
ACQUISITION CRITERIA
The Company's acquisition strategy is to identify successful group dental
practices in its target markets, acquire certain assets of the identified
practices, enter into long-term management services agreements, and utilize
these core practices as a base from which to expand within the target markets.
Prior to entering any market, the Company considers such factors as population,
demographics, market potential, competitive environment, supply of available
dentists, dental regulatory environment, patient-provider ratios, advertising
costs and the economic condition of the local market. Core acquisition
candidates are successful group dental practices that the Company believes are
leaders in their regional markets. Subsequent acquisitions target practices that
strategically complement the core practices within a market. In considering
acquisitions, the Company evaluates qualitative issues such as the dental
professionals' qualifications, experience and reputation in the local
marketplace and their operating histories, as well as the ability to demonstrate
potential for revenue growth and continued profitability. The Company has
identified a substantial number of individual and group dental practices that
meet its acquisition criteria.
RECENT AND PENDING ACQUISITIONS
The following table describes acquisitions completed as of August 30, 1996;
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AFFILIATED DENTAL PRACTICE PRINCIPAL LOCATIONS CENTERS DENTISTS*
- ---------------------------------------- ------------------------------ --------- ---------
<S> <C> <C> <C>
1st Dental Care, P.A.................... Clearwater/Tampa, Florida 12 16
Mid-South Dental Nashville, Tennessee 6 17
Centers, P.C.......................... Chattanooga, Tennessee
Horizon Dental Centers.................. Austin and Fort Worth, Texas 8 20
</TABLE>
The following table describes acquisitions pending as of August 30, 1996;
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
AFFILIATED DENTAL PRACTICE PRINCIPAL LOCATIONS CENTERS DENTISTS*
- ---------------------------------------- ------------------------------ --------- ---------
<S> <C> <C> <C>
American Dental Centers................. New York, New York 12 119
United DentalCare....................... Little Rock, Arkansas 9 11
</TABLE>
- ------------
* Includes full-time and part-time dentists.
NEW YORK ACQUISITION
The New York Acquisition will occur contemporaneously with and is mutually
conditioned on the closing of this offering. American Dental Centers has offices
throughout the New York metropolitan area and is a party to an aggregate of over
50 capitated contracts and preferred provider arrangements which account for
over 70% of its total revenues. On the consummation of the Company's acquisition
of American Dental Centers, Jules V. Lane D.D.S., the founder of American Dental
Centers, will join the Company's Board of Directors and will enter into a
three-year employment agreement with the Company pursuant to which Dr. Lane will
remain active in the management of American Dental Centers.
Dr. Lane is also the owner of American Medical and Life Insurance Company
("AMLI") which markets preferred provider programs, of which American Dental
Centers is a significant provider. The Company intends to continue a
relationship between AMLI and American Dental Centers following the acquisition.
AFFILIATION AND INTEGRATION OF DENTAL CENTERS
In affiliating with dental practices, the Company typically: (i) acquires
certain assets of the practice, and, in certain situations, laboratory or other
ancillary facilities that are either owned by or affiliated with such practice;
(ii) enters into a long-term management services agreement with such dental
practice
41
pursuant to which the Company provides comprehensive management services to the
affiliated practice; (iii) requires that the affiliated dentists enter into
employment agreements containing non-compete and liquidated damages provisions;
and (iv) assumes the principal administrative, financial, marketing and general
management functions of the affiliated practice, including employment of most
administrative personnel. As soon as practicable following the acquisition of an
affiliated dental practice, when market conditions permit, the Company initiates
the process of converting the affiliated practice into a Castle Dental Center.
This process, the implementation and timing of which will vary from market to
market, typically includes the addition of specialty dental services not
previously offered by the center, implementation of retail business concepts
applied by the Company in its Houston operation, and, where appropriate, the
relocation of the center to a more desirable location.
In certain markets, the Company intends to grow through DE NOVO development
to expand in market areas that are either under-served or are otherwise
attractive market opportunities and in which there is no suitable acquisition
candidate. The Company will use its experience in building and staffing DE NOVO
dental centers in Houston, Texas for the implementation of this expansion
strategy.
MANAGEMENT SERVICES AGREEMENT
The Company has entered into a Management Services Agreement with each of
its affiliated dental practices pursuant to which the Company becomes the
exclusive manager and administrator of all non-dental services relating to the
operation of the practice. As compensation for its services under the typical
Management Services Agreement and subject to applicable law, the Company is
reimbursed for the expenses incurred by it on behalf of the managed practices
and is paid a monthly management fee. The Company anticipates that it will enter
into similar Management Services Agreements with each new affiliated dental
practice.
The obligations of the Company under the typical Management Services
Agreement include assuming responsibility, either on its own or with the input
and participation of the policy board of the affiliated practice, for the
following (subject to limitations imposed by applicable state law): facilities,
equipment and supplies of affiliated dental practices; advertising, marketing
and sales; training and development; operations management; provision of support
services; risk management and utilization review; application and maintenance of
applicable local licenses and permits; negotiation of contracts between the
affiliated dental practice and third parties, including third-party payors,
alternative delivery systems and purchasers of group health care services;
establishing and maintaining billing and collection policies and procedures;
fiscal matters, such as annual budgeting, maintaining financial and accounting
records, and arranging for the preparation of tax returns; and maintaining
insurance. The Company does not assume any authority, responsibility,
supervision or control over the provision of dental services to patients or for
diagnosis, treatment, procedure or other health care services, or the
administration of any drugs used in connection with any dental practice.
The typical Management Services Agreement is for an initial term of 40
years, and is automatically renewed for successive five-year terms unless
terminated at least 90 days before the end of the initial term or any renewal
term. Additionally, the typical Management Services Agreement may be terminated
by the Company or the affiliated dental practice in the event of the bankruptcy
or default in the performance of the material duties of the nonterminating
party.
DENTIST EMPLOYMENT AGREEMENTS
As a part of the process of converting an affiliated dental practice into a
Castle Dental Center, each affiliated dental practice has entered into a Dentist
Employment Agreement with each of its full-time dentists, orthodontists and
other dental specialists. The Company anticipates that this practice will
continue when market conditions permit. Although the form of contract varies
somewhat among practices and among dentists with different specialties, the
typical contract for a full-time dentist provides for a defined compensation
arrangement, including performance-based compensation and where market
conditions permit, a covenant not to compete. Each full-time dentist, whether or
not a party to a Dentist Employment Agreement, is required to maintain
professional liability insurance, and mandated coverage limits are generally at
least $1.0 million per claim
42
and $1.0 million in aggregate. In addition, many affiliated dental practices
employ part-time dentists. Not all part-time dentists have employment
agreements, but all part-time dentists are required to carry professional
liability insurance in specified amounts. Certain full- and part-time dentists
retained by the Company, particularly in the New York market, are independent
contractors and have entered into independent contractor agreements.
OPERATIONS
CENTER DESIGN AND LOCATION
The affiliated dental practices are generally located in retail
environments. Many of the affiliated practices include semi-private general
dentistry treatment rooms, private treatment rooms and orthodontic bays.
Currently, affiliated dental practices include up to 21 treatment rooms and
range in size from approximately 2,000 square feet to approximately 6,000 square
feet.
Where an acquired practice is not able, due to limitations of floor space,
zoning or other reasons, to accommodate new services or specialists, the Company
seeks to relocate such affiliated practice to a high profile retail location as
soon as practicable. Since its formation, the Company has adapted its locations
in Houston, Texas to accommodate the full range of dental specialities. The
Company believes the application of its method of designing and locating dental
centers will facilitate the expansion of services offered by the acquired
practices.
STAFFING AND SCHEDULING
The Company believes that making its facilities available at times which
are convenient to its patients is an important element of its strategy. As a
result, the affiliated dental practices maintain extended hours of operation,
with many affiliated practices opening as early as 7:00 a.m. and closing as late
as 9:00 p.m. on weekdays and 5:00 p.m. on Saturdays. The affiliated practices
are staffed with dentists and dental assistants every day they are open, with
orthodontists and other specialists rotating among two or three centers in order
to utilize their time optimally. Each patient typically sees the same dentist or
specialist on all visits to the center. Each affiliated dental practice is also
regularly staffed with an office manager, front office staff, dental assistants
and other support staff.
The Houston dental centers are, and the prototypical dental centers, where
appropriate, will be staffed with treatment counselors who are responsible for
the non-clinical aspects of the patient's relationship with the practice. The
treatment counselor's function is (i) to put the patient at ease by acting as a
liaison between the dentist and patient and working with the patient to develop
a treatment schedule with payments tailored to the patient's needs within the
Company's established credit policies; and (ii) to maximize the dentist's time
spent with patients.
FEES AND PAYMENT PLANS
The Company believes that fees charged by its affiliated practices are
typically lower than usual and customary fees within their respective markets.
The affiliated practices generally provide a wide range of payment options,
including cash, checks, credit cards, third party insurance and various forms of
credit. In general, most general dentistry and specialty services, other than
orthodontics, are paid for by the patient, or billed to the patient's insurance
carrier, on the date the service is rendered. In some instances, the Company
will extend credit in accordance with its established credit policies. The
Company believes that its lower fees and ability to assist patients in obtaining
financing provides it with a competitive advantage compared to sole
practitioners and small group practices.
The Company's typical orthodontic payment plan consists of no initial down
payment and equal monthly payments during the term of treatment of approximately
$89 per month. After consultation with the treatment counselor at the initial
visit, the patient signs a contract outlining the terms of the treatment,
including the anticipated length of treatment and the total fees. The number of
required monthly payments is fixed at the beginning of the case and corresponds
to the anticipated number of monthly treatments. Patients are billed in advance
by the Company on a monthly basis.
43
SALES AND MARKETING
The Company intends to utilize the practice management principles employed
in its Houston operations to establish a consistent national identity for its
business and to utilize the "Castle Dental Centers" name and logo. When
acquired practices already have high existing name recognition within their
local markets, the Company may seek to capitalize on it and implement the Castle
model while maintaining the existing practice name. The Company applies
traditional retail principles of business to the provision of dental care. These
principles include network development, extended hours of operation, location
optimization, signage, customized treatment schedules, affordable fees and
payment plans. The Company has used both print advertising and professionally
produced broadcast advertising. It maintains a significant advertising budget
and aggressively markets the name "Castle Dental Centers" and the services it
offers to potential patients in Houston, Texas. The Company intends to use the
same aggressive marketing in its regional markets.
The Company has also established a regional telemarketing system in
Houston, Texas to field calls generated by advertising, to confirm upcoming
scheduled patient visits, to encourage patients to return for follow-up visits
and regularly scheduled six-month periodic exams. Where feasible, the Company
intends to establish additional telemarketing systems in other regional markets.
The telemarketers can enter all relevant information into the Company's
management information system for patients making appointments for an initial
visit, including pre-screening patients for insurance and other credit
information.
QUALITY ASSURANCE
Affiliated dental practices are solely responsible for all aspects of the
practice of dentistry. The Company has responsibility for the business and
administrative aspects of the practices and exercises no control over the
provision of dental services. To facilitate the execution of these separate
responsibilities and the communication between the Company and its affiliated
dental practices, the Company has established a National Operations Management
Committee, a National Dental Service Management Committee and generally
establishes policy boards in each market it enters. The respective committees
are the primary vehicles through which the Company and its affiliated dental
practices communicate, develop long-term strategic objectives and make
recommendations regarding significant capital expenditures, budgets and
acquisitions.
The Company's management structure is designed to bring to its affiliated
dental practices improvements in their recruiting and professional training. The
Company expects that the increased visibility of the Company, its national
presence, the ability to offer career paths previously unavailable to dentists
and the ability to recruit for multiple markets on a national level will give it
an advantage in recruiting and retaining dentists. In addition, the Company
believes that the ability to offer dentists in private practice the chance to
practice in an environment where they do not assume capital risks and
administrative burdens normally associated with private practice will make
joining the Company an attractive choice for private practitioners desiring to
simplify their professional lives.
The Company has named one of its most experienced affiliated dentists as
National Dental Director. This person will be responsible for the monitoring and
improvement of quality standards, the peer review process and the development of
a common materials guideline. In addition, the National Dental Director will
coordinate development of relations with dental schools and the development of a
cross-practice training program for enhancing techniques used in the practice of
dentistry.
The Company assists affiliated dental practices in their efforts to improve
the delivery of quality dental care. The National Dental Service Management
Committee, which is comprised of the Company's leading affiliated dentists, has
been formed to identify and communicate to affiliated dentists the best
practices and protocols in dental practice areas, oversee peer review, materials
selection, continuing education, technique enhancement and specialty care.
Most affiliated dental practices have policy boards comprised of
representatives of both the Company and the affiliated dental practice. The
policy boards are responsible for developing and implementing
44
management and administrative policies for the overall operation of the
affiliated dental practice. Specifically, the policy board has the authority to
review and approve capital improvements and expansion, marketing and
advertising, collection policies, provider and payor relationships, strategic
planning and capital expenditures. However, in recognition of the laws and
regulations applicable to the licensure and practice of dentistry, the policy
board does not make clinical decisions, recommendations or other decisions that
are required to be made by a licensed dentist.
MANAGED CARE
Concerns over the accelerating cost of dental care have resulted in the
increasing role of managed care in the Company's strategy. As markets evolve
from traditional fee-for-service dental care to managed care, dental care
providers confront competitive pressure to provide high-quality dental care in a
cost-effective manner. Employer groups have begun to bargain collectively in an
effort to reduce the cost of dental care and to bring about greater
accountability of providers with respect to accessibility, choice of provider,
quality of care and other indicators of consumer satisfaction.
The Company believes that managed care will play an increasing role in the
provision of dental services and therefore intends to market the services of its
networks to the managed care community. A component of the Company's strategy is
to seek long-term relationships with insurance companies with a view to reducing
the Company's risk of expanding into new markets served by the insurance
companies, and permits the Company to leverage its growth by including patients
covered by managed care contracts. Moreover, the Company believes that its
managed care relationships will enhance the Company's utilization rates at
existing locations. See "Risk Factors -- Risks Associated with Managed Care
Contracts; Capitated Fee Revenue."
SERVICES
The Company provides management expertise, marketing, information systems,
capital resources and acquisition services to its affiliated dental practices.
As a result, the Company is involved in the financial and administrative
management of the affiliated dental practices, including legal, financial
reporting, cash management, human resources and insurance assistance. The
Company's goals in providing such services are (i) to allow the dentists
associated with affiliated dental practices to dedicate their time and efforts
more fully to patient care and professional practice activities; (ii) to improve
the performance of affiliated dental practices in these administrative and sales
activities; and (iii) to enhance the financial return to the Company.
Aside from the centralization of functions mentioned above, the affiliated
dental practices are encouraged to administer their practices in accordance with
the needs of their specific patient populations. The practice of dentistry at
each affiliated dental practice is under the exclusive control of the dentists
who practice at such location.
The majority of the practices whose non-dental assets are available to the
Company for acquisition are general dentistry practices. General dentistry
includes diagnostics, treatment planning, preventive care, removal of infection,
fillings, crowns, bridges, partials, dentures, and extractions, all of which are
currently being provided by the affiliated dental practices. Within its network,
the Company provides a wide range of specialty services. The Company seeks to
expand the services offered by affiliated practices beyond general dentistry to
include other dental specialty services and improve efficiency by improving
appointment availability, increasing practice visibility and assisting the
practices in adding complementary services. These complementary services include
orthodontics, periodontics (the diagnosis, treatment and prevention of infection
of the gums and supporting bone around the teeth), endodontics (the diagnosis,
treatment and prevention of infection of the oral tissues), oral surgery and
implantology (the placement of abutments (implants) in the jaw bones to support
tooth replacement). By adding these complementary services to the practice, the
affiliated dental practices will retain the majority of specialty service
referrals in-house, thereby increasing patient revenues.
45
MANAGEMENT INFORMATION SYSTEMS
The Company and its affiliated dental practices presently utilize various
dental practice management software systems to monitor and control patient
treatment, scheduling, invoicing of patients and insurance companies,
productivity of clinical staffs and other practice related activities. The
Company has identified the practice management software system that it currently
employs in its Houston operations as its preferred system and intends, where
appropriate, to use the Houston system as a common practice management system
for use by its affiliated practices. The Company is presently implementing a
client-server based information management system designed to enable the Company
to compare financial performance of affiliated dental practices, to track and
control costs, and to facilitate the accounting and financial reporting process
between the affiliated dental practices and corporate headquarters. The Company
intends to use its financial information system in conjunction with existing
practice management systems at the affiliated dental practices.
GOVERNMENT REGULATION
GENERAL
The practice of dentistry is highly regulated, and there can be no
assurance that the regulatory environment in which the affiliated dental
practices and the Company operate will not change significantly in the future.
In general, regulation of health care related companies also is increasing.
Every state imposes licensing and other requirements on individual dentists
and dental facilities and services. In addition, federal and state laws regulate
health maintenance organizations and other managed care organizations for which
dentists may be providers. In connection with its operations in existing markets
and expansion into new markets, the Company may become subject to compliance
with additional laws, regulations and interpretations or enforcements thereof.
The ability of the Company to operate profitably will depend in part upon the
Company and its affiliated dental practices obtaining and maintaining all
necessary licenses, certifications and other approvals and operating in
compliance with applicable health care regulations.
Dental practices must meet federal, state and local regulatory standards in
the areas of safety and health. Historically, those standards have not had any
material adverse effect on the operations of the dental practices managed by the
Company. Based on its familiarity with the operations of the dental practices
managed by the Company, management believes that it and the practices it manages
are in compliance in all material respects with all applicable federal, state
and local laws and regulations relating to safety and health.
MEDICARE AND MEDICAID FRAUD AND ABUSE
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, (i) the referral of a
person for services, (ii) the furnishing or arranging for the furnishing of
items or services or (iii) the purchase, lease or order or arranging or
recommending purchasing, leasing or ordering of any item or service, in each
case, reimbursable under Medicare or Medicaid. Because dental services are
covered under various government programs, including Medicaid, the law applies
to dentists and the provision of dental services. Pursuant to this anti-kickback
law, the federal government announced a policy of increased scrutiny of joint
ventures and other transactions among health care providers in an effort to
reduce potential fraud and abuse related to Medicare and Medicaid costs. Many
states have similar anti-kickback laws, and in many cases these laws apply to
all types of patients, not just Medicare and Medicaid beneficiaries. The
applicability of these federal and state laws to many business transactions in
the health care industry, including those intended by the Company, has not yet
been subject to judicial interpretation.
Significant prohibitions against physician self-referrals, including those
by dentists, for services covered by Medicare and Medicaid programs were
enacted, subject to certain exceptions, by Congress in the Omnibus Budget
Reconciliation Act of 1993. These prohibitions, commonly known as "Stark II,"
amended prior physician and dentist self-referral legislation known as "Stark
I" (which applied only to
46
clinical laboratory referrals) by dramatically enlarging the list of services
and investment interests to which the referral prohibitions apply. Effective
January 1, 1995 and subject to certain exceptions, Stark II prohibits a
physician or dentist or a member of his immediate family from referring Medicare
or Medicaid patients to any entity providing "designated health services" in
which the physician or dentist has an ownership or investment interest, or with
which the physician or dentist has entered into a compensation arrangement,
including the physician's or dentist's own group practice unless such practice
satisfies the "group practice" exception. The designated health services
include the provision of clinical laboratory services, radiology and other
diagnostic services (including ultrasound services), radiation therapy services,
physical and occupational therapy services, durable medical equipment,
parenteral and enteral nutrients, certain equipment and supplies, prosthetics,
orthotics, outpatient prescription drugs, home health services and inpatient and
outpatient hospital services. A number of states also have laws that prohibit
referrals for certain services such as x-rays by dentists if the dentist has
certain enumerated financial relationships with the entity receiving the
referral, unless an exception applies.
Noncompliance with, or violation of, the federal anti-kickback legislation
or Stark II can result in exclusion for Medicare and Medicaid programs and civil
and criminal penalties. Similar penalties are provided for violation of state
anti-kickback and self-referral laws. To the extent that the Company or any
affiliated dental practice is deemed to be subject to these federal or similar
state laws, the Company believes its intended activities will comply in all
material respects with such statutes and regulations.
STATE LEGISLATION
The laws of many states prohibit dentists from splitting fees with
non-dentists and prohibit non-dental entities, such as the Company, from
practicing dentistry and from employing dentists or, in certain circumstances,
dental assistants. Under such laws, the Company is prohibited from exercising
control over the provision of dental services or, in certain cases, from being
paid for its management services in a way that is directly or indirectly related
to the revenues of the practice. State laws typically permit a dentist to
conduct a dental practice only as an individual, a member of a partnership or as
an employee of a professional corporation, and prohibit, either by specific
provision or as a matter of general policy, a dentist from conducting a dental
practice as an employee of a business corporation. The laws of some states
prohibit the advertising of dental services under a trade or corporate name and
require that all advertisements be in the name of the dentist. A number of
states also regulate the content of advertisements of dental services and the
use of promotional gift items. A number of states limit the ability of a
non-licensed dentist to own or control equipment or offices used in a dental
practice. Some of these states allow leasing of equipment and office space to a
dental practice, under a bona fide lease, if the equipment and office remain in
the complete care and custody of the dentist. Management believes that the
Company's current and planned activities do not violate these statutes and
regulations. There can be no assurance, however, that future interpretations of
such laws, or the enactment of more stringent laws, will not require structural
and organizational modifications of the Company's existing contractual
relationships with the dentists or the operation of its affiliated dental
practices. In addition, statutes in some states could restrict expansion of
Company operations into those jurisdictions.
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care contracts. The
application of state insurance laws to arrangements other than various types of
fee for service arrangements is an unsettled area of law with little guidance
available. As the Company or its affiliated practices contract with third-party
payors, including self-insured plans, for certain non-fee for service basis
arrangements, the Company may become subject to state insurance laws.
Specifically, in some states, regulators may determine that the Company or the
affiliated dental practices are engaged in the business of insurance,
particularly if they contract directly with self-insured employers or another
entity that is not licensed to engage in the business of insurance. To the
extent that the Company or the affiliated practices are determined to be engaged
in the business of insurance, the Company may be required to change the form of
its relationships with third-party payors and the Company's revenues may be
adversely affected.
47
REGULATORY COMPLIANCE
The Company regularly monitors developments in laws and regulations
relating to dentistry. The Company may be required to modify its agreements,
operations and marketing from time to time in response to changes in the
business, statutory and regulatory environment. The Company plans to structure
all of its agreements, operations and marketing in accordance with applicable
law, although there can be no assurance that its arrangements will not be
successfully challenged or that required changes may not have a material adverse
effect on operations of profitability.
COMPETITION
The dental care industry is highly fragmented, comprised principally of
sole practitioners and group practices of dental and orthodontic services. The
dental practice management industry is subject to continuing changes in the
provision of services and the selection and compensation of providers. The
Company is aware of several groups attempting to acquire or manage dental
practices. Certain of the Company's competitors are larger and better
capitalized, may provide a wider variety of services, may have greater
experience in providing dental care management services and may have longer
established relationships with buyers of such services.
In certain markets, the demand for dental care professional personnel
presently exceeds the supply of qualified personnel. As a result, the Company
experiences competitive pressures for the recruitment and retention of qualified
dentists to deliver their services. The Company's future success depends in part
on its ability to continue to recruit and retain qualified dentists to serve as
employees or independent contractors of the affiliated dental practices. There
can be no assurance that the Company will be able to recruit or retain a
sufficient number of competent dentists to continue to expand its operations.
EMPLOYEES
As of August 22, 1996, the Company employed approximately 432
administrative and dental office personnel on a full-time or part-time basis,
and the affiliated dental practices employed approximately 73 general dentists
and 15 specialists on a full-time or part-time basis. Following consummation of
the Pending Acquisitions, the Company expects that approximately 282 additional
people will be employed on a full-time or part-time basis by the Company and
approximately 136 people will be employed on a full-time or part-time basis by
the affiliated dental practices. In addition, as a component of its acquisition
strategy, the Company frequently enters into employment or consulting agreements
with the dentists from whom it acquires affiliated practices. The Company
believes that its relations with its employees are good. The Company believes
that it may need to hire additional personnel to accommodate the demands
prompted by the provision of services to each of the affiliated practices under
the management services agreements, as well as to pursue its growth strategies.
FACILITIES
The Company leases approximately 12,000 square feet of space for executive,
administrative, sales and marketing and operations offices in Houston, Texas.
The Company's initial lease term expires May 2000, which may be extended at the
Company's option for an additional 60 months.
All of the Company's existing centers are leased. Nine of the centers,
including seven of the American Dental Centers locations, are owned by
affiliates of the companies from whom the Company acquired affiliated dental
practices. All such facilities leased by the Company are leased on a not less
than favorable to the Company than fair market value basis.
The Company intends to lease centers or arrange with third parties to
build-to-suit dental centers for lease by the Company. Certain leases provide
for fixed minimum rentals and provide for additional rental payments for common
area maintenance, insurance and taxes. The leases carry varying terms expiring
between 1996 and 2006 excluding options to renew.
The majority of all centers are located in retail locations. The Company
believes that its leased facilities are well maintained, in good condition and
adequate for its current needs. Furthermore, the Company believes that suitable
additional or replacement space will be available when required.
48
CORPORATE LIABILITY AND INSURANCE
The provision of dental services entails an inherent risk of professional
malpractice and other similar claims. Although the Company does not influence or
control the practice of dentistry by dentists or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
dentists and dental groups, the contractual relationship between the Company and
the affiliated dental practices may subject the Company to some medical
malpractice actions under various theories, including successor liability. There
can be no assurance that claims, suits or complaints relating to services and
products provided by managed practices will not be asserted against the Company
in the future. The availability and cost of professional liability insurance has
been affected by various factors, many of which are beyond the control of the
Company. The cost of such insurance to the Company and its affiliated dental
practices may have an adverse effect on the Company's operations.
The Company requires each affiliated dental practice to maintain
comprehensive general liability and professional liability coverage covering the
practice and each dentist retained or employed by the affiliated dental
practice, which normally provide for comprehensive general liability coverage of
$1,000,000 for each occurrence and $2,000,000 annual aggregate, and professional
liability coverage of not less than $500,000 for each occurrence and $1,500,000
annual aggregate.
The Company maintains other insurance coverages including general
liability, property, business interruption and workers' compensation, which
management considers to be adequate for the size of the Company and the nature
of its business.
LITIGATION
The Company is party to various lawsuits from time to time in the ordinary
course of business. Management does not believe that any of the claims currently
outstanding would have a material adverse effect on the Company's business if
determined adversely to the Company.
49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Directors, executive officers and significant employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------- ---- -----------------------------------------------------
<S> <C> <C>
Jack H. Castle, Jr...................... 41 Chairman, Chief Executive Officer and Director
Seth L. Miller.......................... 38 President and Chief Operating Officer
John M. Slack........................... 48 Vice President, Chief Financial Officer and Secretary
Judith A. Dolifka....................... 36 Controller
Stephen L. Clayton, D.D.S............... 42 National Dental Director
G. Powell Bilyeu, D.D.S................. 65 Regional Dental Director
Lester B. Greenberg, D.D.S.............. 62 Regional Dental Director
Jules V. Lane D.D.S.*................... 66 Regional Dental Director and Director
Jack H. Castle, D.D.S................... 74 Director
Robert J. Cresci........................ 52 Director
Bannus B. Hudson........................ 50 Director
G. Kent Kahle........................... 44 Director
Elizabeth A. Tilney..................... 39 Director
</TABLE>
- ------------
* Dr. Lane has agreed to become a Director of the Company upon the closing of
the New York Acquisition.
The following is a biographical summary of the experience of the Directors
and executive officers:
JACK H. CASTLE, JR. was a co-founder of the Company in 1981 and has served
as President and Chief Executive Officer since 1990. He became the Company's
Chairman in August 1996. Mr. Castle received a B.A. from Rollins College and a
Masters of Business Administration from Wake Forest University. Mr. Castle is
the son of Jack H. Castle, D.D.S.
SETH L. MILLER joined the Company in April 1996 as Executive Vice President
and Chief Operating Officer. He became President and Chief Operating Officer in
August 1996. From 1991 until 1995 he was employed by The United States Shoe
Corporation. In 1994 and 1995, he served as the Chief Financial Officer of the
Sight & Save division of LensCrafters, a subsidiary of United States Shoe
Corporation. From 1989 until 1991, Mr. Miller was Vice President -- Marketing &
Operations of a multi-location Blockbuster Video franchise. Mr. Miller has a
Masters of Business Administration from Harvard Business School and a B.A. in
Economics from Tufts University.
JOHN M. SLACK joined the Company in December 1995 as Vice President and
Chief Financial Officer. From November 1994 through November 1995, he served as
Vice President and Chief Financial Officer of Team, Inc. an American Stock
Exchange environmental services company. From 1985 through 1994, Mr. Slack was
Vice President, Chief Financial Officer of Serv-Tech, Inc., a public company
traded on the Nasdaq Stock Market's National Market. Mr. Slack received a B.S.
in international economics from Georgetown University in 1969.
JUDITH A. DOLIFKA joined the Company in May 1996 as Controller. From April
1990 to April 1996 she was the Assistant Controller and Manager of Financial
Reporting for Serv-Tech, Inc. From 1982 until 1990 Ms. Dolifka worked in public
accounting most recently as an audit manager with Coopers & Lybrand, L.L.P. Ms.
Dolifka received a B.B.A. in accounting from Ball State University and is a
Certified Public Accountant in the State of Texas.
STEPHEN L. CLAYTON, D.D.S. has been the clinical director of the Company
since February 1988 and has served as National Dental Director of the Company
since July 1996. From 1980 to 1988, Dr. Clayton engaged in private practice in
Texas and Oklahoma. Dr. Clayton received his Doctor of Dental Surgery from the
University of Texas Dental Branch at San Antonio in 1980. Dr. Clayton is a
member of the Greater
50
Houston Dental Society, Texas Dental Association, American Dental Association
and the Academy of General Dentistry.
G. POWELL BILYEU, D.D.S. has been a Regional Development Director of the
Company since May 1996, following the Company's acquisition of Mid-South Dental
Centers, P.C. Dr. Bilyeu founded Mid-South Dental Centers, P.C. in 1978 and
served as president and owner until 1996. Dr. Bilyeu graduated from the
University of Tennessee College of Dentistry in 1962.
LESTER B. GREENBERG, D.D.S. has been a Regional Development Director of the
Company since May 1996, following the Company's acquisition of 1st Dental Care.
From 1980 to 1996, Dr. Greenberg was the founder, Chief Executive Officer and
owner of 1st Dental Care, a Florida dental practice. Dr. Greenberg received a
Doctor of Dental Surgery from the University of Tennessee College of Dentistry
in 1957.
JULES V. LANE D.D.S., the founder and owner of American Dental Centers, has
also agreed to serve as a Director of the Company upon the closing of the New
York Acquisition. He is also the founder and owner of J. V. Lane Professional
Corporation, a New York professional corporation, and American Medical and Life
Insurance Company, a New York based insurance company. Dr. Lane served as an
Assistant Clinical Professor at the Albert Einstein College of Medicine for over
twenty years and was an Attending Visiting Surgeon at the Bronx Municipal
Hospital Center. Dr. Lane received a Doctorate of Dental Surgery from the
New York University College of Dentistry in 1952 and completed a post graduate
internship at Columbia Presbyterian Hospital.
JACK H. CASTLE, D.D.S. served as Chairman of the Company from 1981 until
August 1996. He is also the sole owner of Jack H. Castle, D.D.S., P.C., a dental
practice managed by the Company. Prior to co-founding the Company, Dr. Castle
operated a single location dental practice. Dr. Castle graduated from the
University of Houston in 1943 and received a Doctorate of Dental Surgery
from the University of Texas Health Science Center in Houston in 1945. He served
in the United States Navy from 1947 to 1949. Dr. Castle is the father of Jack H.
Castle, Jr.
ROBERT J. CRESCI has been a Director of the Company since December 1995.
Mr. Cresci has been a Managing Partner of Pecks Management Partners Ltd., an
investment management firm, since September 1990. Mr. Cresci graduated from The
United States Military Academy at West Point and received a Masters of Business
Administration from Columbia University Graduate School of Business. Mr. Cresci
currently serves on the boards of Bridgeport Machines, Inc., Serv-Tech, Inc.,
EIS International, Inc., Sepracor, Inc., Vestro Natural Foods, Inc., Olympic
Financial, Ltd., GeoWaste, Inc., Hitox, Inc., Natures Elements, Inc., Garnet
Resources Corporation, HarCor Energy, Inc., Meris Laboratories, Inc. and several
private companies.
BANNUS B. HUDSON has been a Director of the Company since August 1996. Mr.
Hudson has been President and Chief Executive Officer of Equity Enterprises,
Inc., a consulting firm, since 1995. From 1985 to 1995, Mr. Hudson held various
positions with The United States Shoe Corporation, most recently as President
and Chief Executive Officer. Mr. Hudson was President and Chief Executive
Officer of Lenscrafters from 1987 to 1990. From 1968 to 1985, Mr. Hudson held
various positions with The Procter and Gamble Company. Mr. Hudson has a B.S. in
Mechanical Engineering from University of Kansas. He currently serves on the
boards of Ohio National Financial Services, Structural Dynamics Research
Corporation, FRCH Design Worldwide and USBiomaterials.
G. KENT KAHLE has been a Director of the Company since December 1995. He
has been a Managing Director of The GulfStar Group, Inc., an investment banking
firm, since 1990. From 1982 to 1990 Mr. Kahle held various positions with Rotan
Mosle, Inc. most recently as Senior Vice President and Director. Mr. Kahle has a
Masters of Business Administration from The Wharton School of the University of
Pennsylvania and an A.B. from Brown University. He currently serves on the
boards of Total Safety, Inc. and Chase Telecommunications, Inc.
ELIZABETH A. TILNEY has been a Director of the Company since August 1996.
Ms. Tilney has been Senior Vice President, Corporate Marketing and Resources, of
Enron Corp. since March 1996, where she is responsible for human resources,
corporate marketing and investor relations. From 1987 to 1996, Ms.
51
Tilney was with Russell Reynolds Associates, an executive search firm, and was
most recently an Executive Director. Ms. Tilney was an account manager
associated with Ogilvy & Mather Advertising in New York and Houston from 1983 to
1987. Ms. Tilney has a Masters of Business Administration from The Amos Tuck
School of Business Administration of Dartmouth College and a B.A. from the
University of Virginia.
All Directors of the Company currently hold office for one-year terms until
the next annual meeting of stockholders of the Company and until their
successors are elected and qualified. Mr. Cresci was elected to the Board of
Directors pursuant to the terms of the Securityholders Agreement (as hereinafter
defined) pursuant to which the Pecks Investors have the right to have one
designee nominated to the Board of Directors for so long as 20% of the Series A
Convertible Preferred Stock or 20% of the Common Stock issuable on conversion of
the Series A Convertible Preferred Stock is held by the Pecks Investors. See "
- -- Securityholders Agreement."
Pursuant to the asset purchase agreement entered into in connection with
the New York Acquisition; the Company has agreed to use its best efforts to
nominate and elect Dr. Lane to the Board of Directors of the Company for the
longer of three years or the period of time that Dr. Lane remains an employee of
the Company on substantially the same terms and conditions as his initial
employment relationship.
Officers are appointed by and serve at the discretion of the Board of
Directors. The officers will devote substantially all of their business time to
the business and affairs of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has the following committees:
AUDIT COMMITTEE. The members of the Audit Committee of the Company's Board
of Directors are Messrs. Cresci, Kahle and Hudson, all of whom are independent
directors. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans for and results of the audit, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees, reviews the non-audit services performed by the independent
accountants and reviews the adequacy of the Company's internal accounting
controls.
COMPENSATION COMMITTEE. The members of the Compensation Committee of the
Company's Board of Directors are Mr. Cresci, Mr. Kahle and Ms. Tilney. The
Compensation Committee establishes a general compensation policy for the Company
and approves increases both in directors' fees and in salaries paid to officers
and senior employees of the Company. The Compensation Committee administers all
of the Company's employee benefit plans. The Compensation Committee determines,
subject to the provisions of the Company's plans, the directors, officers and
employees of the Company eligible to participate in any of the plans, the extent
of such participation and terms and conditions under which benefits may be
vested, received or exercised. The members of the Compensation Committee are
"disinterested" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934.
COMPENSATION OF DIRECTORS
Following the closing of the offering, each member of the Board of
Directors who is not an employee of the Company will receive annual compensation
of $6,000 for serving on the Board of Directors, plus a fee of $1,000 for each
Board of Directors meeting attended in person and $500 for each telephonic Board
of Directors meeting in which the Director participates. All directors receive
reimbursement of reasonable expense incurred in attending Board and committee
meetings and otherwise carrying out their duties. Following the closing of the
offering, each non-employee Director will be granted options pursuant to the
Directors' Plan. See " -- Stock Option Plans -- Directors' Stock Option Plan."
EXECUTIVE COMPENSATION AND EMPLOYMENT ARRANGEMENTS
None of the Company's senior executive officers other than Dr. Lane has an
employment agreement or is otherwise subject to a covenant not to compete or
other agreement which would restrict his ability to compete against the Company
should his employment by the Company be terminated for any reason.
52
For 1996, Jack H. Castle, Jr. receives a base salary of $300,000 plus a
guaranteed bonus of $200,000. Seth L. Miller, President and Chief Operating
Officer, joined the Company in April 1996 and receives a base annual salary of
$175,000. John M. Slack, Vice President and Chief Financial Officer, joined the
Company in December 1995, and receives a base annual salary of $120,000. Dr.
Castle receives an annual payment of $100,000 for the performance of certain
services pursuant to the Management Services Agreement between the Company and
Jack H. Castle, D.D.S., P.C. See "Certain Transactions." Messrs. Miller and
Slack have also been granted stock options under the Company's Omnibus Stock and
Incentive Plan. See "-- Stock Option Plans."
SUMMARY COMPENSATION. The following table sets forth the total compensation
paid or accrued by the Company for services rendered during the years ended
December 31, 1993, 1994 and 1995, to the Company's Chief Executive Officer and
other officers whose total 1995 salary and bonus exceeded $100,000 during such
year.
ANNUAL
COMPENSATION(1)
--------------------
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION(2)
- ------------------------------------- ------- ---------- ---------------
Jack H. Castle, Jr................... 1995 $ 401,639 $ 219,132
President and Chief 1994 $ 428,956 $ 174,074
Executive Officer 1993 $ 135,808 $ 321,259
Jack H. Castle, D.D.S................ 1995 $ 327,693 $ 1,795,681
President of Jack H. Castle, 1994 $ 300,033 $ 1,745,532
D.D.S., P.C.(3) 1993 $ 282,017 $ 1,280,928
- ------------
(1) The columns for "Bonus," "Long-Term Compensation" and "Other Annual
Compensation" have been omitted because there is no compensation required to
be reported in such columns. The aggregate amount of perquisites and other
personal benefits provided to each officer listed above is less than 10% of
the total annual salary and bonus of such officer.
(2) Other compensation primarily represents distributions from the Company's
predecessor corporation as well as amounts paid in expense reimbursement.
(3) Compensation paid to Dr. Castle includes amounts paid by Jack H. Castle,
D.D.S., Inc., a professional corporation to which the Company provided
management services prior to its acquisition by the Company as part of the
Reorganization effected in December 1995. See "Unaudited Pro Forma Combined
Financial Information" and "Certain Transactions."
OPTION GRANTS. The Company did not issue any stock options during 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a Compensation Committee during 1995.
As a result, the Board of Directors, then consisting of Jack H. Castle, Jr.,
Jack H. Castle, D.D.S. and Loretta Castle, made all decisions concerning
executive officer compensation. Loretta Castle is the mother of Jack H. Castle,
Jr. and the wife of Jack H. Castle, D.D.S. Jack H. Castle, Jr. and Jack H.
Castle, D.D.S. and certain of their affiliates have engaged in a number of
transactions with the Company. See "Certain Transactions."
STOCK OPTION PLANS
OMNIBUS STOCK AND INCENTIVE PLAN
In January 1996, the Board of Directors adopted, and the stockholders of
the Company approved, the Castle Dental Centers, Inc. Omnibus Stock and
Incentive Plan (the "Plan"). The purpose of the Plan is to advance the interests
of the Company, by providing for the acquisition of an equity interest in the
Company by its key employees, by providing additional incentives and motivation
toward superior performance by key employees of the Company, and by enabling the
Company to attract and retain the services of key employees on whose judgment,
interest and special effort the successful conduct of the Company's
53
operations is largely dependent. The aggregate amount of Common Stock with
respect to which grants under the Plan may be made may not exceed 1,000,000
shares.
The Plan provides for the grant of incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options and shares of restricted stock
(collectively, the "Awards"). Following the consummation of this offering, the
Plan will be administered by the Compensation Committee. Prior to the formation
of the Compensation Committee, the Plan was administered by the Company's full
Board of Directors. The Compensation Committee has, subject to the terms of the
Plan, the sole authority to grant Awards under the Plan, to construe and
interpret the Plan and to make all other determinations and take any and all
actions necessary or advisable for the administration of the Plan.
All of the employees, Directors, consultants and former consultants of the
Company or its affiliates are eligible to receive Awards under the Plan. In
addition, key employees of entities managed by the Company may receive Awards.
Only key employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally be exercisable in installments pursuant to a vesting schedule to be
designated by the Compensation Committee. No option will remain exercisable
later than ten years after the date of grant (or five years from the date of
grant in the case of ISOs granted to holders of more than 10% of the Common
Stock). Restricted stock granted under the Plan will have such terms, conditions
and restrictions as the Compensation Committee shall determine.
The exercise price for ISOs granted under the Plan may be no less than the
fair market value of the Common Stock on the date of grant (or 110% in the case
of ISOs granted to employees owning more than 10% of the Common Stock). The
exercise price for nonqualified options granted under the Plan will be at the
discretion of the Compensation Committee.
The Company currently has granted Awards to purchase a total of
approximately 380,500 shares of Common Stock under the Plan at prices per share
ranging from $5.00 to $6.75, including stock options granted to Seth L. Miller
of 50,000 shares and to John M. Slack of 40,000 shares. At or shortly after this
offering, the Company anticipates that it will grant options to purchase
approximately 200,000 additional shares of Common Stock under the Plan at the
initial public offering price. Generally, the outstanding options are, and
options to be granted will be, exercisable one year from the date of grant as to
20% of the underlying shares, and as to an additional 20% on each of the next
four anniversaries of the date of option grant.
DIRECTORS' STOCK OPTION PLAN
In August 1996, the Board of Directors adopted the Directors' Plan. The
purpose of the Directors' Plan is to encourage ownership of Common Stock by
eligible non-employee Directors of the Company and to provide increased
incentive for such directors to render services and to exert maximum effort for
the business success of the Company. In addition, the Company believes that the
Directors' Plan will further strengthen the identification of directors with the
stockholders. The aggregate amount of Common Stock with respect to which grants
under the Directors' Plan may be made may not exceed 200,000 shares.
The Directors' Plan provides for the automatic grant of 25,000 nonqualified
stock options (the "Options") to non-employee Directors at the time they become
Directors. The Directors' Plan will be administered by the Compensation
Committee, which has, subject to the terms of the Directors' Plan, the sole
authority to grant Options under the Directors' Plan, to construe and interpret
the Directors' Plan and to make all other determinations and take any and all
actions necessary or advisable for the administration of the Directors' Plan.
All non-employee Directors are eligible to receive Options under the
Directors' Plan. Options will be exercisable during a ten-year period from the
date of grant of the Options and will vest based upon the number of full years
of service a non-employee Director serves on the Board of Directors as follows:
20% after one full year of service, 40% after two full years of service, 60%
after three full years of service, 80% after four full years of service and 100%
after five full years of service. No option will remain exercisable later than
ten years after the date of grant.
54
The exercise price for Options granted under the Directors' Plan may be no
less than the fair market value of the Common Stock on the date of grant.
The Company anticipates that prior to or upon the consummation of this
offering it will have outstanding Options to purchase a total of approximately
100,000 shares of Common Stock under the Directors' Plan at the initial public
offering price.
SECURITYHOLDERS AGREEMENT
On December 18, 1995, the Company, the Pecks Investors and the Castle
Family entered into the Securityholders Agreement (the "Securityholders
Agreement") pursuant to which (i) the Castle Family agreed not to sell or
otherwise transfer shares of Common Stock to any third party without first
offering the Pecks Investors the opportunity to participate in such sale or
transfer on a pro rata basis and on the same price and terms as those applicable
to the initiating seller and (ii) the Pecks Investors have the right to have one
designee nominated to the Board of Directors for so long as 20% of the Series A
Convertible Preferred Stock or 20% of the Common Stock issuable on conversion of
the Series A Convertible Preferred Stock is held by the Pecks Investors.
401(K) PLAN
The Company's 401(k) Profit Sharing Plan (the "401(k) Plan") was adopted by
the Company effective August 1, 1996. All employees of the Company are eligible
to participate in the 401(k) Plan upon the completion of six months of service.
Participants may elect to defer receipt of compensation and have such deferred
amounts contributed to the 401(k) Plan up to a maximum of 20% of compensation,
with a minimum of 1% of compensation. The Company may match contributions made
by participants under the 401(k) Plan each year in an amount determined by the
Company on a year-to-year basis and makes profit sharing contributions to the
401(k) Plan which are allocated to each participant's account based on the
qualifying participant's compensation in relation to the total compensation of
all qualifying participants. Participants are fully vested with respect to their
contributions, while the Company's contributions are subject to vesting on the
following basis: zero for fewer than two years of employment and 20% per year
cumulatively for the third through seventh years of employment. Participants may
borrow from their accounts under the 401(k) Plan.
55
CERTAIN TRANSACTIONS
Mr. Kahle, a Director of the Company, is a Managing Director of The
GulfStar Group, Inc., which has provided investment banking and advisory
services to the Company. In 1995, the Company paid $540,000 in investment
banking fees to The GulfStar Group, and issued the GulfStar Warrant for 113,158
shares of Common Stock to GulfStar Investments, Ltd. The Company has paid The
GulfStar Group, Inc. for investment banking and financial advisory services
provided to the Company in an amount equal to one percent of the total
consideration for each of the Company's acquisitions which has been consummated.
Through August 22, 1996, The GulfStar Group received approximately $195,000 in
investment banking and financial advisory fees from the Company. The Directors
of the Company other than Mr. Kahle approve the payments made to The GulfStar
Group, Inc. by the Company.
Mr. Cresci, a Director of the Company, is a Managing Partner of Pecks
Management Partners Ltd., the investment advisor to the Pecks Investors, which
hold in the aggregate 1,244,737 shares of Series A Convertible Preferred Stock
and the Senior Subordinated Notes. Pursuant to the provisions of the Securities
Purchase Agreement, for so long as certain ownership thresholds with respect to
Series A Convertible Preferred Stock or Common Stock following conversion of
Series A Convertible Preferred Stock are maintained, such investors have the
contractual right to nominate one member of the Company's Board of Directors.
See "Management -- Directors and Executive Officers." At the closing of this
offering, all of the shares of Series A Convertible Preferred Stock will be
converted into Common Stock and the Senior Subordinated Notes will be paid. See
"Use of Proceeds."
In December 1995, the Company acquired all of the stock of Jack H. Castle,
D.D.S., Inc., a professional corporation of which Dr. Castle, a Director of the
Company, was the sole owner. In connection with that transaction, the Company
paid Dr. Castle $6,000,000 in cash and entered into a Deferred Compensation
Agreement with Dr. Castle pursuant to which the Company has agreed to pay Dr.
Castle $2,630,000 in 20 quarterly installments beginning March 1996. Proceeds of
this offering will be used to discharge the Company's obligations under the
Deferred Compensation Agreement. See "Use of Proceeds." In connection with the
purchase of the stock of Jack H. Castle, D.D.S., Inc., the Company also entered
into a Management Services Agreement with Jack H. Castle, D.D.S., P.C., a
professional corporation of which Dr. Castle is the sole owner. Pursuant to the
Management Services Agreement, Dr. Castle receives an annual payment of $100,000
for services performed in connection therewith.
The Company has entered into a definitive agreement to acquire certain
assets of Jules V. Lane D.D.S. d/b/a American Dental Centers, J.V. Lane
Professional Corporation d/b/a American Dental Centers and Lisadent Corp.
(collectively, "American Dental Centers") for an aggregate consideration of $20
million in cash and $5 million in shares of Common Stock valued at the initial
public offering price. On the consummation of the acquisition of American Dental
Centers, the Company has agreed to enter into a three-year employment agreement
with Dr. Lane containing noncompetition provisions pursuant to which the Company
will pay Dr. Lane an annual salary of $200,000. The Company also has agreed to
use its best efforts to nominate and elect Dr. Lane to the Board of Directors of
the Company for the longer of three years or the period of time that Dr. Lane
remains an employee of the Company on substantially the same terms and
conditions as contemplated by his employment agreement. The Company will also
enter into a registration rights agreement with Dr. Lane providing Dr. Lane with
certain piggyback registration rights with respect to the Common Stock issued in
connection with the acquisition. Additionally, at the closing of the New York
Acquisition, a professional corporation of which Dr. Lane is the sole
shareholder will enter into a Management Services Agreement with the Company.
Upon consummation of and as a condition to closing the New York Acquisition, the
Company will enter into an arrangement with Dr. Lane for the lease of certain
properties in the New York metropolitan area on which affiliated dental
practices are located. In addition, the Company will enter into an arrangement
with Dr. Lane which will provide for the Company's ongoing relationship with
AMLI.
The Company is party to a lease agreement with Goforth, Inc., a company
owned by Jack H. Castle, Jr., the Company's Chairman and Chief Executive
Officer. The lease agreement relates to the Castle Dental Center located at 2101
West Loop South in Houston, Texas, a 6,781 square foot free-standing building.
The
56
Company has agreed to pay Goforth, Inc. a minimum guaranteed rental of $12,000
per month through January 2001 and $13,200 per month from January 2001 through
January 2006. The Company has also agreed to pay additional rent of
approximately $1,600 per month for insurance, taxes and common area maintenance.
The Company believes that this lease agreement is on terms no less favorable to
the Company than could have been obtained with an independent third party.
Pursuant to a Registration Rights Agreement dated as of December 18, 1996,
the Pecks Investors, GulfStar Investments, Ltd. and the members of the Castle
Family have been granted certain registration rights by the Company with respect
to the shares of Common Stock owned by them or acquired on conversion of Series
A Convertible Preferred Stock and exercise of the GulfStar Warrant. See
"Description of Capital Stock of the Company -- Registration Rights."
Pursuant to the Securityholders Agreement, the Pecks Investors are entitled
to certain rights with respect to their shares of capital stock. See
"Management -- Securityholders Agreement."
57
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of August 22, 1996, certain information
regarding the beneficial ownership of shares of Common Stock, before giving
effect to this offering and after giving effect to the sale of the Common Stock
offered hereby, by each person known by the Company to be the beneficial owner
of more than 5% of outstanding Common Stock, by each director or executive
officer of the Company and by all directors and executive officers as a group
and by each Selling Stockholder. Under the rules of the Securities and Exchange
Commission, a person is deemed to be a "beneficial owner" of a security if he or
she has or shares the power to vote or direct the voting of such security, has
or shares the power to dispose of or direct the disposition of such security, or
has the right to acquire the security within 60 days. Accordingly, more than one
person may be deemed to be a beneficial owner of the same security. None of the
options held by directors or executive officers are exercisable within 60 days
of August 22, 1996.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING SHARES AFTER THE OFFERING(1)
NAME AND ADDRESS OF ----------------------- TO BE SOLD ----------------------
BENEFICIAL OWNER SHARES PERCENT IN THE OFFERING SHARES PERCENT
- ---------------------------------------- ----------- -------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Jack H. Castle, Jr.(2)(3)............... 2,456,000 41.9% -- 2,456,000 21.6%
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Jack H. Castle, D.D.S.(3)............... 1,742,000 29.7 250,000 1,492,000 13.1
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Loretta Castle(3)....................... 1,742,000 29.7 250,000 1,492,000 13.1
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Castle Interests, Ltd.(3)............... 1,028,000 17.6 -- 1,028,000 9.1
Pecks Management Partners Ltd.(4)....... 1,244,737 21.3 -- 1,244,737 11.0
Seth L. Miller.......................... -- -- -- -- --
John M. Slack........................... -- -- -- -- --
G. Kent Kahle(5)........................ 113,158 1.9 -- 113,158 1.0
Robert J. Cresci(6)..................... 1,244,737 21.3 -- 1,244,737 11.0
Jules V. Lane D.D.S.(7)................. -- -- -- 500,000 4.4
Elizabeth A. Tilney..................... -- -- -- -- --
Bannus B. Hudson........................ -- -- -- -- --
All directors and executive officers as
a group (9 persons)(8)................ 4,527,895 75.8% 500,000 4,777,895 41.7%
</TABLE>
- ------------
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Includes 1,428,000 shares held by the Castle 1995 Gift Trust f/b/o Jack H.
Castle, Jr., of which Mr. Castle is Trustee.
(3) Includes 1,028,000 shares of Common Stock owned of record by Castle
Interests, Ltd., a Texas limited partnership of which Dr. Castle, Mrs.
Castle and Mr. Castle are the three general partners. The general partners
of Castle Interests, Ltd. cannot act to vote or dispose of shares of Common
Stock held by Castle Interests, Ltd. without the unanimous vote of all of
the general partners. Loretta Castle is the wife of Dr. Castle and the
mother of Jack H. Castle, Jr.
(4) 838,123, 240,649 and 165,965 of such shares are beneficially owned by
Delaware State Employees' Retirement Fund, Declaration of Trust for Defined
Benefit Plans of ICI American Holdings Inc. and Declaration of Trust for
Defined Benefit Plans of Zeneca Holdings Inc., respectively (the "Pecks
Investors"). Pecks Management Partners Ltd., as investment manager for these
beneficial owners, has
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
58
sole investment and voting power with respect to such shares. These shares
are represented by 1,244,737 shares of Series A Convertible Preferred Stock
which is convertible into 1,244,737 shares of Common Stock. Mr. Cresci, a
director of the Company, is a Managing Partner of Pecks Management Partners
Ltd. The mailing address for Pecks Management Partners Ltd. is One
Rockefeller Plaza, New York, New York 10020. Pecks Management Partners Ltd.
disclaims beneficial ownership of such shares. Pecks Management Partners
Ltd. has advised the Company that it intends on behalf of the Pecks
Investors to convert all of the Series A Convertible Preferred Stock into
Common Stock simultaneously with, and conditioned on, the closing of this
offering.
(5) Consists entirely of the beneficial ownership of shares of Common Stock
issuable on exercise of the GulfStar Warrant. Mr. Kahle is a Managing
Director of The GulfStar Group, Inc., an affiliate of GulfStar Investments,
Ltd., the holder of the GulfStar Warrant.
(6) Consists entirely of the beneficial ownership of shares of Common Stock
issuable on conversion of 1,244,737 shares of Series A Convertible Preferred
Stock beneficially owned by the Pecks Investors. Mr. Cresci is a Managing
Partner of Pecks Management Partners Ltd. See note 4 above.
(7) Represents shares to be issued in connection with the New York Acquisition.
Dr. Lane has agreed to serve as a Director of the Company upon the closing
of the New York Acquisition.
(8) Includes (i) 1,428,000 shares of Common Stock held by the Castle 1995 Gift
Trust f/b/o Jack H. Castle, Jr., (ii) 1,028,000 shares of Common Stock held
by Castle Interests, Ltd., (iii) 1,244,737 shares of Common Stock issued on
conversion of 1,244,737 shares of Series A Convertible Preferred Stock
beneficially owned by the Pecks Investors, (iv) 113,158 shares of Common
Stock issuable to GulfStar Investments, Ltd. on exercise of the GulfStar
Warrant, and (v) 500,000 shares of Common Stock to be issued to Dr. Lane in
connection with the New York Acquisition.
59
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares
of capital stock which includes 30,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock ("Preferred Stock"), 1,244,737 shares of which have
been designated Series A Convertible Preferred Stock all of which will be
converted into an aggregate of 1,244,737 shares of Common Stock at the closing
of this offering.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders, and such
holders do not have cumulative voting rights. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors of the Company out of funds legally
available therefor. See "Dividend Policy." All outstanding shares of Common
Stock are, and the shares to be sold in this offering when issued and paid for
will be, fully paid and nonassessable and the holders thereof will have no
preferences or conversion, exchange or preemptive rights. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, holders of
Common Stock will be entitled to share ratably in the assets of the Company
remaining after payment or provision for payment of all of the Company's debts
and obligations and liquidation payments to holders of outstanding shares of
Preferred Stock, if any.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series without further
stockholder authorization, and the Board of Directors is authorized to fix and
determine the terms, limitations and relative rights and preferences of the
Preferred Stock, to establish series of Preferred Stock and to fix and determine
the variations as among series. The Preferred Stock may be subject to repurchase
or redemption by the Company. The Board of Directors, without approval of the
holders of the Common Stock, can issue Preferred Stock with voting and
conversion rights (including multiple voting rights) which could adversely
affect the rights of holders of Common Stock. In addition to having a preference
with respect to dividends or liquidation proceeds, the Preferred Stock, if
issued, may be entitled to the allocation of capital gains from the sale of the
Company's assets. The Company has designated 1,244,737 shares of Preferred Stock
as Series A Convertible Preferred Stock, all of which are issued and outstanding
and owned by the Pecks Investors. See "Principal and Selling Stockholders." All
of the shares of Series A Convertible Preferred Stock will be converted into an
aggregate of 1,244,737 shares of Common Stock at the closing of this offering.
Although the Company has no present plans to issue any shares of Preferred
Stock following the closing of this offering, the issuance of shares of
Preferred Stock, or the issuance of rights to purchase such shares, may have the
effect of delaying, deferring or preventing a change in control of the Company
or an unsolicited acquisition proposal.
CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS
GENERAL
A number of provisions of the Company's Certificate of Incorporation (the
"Certificate") and Bylaws concern matters of corporate governance and the rights
of stockholders. Certain of these provisions, as well as the ability of the
Board of Directors to issue shares of Preferred Stock and to set the voting
rights, preferences and other terms thereof, may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved by
the Board of Directors (including takeovers to which certain stockholders may
deem to be in their best interests). To the extent takeover attempts are
discouraged, temporary fluctuations in the market price of the Company's Common
Stock, which may result from actual or rumored takeover attempts, may be
inhibited. These provisions, together with the ability of the Board of Directors
to issue Preferred Stock without further stockholder action, also could delay or
frustrate the removal of incumbent Directors or the assumption of control by
stockholders, even if such removal or
60
assumption would be beneficial to stockholders of the Company. These provisions
also could discourage or make more difficult a merger, tender offer or proxy
contest, even if a transaction or contest could be favorable to the interests of
stockholders, and could potentially depress the market price of the Common
Stock. The Board of Directors of the Company believes that these provisions are
appropriate to protect the interests of the Company and all of its stockholders.
The Board of Directors has no present plans to adopt any other measures or
devices which may be deemed to have an "anti-takeover effect."
MEETINGS OF STOCKHOLDERS
The Company's Bylaws provide that a special meeting of stockholders may be
called only by the Chief Executive Officer, by a majority of the Board of
Directors, or by a majority of the executive committee (if any). The Company's
Bylaws provide that only those matters set forth in the notice of the special
meeting may be considered or acted upon at that special meeting.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate provides that any action required or permitted to be taken
by the stockholders of the Company at an annual or special meeting of
stockholders must be effected at a duly called meeting and may not be taken or
effected by a written consent of stockholders in lieu thereof.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Certificate of the Company provides that Directors and officers of the
Company shall be, and at the discretion of the Board of Directors non-officer
employees and agents may be, indemnified by the Company to the fullest extent
authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities actually and reasonably incurred in
connection with service for or on behalf of the Company, and further permits the
advancing of expenses incurred in defense of claims. The Certificate also
contains a provision permitted by Delaware law that generally eliminates the
personal liability of Directors for monetary damages for breaches of their
fiduciary duty.
AMENDMENT OF THE BYLAWS
The Bylaws of the Company provide that an amendment or repeal thereof must
first be approved by the Board of Directors or by affirmative vote of the
holders of at least 66 2/3% of the total votes eligible to be cast by holders of
voting stock with respect to such amendment or repeal.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Company's Bylaws. If the Chairman of the Board of
Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Company's Bylaws. If the Chairman of the Board
of Directors determines that the other business was not properly brought before
such meeting in accordance with the Business Procedure, such business will not
be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a
61
particular annual meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
DELAWARE TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law which, with certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and officers and (b) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or after such date, the business combination is approved by the Board
of Directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder. An "interested stockholder" is
defined as any person that is (a) the owner of 15% or more of the outstanding
voting stock of the corporation or (b) an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
REGISTRATION RIGHTS
The Company has granted to the Pecks Investors, the Castle Family and
GulfStar Investments Ltd. certain registration rights pursuant to a Registration
Rights Agreement dated December 18, 1995 (the "Registration Rights Agreement").
Additionally, the Company has granted certain registration rights in connection
with its acquisitions of assets of affiliated dental practices in which a
component of the consideration for the acquisition was Common Stock. A total of
5,856,980 shares of Common Stock presently have some form of registration
rights. After completion of this offering and upon consummation of the New York
Acquisition and Arkansas Acquisition, a total of 6,041,980 shares of Common
Stock, assuming an initial public offering price of $10.00, will have some form
of registration rights. See "Principal and Selling Stockholders."
The Registration Rights Agreement grants the Pecks Investors holding at
least 50% of the Common Stock issuable on conversion of the Series A Convertible
Preferred Stock the right to request the registration of all or part of such
Common Stock. On receipt of such request, the Company is required to use its
best efforts to effect such registration. The Pecks Investors may exercise their
right to request registration twice following the consummation of this offering.
Additionally, following the consummation of this offering, the Pecks Investors
holding at least 20% of the Common Stock issuable on conversion of the Series A
Convertible Preferred Stock have the right to request an unlimited number of
registrations of all or part of their Common Stock on Form S-3 at such time as
the Company is eligible to use such form. All registrations pursuant to the
Registration Rights Agreement are undertaken at the Company's expense.
If the Company proposes to register any of its securities under the
Securities Act, either for its own account or the account of holders of Common
Stock exercising registration rights, the Company is required to give notice to
all parties to whom the Company has granted registration rights and to offer to
include any shares of Common Stock owned by such parties in such registration.
The exercise of these rights is subject to a number of conditions, including the
right of the underwriters of such offering to limit the number of shares
included in such registration. In the event the underwriters so limit the number
of shares to be included in a registration, any shares requested to be included
in such registration by the Pecks Investors,
62
the Castle Family and GulfStar Investments Ltd. shall be included prior to the
inclusion of any shares of Common Stock requested to be included by any other
party.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is KeyCorp
Shareholder Services, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and consummation of the Pending
Acquisitions (assuming an initial public offering price of $10.00), and giving
effect to the conversion of the Series A Convertible Preferred Stock, the
Company will have 11,541,980 shares of Common Stock outstanding. Up to 139,757
shares of Common Stock are presently issuable on the conversion of two Seller
Notes issued by the Company. Of the outstanding shares, the 5,500,000 shares
sold in this offering (6,325,000 shares if the Underwriters exercise their
over-allotment option in full) will be freely tradable without restriction or
limitation under the Securities Act, except to the extent such shares are
subject to the agreement with the Underwriters described below, and except for
any such shares which may be acquired by an "affiliate" of the Company as that
term is defined in Rule 144 ("Affiliate"). The 6,041,980 remaining shares
constitute "restricted securities" within the meaning of Rule 144, and will only
be eligible for sale in the open market commencing on the second anniversary of
the date such shares were acquired from the Company or an Affiliate, subject to
contractual lockup provisions and applicable requirements of Rule 144 and Rule
701 ("Rule 701") described below. Some of such restricted securities, however,
are subject to registration rights which may entitle the holder thereof to
register such shares for resale under the Securities Act and to sell such shares
after the lockup period without regard for the restrictions of Rule 144. The
restricted shares were issued and sold by the Company in private transactions in
reliance upon exemptions from registration under the Securities Act. The Company
will also have outstanding the GulfStar Warrant, which is exercisable for
113,158 shares of Common Stock at $5.50 per share, and such shares will be
eligible for resale subject to the volume, holding period and certain other
limitations of Rule 144 upon their exercise or conversion, as applicable.
In general, under Rule 144, as currently in effect, if a period of at least
two years has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an Affiliate, then the holder of such restricted securities
(including an Affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of (i) one percent of the
then outstanding shares of the Common Stock or (ii) the average weekly reported
volume of trading of the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 are also subject to certain requirements
pertaining to the manner of such sales, notices of such sales and the
availability of current public information concerning the Company. Affiliates
may sell shares not constituting restricted securities in accordance with the
foregoing volume limitations and other requirements but without regard to the
two year holding period. Under Rule 144(k), if a period of at least three years
has elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
Affiliate, a holder of such restricted securities who is not an Affiliate at the
time of the sale and has not been an Affiliate for a least three months prior to
the sale would be entitled to sell the shares immediately without regard to the
volume limitations and other conditions described above.
The Company, its directors and executive officers and all of the
stockholders of the Company have agreed that, for a period of 180 days after the
date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock, except in the case of the Company,
in certain limited circumstances, including issuing up to 2,000,000 shares of
Common Stock in connection with acquisitions to parties that agree to be bound
by the same restriction on offers and sales. After this offering, sales of
substantial amounts of Common Stock by existing stockholders could have an
adverse impact on the market price of the Common Stock. No
63
predictions can be made as to the effect, if any, that market sales of shares by
existing stockholders or the availability of such shares for future sale will
have on the market price of shares of Common Stock prevailing from time to time.
Under the Plan and the Directors' Plan, there is an aggregate of 1,200,000
shares reserved for issuance. As of the date of this Prospectus, options to
purchase 480,500 shares have been granted pursuant to the Plan and the Director
Plan, none of which are currently exercisable. In addition, the Company intends
to issue at or shortly following consummation of this offering options to
purchase approximately 200,000 shares of Common Stock under the Plan (none of
which will be immediately exercisable). As soon as practicable following the
consummation of the offering, the Company intends to file a registration
statement under the Securities Act to register the shares of Common Stock
reserved for issuance under the Plan and the Directors' Plan. Shares of Common
Stock issued pursuant to the Plan and the Directors' Plan after the effective
date of such registration statement will be available for sale in the open
market, subject to vesting provisions related to such shares and the Lock-up
Period. If the Company does not file such a registration statement during the
Lock-up Period, holders of shares issuable upon exercise of options will be able
to rely on the exemption from registration under Rule 701. Securities issued in
reliance on Rule 701 are restricted securities and at the expiration of the
Lock-up Period, may be sold by persons other than affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period.
The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modification will have a material effect on
the time when certain shares of the Common Stock become eligible for resale.
64
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed to
sell to such Underwriter, the respective number of shares of Common Stock set
forth opposite the name of such Underwriter below.
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------- ----------
Smith Barney Inc.....................
Donaldson, Lufkin & Jenrette
Securities Corporation.............
Southcoast Capital Corporation.......
----------
Total........................... 5,500,000
==========
The Underwriters are committed to take and pay for all of the shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Southcoast Capital Corporation are acting as
Representatives, propose initially to offer part of the shares of Common Stock
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $ per share under the public offering price. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per share
to certain other dealers. After the initial public offering, the public offering
price and such concessions may be changed by the Underwriters. The
Representatives have informed the Company and the Selling Stockholders that the
Underwriters do not expect to confirm sales to accounts over which they exercise
discretionary authority.
The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable for 30 days from the date of this Prospectus, to purchase
up to an additional 550,000 shares and 275,000 shares, respectively, of Common
Stock at the price to the public set forth on the cover page hereof less
underwriting discounts and commissions. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering
over-allotments, if any, incurred in connection with the sale of the shares
offered hereby. To the extent such option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth opposite each
Underwriter's name in the preceding table bears to the total number of shares
listed in such table.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, its directors and executive officers and all of the
stockholders of the Company have agreed that, for a period of 180 days after the
date of this Prospectus, they will not, without the prior written consent of
Smith Barney Inc., offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for any shares of Common Stock, except in the case of the Company,
in certain limited circumstances, including issuing up to 2,000,000 shares of
Common Stock in connection with acquisitions to parties that agree to be bound
by the same restrictions on offers and sales.
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiations
65
between the Company and the Representatives. Among the factors considered in
determining the initial public offering price were the history of, and prospects
for, the Company's business and the industry in which it competes, an assessment
of the Company's management and the present state of the Company's development,
its past and present revenues and earnings and the trend of such revenues and
earnings, the prospects for the growth of the Company's revenues and earning,
the general condition of the securities market at the time of this offering and
the market price and earnings of similar securities of comparable companies at
the time of this offering.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal matters
will be passed on for the Underwriters by Willkie Farr & Gallagher, New York,
New York.
EXPERTS
The combined financial statements of Castle Dental Centers, Inc. and the
financial statements of the companies acquired by Castle Dental Centers, Inc.
for the indicated periods ended December 31, 1993, 1994 and 1995, as detailed in
the index beginning on page F-1 included in this Prospectus and appearing
elsewhere in this Registration Statement, have been audited by Coopers &
Lybrand, L.L.P., independent accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall encompass any and all
amendments thereto) on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus, which is part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain items of which are
omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and such exhibits and schedules filed as a part thereof, which may be inspected,
without charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains a web site that
contains reports, proxy and information statements regarding registrants that
file electronically with the Commission. The address of this web site is
(http://www.sec.gov). Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the Commission, upon
payment of the prescribed fees.
66
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE
CASTLE DENTAL CENTERS, INC.
Report of Independent
Accountants.................... F-4
Combined Balance Sheets as of
December 31, 1994 and 1995..... F-5
Combined Statements of
Operations for the years ended
December 31,1993, 1994 and
1995........................... F-6
Combined Statements of Changes
in Stockholders' Equity
(Deficit) for the years ended
December 31, 1993, 1994 and
1995........................... F-7
Combined Statements of Cash
Flows for the years ended
December 31, 1993, 1994 and
1995........................... F-8
Notes to Combined Financial
Statements..................... F-9
1ST DENTAL CARE
Report of Independent
Accountants.................... F-18
Combined Balance Sheets as of
December 31, 1994 and 1995..... F-19
Combined Statements of
Operations for the years ended
December 31, 1993, 1994 and
1995........................... F-20
Combined Statements of Changes
in Stockholder's Equity
(Deficit) for the years ended
December 31, 1993, 1994 and
1995........................... F-21
Combined Statements of Cash
Flows for the years ended
December 31, 1993, 1994 and
1995........................... F-22
Notes to Combined Financial
Statements..................... F-23
MID-SOUTH DENTAL CENTERS
Report of Independent
Accountants.................... F-28
Balance Sheets as of December
31, 1994 and 1995.............. F-29
Statements of Operations for the
years ended December 31, 1993,
1994 and 1995.................. F-30
Statements of Changes in
Stockholder's Equity for the
years ended December 31, 1993,
1994 and 1995.................. F-31
Statements of Cash Flows for the
years ended December 31, 1993,
1994 and 1995.................. F-32
Notes to Financial Statements... F-33
HORIZON DENTAL CENTERS
Report of Independent
Accountants.................... F-38
Combined Balance Sheet as of
December 31, 1995.............. F-39
Combined Statements of
Operations for the years ended
December 31, 1994 and 1995..... F-40
Combined Statements of Changes
in Stockholder's Equity
(Deficit) for the years ended
December 31, 1994 and 1995..... F-41
Combined Statements of Cash
Flows for the years ended
December 31, 1994 and 1995..... F-42
Notes to Combined Financial
Statements..................... F-43
F-1
AMERICAN DENTAL CENTERS
Report of Independent
Accountants.................... F-46
Combined Balance Sheets as of
December 31, 1994 and 1995..... F-47
Combined Statements of
Operations for the years ended
December 31,1993, 1994 and
1995........................... F-48
Combined Statements of Changes
in Stockholders' Equity
for the years ended December
31, 1993, 1994 and 1995........ F-49
Combined Statements of Cash
Flows for the years ended
December 31, 1993, 1994 and
1995........................... F-50
Notes to Combined Financial
Statements..................... F-51
UNITED DENTALCARE
Report of Independent
Accountants.................... F-55
Balance Sheet as of December 31,
1995........................... F-56
Statements of Operations for the
years ended December 31, 1994
and 1995....................... F-57
Statements of Changes in
Stockholders' Equity (Deficit)
for the years ended December
31, 1994 and 1995.............. F-58
Statements of Cash Flows for the
years ended December 31, 1994
and 1995....................... F-59
Notes to Financial Statements... F-60
CASTLE DENTAL CENTERS, INC.
Condensed Consolidated Balance
Sheets (Unaudited) as of
December 31, 1995 and June 30,
1996........................... F-64
Condensed Consolidated
Statements of Operations
(Unaudited) for the six months
ended June 30, 1995 and 1996... F-65
Consolidated Statements of Cash
Flows (Unaudited) for the six
months ended June 30, 1995 and
1996........................... F-66
Notes to Condensed Consolidated
Financial Statements
(Unaudited).................... F-67
1ST DENTAL CARE
Condensed Combined Balance Sheet
(Unaudited) as of December 31,
1995 and April 30, 1996........ F-71
Condensed Combined Statements of
Operations (Unaudited) for the
four months ended April 30,
1995 and 1996.................. F-72
Condensed Combined Statements of
Cash Flows (Unaudited) for the
four months ended April 30,
1995 and 1996.................. F-73
Notes to Condensed Combined
Financial Statements........... F-74
MID-SOUTH DENTAL CENTERS
Condensed Balance Sheet
(Unaudited) as of December 31,
1995 and May 31, 1996.......... F-75
Condensed Statements of
Operations (Unaudited) for the
five months ended May 31, 1995
and 1996....................... F-76
Condensed Statements of Cash
Flows (Unaudited) for the five
months ended May 31, 1995 and
1996........................... F-77
Notes to Condensed Financial
Statements..................... F-78
F-2
HORIZON DENTAL CENTERS
Condensed Combined Balance
Sheets (Unaudited) as of
December 31, 1995, and June 30,
1996........................... F-79
Condensed Combined Statements of
Operations (Unaudited) for the
six months ended June 30, 1995
and 1996....................... F-80
Condensed Combined Statements of
Cash Flows (Unaudited) for the
six months ended June 30, 1995
and 1996....................... F-81
Notes to Condensed Combined
Financial Statements........... F-82
AMERICAN DENTAL CENTERS
Condensed Combined Balance
Sheets (Unaudited) as of
December 31, 1995, and June 30,
1996........................... F-83
Condensed Combined Statements of
Operations (Unaudited) for the
six months ended
June 30, 1995 and 1996........ F-84
Condensed Combined Statements of
Cash Flows (Unaudited) for the
six months ended
June 30, 1995 and 1996........ F-85
Notes to Condensed Combined
Financial Statements........... F-86
UNITED DENTALCARE
Condensed Balance Sheets
(Unaudited) as of December 31,
1995, and June 30, 1996........ F-87
Condensed Statements of
Operations (Unaudited) for the
six months ended June 30, 1995
and 1996....................... F-88
Condensed Statements of Cash
Flows (Unaudited) for the six
months ended June 30, 1995 and
1996........................... F-89
Notes to Condensed Financial
Statements..................... F-90
F-3
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders of
Castle Dental Centers, Inc.:
We have audited the accompanying combined balance sheets of Castle Dental
Centers, Inc. as of December 31, 1994 and 1995, and the related combined
statements of operations, equity and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
presently fairly, in all material respects, the financial position of Castle
Dental Centers, Inc. as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
------------------------
Houston, Texas
Sept. 3, 1996
F-4
<PAGE>
CASTLE DENTAL CENTERS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------
1994 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....... $ 22 $ 6,439
Patient receivables, net of
allowance for uncollectible
accounts of $2,596 and $2,437
in 1994 and 1995,
respectively................... 2,709 2,710
Unbilled patient receivables,
net of allowance for
uncollectible accounts of $113
and $228 in 1994 and 1995,
respectively................... 450 913
Other current assets............ 3 22
--------- ---------
Total current
assets................. 3,184 10,084
Property and equipment, net.......... 1,478 1,583
Other assets......................... 49 757
Deferred income taxes................ -- 253
--------- ---------
Total assets.......... $ 4,711 $ 12,677
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term
debt........................... $ 116 $ 900
Current portion of capital lease
obligations.................... 240 140
Accounts payable and accrued
liabilities.................... 1,562 2,836
Deferred income taxes........... 54 --
--------- ---------
Total current
liabilities............ 1,972 3,876
Long-term debt, net of current
portion............................ 44 9,462
Capital lease obligations, net of
current portion.................... 118 50
Other long-term liabilities.......... -- 2,104
Commitments and contingencies
Redeemable preferred stock, $.001 par
value, 1,244,737 shares authorized,
issued and outstanding............. -- 2,928
Common stock, $.001 par value,
20,000,000 shares authorized,
4,000,000 shares issued and
outstanding, reflecting the effect
of the Company's reorganization
retroactively applied.............. 4 4
Additional paid-in capital........... 1 94
Retained earnings (accumulated
deficit)........................... 2,572 (5,841)
--------- ---------
Total liabilities and
stockholders' equity
(deficit).............. $ 4,711 $ 12,677
========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-5
CASTLE DENTAL CENTERSCASTLE DENTAL CENTERS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Net patient revenues................. $ 15,053 $ 17,083 $ 18,257
Expenses:
Dentists' salaries.............. 2,684 2,853 3,345
Clinical salaries............... 1,529 1,811 1,879
Dental supplies and laboratory
fees.......................... 1,565 1,907 2,185
Rental and lease expense........ 504 681 836
Advertising and marketing....... 729 1,062 959
Depreciation and amortization... 245 309 336
Other operating expenses........ 1,871 2,205 2,260
General and administrative...... 4,947 5,319 9,109
--------- --------- ---------
Total expenses............. 14,074 16,147 20,909
--------- --------- ---------
Operating income (loss).... 979 936 (2,652)
Interest expense..................... 130 112 87
--------- --------- ---------
Income (loss) before income taxes.... 849 824 (2,739)
Provision (benefit) for income
taxes.............................. 40 43 (325)
--------- --------- ---------
Net income (loss).................... $ 809 $ 781 $ (2,414)
========= ========= =========
Net income (loss) per share.......... $ .15 $ .14 $ (.44)
========= ========= =========
If all of the Company's operations
had been subject to income taxes,
net income would have been as
follows (unaudited):
Historical income (loss) before
income taxes.................. $ 849 $ 824 $ (2,739)
Provision (benefit) for income
taxes......................... 303 309 (1,041)
--------- --------- ---------
Net income (loss)............... $ 546 $ 575 $ (1,698)
========= ========= =========
Pro forma net income (loss) per
share......................... $ .10 $ .10 $ (.31)
========= ========= =========
Weighted average number of common and
common equivalent shares
outstanding........................ 5,515 5,515 5,515
========= ========= =========
If the shares necessary to fund the
distribution to the owner in
connection with the Reorganization
were outstanding for the entire
period, net income per share and
weighted average shares outstanding
would have been as folllows:
Pro forma net income per
share......................... $ (.39)
=========
Weighted average number of
common and common equivalent
shares outstanding............ 6,115
=========
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE>
CASTLE DENTAL CENTERS, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
---------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT)
----------- ------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993, as
restated........................... 2,000 -- $ 2 $ 985
Effect of December 1995
reorganization, retroactively
applied....................... 3,998,000 $ 4 (1) (3)
Net income...................... 809
----------- ------- --- -------------
Balance, December 31, 1993........... 4,000,000 4 1 1,791
Net income...................... 781
----------- ------- --- -------------
Balance, December 31, 1994........... 4,000,000 4 1 2,572
Issuance of common stock and
distribution to owner in
connection with
reorganization................ 1,000 -- 1 (6,000)
Cancellation of common stock in
connection with
reorganization................ (1,000) -- (1) 1
Issuance of warrant............. -- -- 93 --
Net loss........................ -- -- -- (2,414)
----------- ------- --- -------------
Balance, December 31, 1995........... 4,000,000 $ 4 $ 94 $(5,841)
=========== ======= === =============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-7
CASTLE DENTAL CENTERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss).................. $ 809 $ 781 $ (2,414)
Adjustments:
Provision for bad debts....... 1,021 1,501 1,399
Depreciation and
amortization............... 245 309 336
Deferred income taxes
(benefit).................. 26 30 (325)
Deferred compensation......... -- -- 2,630
Changes in operating assets
and liabilities:
Patient receivables...... (1,215) (1,848) (1,285)
Unbilled patient
receivables........... (275) (286) (578)
Other current assets..... 5 45
Other assets............. (5) (8) (13)
Accounts payable and
accrued liabilities... (44) 522 748
--------- --------- ---------
Net cash provided
by operating
activities....... 567 1,046 498
--------- --------- ---------
Cash flows used in investing
activities -- capital expenditures.... (442) (308) (441)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt................. -- 67 10,362
Repayment of debt.................. (383) (817) (328)
Issuance of redeemable preferred
stock............................ -- -- 3,138
Distribution to shareholder........ -- -- (6,000)
Payment of debt and preferred stock
issuance costs................... -- -- (812)
--------- --------- ---------
Net cash provided
by (used in)
financing
activities....... (383) (750) 6,360
--------- --------- ---------
Net change in cash and cash
equivalents........................... (258) (12) 6,417
Cash and cash equivalents, beginning of
period................................ 292 34 22
--------- --------- ---------
Cash and cash equivalents, end of
period................................ $ 34 $ 22 $ 6,439
========= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-8
<PAGE>
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
Castle Dental Centers, Inc. is a provider of dental and orthodontic
services and products that owns and operates dental centers in the Houston,
Texas area.
The combined financial statements reflect the combined operations of Castle
Dental Centers, Inc., Jack H. Castle, D.D.S., Inc. ("JCD"), a subchapter S
corporation, and of Family Dental Services of Texas, Inc. ("FDS"), a
corporation, because these entities were under common control.
Effective December 31, 1995, FDS entered into an agreement and plan of
merger with Castle Dental Centers, Inc. both of which are collectively known as
Castle Dental Centers (the "Company"). The Company on December 31, 1995,
executed a stock purchase agreement, with the sole shareholder of JCD and
acquired the outstanding stock for $6,000,000 after which JCD ceased all dental
and orthodontic operations.
Jack H. Castle, D.D.S., P.C., ("JCP"), a professional corporation, was
incorporated in December 1995 to provide dental and orthodontic services. JCP
commenced operations in January 1996.
Prior to December 31, 1995, under the terms of a contractual agreement, FDS
provided business operations, financial, marketing and administrative services
to JCD. Subsequent to December 31, 1995, the same services are provided under
similar contractual agreements by the Company to JCP. All significant
intercompany accounts and transactions have been eliminated in combination.
The Company has restated previously reported financial statements to accrue
allowances for doubtful accounts, compensation payable and trade accounts
payable. These restatements increased net income by $37,000 and $362,000 for
1993 and 1994, respectively, and decreased retained earnings as of January 1,
1993 by $1,635,000. The restatement had no tax effect because the adjustments
were related to the subchapter S corporation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
REVENUE RECOGNITION
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Orthodontic revenue is recognized in accordance with
the proportional performance method. Under this method, revenue is recognized as
services are incurred under the terms of contractual agreements with each
patient. Approximately 25% of the services are performed in the first month with
the remaining services recognized ratably over the
F-9
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
remainder of the contract. Billings under each contract, which average
approximately 28 months, are made equally throughout the term of the contract,
with final payment at the completion of the treatment.
Accounts receivable consist primarily of receivables from patients,
insurers, government programs and other third-party payers for dental services
provided by dentists. An allowance for doubtful accounts is recorded by the
Company based on historical experience.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
ten years. Fully depreciated assets are retained in property and equipment until
they are removed from service. Fully depreciated assets as of December 31, 1994
and 1995 were $490,000. Maintenance and repairs are charged to expense whereas
renewals and major replacements are capitalized. Gains and losses from
dispositions are included in operations.
DEBT ISSUANCE COSTS
The costs related to the issuance of debt are capitalized and amortized
using the effective interest method over the lives of the related debt.
INCOME TAXES
JCD was a subchapter S entity and, accordingly, all federal tax liabilities
were the responsibility of the shareholder. The subchapter S election of JCD was
automatically terminated when the entity became a wholly-owned subsidiary of the
Company; and therefore, became a C-Corporation for federal income tax purposes.
Accordingly, a pro forma provision for income taxes is presented as if the
entities were taxed as C-corporations during the periods presented.
Income taxes, including pro forma calculations, are accounted for under the
liability method. Under this method, deferred taxes are determined based on the
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted marginal tax rates currently in
effect. All federal deferred taxes of JCD were recognized upon becoming a
C-Corporation.
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted SFAS No. 121 during the first quarter of
1996. Implementation of SFAS No. 121 did not have a material impact on its
financial position, results of operations or cash flows.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which establishes accounting and reporting standards for
stock-based employee compensation plans. The pronouncement is effective for the
year ended December 31, 1996, although earlier application regarding reporting
disclosure requirements is encouraged. Based on preliminary review, the Company
intends to adopt only the reporting disclosure provisions of SFAS No. 123. The
Company does not believe implementation of SFAS No. 123 will have a material
impact on its financial position, results of operations or cash flows.
F-10
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
Earnings per share is computed on the basis of the weighted average number
of shares of common stock and common stock equivalents outstanding during each
period. Shares outstanding for all periods presented have been retroactively
adjusted to reflect the reorganization discussed in Note 2. In accordance with
Staff Accounting Bulletin ("SAB") Number 83 of the Securities and Exchange
Commission, the common stock equivalents that were issued during the twelve
months preceding the planned offering at prices below the expected initial
public offering price have been included in the Company's earnings per share
computation and treated as if they had been issued at the Company's inception
even though they were antidilutive. Additionally, in accordance with SAB Number
55, pro forma earnings per share have been presented for 1995 to reflect
issuance of the number of shares that would have been necessary to fund the
$6,000,000 distribution to the Company's owner in connection with the
Reorganization (at an assumed public offering price of $10.00 per share). Fully
diluted earnings per share are not presented because such amounts would be the
same as amounts computed for primary earnings per share.
ADVERTISING
Costs incurred for advertising are expensed when incurred.
2. REORGANIZATION AND RELATED TRANSACTIONS:
In December 1995, the Company completed a reorganization in which it
entered into the following borrowing agreements.
o $3,000,000 revolving credit agreement ("Credit Agreement") to be
used for acquisition financing and general corporate purposes. The
Credit Agreement bears interest at rates that vary based on the
lender's prime rate or the London Interbank offered rate plus
applicable margins and expires June 30, 1997. A commitment fee is
payable quarterly on the daily average unused amount ranging from .25%
to .5% of such amounts. As of December 31, 1995, there was $3,000,000
available under the line of credit.
o $6,000,000 bank term loan, (the "Term Loan"), which is
collateralized by the assets of the Company. Interest is payable
quarterly, beginning March 1996 at rates not exceeding the bank's
prime rate plus 1% (8.19% at December 31, 1995). Principal payments of
$300,000 are payable quarterly, commencing June 15, 1996 through March
15, 2001.
o $7,500,000 face amount of subordinated notes (the "Subordinated
Notes"). The Subordinated Notes are uncollateralized, bear interest
at 12% per year and are payable quarterly in arrears. Principal is
payable in two installments of $3.75 million on December 18, 2001 and
2002.
The Company issued 1,244,737 shares of Series A convertible preferred
stock, par value $.001 per share (the "Series A Stock") to the buyers of the
Subordinated Notes. Each share is convertible into one share of the Company's
common stock after giving effect to any antidilutive adjustment as appropriate.
The Series A Stock is mandatorily redeemable at the fair market value at the
date of redemption at the holder's option either upon receipt of a change of
control notice or after December 18, 2001, if no secondary market exists for
Series A Stock. The value of the Series A Stock issued ($2.52 per share) has
been recorded as a discount on the Subordinated Notes. The Company has the right
to call all the shares of the Series A Stock at $.001 per share, upon a
completed or anticipated change of control.
A portion of the proceeds were used to acquire JCD, the acquisition of
which has been recorded as a recapitalization and capital distribution to JCD's
shareholder because the Company and JCD were under common control. Additionally,
the Company issued 4,000,000 shares to the former owner of JCD and certain
related parties for no consideration. Accordingly, the Company retroactively
applied the shares issued to all historical financial statements as a stock
split.
F-11
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the purchase of the stock of JCD, the Company entered
into a Deferred Compensation Agreement with the sole shareholder of JCD, who is
also director of the Company, pursuant to which the Company has agreed to pay
the shareholder $2,630,000 in 20 quarterly installments beginning March 1996.
Payments made by the Company pursuant to the Deferred Compensation Agreement are
subordinated to the Credit Agreement, the Term Loan and the Subordinated Notes.
A warrant to purchase 113,158 shares of common stock at an exercise price
of $5.50 per share was issued to an investment advisor in connection with the
placement of the recapitalization (See Note 9). The warrant is exercisable at
any time prior to its expiration date of December 18, 2000. The value of the
warrant ($0.82 per share) has been recorded as deferred offering costs of the
Subordinated Notes.
The Company is required to repurchase all outstanding Subordinated Notes in
the event of a change in control or if no secondary market exists at December
18, 2001. The Subordinated Notes are subordinate to certain senior indebtedness
of the Company. Approximately $695,000 of debt issuance costs, including the
value of the warrant, were capitalized in relation to the issuance of the Credit
Agreement, Term Loan, and Subordinated Notes. Additionally, approximately
$210,000 of issuance cost were charged to the Series A Stock.
The Credit Agreement, Term Loan, and Subordinated Notes contain customary
restrictive covenants which include, among others, restrictions on additional
indebtedness, the payment of dividends and other distributions, and require the
Company to meet certain financial ratios.
3. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts were as follows:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Property and equipment:
Equipment....................... $ 1,164 $ 1,853
Leasehold improvements.......... 425 632
Furniture and fixtures.......... 98 98
Equipment under capital
leases........................ 1,259 804
--------- ---------
Total property and
equipment.......... 2,946 3,387
Less accumulated depreciation
and amortization.............. (1,468) (1,804)
--------- ---------
Property and
equipment, net..... $ 1,478 $ 1,583
========= =========
Accounts payable and accrued
liabilities:
Trade........................... $ 978 $ 1,645
Compensation.................... 571 575
Other........................... 13 616
--------- ---------
$ 1,562 $ 2,836
========= =========
F-12
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT AND LINE OF CREDIT:
Long-term debt consisted of the following:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Revolving credit loan................ $ 160 --
Term loan............................ -- $ 6,000
Subordinated Notes................... -- 7,500
--------- ---------
Total debt............ 160 13,500
Less discount on Subordinated
Notes.............................. -- (3,138)
--------- ---------
Long-term debt, net of discount...... 160 10,362
Less current portion................. 116 900
--------- ---------
Long-term debt........ $ 44 $ 9,462
========= =========
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years subsequent to December 31, 1995 were as follows (in
thousands):
1996................................. $ 900
1997................................. 1,200
1998................................. 1,200
1999................................. 1,200
2000................................. 1,200
Thereafter........................... 7,800
---------
$ 13,500
=========
5. COMMITMENT AND CONTINGENCIES:
LEASE COMMITMENTS
Future minimum lease payments under capital leases and noncancelable
operating leases with remaining terms of one or more years consisted of the
following at December 31, 1995 (in thousands):
CAPITAL OPERATING
------- ---------
1996................................. $ 157 $ 775
1997................................. 23 809
1998................................. 23 619
1999................................. -- 565
2000................................. -- 399
Thereafter........................... -- 1,031
------- ---------
Total minimum lease obligation....... 203 $ 4,198
=========
Less amount representing interest.... 13
-------
Present value of minimum lease
obligations........................ 190
Less current portion................. 140
-------
Capital lease obligations............ $ 50
=======
F-13
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
DENTIST EMPLOYMENT AGREEMENTS AND PROFESSIONAL LIABILITY
Each affiliated dental practice has entered into a Dentist Employment
Agreement with each full time dentist, orthodontist and other dental specialist
employed by it. Although the form of contract varies somewhat among practices
and among dentists with different specialties, the typical contract provides for
a defined compensation arrangement, including performance-based compensation,
liquidated damages and a covenant not to compete. Each full-time dentist is
required to maintain professional liability insurance, and mandated coverage
limits are generally at least $1,000,000 per claim and $1,000,000 in aggregate.
In addition, many affiliated dental practices employ part-time dentists. Not all
part-time dentists have employment agreements, but all part-time dentists are
required to carry professional liability insurance in specified amounts.
6. INCOME TAXES:
Significant components of the Company's deferred tax liabilities and assets
were as follows:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Deferred tax liabilities:
Unbilled receivables............... $ -- $ 347
Loss of Subchapter S status in
connection with changes in
corporate form.................. 54 1,209
--------- ---------
Total deferred tax
liabilities.......... 54 1,556
Deferred tax assets:
Deferred compensation.............. -- (999)
Allowances for bad debts........... -- (828)
--------- ---------
Total deferred assets... -- (1,827)
Net deferred tax liabilities
(assets)........................... 54 (271)
Less current portion................. (54) 18
--------- ---------
Noncurrent.............. $ -- $ (253)
========= =========
F-14
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes were as follows:
DECEMBER 31,
-------------------------------
1993 1994 1995
--- --- ---------
(IN THOUSANDS)
Current tax provision:
Federal............................ $ 14 $ 13 $ --
State.............................. -- -- --
--- --- ---------
Total current................... 14 13 --
--- --- ---------
Deferred tax provision (benefit):
Federal............................ (217)
State.............................. 26 30 (108)
--- --- ---------
Total deferred.................. 26 30 (325)
--- --- ---------
$ 40 $ 43 $ (325)
=== === =========
The differences between the statutory federal tax rate and the Company's
effective tax rate were as follows:
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Tax at U.S. statutory rate (34%)..... $ 289 $ 280 $ (931)
State income taxes, net of federal
tax................................ 26 30 (71)
Income not subject to corporate level
federal tax........................ (263) (266) (83)
Difference due to graduated tax
rates.............................. (12) (10) --
Nondeductible expenses and other..... -- 9 10
Effect of conversion to taxable
entity............................. -- -- 750
--------- --------- ---------
$ 40 $ 43 $ (325)
========= ========= =========
7. SUPPLEMENTAL CASH FLOW INFORMATION:
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Cash paid during the period for:
Interest........................ $ 111 $ 150 $ 87
Income taxes.................... 13 14 1
Supplemental disclosure of noncash
investing and
financing activities:
Effect of reorganization on
capital structure............. -- -- 39
Issuance of warrant............. -- -- 93
8. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants customers credit in the normal course of business.
Procedures are in effect to monitor the creditworthiness of customers and
appropriate allowances are made to reduce accounts to their net realizable
values.
F-15
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and credit agreement approximate fair values due to the
short-term maturities of these instruments. The carrying amounts of the
Company's long-term borrowings as of December 31, 1994 and 1995, respectively,
approximate their fair value based on the Company's current incremental
borrowing rates for similar type of borrowing arrangements.
9. RELATED PARTY TRANSACTIONS:
The Company entered into a Management Services Agreement with JCP, a
professional corporation of which a shareholder is the sole owner. Pursuant to
the Management Services Agreement, the Company pays the shareholder an annual
payment of $100,000 to take such action as is necessary to have the shares of
stock of JCP held by a person licensed to practice dentistry in Texas.
The Company is party to a lease agreement with Goforth, Inc., a company
owned by the Company's chairman and chief executive officer (the "Affiliate").
The Company has agreed to pay the Affiliate a minimum guaranteed rental of
$12,000 per month through January 2001 and $13,200 per month from January 2001
through January 2006 for rental of a dental center. The Company has also agreed
to pay additional rent of approximately $1,600 per month for insurance, taxes
and common area maintenance. The Company paid $235,000 under this agreement
during 1995.
A Director of the Company is a Managing Director of The GulfStar Group,
Inc., which provides investment banking and advisory services to the Company. In
1995, the Company paid $540,000 in investment banking fees to The GulfStar
Group, and issued a warrant for 113,158 shares of Common Stock to GulfStar
Investments, Ltd., an affiliate of The GulfStar Group, Inc. (see Note 2). The
Company pays The GulfStar Group, Inc. for the ongoing investment banking and
financial advisory services provided to the Company in an amount equal to one
percent of the total consideration for each of the Company's acquisitions that
has been consummated.
A Director of the Company is a Managing Partner of Pecks Management
Partners Ltd., an investment advisor to investors in the Company owning in the
aggregate 1,244,737 shares of the Series A Stock and $7.5 million of the
Subordinated Notes (see Note 2). Pursuant to the provisions of a Securities
Purchase Agreement dated as of December 18, 1995, for so long as certain
ownership thresholds with respect to Series A Stock or common stock following
conversion of the Series A Stock are maintained, that such investors have the
contractual right to nominate one member of the Company's Board of Directors.
10. SUBSEQUENT EVENTS:
EMPLOYEE STOCK OPTION PLAN
In January 1996, the Company adopted the Omnibus Stock and Employee Stock
Option Plan (the "Plan"). The aggregate amount of common stock with respect to
which grants under the Plan may be made may not exceed 1,000,000 shares. The
Plan provides for the grant of incentive stock options ("ISOs") as defined in
the Internal Revenue Code of 1986, as amended, nonqualified stock options and
shares of restricted stock (collectively, the "Awards").
All of the employees, directors, consultants and former consultants of the
Company or its affiliates are eligible to receive Awards under the Plan. In
addition, key employees of entities managed by the Company may receive Awards.
Only key employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally be exercisable in
F-16
CASTLE DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
installments pursuant to a vesting schedule. No option will remain exercisable
later than ten years after the date of grant.
The exercise price for ISOs granted under the Plan may be no less than the
fair market value of the common stock on the date of grant (or 110% in the case
of ISOs granted to employees owning more than 10% of the common stock). The
exercise price for nonqualified options granted under the Plan will be at the
discretion of the Company.
ACQUISITIONS
In May 1996, the Company acquired the assets of and entered into long term
management agreements with 1st Dental Care, P.A., a dental practice in the
Tampa/Clearwater, Florida area, and Mid-South Dental Centers, P.C., a dental
practice with dental centers in various locations in Tennessee. In August 1996,
the Company increased its dental practices under management in Texas by the
acquisition of the assets of Horizon Dental Centers, a dental practice with
dental centers in Fort Worth and Austin, Texas. The purchase prices consisted
primarily of combinations of cash, common stock and seller debt issued. The
Company has entered into definitive agreements to acquire the assets of and
enter into a long term management agreement with American Dental Centers, a
dental practice in the New York City area, and United Dental Care, a dental
practice that operates dental centers in Arkansas, Oklahoma and Louisiana.
AMENDMENT TO TERM LOAN
In May 1996, the Company amended the Term Loan, which increased the amount
available to $16 million. The additional $10 million is to be utilized to fund
acquisitions, which are subject to prior approval by the lender. As of June 30,
1996, the Company had borrowed $3,950,000 of this facility to fund the
acquisition of 1st Dental Care in Tampa/Clearwater, Florida and Mid-South Dental
Centers in Nashville, Tennessee, discussed above. In August 1996, the Company
borrowed an additional $2.1 million under the term loan to fund the acquisition
of Horizon Dental Centers in Fort Worth and Austin, Texas, discussed above.
EMPLOYEE RETIREMENT PLAN
In August 1996, the Company adopted a profit sharing plan qualified under
Section 401(k) of the Internal Revenue Code of 1986 (the "401(k) Plan"). All
employees of the Company are eligible to participate in the 401(k) Plan upon the
completion of six months of service. Participants may elect to defer receipt of
compensation and have such deferred amounts contributed to the 401(k) Plan up to
a maximum of 20% of compensation. The Company may match contributions made by
participants under the 401(k) Plan each year in an amount determined by the
Company on a year-to-year basis. Participants are fully vested with respect to
their contributions, while the Company's contributions are subject to vesting on
the following basis: zero for fewer than two years of employment and 20% per
year cumulatively for the third through seventh years of employment.
Participants may borrow from their accounts under the 401(k) Plan.
F-17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
1st Dental Care:
We have audited the accompanying combined balance sheets of 1st Dental Care
as of December 31, 1994 and 1995, and the related combined statements of
operations, changes in stockholder's equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1995. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
presently fairly, in all material respects, the financial position of 1st Dental
Care as of December 31, 1994 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
------------------------
Houston, Texas
June 10, 1996
F-18
<PAGE>
1ST DENTAL CARE
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
DECEMBER 31,
--------------------
1994 1995
--------- ---------
ASSETS
Current assets:
Patient receivables, net of
allowance for uncollectible
accounts of
$26 and $21 in 1994 and 1995,
respectively................... $ 166 $ 130
Unbilled patient receivables,
net of allowance for
uncollectible accounts
of $12 and $19 in 1994 and
1995, respectively............. 61 107
Other current assets............ 17 25
--------- ---------
Total current assets....... 244 262
Property and equipment, net.......... 1,272 1,242
Other assets......................... 2 14
--------- ---------
Total assets............... $ 1,518 $ 1,518
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term
debt........................... $ 293 $ 236
Accounts payable and accrued
expenses....................... 746 747
--------- ---------
Total current
liabilities.............. 1,039 983
Deferred revenue..................... 37 28
Long-term debt....................... 593 884
Commitments and contingencies
Common stock......................... 5 5
Additional paid-in capital........... 427 427
Accumulated deficit.................. (583) (809)
--------- ---------
Stockholder's deficit...... (151) (377)
--------- ---------
Total liabilities and
stockholder's deficit.... $ 1,518 $ 1,518
========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-19
<PAGE>
1ST DENTAL CARE
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Net patient revenues................. $ 5,763 $ 6,274 $ 6,465
--------- --------- ---------
Expenses:
Dentists' salaries.............. 1,048 1,243 1,221
Clinical salaries............... 1,919 2,031 2,086
Dental supplies and laboratory
fees.......................... 446 463 511
Rental and lease expense........ 326 339 373
Advertising and marketing....... 165 156 163
Depreciation and amortization... 176 199 236
Other operating expenses........ 359 417 392
General and administrative...... 954 1,126 1,040
--------- --------- ---------
Total expenses............. 5,393 5,974 6,022
--------- --------- ---------
Operating income........... 370 300 443
Loss on sale of property and
equipment.......................... -- -- 95
Interest expense..................... 48 83 106
--------- --------- ---------
Income before extraordinary item..... 322 217 242
Extraordinary gain on extinguishment
of debt.............................. -- -- 112
--------- --------- ---------
Net income........................... $ 322 $ 217 $ 354
========= ========= =========
If all of the Company's operations
had been subject to income taxes,
net income would have been as
follows (unaudited):
Historical income before income
taxes and extraordinary
gain.......................... $ 322 $ 217 $ 242
Provision for income taxes...... 119 67 90
--------- --------- ---------
Net income before extraordinary
gain.......................... 203 150 152
Extraordinary gain, net of tax
effect of $41................. -- -- 71
--------- --------- ---------
Net income...................... $ 203 $ 150 $ 223
========= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-20
<PAGE>
1ST DENTAL CARE
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT (DEFICIT)
------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993........... $ 5 $ 427 $ (159) $ 273
Distribution to shareholders.... -- -- (599) (599)
Net income...................... -- -- 322 322
------ ---------- ----------- ---------
Balance at December 31, 1993......... 5 427 (436) (4)
Distribution to shareholders.... -- -- (364) (364)
Net income...................... -- -- 217 217
------ ---------- ----------- ---------
Balance at December 31, 1994......... 5 427 (583) (151)
Distribution to shareholders.... -- -- (580) (580)
Net income...................... -- -- 354 354
------ ---------- ----------- ---------
Balance at December 31, 1995......... $ 5 $ 427 $ (809) $ (377)
====== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-21
<PAGE>
1ST DENTAL CARE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Cash flows from operating activities:
Net income......................... $ 322 $ 217 $ 354
Adjustments:
Provision for bad debts 18 44 8
Depreciation and
amortization.............. 176 199 236
Losses on disposition and
impairment of property and
equipment.................. -- -- 95
Extraordinary gain on
extinguishment of debt.... -- -- (112)
Changes in operating assets
and liabilities:
Patient receivables...... (62) 18 35
Unbilled patient
receivables.......... 15 10 (53)
Other current assets..... 19 (6) (8)
Other assets............. 20 (7) (6)
Accounts payable and
accrued
liabilities.......... 182 86 1
Other liabilities........ -- (24) (9)
--------- --------- ---------
Net cash provided
by operating
activities...... 690 537 541
--------- --------- ---------
Cash flows used in investing
activities -- capital expenditures.... (187) (161) (307)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt................. 470 300 532
Repayment of debt.................. (346) (340) (186)
Distribution to owners............. (599) (364) (580)
--------- --------- ---------
Net cash used in
financing
activities...... (475) (404) (234)
--------- --------- ---------
Net change in cash and cash
equivalents........................... 28 (28) --
Cash and cash equivalents, beginning of
period................................ -- 28 --
--------- --------- ---------
Cash and cash equivalents, end of
period................................ $ 28 $ -- $ --
========= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-22
<PAGE>
1ST DENTAL CARE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
1st Dental Care (the "Company") is a provider of dental and orthodontics
services and products that owns the assets of and provides management services
to dental and orthodontic centers in northwest and west Florida. The combined
financial statements for 1995 reflect the operations of Lester B. Greenberg,
D.D.S., P.A., 1st Dental Care Inc. and M&B Dental Lab because all entities are
under common control.The combined financial statements for 1993 and 1994 reflect
the operations of the following corporations:
Bayonett Point Inc. Holiday Inc. Timber Pines
Boot Ranch Inc. Lakewood Inc. Town and Country
Crystal River Inc. Largo Mall Inc. First Dental Management
Carrollwood Inc. Port Richey Inc. First Dental P.A.
East Bay Inc. Sear Town M & B Dental Lab
Seven Hills
These corporations were dissolved and merged into the corporations included
in the 1995 financial statements. All significant intercompany accounts and
transactions have been eliminated in combination.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
REVENUE RECOGNITION
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Orthodontic revenue is recognized in accordance with
the proportional performance method. Under this method, revenue is recognized as
services are incurred under the terms of contractual agreements with each
patient. Approximately 25% of the services are performed in the first month with
the remaining services recognized ratably over the remainder of the contract.
Billings under each contract, which average approximately 28 months, are made
equally throughout the term of the contract, with final payment at the
completion of the treatment.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by physicians. An allowance for doubtful accounts is recorded by the Company
based on historical experience.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line
F-23
1ST DENTAL CARE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
method over the estimated useful lives of the various classes of depreciable
assets, ranging from five to ten years. Fully depreciated assets are retained in
property and equipment until they are removed from service. Fully depreciated
assets as of December 31, 1994 and 1995 were approximately $314,000. Maintenance
and repairs are charged to expenses whereas renewals and major replacements are
capitalized. Gains and losses from dispositions are included in operations.
DEBT ISSUANCE COSTS
The costs related to the issuance of debt are capitalized and amortized to
interest expense using the effective interest method over the life of the
related debt.
INCOME TAXES
The Companies are Subchapter S entities and, accordingly, all federal and
state tax liabilities are the responsibility of the shareholder.
Income taxes for the pro forma calculations are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
ADVERTISING
Advertising costs are expensed when incurred.
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted SFAS No. 121 during the first quarter of
1996. Implementation of SFAS No. 121 did not have a material impact on its
financial position, results of operations or cash flows.
F-24
1ST DENTAL CARE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Property and equipment:
Equipment and vehicles.......... $ 1,225 $ 1,356
Leasehold improvements.......... 465 450
Furniture and fixtures.......... 254 210
Buildings, land and
improvements.................. 516 524
--------- ---------
Total property and
equipment............... 2,460 2,540
Less accumulated depreciation
and amortization.............. (1,188) (1,298)
--------- ---------
Property and equipment,
net..................... $ 1,272 $ 1,242
========= =========
Accounts payable and accrued
liabilities:
Trade........................... $ 465 $ 440
Compensation.................... 170 257
Affiliate....................... 75 23
Other........................... 36 27
--------- ---------
$ 746 $ 747
========= =========
3. LONG-TERM DEBT AND LINE OF CREDIT:
Long-term debt consisted of the following:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Revolving credit loan................ $ -- $ 201
Term loans........................... 886 919
--------- ---------
Total debt................. 886 1,120
Less current portion................. 293 236
--------- ---------
Total long-term debt....... $ 593 $ 884
========= =========
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows (in thousands):
1996................................. $ 236
1997................................. 228
1998................................. 179
1999................................. 81
2000................................. 113
Thereafter........................... 283
---------
$ 1,120
=========
In August 1995, the Company entered into a collateralized revolving credit
agreement for $400,000 to be used for the renovation of and purchase of
equipment for a new clinical facility. All advances under this credit facility
bear interest at the rate of 2.5% above the prime rate (8.25% at December 31,
1995). At
F-25
1ST DENTAL CARE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, the outstanding balance of this credit facility was $201,000.
The line of credit is payable on demand and is renewable annually with advances
amortized over a five year period. The credit agreement contains customary
restrictive covenants that include, but are not limited to, requiring the
Company to meet certain financial ratios. The Company was in compliance with all
loan covenants to which it was subject as of December 31, 1995.
At December 31, 1995, the Company had several term loans payable to various
banks for a total principal balance of $794,000. These loans are collateralized
by the assets of the Company and have fixed interest rates ranging from 7.58% to
11.00% per year. All notes are payable in monthly installments through March
2001. In addition, the Company has a term loan collateralized by the personal
assets of the shareholders with a balance of $125,000 at December 31, 1995. The
note bears interest at a fixed rate of 16% per year and is payable in monthly
installments of principal and interest of $6,400 through January 1997.
In March 1995, the Company paid a note payable to a bank. The note was in
held in receivership and extinguishment of this debt resulted in a gain of
$112,000, which has been reflected in the Company's statement of operations as
an extraordinary gain.
4. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
Future minimum lease payments under noncancelable operating leases with
remaining terms of one or more years consisted of the following at December 31,
1995 (in thousands):
OPERATING
----------
1996.................................... $ 418
1997.................................... 349
1998.................................... 248
1999.................................... 137
2000.................................... 83
Thereafter.............................. 44
----------
Total minimum obligation................ $1,279
==========
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
5. INCOME TAXES:
The differences between the statutory federal tax rate and the Company's
effective tax rate were as follows:
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Tax at U.S. statutory rate (34%)........ $ 109 $ 74 $ 120
State income taxes, net of federal
tax................................... 6 4 11
Income not subject to corporate level
federal tax........................... (115) (78) (131)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
F-26
1ST DENTAL CARE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. SUPPLEMENTAL CASH FLOW INFORMATION:
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
Cash paid during the period for:
Interest........................... $ 48 $ 83 $ 106
========= ========= =========
7. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Company's fixed rate long-term
borrowings as of December 31, 1994 and 1995, respectively, approximate their
fair value.
The carrying value of the Company's revolving credit agreement approximates
fair value because the rate on such agreement is variable, based on current
market.
8. SUBSEQUENT EVENTS:
On March 31, 1996, the Company closed a facility due to ongoing operating
losses. It is not management's intent to reopen this facility. The Company wrote
off certain assets associated with this facility in 1995. For the period ended
December 31, 1995, the Company recognized a loss of $41,000.
The assets of the Company were acquired by Castle Dental Centers of Florida
in May 1996.
9. RELATED PARTY TRANSACTIONS:
The Company purchases dental supplies from an affiliated company
wholly-owned by the company's stockholder. For the years ended 1993 and 1994,
the Company purchased $120,000 of dental supplies from this affiliate and none
in fiscal year ended 1995.
F-27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Mid-South Dental Centers P.C.:
We have audited the accompanying balance sheets of Mid-South Dental Centers
as of December 31, 1994 and 1995, and the related combined statements of
operations, changes in stockholder's equity and cash flows for each of the three
years in the period ended December 31, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presently
fairly, in all material respects, the financial position of Mid-South Dental
Centers as of December 31, 1994 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
------------------------
Houston, Texas
June 10, 1996
F-28
<PAGE>
MID-SOUTH DENTAL CENTERS
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------
1994 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....... $ 52 $ 166
Patient receivables, net of
allowance for uncollectible
accounts of $28
and $108 in 1994 and 1995,
respectively................... 247 281
Unbilled patient receivables,
net of allowance for
uncollectible accounts
of $9 and $12 in 1994 and
1995, respectively............. 50 66
Notes receivable shareholder.... 84 --
Other current assets............ 14 12
--------- ---------
Total current
assets................. 447 525
Property and equipment, net.......... 504 510
Other assets......................... 20 14
--------- ---------
Total assets.......... $ 971 $ 1,049
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term
debt........................... $ 50 $ 99
Current portion of capital lease
obligations.................... 118 98
Accounts payable and accrued
expenses....................... 240 209
--------- ---------
Total current
liabilities............ 408 406
Long-term debt, net of current
portion............................ 254 399
Capital lease obligations, net of
current portion.................... 123 112
Commitments and contingencies
Common stock, $1 par value, 1,000
shares authorized, 1,000 shares
issued
and outstanding.................... 1 1
Additional paid-in capital........... 4 4
Retained earnings.................... 181 127
--------- ---------
Stockholder's
equity.............. 186 132
--------- ---------
Total liabilities and
stockholder's
equity.............. $ 971 $ 1,049
========= =========
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
MID-SOUTH DENTAL CENTERS
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Net patient revenues................. $ 4,290 $ 4,871 $ 5,435
--------- --------- ---------
Expenses:
Dentists' salaries................. 710 844 920
Clinical salaries.................. 1,606 1,818 2,063
Dental supplies and laboratory
fees............................ 520 642 732
Rental and lease expense........... 283 293 321
Advertising and marketing.......... 149 163 178
Depreciation and amortization...... 124 121 149
Other operating expenses........... 147 147 210
General and administrative......... 587 679 851
--------- --------- ---------
Total expenses................ 4,126 4,707 5,424
--------- --------- ---------
Operating income.............. 164 164 11
Interest expense..................... 20 32 65
--------- --------- ---------
Net income (loss).................... $ 144 $ 132 $ (54)
========= ========= =========
If all of the Company's operations
had been subject to income
taxes, net income would have been
as follows (unaudited):
Historical income (loss) before
income taxes.................... $ 144 $ 132 $ (54)
Provision (benefit) for income
taxes........................... 53 49 (20)
--------- --------- ---------
Pro forma net income (loss)........ $ 91 $ 83 $ (34)
========= ========= =========
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
MID-SOUTH DENTAL CENTERS
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993........... 1,000 $ 1 $ 4 $ 1 $ 6
Net income......................... -- -- -- 144 144
--
------ ------ -------- ------
Balance at December 31, 1993......... 1,000 1 4 145 150
Distribution to shareholder........ -- -- -- (96) (96 )
Net income......................... -- -- -- 132 132
--
------ ------ -------- ------
Balance at December 31, 1994......... 1,000 1 4 181 186
Net loss........................... -- -- -- (54) (54 )
--
------ ------ -------- ------
Balance at December 31, 1995......... 1,000 $ 1 $ 4 $ 127 $ 132
====== ====== == ======== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
MID-SOUTH DENTAL CENTERS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss).................. $ 144 $ 132 $ (54)
Adjustments:
Provision for bad debts....... 12 36 86
Depreciation and
amortization.............. 124 121 149
Changes in operating assets
and liabilities:
Patient receivables...... (56) (103) (117)
Unbilled patient
receivables.......... (59) (19)
Other current assets..... 13 (14) 2
Other assets............. 2 (1) 7
Accounts payable and
accrued
liabilities.......... (16) (42) (31)
--------- --------- ---------
Net cash provided
by operating
activities...... 223 70 23
--------- --------- ---------
Cash flows used in investing
activities -- capital expenditures.... (31) (30) (56)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt................. -- 313 256
Repayment of debt.................. (126) (44) (83)
Repayment of capital leases........ (66) (77) (110)
Distributions to stockholder....... -- (96) --
Notes receivable stockholder....... -- (84) 84
--------- --------- ---------
Net cash provided
by (used in)
financing
activities...... (192) 12 147
--------- --------- ---------
Net change in cash and cash
equivalents........................... -- 52 114
Cash and cash equivalents at beginning
of period............................. -- -- 52
--------- --------- ---------
Cash and cash equivalents, at end of
period................................ $ -- $ 52 $ 166
========= ========= =========
The accompanying notes are an integral part of the financial statements.
F-32
MID-SOUTH DENTAL CENTERS
NOTES TO FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
Mid-South Dental Centers (the "Company") is a provider of dental and
orthodontics services and products that owns and operates dental centers in the
Nashville and Chattanooga, Tennessee areas.
The statements reflect the operations of Mid-South Dental Centers P.C.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
REVENUE RECOGNITION
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Orthodontic revenue is recognized in accordance with
the proportional performance method. Under this method, revenue is recognized as
cost of services are incurred under the terms of contractual agreements with
each patient. Approximately 25% of services are performed in the first month
with the remaining services recognized ratably over the remainder of the
contract. Billings under each contract, which average approximately 28 months,
are made equally throughout the term of the contract, with final payment at the
completion of the treatment.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by physicians. An allowance for doubtful accounts is recorded by the Company
based on historical experience.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
ten years. Fully depreciated assets are retained in property and equipment until
they are removed from service. Fully depreciated assets as of December 31, 1994
and 1995 were approximately $376,000. Maintenance and repairs are charged to
expenses whereas renewals and major replacements are capitalized. Gains and
losses from dispositions are included in operations.
DEBT ISSUANCE COSTS
The costs related to the issuance of debt are capitalized and amortized
using the effective interest method over the lives of the related debt.
F-33
MID-SOUTH DENTAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company is a Subchapter S entity and, accordingly, all federal and
state tax liabilities are the responsibility of the shareholder.
Income taxes, including pro forma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
ADVERTISING
Costs incurred for advertising are expensed when incurred.
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted SFAS No. 121 during the first quarter of
1996. Implementation of this standard did not have a material effect on the
Company's financial position, results of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
DECEMBER 31
--------------------
1994 1995
--------- ---------
Property and equipment:
Equipment....................... $ 892 $ 1,026
Leasehold improvements.......... 301 313
Furniture and fixtures.......... 93 101
--------- ---------
Total property and
equipment.................. 1,286 1,440
Less accumulated depreciation
and amortization................ (782) (930)
--------- ---------
Net property and
equipment.................. $ 504 $ 510
========= =========
DECEMBER 31
--------------------
1994 1995
--------- ---------
Accounts payable and accrued
liabilities:
Trade........................... $ 178 $ 134
Accrued liabilities............. 62 75
--------- ---------
$ 240 $ 209
========= =========
F-34
MID-SOUTH DENTAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
DECEMBER 31
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Term loans........................... $ 304 $ 498
Less current portion................. 50 99
--------- ---------
Total long-term debt....... $ 254 $ 399
========= =========
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows (in thousands):
1996.................................... $ 99
1997.................................... 112
1998.................................... 112
1999.................................... 123
2000.................................... 52
---------
$ 498
=========
In December 1994, the Company entered into a term loan payable for
$300,000. Principal and interest are payable in monthly installments of $6,000
(including interest) through November 1999, at which time all unpaid principal
together with accrued but unpaid interest shall be due and payable in full. The
note accrues interest at a rate of 9.2% per year and is collateralized by
certain equipment of the Company.
In December of 1995, the Company entered into a term loan for approximately
$78,000 collateralized by certain equipment of the Company. The note accrues
interest at a rate of 8.2% per year with principal and interest payments due
monthly through November 2000.
Also in December 1995, the Company entered into a term loan for
approximately $157,000 collateralized by the personal guaranty of the owner of
the Company. The note accrues interest at a rate of 9.7% per year with principal
and interest payments of $3,000 due monthly through November 2000.
F-35
MID-SOUTH DENTAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases a portion of its property and equipment under capital
and operating leases. Future minimum lease payments under capital leases and
noncancelable operating leases with remaining terms of one or more years
consisted of the following at December 31, 1995 (in thousands):
CAPITAL OPERATING
-------- ----------
1996.................................... $ 109 $ 252
1997.................................... 72 232
1998.................................... 25 226
1999.................................... 25 211
2000.................................... 9 164
Thereafter.............................. -- 330
-------- ----------
Total minimum lease obligations......... 240 $1,415
==========
Less amount representing interest....... 30
--------
Present value of minimum lease
obligations........................... 210
Less current portion............... 98
--------
Long-term capital lease obligations..... $ 112
========
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
5. INCOME TAXES:
The differences between the federal tax rate and the Company's effective
tax rate at December 31 were as follows:
1993 1994 1995
--------- --------- ---------
Tax at U.S. statutory rate (34%)........ $ 49 $ 45 $ (18)
State income taxes, net of federal
tax................................... 4 4 (2)
Income not subject to corporate level
federal tax........................... (53) (49) 20
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
6. SUPPLEMENTAL CASH FLOW INFORMATION:
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Cash paid during the period for
interest.............................. $ 20 $ 32 $ 65
Noncash transactions -- capital lease
obligations........................... $ 73 $ 206 $ 100
7. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the
F-36
MID-SOUTH DENTAL CENTERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
creditworthiness of patients and appropriate allowances are made to reduce
accounts to their net realizable values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Company's fixed rate long-term
borrowings as of December 31, 1994 and 1995, respectively, approximate their
fair value.
The carrying value of the Company's revolving credit agreement approximates
fair value because the rate on such agreement is variable, based on current
market.
8. SUBSEQUENT EVENT:
The assets of the Company were acquired by Castle Dental Centers of
Tennessee in May, 1996.
9. RELATED PARTY TRANSACTIONS:
The Company leased certain assets from the owner of the Company. Lease
expense related to these assets for each of the years ended 1993, 1994, and 1995
was approximately $44,000.
F-37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Horizon Dental Centers:
We have audited the accompanying combined balance sheet of Horizon Dental
Centers as of December 31, 1995, and the related combined statements of
operations, changes in stockholder's equity (deficit) and cash flows for each of
the two years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
presently fairly, in all material respects, the financial position of Horizon
Dental Centers as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
------------------------
Houston, Texas
August 15, 1996
F-38
<PAGE>
HORIZON DENTAL CENTERS
COMBINED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
DECEMBER 31,
1995
------------
ASSETS
Current assets:
Cash and cash equivalents....... $ 50
Patient receivables............. 160
Other current assets............ 4
------------
Total current assets....... 214
Property and equipment, net..... 26
Receivable from affiliate....... 809
------------
Total assets............... $1,049
============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term
debt............................ $ 458
Accounts payable and accrued
liabilities..................... 6
------------
Total current
liabilities.................. 464
Long-term debt....................... 659
Common stock......................... 10
Accumulated deficit.................. (84)
------------
Total liabilities and
stockholder's deficit........ $1,049
============
The accompanying notes are an integral part of the combined financial
statements.
F-39
<PAGE>
HORIZON DENTAL CENTERS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER
31,
--------------------
1994 1995
--------- ---------
Net patient revenues................. $ 5,652 $ 5,430
--------- ---------
Expenses:
Professional fees and clinic
expenses........................ 3,006 3,012
Dental supplies and laboratory
fees............................ 124 132
Management fee..................... 1,694 1,249
Rent expense....................... 615 520
Advertising and marketing.......... 264 162
General and administrative......... 106 110
Other operating expenses........... 58 58
--------- ---------
Total expenses................ 5,867 5,243
--------- ---------
Operating income.............. (215) 187
--------- ---------
Interest expense..................... 37 44
--------- ---------
Net income (loss).................... $ (252) $ 143
========= =========
If all of the Company's operations
had been subject to income taxes,
net income would have been as
follows (unaudited):
Historical income (loss) before
income taxes.................... $ (252) $ 143
Provision (benefit) for income
taxes........................... (96) 54
--------- ---------
Net income (loss).................. $ (156) $ 89
========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-40
<PAGE>
HORIZON DENTAL CENTERS
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS)
RETAINED
EARNINGS
COMMON (ACCUMULATED
STOCK DEFICIT)
------ ------------
Balance, January 1, 1994............. $ 9 $ 25
Stock issued.................... 1 --
Net loss........................ -- (252)
------ ------------
Balance, December 31, 1994........... 10 (227)
Net income...................... -- 143
------ ------------
Balance, December 31, 1995........... $ 10 $ (84)
====== ============
The accompanying notes are an integral part of the combined financial
statements.
F-41
<PAGE>
HORIZON DENTAL CENTERS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
--------- ---------
Cash flows from operating activities:
Net income (loss).................. $ (252) $ 143
Adjustments:
Depreciation and amortization... 2 2
Changes in operating assets and
liabilities:
Patient receivables........... (22) 10
Other current assets.......... (5) 4
Accounts payable and accrued
liabilities.................. (5) --
--------- ---------
Net cash provided by (used
in) operating
activities.............. (282) 159
--------- ---------
Cash flows used in investing
activities -- capital
expenditures....................... (20) (9)
--------- ---------
Cash flows from financing activities:
Proceeds from debt................. 1,092 636
Repayment of debt.................. (276) (453)
Net increase in affiliate
receivable...................... (515) (285)
--------- ---------
Net cash provided by (used
in) financing
activities.............. 301 (102)
--------- ---------
Net change in cash and cash
equivalents........................ (1) 48
Cash and cash equivalents, beginning
of period.......................... 3 2
--------- ---------
Cash and cash equivalents, end of
period............................... $ 2 $ 50
========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-42
HORIZON DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
Horizon Dental Centers (the "Company") is a provider of dental services
and products that operates dental practices in central and north Texas. The
combined financial statements for 1994 and 1995 reflect the operations of the
following corporations:
FEDERAL INCOME
NAME OF COMPANY TAX STATUS
- ---------------------------------------- ---------------
CA Dental Services, PC.................. S Corp.
NA Dental Services, PC.................. S Corp.
SCA Dental Services, PC................. S Corp.
SA Dental Services, PC.................. S Corp.
EFW Dental Services, PC................. C Corp.
NEFW Dental Services, PC................ C Corp.
HDC Dental Services, PC................. C Corp.
MIDCITIES Services, PC.................. C Corp.
West Fort Worth Dental Services, PC..... C Corp.
Austin Periodontist Assoc., Inc......... C Corp.
All significant intercompany accounts and transactions have been eliminated
in combination.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
REVENUE RECOGNITION
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Accounts receivable consist primarily of receivables
from patients, insurers, and other third-party payers for dental services
provided by physicians. Such amounts are reduced by an allowance for
uncollectible accounts based on historical experience.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
F-43
HORIZON DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
seven years. Maintenance and repairs are charged to expense whereas renewals and
major replacements are capitalized. Gains and losses from dispositions are
included in operations.
INCOME TAXES
All federal and state income tax liabilities are the responsibility of the
shareholder for the Companies that are Subchapter S Corporations.
The Subchapter C Corporations utilize the liability method for income
taxes. Under this method, deferred taxes are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates currently in effect when the differences
reverse.
ADVERTISING
Advertising costs are expensed when incurred.
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted SFAS No. 121 during the first quarter of
1996. Implementation of SFAS No. 121 did not have a material impact on its
financial position, results of operations or cash flows.
2. LONG-TERM DEBT:
Long-term debt consisted of the following:
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
Notes payable........................ $1,117
Less current portion................. 458
--------------
Total long-term debt....... $ 659
==============
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows (in thousands):
1996................................. $ 458
1997................................. 446
1998................................. 213
---------
$ 1,117
=========
The Company has various fixed rate commercial promissory notes outstanding,
that are collateralized by assets used in the Company's operations. The assets
have been sold to Consolidated Industries Inc., an entity owned by the
stockholder. The Company recorded a receivable from this affiliate. The
promissory notes are payable in monthly installments of principal and interest
ranging from $8,000 to $9,000 and have varying maturity dates through 1998.
Interest rates on these notes vary at rates ranging from 17% to 21% per year.
The affiliate makes payments of principal and interest on this debt, the
principal payments are reflected as a reduction of the receivable and the debt.
The interest cost is borne by the affiliate and incorporated into the management
fees paid by the Company (see Note 6).
F-44
HORIZON DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENT AND CONTINGENCIES:
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
4. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the credit worthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Company's long-term borrowings as of
December 31, 1994 and 1995, respectively, approximate their fair value.
5. AFFILIATE MANAGEMENT AGREEMENT:
The Company has entered into a management agreement with Consolidated
Industries Inc., an entity owned by the Company's stockholder. Under the
agreement Consolidated provides services to the Company for a fixed fee. These
services include consultation and management services and the use of office
equipment and facilities. Fees paid to the affiliate were $1,694,000 and
$1,249,000 for 1994 and 1995, respectively.
6. PROFESSIONAL FEE AND CLINICAL AGREEMENT:
The Company has entered into professional and clinical agreements with
various professional corporations. The agreements are for services to be
provided to the Company for daily services of dentists, clinical support, and
daily management of each facility. Such fees incurred under these agreements
were $3,006,000 and $3,012,000 for 1994 and 1995, respectively.
7. SUBSEQUENT EVENTS:
The Company was acquired by Castle Dental Centers of Texas during August
1996.
F-45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Jules V. Lane, Professional Corporation, and
Lisadent Corp. and the owner of
Jules V. Lane, D.D.S.:
We have audited the accompanying combined balance sheets of American Dental
Centers as of December 31, 1994 and 1995, and the related combined statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
presently fairly, in all material respects, the financial position of American
Dental Centers as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
------------------------
Houston, Texas
Sept. 3, 1996
F-46
<PAGE>
AMERICAN DENTAL CENTERS
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
DECEMBER 31,
--------------------
1994 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents....... $ 1,049 $ 401
Investments in marketable
securities..................... 930 1,567
Accounts receivable, net of
allowance for doubtful accounts
of
$2,106 and $2,158 in 1994 and
1995, respectively............. 2,443 1,291
Inventory....................... 102 128
--------- ---------
Total current assets....... 4,524 3,387
Property and equipment, net.......... 975 706
Other assets......................... 12 12
--------- ---------
Total assets............... $ 5,511 $ 4,105
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities.................... $ 517 $ 480
--------- ---------
Total current
liabilities.............. 517 480
Commitments and contingencies
Common Stock:
Jules V. Lane, Professional
Corporation, no par, 200 shares
authorized, 100 shares issued
and outstanding................ 20 20
Lisadent, Corp. no par, 200
authorized, 200 issued and
outstanding.................... 1 1
Additional paid-in capital........... 11 11
Retained earnings.................... 4,962 3,593
--------- ---------
Stockholders' equity....... 4,994 3,625
--------- ---------
Total liabilities and
stockholders' equity..... $ 5,511 $ 4,105
========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-47
<PAGE>
AMERICAN DENTAL CENTERS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Net patient revenues................. $ 16,275 $ 16,386 $ 15,291
Expenses:
Dentists' fees.................. 3,580 3,655 3,684
Clinical salaries............... 4,422 5,049 4,829
Dental supplies and laboratory
fees.......................... 1,368 1,736 1,563
Rental and lease expense........ 863 773 755
Advertising and marketing....... 55 38 179
Depreciation and amortization... 362 348 370
Other operating expenses........ 892 942 911
General and administrative...... 3,556 3,461 3,083
--------- --------- ---------
Total expenses............. 15,098 16,002 15,374
--------- --------- ---------
Net income (loss).................... $ 1,177 $ 384 $ (83)
========= ========= =========
If all of the Company's operations
had been subject to income taxes,
net income would have been as
follows (unaudited):
Historical income (loss) before
income taxes.................. $ 1,177 $ 384 $ (83)
Provision (benefit) for income
taxes......................... 483 157 (34)
--------- --------- ---------
Pro forma net income (loss)..... $ 694 $ 227 $ (49)
========= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-48
<PAGE>
AMERICAN DENTAL CENTERS
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------- PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993........... 300 $ 21 $ 11 $ 7,166 $ 7,198
Distributions to shareholder.... -- -- -- (2,630) (2,630)
Net income...................... -- -- -- 1,177 1,177
------ ------ --- --------- -------
Balance at December 31, 1993......... 300 21 11 5,713 5,745
Distribution to shareholder..... -- -- -- (1,135) (1,135)
Net income...................... -- -- -- 384 384
------ ------ --- --------- -------
Balance at December 31, 1994......... 300 21 11 4,962 4,994
Distributions to shareholder.... -- -- -- (1,286) (1,286)
Net loss........................ -- -- -- (83) (83)
------ ------ --- --------- -------
Balance at December 31, 1995......... 300 $ 21 $ 11 $ 3,593 $ 3,625
====== ====== === ========= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-49
<PAGE>
AMERICAN DENTAL CENTERS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)............... $ 1,177 $ 384 $ (83)
Adjustments:
Provision for bad debts.... 225 91 52
Depreciation and
amortization............ 362 348 370
Changes in operating assets
and liabilities:
Patient receivables... (109) 704 1,100
Inventory............. 75 42 (26)
Other assets.......... 2 1
Accounts payable and
accrued
liabilities........ (39) (206) (37)
--------- --------- ---------
Net cash
provided by
operating
activities.... 1,693 1,364 1,376
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures............ (89) (208) (101)
Purchases of investments........ (1,480) (901) (1,516)
Proceeds from maturity of
investments................... -- 1,480 879
--------- --------- ---------
Net cash
provided by
(used in)
investing
activities.... (1,569) 371 (738)
Cash flows from financing activities:
Distributions to stockholder.... (2,630) (1,135) (1,286)
Proceeds from stockholder note
receivable.................... 1,020
--------- --------- ---------
Net cash used in
financing
activities.... (1,610) (1,135) (1,286)
--------- --------- ---------
Net change in cash and cash
equivalents........................ (1,486) 600 (648)
Cash and cash equivalents at
beginning of period................ 1,935 449 1,049
--------- --------- ---------
Cash and cash equivalents, at end of
period............................. $ 449 $ 1,049 $ 401
========= ========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-50
AMERICAN DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
Jules V. Lane, Professional Corporation, doing business as American Dental
Centers (the "Company"), is a provider of dental and orthodontics services and
products in the Long Island, Westchester County and New York City, New York
areas.
The combined statements reflect the operations of Jules V. Lane,
Professional Corporation, Jules V. Lane, D.D.S., and Lisadent Corp. because all
entities are under common control. All significant intercompany accounts and
transactions have been eliminated in combination.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
REVENUE RECOGNITION
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Orthodontic revenue is recognized in accordance with
the proportional performance method. Under this method, revenue is recognized as
services are incurred under the terms of contractual agreements with each
patient. Approximately 25% of services are performed in the first month with the
remaining services recognized ratably over the remainder of the contract. The
remaining billings under each contract, which average approximately 28 months,
are made equally throughout the term of the contract, with final payment at the
completion of the treatment. The Company typically receives a 25% payment at the
time the contract is signed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by physicians. An allowance for doubtful accounts is recorded by the Company
based on historical experience.
INVESTMENTS
The Company has adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities," which
requires that investments in debt securities and marketable equity securities be
designated as trading, held-to-maturity or available for sale. At
December 31, 1994 and 1995, investments have been categorized as available for
sale, are stated at amortized cost, which approximates fair market value, and
are classified in the balance sheets as current assets. Investments at December
31, 1994 and 1995 consisted of U.S. Treasury bills and certificates of deposit.
F-51
AMERICAN DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The realized gains and losses on the sale of investments classified as
available for sale are determined using the specific identification method are
included in net income. Unrealized gains/(losses) on securities available for
sale are excluded from earnings and reported in a separate component of
stockholders' equity. There were no material gains or losses either realized or
unrealized for the years ended December 31, 1994, 1995 and 1996.
INVENTORY
Inventory consists primarily of dental and office supplies and is stated at
the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided using the straight-line method over the
estimated useful lives of the various classes of depreciable assets, ranging
from seven to ten years. Fully depreciated assets are retained in property and
equipment until they are removed from service. Fully depreciated assets as of
December 31, 1994 and 1995 were approximately $1,644,000. Maintenance and
repairs are charged to expenses whereas renewals and major replacements are
capitalized. Gains and losses from dispositions are included in operations.
INCOME TAXES
Jules V. Lane, Professional Corporation, and Jules V. Lane, D.D.S. are a
Subchapter S corporation and a sole proprietorship, respectively, and,
accordingly, all federal and state tax liabilities are the responsibility of the
shareholder. Lisadent Corp., a C corporation, is responsible for its own federal
and state tax liabilities.
Income taxes, including pro forma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
ADVERTISING
Advertising costs are expensed when incurred.
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company adopted SFAS No. 121 during the first quarter of
1996. Implementation of this standard did not have a material effect on the
Company's financial position, results of operations or cash flows.
F-52
AMERICAN DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
Property and equipment:
Equipment.......................... $ 1,244 $ 1,287
Leasehold improvements............. 2,814 2,830
Furniture and fixtures............. 696 739
--------- ---------
Total property and
equipment.................. 4,754 4,856
Less accumulated depreciation and
amortization.................... 3,779 4,150
--------- ---------
Net property and equipment.... $ 975 $ 706
========= =========
Accounts payable and accrued
liabilities:
Trade.............................. $ 223 $ 202
Accrued payroll and related
taxes........................... 294 278
--------- ---------
$ 517 $ 480
========= =========
3. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases a portion of its property and equipment under operating
leases. Future minimum lease payments under operating leases with remaining
terms of one or more years consisted of the following at December 31, 1995 (in
thousands):
OPERATING
---------
1996................................. $ 404
1997................................. 214
1998................................. 46
1999................................. 50
2000................................. 54
Thereafter........................... 327
---------
Total minimum obligations............ $ 1,095
=========
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
4. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Approximately 55%, 57% and 54% of revenue in 1993, 1994 and 1995,
respectively, was generated from nine payors.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, investments, receivables
and accounts payable approximate fair values due to the short-term maturities of
these instruments.
F-53
AMERICAN DENTAL CENTERS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS:
The Company paid $249,000, $227,000 and $163,000 in 1993, 1994, and 1995,
respectively to a third party claims administrator wholly-owned by the Company's
stockholders for health and disability insurance claims on behalf of its
employees. The Company also paid $134,000, $109,000 and $107,000 in 1993, 1994
an 1995, respectively, for operating expenses to that insurance company.
The Company paid $551,000, $598,000 and $555,000 in 1993, 1994 and 1995,
respectively, to a company owned by the Company's stockholders for rent relating
to various dental center locations.
The Company paid auto, computer and various office equipment rentals of
$69,000, $62,000 and $66,000 in 1993, 1994 and 1995, respectively, to a company
owned by relatives of the stockholders.
The Company shares certain assets, office space, administrative employees'
services and certain other costs with the various affiliated businesses. The
respective costs were allocated among those businesses based on managements'
determination. Most of such costs are general and administrative in nature. The
Company from time to time has provided and received certain services from
affiliated businesses at no charge. The value of the services received each year
for 1993, 1994 and 1995, exceeded that of services provided by approximately
$100,000 each year.
6. SUBSEQUENT EVENT:
During August 1996, the Company entered into a definitive agreement with
Castle Dental Centers of New York ("Castle") whereby Castle would acquire
certain assets and liabilities for cash and stock consideration.
F-54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
United DentalCare:
We have audited the accompanying balance sheet of United DentalCare as of
December 31, 1995, and the related statements of operations, changes in
stockholder's equity and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presently
fairly, in all material respects, the financial position of United DentalCare as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
------------------------
Houston, Texas
July 2, 1996
F-55
<PAGE>
UNITED DENTALCARE
BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
1995
------------
ASSETS
Current assets:
Cash and cash equivalents....... $ 8
Patient receivables, net of
allowance for uncollectible
accounts of
$8 and $27 in 1994 and 1995,
respectively................... 97
Other current assets............ 3
------------
Total current
assets............... 108
Property and equipment, net.......... 354
------------
Total assets.......... $ 462
============
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term
debt........................... $ 263
Accounts payable and accrued
expenses....................... 135
------------
Total current
liabilities.......... 398
Long-term debt....................... 79
Commitments and contingencies
Common stock, no par value, 1,000
shares authorized, 300 issued and
outstanding........................ 56
Accumulated deficit.................. (71)
Owner's equity....................... --
------------
Total liabilities and
stockholder's equity
(deficit)............ $ 462
============
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE>
UNITED DENTALCARE
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER
31,
--------------------
1994 1995
--------- ---------
Net patient revenues................. $ 2,368 $ 3,148
--------- ---------
Expenses:
Dentists' salaries.............. 353 524
Clinical salaries............... 536 693
Dental supplies and laboratory
fees............................ 292 290
Rental and lease expense........ 74 196
Advertising and marketing....... 157 223
Depreciation and amortization... 50 74
Other operating expenses........ 141 183
General and administrative...... 472 948
--------- ---------
Total expenses............. 2,075 3,131
--------- ---------
Operating income........... 293 17
Interest expense..................... 30 25
--------- ---------
Net income (loss).................... $ 263 $ (8)
========= =========
If all of the Company's operations
had been subject to income taxes,
net income (loss) would have been
as follows (unaudited):
Historical income (loss) before
taxes........................... $ 263 $ (8)
Provision (benefit) for income
taxes........................... 97 (3)
--------- ---------
Pro forma net income (loss).......... $ 166 $ (5)
========= =========
The accompanying notes are an integral part of the financial statements.
F-57
<PAGE>
UNITED DENTALCARE
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
---------------- ACCUMULATED OWNER'S
SHARES AMOUNT DEFICIT EQUITY
------ ------ ----------- ------
Balance, January 1, 1994.......... -- -- -- $ 18
Distribution to sole proprietor. -- -- -- (225)
Net income...................... -- -- -- 263
------ ------ ----------- ------
Balance, December 31, 1994........ 56
Incorporation of subchapter S
corporation.................. 300 $ 56 -- (56)
Distribution to stockholder..... -- -- $ (63) --
Net loss........................ -- -- (8) --
------ ------ ----------- ------
Balance, December 31, 1995........ 300 $ 56 $ (71) $ --
====== ====== =========== ======
The accompanying notes are an integral part of the combined financial
statements.
F-58
<PAGE>
UNITED DENTALCARE
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER
31,
--------------------
1994 1995
--------- ---------
Cash flows from operating activities:
Net income (loss).................. $ 263 $ (8)
Adjustments:
Provision for bad debts....... 8 19
Depreciation and
amortization................ 50 74
Changes in operating assets
and liabilities:
Patient receivables...... (34) (90)
Other current assets..... (3) --
Accounts payable and
accrued liabilities.... 23 40
--------- ---------
Net cash provided
by operating
activities........ 307 35
--------- ---------
Cash flows used in investing
activities -- capital expenditures.... (92) (144)
--------- ---------
Cash flows from financing activities:
Proceeds from debt................. 133 361
Repayment of debt.................. (108) (240)
Distributions to owner............. (225) (63)
--------- ---------
Net cash provided
by (used in)
financing
activities........ (200) 58
--------- ---------
Net change in cash and cash
equivalents........................... 15 (51)
Cash and cash equivalents, beginning of
period................................ 44 59
--------- ---------
Cash and cash equivalents, end of
period................................ $ 59 $ 8
========= =========
The accompanying notes are an integral part of the financial statements.
F-59
UNITED DENTALCARE
NOTES TO FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CORPORATE ORGANIZATION
United DentalCare (the "Company"), is a provider of dental services that,
owns and operates dental centers in the south central United States.
Effective January 1, 1995, the Arkansas Dental Centers were incorporated
under the name United DentalCare. Prior to that date the Company was a sole
proprietorship.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
REVENUE RECOGNITION
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Accounts receivable consist primarily of receivables
from patients, insurers, and other third-party payers for dental services
provided by physicians. Such amounts are reduced by an allowance for bad debt
based on historical collection trends.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
forty years. Maintenance and repairs are charged to expense whereas renewals and
major replacements are capitalized. Gains and losses from dispositions are
included in operations.
INCOME TAXES
The Company was a sole proprietorship until January 1, 1995, at which point
it was incorporated and elected Subchapter S status for income tax purposes.
Therefore, all federal and state income tax liabilities are the responsibility
of the shareholder.
ADVERTISING
Advertising costs are expensed when incurred.
RECENT FASB PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for
F-60
UNITED DENTALCARE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
long-lived assets and certain identifiable intangibles to be disposed of. The
Company adopted SFAS No. 121 during the first quarter of 1996. Implementation of
SFAS No. 121 did not have a material impact on its financial position, results
of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
Property and equipment:
Equipment....................... $ 422
Furniture and fixtures.......... 35
Building and improvements....... 84
--------------
Total property and
equipment.................... 541
Less accumulated depreciation
and amortization............... (187)
--------------
Property and equipment,
net.......................... $ 354
==============
Accounts payable and accrued
liabilities:
Trade........................... $ 74
Compensation and related
taxes.......................... 43
Related party................... 18
--------------
$ 135
==============
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
Line of credit.......................... $116
Notes payable........................... 150
Capital leases.......................... 76
--------------
Total debt.................... 342
Less current portion.................... 263
--------------
Total long-term debt.......... $ 79
==============
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows (in thousands):
1996.................................... $ 263
1997.................................... 34
1998.................................... 25
1999.................................... 18
2000.................................... 2
---------
$ 342
=========
The Company maintains a $150,000 revolving line of credit, which is
collateralized by substantially all the assets of the Company. The line of
credit is payable on demand and matures in June 1996. Interest is payable
quarterly at 1% plus the prime rate (8.25% at December 31, 1995).
F-61
UNITED DENTALCARE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has various fixed rate commercial promissory notes outstanding,
which are collateralized by the Company's assets. The promissory notes have
varying maturity dates through 1999. Interest rates on these notes vary at rates
ranging from 5% to 12% per year.
4. COMMITMENT AND CONTINGENCIES:
LEASE COMMITMENTS
Future minimum lease payments under noncancelable operating leases with
remaining terms of one or more years consisted of the following at December 31,
1995 (in thousands):
OPERATING
----------
1996.................................... $ 99
1997.................................... 53
1998.................................... 43
1999.................................... 24
----------
Total minimum obligation................ $219
==========
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
5. SUPPLEMENTAL CASH FLOW INFORMATION:
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
Cash paid during the period for
interest.............................. $ 30 $ 25
Transfer of buildings and related notes
payable to sole proprietor............ -- 136
6. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Company's long-term borrowings as of
December 31, 1994 and 1995, respectively, approximate their fair value.
The carrying value of the Company's revolving credit agreement approximates
fair value because the rate on such agreement is variable, based on current
market.
7. SUBSEQUENT EVENTS:
During 1996, the Company purchased the assets of a dental practice in
Oklahoma for total consideration of approximately $238,000.
F-62
UNITED DENTALCARE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During June 1996, the Company entered into a letter of intent with Castle
Dental Centers of Arkansas ("Castle") whereby Castle would acquire certain of
its assets and liabilities for cash and stock consideration.
8. RELATED PARTY TRANSACTIONS:
The Company has set up an entity owned by its sole shareholder to act as
its advertising agency. The Company purchased advertising services of
approximately $44,000 and $139,000, respectively, for 1994 and 1995.
F-63
<PAGE>
CASTLE DENTAL CENTERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
------------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents....... $ 6,439 $ 2,095
Patient receivables, net........ 2,710 3,101
Unbilled patient receivables,
net............................ 913 1,341
Other current assets............ 22 296
------------- ---------
Total current assets....... 10,084 6,833
Property and equipment, net.......... 1,583 3,488
Intangible assets, net............... 757 11,820
Deferred income taxes................ 253 217
------------- ---------
Total assets............... $12,677 $ 22,358
============= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term
debt and capital lease
obligations.................... $ 1,040 $ 3,186
Accounts payable and accrued
liabilities.................... 2,836 2,831
------------- ---------
Total current
liabilities............. 3,876 6,017
Long-term debt and capital lease
obligations........................ 9,512 15,558
Commitments and contingencies
Other long-term liabilities.......... 2,104 1,972
Redeemable preferred stock, $.001 par
value, 1,244,737 shares authorized,
issued and outstanding............. 2,928 2,928
Common stock, $.001 par value,
20,000,000 shares authorized,
4,000,000 and 4,275,243 shares
issued and outstanding............. 4 4
Additional paid in capital........... 94 1,689
Accumulated deficit.................. (5,841) (5,810)
------------- ---------
Total liabilities and
stockholders' deficit... $12,677 $ 22,358
============= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-64
<PAGE>
CASTLE DENTAL CENTERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
Net patient revenues................. $ 9,082 $ 10,707
Operating expenses:
Dentists' salaries.............. 1,611 1,869
Clinical salaries............... 884 1,534
Dental supplies and laboratory
fees........................... 1,086 1,352
Rental and lease expense........ 381 486
Advertising and marketing....... 420 533
Depreciation.................... 167 334
Other operating expenses........ 1,275 1,175
General and administrative...... 2,920 2,415
--------- ---------
Total expenses............. 8,744 9,698
--------- ---------
Operating income........... 338 1,009
Interest expense..................... 5 1,066
Other income......................... -- (107)
--------- ---------
Income before income taxes........... 333 50
--------- ---------
Provision for income taxes........... -- 19
--------- ---------
Net income................. $ 333 $ 31
========= =========
Net income (loss) per share.......... $ .06 $ .01
========= =========
If all of the Company's 1995
operations had been subject to
income taxes, net income would have
been as follows (unaudited):
Historical income before income
taxes.......................... $ 333
Provision for income taxes...... 123
---------
Pro forma net income............ $ 210
=========
Pro forma net income per
share.......................... $ .04
=========
Weighted average number of common and
common equivalent shares
outstanding........................ 5,515 5,569
If the shares necessary to fund the
distribution to the owner in
connection with the Reorganization
were outstanding for the period,
net income per share and weighted
average shares outstanding would
have been as follows:
Pro forma net income per
share.......................... $ .01
=========
Weighted average number of
common and common equivalent
shares outstanding............. 6,169
=========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-65
<PAGE>
CASTLE DENTAL CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net cash (used in) provided by
operating activities............... $ 239 $ (367)
Investing activities:
Capital expenditures............ (131) (194)
Business acquisitions, net of
cash acquired.................. -- (7,616)
--------- ---------
Net cash used in investing
activities......................... (131) (7,810)
Financing activities:
Payments on long-term debt and
capital lease obligations...... (225) (117)
Proceeds from debt.............. 95 3,950
--------- ---------
Net cash provided by financing
activities......................... (130) 3,833
--------- ---------
Net change in cash and cash
equivalents.............. (22) (4,344)
Cash and cash equivalents, beginning
of period.......................... 22 6,439
--------- ---------
Cash and cash equivalents, end of
period............................. $ -- $ 2,095
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-66
CASTLE DENTAL CENTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
ORGANIZATION
Castle Dental Centers, Inc. and subsidiaries (the "Company") provide
management systems and services, non-healthcare personnel, facilities and
equipment to certain professional corporations under long-term management
service agreements. These professional corporations are collectively referred to
as the Affiliated Dental Practices.
The Company has entered into a long-term management services agreement with
each of the Affiliated Dental Practices, under which the Company provides
substantially all administrative and management services, in exchange for a
predetermined management fee. Each of these agreements is a 40-year agreement
with successive automatic five-year renewal terms between the Company and its
Affiliated Dental Practices unless terminated at least 90 days before the end of
the initial term or any renewal term.
Through the management services agreement, the Company assumes full
responsibility for the operating expenses, may take assignment and has
responsibility for collection of all accounts receivable and receives a
management fee for providing non-dental services. The Company has perpetual,
unilateral control over the assets and operations of the Affiliated Dental
Practices (except with regard to the practice of dentistry and other matters
requiring licensure), and notwithstanding the lack of technical majority
ownership of the stock of such entities, consolidation of the Affiliated Dental
Practices is necessary to present fairly the financial position and results of
operations of the Company because of control by means other than ownership of
stock. Control by the Company will be perpetual rather than temporary because of
(i) the length of the original terms of the agreements, (ii) the successive
extension periods provided by the agreements, (iii) the continuing investment of
capital by the Company, (iv) the employment of the majority of the nonphysician
personnel, and (v) the nature of the services provided to the professional
corporations by the Company.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as
of June 30, 1996 and for the six months ended June 30, 1995 and 1996 include the
accounts of the Company, its wholly-owned subsidiaries and the Affiliated Dental
Practices. They have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. These unaudited condensed consolidated
financial statements should be read in conjunction with the annual combined
financial statements of the Company included elsewhere, herein. In management's
opinion, such interim financial statements include all normal recurring
adjustments considered necessary for a fair presentation of such financial
statements. Interim results are not necessarily indicative of results for a full
year.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and debt issuance costs.
Goodwill represents the excess of the purchase price over the fair value of
identifiable net assets acquired and is amortized on a straight-line basis over
the terms of the management services agreements of 40 years. At each balance
sheet date the Company assesses the recoverability of goodwill and whether a
change in circumstances has occurred subsequent to an acquisition which would
indicate whether the future useful life of an asset should be revised. The
Company employs a systematic and rational method of assessing the recoverability
of goodwill by considering various factors such as the earnings potential of
acquired business, the management fees generated under the related management
services agreement, the value of the revenue stream generated under any related
managed care contracts and the strategic value of the office location acquired
or assumed as a result of the acquisition.
F-67
CASTLE DENTAL CENTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. EARNINGS PER SHARE:
Earnings per share is computed on the basis of the weighted average number
of shares of common stock and common stock equivalents outstanding during each
period. Shares outstanding for all periods presented have been retroactively
adjusted to reflect the reorganization discussed in the annual financial
statements. In accordance with Staff Accounting Bulletin ("SAB") Number 83 of
the Securities and Exchange Commission, the common stock equivalents that were
issued during the twelve months preceding the planned offering at prices below
the expected initial public offering price have been included in the Company's
earnings per share computation and treated as if they had been issued at the
Company's inception event though they were antidilutive. Additionally, in
accordance with SAB Number 55, pro forma earnings per share have been presented
for 1995 to reflect issuance of the number of shares that would have been
necessary to fund the $6,000,000 distribution to the Company's owner in
connection with the Reorganization (at an assumed public offering price of
$10.00 per share). Fully diluted earnings per share are not presented because
such amounts would be the same as amounts computed for primary earnings per
share.
3. ACQUISITIONS:
The Company acquired the assets of 1st Dental Care and Mid-South Dental
Centers during May 1996 for combined purchase prices of $12,748. The purchase
prices consisted primarily of combinations of cash, common stock and debt
issued. The excess of the purchase prices over the fair value of net assets
acquired is included in goodwill. In connection with these acquisitions, the
Company entered into customary employment agreements with certain employees and
former owners of the businesses acquired and entered into a long-term management
services agreement with each physician practice.
The following represents the unaudited pro forma results of operations as
if all of the above noted business combinations had occurred at the beginning of
1995:
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
Net revenues............................ $ 13,489 $ 15,686
Loss before extraordinary item.......... (102) (135)
Net loss................................ (62) (82)
Net loss per common and equivalent
share................................. $ (.01) $ (.01)
The pro forma financial data should not be construed as indicative of the
Company's results of operations or financial condition had the acquisitions been
consummated on the dates indicated and are not intended to project the Company's
results of operations or financial condition for any future period or as of any
future date.
F-68
CASTLE DENTAL CENTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
Long-term debt and capital lease obligations consisted of the following at
June 30, 1996 (dollars in thousands):
Subordinated notes...................... $ 7,500
Term loan............................... 9,950
Other notes payable and capital lease
obligations........................... 4,171
---------
Total debt and capital lease
obligations....................... 21,621
Less discount on Subordinated Notes..... (2,877)
---------
Long-term debt, net of discount......... 18,744
Less current portion.................... 3,186
---------
Total long-term debt and capital
lease obligations................. $ 15,558
=========
On May 31, 1996, the Company entered into an Amended and Restated Credit
Agreement with NationsBank, which increased the term loan facility to $16.0
million. The additional $10 million is to be utilized to fund acquisitions,
which are subject to prior approval by NationsBank. As of June 30, 1996, the
Company had borrowed $3,950,000 of this facility to fund the acquisition of
affiliated dental practices based in Nashville, Tennessee and Tampa/Clearwater,
Florida. In August 1996, the Company borrowed an additional $2.1 million under
term loan to fund the acquisition of Horizon Dental Centers in Ft. Worth and
Austin, Texas.
5. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is subject to claims and suits arising in the ordinary course
of operations. In the opinion of management, the ultimate resolution of such
pending legal proceedings will not have a material effect on the Company's
financial position, results of operations or liquidity.
DENTIST EMPLOYMENT AGREEMENTS AND PROFESSIONAL LIABILITY
Each affiliated dental practice has entered into a dentist employment
agreement with each full time dentist, orthodontist and other dental specialist
employed by it. Although the form of contract varies somewhat among practices
and among dentists with different specialties, the typical contract provides for
a defined compensation arrangement, including performance-based compensation,
liquidated damages and a covenant not to compete. Each full time dentist is
required to maintain professional liability insurance, and mandated coverage
limits are generally at least $1,000,000 per claim and $1,000,000 in aggregate.
In addition, many affiliated dental practices employ part time dentists. Not all
part time dentists have employment agreements, but all part time dentists are
required to carry professional liability insurance in specified amounts.
6. STOCK OPTION PLANS
Through June 30, 1996, the Company had granted options for 380,500 shares
of common stock under its employee stock option plan at prices per share ranging
from $5.00 to $6.75. Generally, the outstanding options are exercisable one year
from the date of grant as to 20% of the underlying shares, and as to an
additional 20% on each of the next four anniversaries of the date of option
grant.
In August 1996, the Company adopted a non-employee directors' stock option
plan to encourage ownership of common stock by eligible non-employee directors
(the "Directors' Plan"). The Directors' Plan provides for the automatic grant
of 25,000 nonqualified stock options (the "Options") to non-employee directors
at the time they become directors.
F-69
CASTLE DENTAL CENTERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
All non-employee directors are eligible to receive options under the
Directors' Plan. Options will be exercisable during a ten-year period from the
date of grant of the options and will vest based upon the number of full years
of service a non-employee director serves on the Board of Directors as follows:
20% after one full year of service, 40% after two full years of service, 60%
after three full years of service, 80% after four full years of service and 100%
after five full years of service. No option will remain exercisable later than
ten years after the date of grant.
The exercise price for options granted under the Directors' Plan may be no
less than the fair market value of the common stock on the date of grant.
7. EMPLOYEE RETIREMENT PLAN
In August 1996, the Company adopted a profit sharing plan qualified under
Section 401(k) of the Internal Revenue Code of 1986 (the "401(k) Plan"). All
employees of the Company are eligible to participate in the 401(k) Plan upon the
completion of six months of service. Participants may elect to defer receipt of
compensation and have such deferred amounts contributed to the 401(k) Plan up to
a maximum of 20% of compensation. The Company may match contributions made by
participants under the 401(k) Plan each year in an amount determined by the
Company on a year-to-year basis. Participants are fully vested with respect to
their contributions, while the Company's contributions are subject to vesting on
the following basis: zero for fewer than two years of employment and 20% per
year cumulatively for the third through seventh years of employment.
Participants may borrow from their accounts under the 401(k) Plan.
8. SUBSEQUENT EVENTS:
In August 1996, the Company acquired the assets of and entered into a
management services agreement with Horizon Dental Centers, a dental practice
with dental centers in Fort Worth and Austin, Texas. The Company has entered
into definitive agreements to acquire the assets of and enter into long-term
management services agreements with American Dental Centers, a dental practice
based in Hicksville, New York with dental centers in the New York City area, and
United Dental Care, a dental practice based in Little Rock, Arkansas that
operates dental centers in Arkansas, Oklahoma and Louisiana.
F-70
<PAGE>
1ST DENTAL CARE
CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, APRIL 30,
1995 1996
------------ ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Patient receivables, net of
allowance for uncollectible
accounts of $21 and $21,
respectively................... $ 130 $ 144
Unbilled patient receivables,
net of allowance for
uncollectible accounts of $12
and $19........................ 107 112
Other current assets............ 25 26
------------ ---------
Total current
assets............. 262 282
Property and equipment, net.......... 1,242 1,182
Other assets......................... 14 13
------------ ---------
Total assets.......... $1,518 $ 1,477
============ =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term
debt........................... $ 236 $ 225
Accounts payable and accrued
expenses....................... 747 667
------------ ---------
Total current
liabilities........ 983 892
Long-term debt....................... 884 894
Deferred revenue..................... 28 28
Commitments and contingencies........
Common stock......................... 5 5
Additional paid in capital........... 427 427
Accumulated deficit.................. (809) (769)
------------ ---------
Total liabilities and
stockholder's
deficit............ $1,518 $ 1,477
============ =========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-71
<PAGE>
1ST DENTAL CARE
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
FOUR MONTHS ENDED
APRIL 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS,
EXCEPT PER SHARE
DATA)
Net patient revenues................. $ 2,169 $ 2,588
Expenses:
Dentists' salaries.............. 421 437
Clinical salaries............... 654 821
Dental supplies and laboratory
fees........................... 177 191
Rental and lease expense........ 132 132
Advertising and marketing....... 62 76
Depreciation.................... 57 69
Other operating expenses........ 204 214
General and administrative...... 335 378
--------- ---------
Total expenses........ 2,042 2,318
--------- ---------
Operating income...... 127 270
Interest expense..................... 30 37
--------- ---------
Income before extraordinary gain..... 97 233
Extraordinary gain, net of tax effect
of $41............................. 112
--------- ---------
Net income........................... $ 209 $ 233
========= =========
If all of the Company's operations
had been subject to
income taxes, net income would have
been as follows (unaudited):
Historical income before income
taxes.......................... $ 209 $ 233
Provision for income taxes...... 77 86
--------- ---------
Pro forma net income............ $ 132 $ 147
========= =========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-72
<PAGE>
1ST DENTAL CARE
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOUR MONTHS ENDED
APRIL 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net cash provided by operating
activities......................... $ 12 $ 61
--------- ---------
Investing activities -- capital
expenditures....................... (43) (62)
--------- ---------
Financing activities:
Proceeds from long-term debt.... 106 74
Payments on long-term debt...... (75) (75)
--------- ---------
Net cash provided by
financing
activities......... 31 1
--------- ---------
Net change in cash and
cash equivalents... -- --
Cash and cash equivalents, beginning
of period.......................... -- --
--------- ---------
Cash and cash equivalents, end of
period............................. $ -- $ --
========= =========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-73
1ST DENTAL CARE
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
1st Dental Care (the "Company") is a provider of dental and orthodontic
services and products that owns the assets of and provides management services
to dental and orthodontic centers. The accompanying unaudited financial
statements for the four months ended April 30, 1995 and 1996 reflect the results
of operations for the Company through the date of acquisition and have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. These unaudited condensed combined financial statements should be
read in conjunction with the annual combined financial statements of the Company
included elsewhere, herein. In management's opinion, such interim financial
statements include all normal recurring adjustments considered necessary for a
fair presentation of such financial statements. Interim results are not
necessarily indicative of results for a full year.
2. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
3. SALE OF COMPANY:
The assets of the Company were acquired by Castle Dental Centers of Florida
in May 1996.
F-74
<PAGE>
MID-SOUTH DENTAL CENTER, INC.
CONDENSED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, MAY 31,
1995 1996
------------ -------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents....... $ 166 $ 55
Patient receivables, net........ 281 272
Unbilled patient receivables,
net............................ 66 66
Other current assets............ 12 --
------------ -------
Total current assets....... 525 393
Property and equipment, net.......... 510 639
Other assets......................... 14 12
------------ -------
Total assets............... $1,049 $1,044
============ =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term
debt and capital lease
obligations.................... $ 197 $ 186
Accounts payable and accrued
liabilities.................... 209 193
------------ -------
Total current
liabilities............. 406 379
Long-term debt and capital lease
obligations........................ 511 495
Commitments and contingencies
Common stock, $1 par value 1,000
shares authorized, 1,000 shares
issued and outstanding............. 1 1
Additional paid in capital........... 4 4
Retained earnings.................... 127 165
------------ -------
Total liabilities and
stockholder's equity.... $1,049 $1,044
============ =======
The accompanying notes are an integral part of the condensed financial
statements.
F-75
<PAGE>
MID-SOUTH DENTAL CENTER, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FIVE MONTHS ENDED
MAY 31,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net patient revenues.................... $ 2,238 $ 2,391
Expenses:
Dentists' salaries................. 380 395
Clinical salaries.................. 853 875
Dental supplies and laboratory
fees.............................. 222 215
Rental and lease expense........... 153 153
Advertising and marketing.......... 74 80
Depreciation....................... 54 60
Other operating expenses........... 92 122
General and administrative......... 418 422
--------- ---------
Total expenses................ 2,246 2,322
--------- ---------
Operating income (loss)....... (8) 69
Interest expense........................ 27 31
--------- ---------
Net income.................... $ (35) $ 38
========= =========
If all of the Company's operations had
been subject to
income taxes, net income would have
been as follows (unaudited):
Historical income (loss) before
income taxes...................... $ (35) $ 38
Provision (benefit) for income
taxes............................. (13) 14
--------- ---------
Pro forma net income (loss)........ $ (22) $ 24
========= =========
The accompanying notes are an integral part of the condensed financial
statements.
F-76
<PAGE>
MID-SOUTH DENTAL CENTER, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FIVE MONTHS ENDED
MAY 31,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net cash provided by operating
activities........................... $ 193 $ 105
--------- ---------
Investing activities -- capital
expenditures....................... (104) (189)
--------- ---------
Net cash used in investing
activities................... (104) (189)
Financing activities:
Payments on long-term debt and
capital leases.................. -- (27)
Proceeds from debt.............. 2 --
--------- ---------
Net cash provided by (used
in) financing activities..... 2 (27)
--------- ---------
Net change in cash and cash
equivalents.................. 91 (111)
Cash and cash equivalents, beginning
of period............................ 52 166
--------- ---------
Cash and cash equivalents, end of
period............................... $ 143 $ 55
========= =========
The accompanying notes are an integral part of the condensed financial
statements.
F-77
MID-SOUTH DENTAL CENTERS
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
ORGANIZATION
Mid-South Dental Centers (the "Company") is a provider of dental and
orthodontics services and products. The accompanying unaudited condensed
financial statements for the five months ended May 31, 1995 and 1996 reflect the
results of operations for the Company through the date of acquisition and have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to such
rules and regulations. These unaudited condensed financial statements should be
read in conjunction with the annual financial statements of the Company included
elsewhere, herein. In management's opinion, such interim financial statements
include all normal recurring adjustments considered necessary for a fair
presentation of such financial statements. Interim results are not necessarily
indicative of results for a full year.
2. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
3. SALE OF COMPANY:
The assets of the Company were acquired by Castle Dental Centers of
Tennessee in May 1996.
F-78
<PAGE>
HORIZON DENTAL CENTERS
CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
------------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.......... $ 50 $ 208
Patient receivables, net........... 160 168
Prepaid expenses and other current
assets............................ 4 4
------------- ---------
Total current assets.......... 214 380
Property and equipment, net............. 26 24
Receivable from affiliate............... 809 600
------------- ---------
Total assets.................. $ 1,049 $ 1,004
============= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term
debt.............................. $ 458 $ 509
Accounts payable................... 6 6
------------- ---------
Total current liabilities..... 464 515
Long-term debt.......................... 659 403
Commitments and contingencies
Common stock............................ 10 10
Retained earnings (accumulated
deficit).............................. (84) 76
------------- ---------
Total liabilities and
stockholder's equity
(deficit).................. $ 1,049 $ 1,004
============= =========
The accompanying note are an integral part of the condensed combined
financial statements.
F-79
<PAGE>
HORIZON DENTAL CENTERS
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS,
EXCEPT PER SHARE
DATA)
Net patient revenues................. $ 2,811 $ 2,684
Operating expenses:
Professional fees and clinic
expenses....................... 1,503 1,506
Dental supplies and laboratory
fees........................... 74 47
Management fee.................. 803 490
Rental expense.................. 135 227
Advertising and marketing....... 82 116
Other operating expenses........ 29 31
General and administrative...... 63 67
--------- ---------
Total expenses............. 2,689 2,484
--------- ---------
Operating income........... 122 200
--------- ---------
Interest expense..................... 27 40
--------- ---------
Net income........................... $ 95 $ 160
========= =========
If all of the Company's operations
had been subject to
income taxes, net income would have
been as follows (unaudited):
Historical income before income
taxes.......................... $ 95 $ 160
Provision for income taxes...... 35 59
--------- ---------
Pro forma net income............ $ 60 $ 101
========= =========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-80
<PAGE>
HORIZON DENTAL CENTERS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net cash provided by operating
activities........................... $ 97 $ 154
--------- ---------
Financing activities:
Proceeds from long-term debt.... 15 --
Payments on long-term debt...... (182) (205)
Proceeds from stockholder
receivable..................... 87 209
--------- ---------
Net cash provided by
financing activities......... (80) 4
--------- ---------
Net change in cash and cash
equivalents.......................... 17 158
--------- ---------
Cash and cash equivalents, beginning
of period............................ 2 50
--------- ---------
Cash and cash equivalents, end of
period............................... $ 19 $ 208
========= =========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-81
HORIZON DENTAL CENTERS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENT
1. BASIS OF PRESENTATION:
Horizon Dental Centers (the "Company") is a provider of dental services
and products. The accompanying unaudited condensed combined financial statements
for the six months ended June 30, 1995 and 1996 have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
These unaudited condensed combined financial statements should be read in
conjunction with the annual combined financial statements of the Company
included elsewhere, herein. In management's opinion, such interim financial
statements include all normal recurring adjustments considered necessary for a
fair presentation of such financial statements. Interim results are not
necessarily indicative of results for a full year.
2. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or cash flows.
3. SUBSEQUENT EVENTS:
The Company was acquired by Castle Dental Centers of Texas ("Castle") for
cash and stock consideration.
F-82
<PAGE>
AMERICAN DENTAL CENTERS
CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents....... $ 401 $2,141
Investments..................... 1,567 1,540
Accounts receivable, net........ 1,291 815
Inventory....................... 128 128
------------ --------
Total current assets....... 3,387 4,624
Property and equipment, net.......... 706 763
Other assets......................... 12 12
------------ --------
Total assets............... $4,105 $5,399
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities.................... $ 480 $1,610
------------ --------
Total current
liabilities............. 480 1,610
Commitments and contingencies
Common stock......................... 21 21
Additional paid in capital........... 11 11
Retained earnings.................... 3,593 3,757
------------ --------
Total liabilities and
stockholders' equity.... $4,105 $5,399
============ ========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-83
<PAGE>
AMERICAN DENTAL CENTERS
CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net patient revenues................. $ 8,112 $ 8,373
Expenses:
Dentists' fees.................. 1,828 1,813
Clinical salaries............... 2,834 2,967
Dental supplies and laboratory
fees........................... 719 635
Rental and lease expense........ 343 354
Advertising and marketing....... 37 86
Depreciation.................... 210 210
Other operating expenses........ 476 552
General and administrative...... 1,431 1,387
--------- ---------
Total expenses............. 7,878 8,004
--------- ---------
Net income................. $ 234 $ 369
========= =========
If all of the Company's operations
had been subject to
income taxes, net income would have
been as follows (unaudited):
Historical income before income
taxes.......................... $ 234 $ 369
Provision for income taxes...... 96 151
--------- ---------
Pro forma net income............ $ 138 $ 218
========= =========
The accompanying notes are an integral part of the condensed combined
financial statements.
F-84
<PAGE>
AMERICAN DENTAL CENTERS
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net cash provided by operating
activities........................... $ 1,895 $ 2,185
--------- ---------
Cash used in investing activities:
Capital expenditures............ (298) (267)
Purchases of investments........ (1,567) (1,718)
Proceeds from maturities of
investments.................... 875 1,540
--------- ---------
Net cash used in investing
activities..................... (990) (445)
--------- ---------
Net change in cash and cash
equivalents.................... 905 1,740
Cash and cash equivalents, beginning
of period.......................... 1,049 401
--------- ---------
Cash and cash equivalents, end of
period............................. $ 1,954 $ 2,141
========= =========
The accompanying notes are an integral part of the combined financial
statements.
F-85
AMERICAN DENTAL CENTERS
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Jules V. Lane, Professional Corporation, doing business as American Dental
Centers (the "Company") is a provider of dental services and products in the
Long Island, Westchester County and New York City, New York areas. The
accompanying unaudited condensed combined financial statements as of June 30,
1996 and for the six months ended June 30, 1995 and 1996 have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
These unaudited condensed combined financial statements should be read in
conjunction with the annual combined financial statements of the Company
included elsewhere, herein. In management's opinion, such interim financial
statements include all normal recurring adjustments considered necessary for a
fair presentation of such financial statements. Interim results are not
necessarily indicative of results for a full year.
2. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
3. SUBSEQUENT EVENT:
The Company has entered into a definitive agreement to sell the assets of
and enter into a long-term management agreement with Castle Dental Centers of
New York.
F-86
<PAGE>
UNITED DENTALCARE
CONDENSED BALANCE SHEETS (UNAUDITED)
DECEMBER 31, JUNE 30,
1995 1996
------------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.......... $ 8 $ 363
Patient receivables, net........... 97 108
Other current assets............... 3 18
------------- ---------
Total current assets.......... 108 489
Property and equipment, net............. 354 411
Other assets............................ -- 121
------------- ---------
Total assets.................. $ 462 $ 1,021
============= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term
debt.............................. $ 263 $ 299
Accounts payable and accrued
liabilities....................... 135 141
------------- ---------
Total current liabilities..... 398 440
Long-term debt and capital lease
obligations........................... 79 254
Commitments and contingencies
Common stock, no par value, 1,000 shares
authorized, 300 issued and
outstanding........................... 56 56
Retained earnings (accumulated
deficit).............................. (71) 271
------------- ---------
Total liabilities and
stockholder's equity
(deficit).................. $ 462 $ 1,021
============= =========
The accompanying notes are an integral part of the condensed financial
statements.
F-87
<PAGE>
UNITED DENTALCARE
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net patient revenues................. $ 1,608 $ 2,010
Expenses:
Dentists' salaries.............. 254 310
Clinical salaries............... 354 412
Dental supplies and laboratory
fees........................... 153 138
Rental and lease expense........ 65 109
Advertising and marketing....... 109 104
Depreciation.................... 26 49
Other operating expenses........ 104 96
General and administrative...... 415 431
--------- ---------
Total expenses............. 1,480 1,649
--------- ---------
Operating income........... 128 361
Interest income (expense), net....... 21 (19)
--------- ---------
Net income........................... $ 107 $ 342
========= =========
If all of the Company's operations
had been subject to
income taxes, net income would have
been as follows (unaudited):
Historical income before income
taxes.......................... $ 107 $ 342
Provision for income taxes...... 40 127
--------- ---------
Pro forma net income............ $ 67 $ 215
========= =========
The accompanying notes are an integral part of the condensed financial
statements.
F-88
<PAGE>
UNITED DENTALCARE
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1995 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Net cash provided by operating
activities............................ $ 93 $ 370
--------- ---------
Investing activities:
Capital expenditures............... (52) (105)
Proceeds from sale of assets....... 131 --
--------- ---------
Net cash provided by (used in)
investing activities........ 79 (105)
Financing activities:
Proceeds from long-term debt....... 20 283
Repayment of debt.................. (152) (72)
Payment of organizational costs.... -- (121)
Distributions to owner............. (46) --
--------- ---------
Net cash provided by (used in)
financing activities........ (178) 90
--------- ---------
Net change in cash and cash
equivalents........................... (6) 355
Cash and cash equivalents, beginning of
period................................ 59 8
--------- ---------
Cash and cash equivalents, end of
period................................ $ 53 $ 363
========= =========
The accompanying notes are an integral part of the condensed financial
statements.
F-89
UNITED DENTALCARE
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
United DentalCare (the "Company") is a provider of dental services. The
accompanying unaudited condensed financial statements as of June 30, 1996 and
for the six months ended June 30, 1995 and 1996 have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
These unaudited condensed financial statements should be read in conjunction
with the annual condensed financial statements of the Company included
elsewhere, herein. In management's opinion, such interim financial statements
include all normal recurring adjustments considered necessary for a fair
presentation of such financial statements. Interim results are not necessarily
indicative of results for a full year.
2. COMMITMENTS AND CONTINGENCIES:
LITIGATION
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material effect on
the Company's financial position, results of operations or liquidity.
3. SUBSEQUENT EVENTS:
The Company has entered into definitive agreements to sell its assets to
and enter into a long-term management services agreement with Castle Dental
Centers of Arkansas.
F-90
[GRAPHICS: PHOTOGRAPHS DEPICTING INTERIOR AND EXTERIOR OF DENTAL OFFICES
INCLUDING DENTAL OFFICE PERSONNEL AND PATIENTS.]
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary................... 3
Cautionary Statement Regarding
Forward Looking Statements......... 8
Risk Factors......................... 8
The Company.......................... 15
Use of Proceeds...................... 15
Dividend Policy...................... 16
Dilution............................. 17
Capitalization....................... 18
Selected Historical and Pro Forma
Financial Data..................... 19
Unaudited Pro Forma Combined
Financial Information.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 31
Business............................. 38
Management........................... 50
Certain Transactions................. 56
Principal and Selling Stockholders... 58
Description of Capital Stock......... 60
Shares Eligible for Future Sale...... 63
Underwriting......................... 65
Legal Matters........................ 66
Experts.............................. 66
Additional Information............... 66
Index to Combined Financial
Statements......................... F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS)
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
5,500,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SOUTHCOAST CAPITAL
CORPORATION
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the Commission.
AMOUNT TO
BE PAID
----------
Commission registration fee.......... $ 21,811
----------
Printing expenses.................... $ 125,000
Legal fees and expenses.............. $ 250,000
Accounting fees and expenses......... $ 500,000
Blue sky fees and expenses........... $ 15,000
----------
Transfer Agent's and Registrar's
fees................................. $ 15,000
----------
Miscellaneous........................ $ 73,189
----------
TOTAL........................... $1,000,000
==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the Company
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Company or is or
was serving at the request of the Company as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director, officer, employee, or agent who is successful on the merits in defense
of a suit against such person.
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
II-1
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 18, 1995, the Company issued and sold shares of its Series A
Convertible Preferred Stock to the following investors in the following amounts:
Declaration of Trust for Defined Benefit Plans of Zeneca Holdings Inc.-165,965
shares, Delaware State Employees' Retirement Fund-838,123 shares and Declaration
of Trust for Defined Benefit Plans of ICI American Holdings Inc.-240,649 shares.
These sales were exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.
Also on December 18, 1995, the following individuals received Common Stock
of the Company in the following amounts pursuant to the merger of the Company
with Family Dental Services of Texas, Inc.: Jack H. Castle Jr.,
Trustee-1,285,200 shares, Castle Interests, Ltd.-925,200 shares, Lisa G. Castle
Donnell, Trustee-104,400 shares, Jack H. Castle-642,600 shares, Loretta
Castle-642,600 shares. The foregoing transactions were exempt from registration
under Section 4(2) of the Securities Act, no public offering being involved.
Additionally, on December 18, 1995, the Company issued to GulfStar
Investments, Ltd. a common stock purchase warrant for 101,843 shares of common
stock. The foregoing transaction was exempt from registration under Section 4(2)
of the Securities Act, no public offering being involved.
On April 29, 1996, the Company issued and sold 135,000 shares of its Common
Stock to Mid-South Dental Center, P.C. The foregoing transaction was exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On May 19, 1996, the Company issued and sold 130,718 shares of its Common
Stock to 1st Dental Care, Inc. and issued to 1st Dental Care, Inc. an aggregate
of $943,363 of subordinated notes convertible into Common Stock at a conversion
price of $7.50 per share, subject to antidilution adjustments and automatic
annual increase in conversion price. The foregoing transaction was exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On August 9, 1996, the Company issued and sold 19,184 shares of its Common
Stock to EFW Dental centers, P.C., 82,436 shares of its Common Stock to NEFW
Dental Centers, P.C., 58,586 shares of its Common Stock to HDC Dental Services,
P.C., 64,289 shares of its Common Stock to Midcities Dental Services, P.C.,
53,822 shares of its Common Stock to West Ft. Worth Dental Services, P.C.,
44,070 shares of its Common Stock to N.A. Dental Services, P.C. The foregoing
transactions were exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
*1.1 -- Form of underwriting agreement among Castle Dental Centers, Inc. and the underwriters.
3.1 -- Certificate of Incorporation of Castle Dental Centers, Inc., as amended.
3.2 -- Certificate of Amendment to Certificate of Incorporation of Castle Dental Centers, Inc.
dated August 28, 1996.
3.3 -- Bylaws of the Castle Dental Centers, Inc.
3.4 -- Amendment to Bylaws of Castle Dental Centers, Inc. dated August 16, 1996.
4.1 -- Form of Certificate representing the Common Stock, par value $.001 per share, of Castle
Dental Centers, Inc.
4.2 -- Securityholders Agreement dated December 18, 1995, among Castle Dental Centers, Inc., Jack
H. Castle, D.D.S., P.C., certain investors in the Company, certain stockholders of Castle
Dental Centers, Inc., and certain shareholders of Jack H. Castle, D.D.S., P.C.
</TABLE>
II-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
4.3 -- Amendment, Waiver and Consent dated August 20, 1996 given by Pecks Management Partners
Ltd. on behalf of Delaware State Employees' Retirement Fund and the pension plans of
ZENECA Holdings, Inc. and ICI American Holdings, Inc.
4.4 -- Stockholders' Agreement dated May 19, 1996 among Castle Dental Centers, Inc. and certain
stockholders.
4.5 -- Stockholders' Agreement dated May 31, 1996 by and among Castle Dental Centers, Inc. and
certain stockholders.
4.6 -- Stockholders' Agreement dated August 9, 1996 by and among Castle Dental Centers, Inc. and
certain stockholders.
4.7 -- Registration Rights Agreement dated December 18, 1995, among Castle Dental Centers, Inc.
and Delaware State Employees' Retirement Fund, Declaration of Trust for Defined Benefit
Plan of ICI American Holdings, Inc., Declaration of Trust for Defined Benefit Plan of
Zeneca Holdings, Inc. and certain stockholders and investors in the Company.
4.8 -- Registration Rights Agreement dated May 19, 1996 between Castle Dental Centers, Inc. and
1st Dental Care, Inc.
4.9 -- Registration Rights Agreement dated May 31, 1996 by and between Castle Dental Centers,
Inc. and G. Powell Bilyeu, D.D.S.
4.10 -- Registration Rights Agreement dated August 9, 1996 by and between Castle Dental Centers,
Inc., Joseph A. Bonola, D.D.S. and Larry C. Jackson, D.D.S.
*4.11 -- Registration Rights Agreement dated August ___, 1996 by and between Castle Dental Centers,
Inc. and Jules V. Lane D.D.S.
*5 -- Opinion of Bracewell & Patterson, L.L.P. as to the validity of the Common Stock being
offered.
10.1 -- Securities Purchase Agreement dated December 18, 1995 among Castle Dental Centers, Inc.,
Jack H. Castle, D.D.S., P.C., JHCDDS, Inc. and certain investors.
*10.2 -- Amendment to Securities Purchase Agreement among Castle Dental Centers, Inc., Jack H. Castle, D.D.S.,
P.C., JHCDDS, Inc., and certain investors, dated as of August ___, 1996.
10.3 -- 12% Senior Subordinated Note due December 18, 2002 between Castle Dental Centers, Inc. and
NAP & Company in the principal amount of $5,050,000.
10.4 -- 12% Senior Subordinated Note due December 18, 2002 between Castle Dental Centers, Inc. and
Fuelship & Company in the principal amount of $1,000,000.
10.5 -- 12% Senior Subordinated Note due December 18, 2002 between Castle Dental Centers, Inc. and
Northman & Company.
`10.6 -- Management Services Agreement effective December 18, 1995 by and between Castle Dental
Centers, Inc. and Jack H. Castle, D.D.S., P.C.
10.7 -- Amendment to Management Services Agreement between Castle Dental Centers, Inc. and Jack H.
Castle, D.D.S., P.C., dated as of August 15, 1996.
10.8 -- Accounts Receivable Purchase Agreement dated December 18, 1995, between Jack H. Castle,
D.D.S., P.C. and Castle Dental Centers, Inc.
10.9 -- Plan and Agreement of Merger of Family Dental Services of Texas, Inc. with and into Castle
Dental Centers, Inc. dated December 18, 1995.
`10.10 -- Stock Purchase Agreement dated December 18, 1995 by and between Jack H. Castle, D.D.S. and
Castle Dental Centers, Inc.
10.11 -- Amendment to Stock Purchase Agreement by and between Jack H. Castle, D.D.S. and Castle
Dental Centers, Inc., dated as of August 15, 1996.
10.12 -- Deferred Compensation Agreement effective December 18, 1995 by and between Castle Dental
Centers, Inc. and Jack H. Castle, D.D.S.
</TABLE>
II-3
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.13 -- Indemnity Agreement dated December 18, 1995 by and between Castle Dental Centers, Inc. and
G. Kent Kahle.
10.14 -- Indemnity Agreement dated December 18, 1995, by and between Castle Dental Centers, Inc.
and Jack H. Castle, D.D.S.
10.15 -- Indemnity Agreement dated December 18, 1995 by and between Castle Dental Centers, Inc. and
Jack H. Castle, Jr.
10.16 -- Indemnity Agreement dated December 18, 1995 by and between Castle Dental Centers, Inc. and
Robert J. Cresci.
10.17 -- Indemnity Agreement dated August 16, 1996 by and between Castle Dental Centers, Inc. and
Bannus B. Hudson.
10.18 -- Indemnity Agreement dated August 16, 1996 by and between Castle Dental Centers, Inc. and
Elizabeth A. Tilney.
`10.19 -- Asset Purchase Agreement dated May 19, 1996 by and among Castle Dental Centers of Florida,
Inc., and 1st Dental Care, Inc., Hernando Dental Center-Lester B. Greenberg, D.D.S., P.A.,
M&B Dental Lab, Inc., Lester B. Greenberg, D.D.S. and Elisa Greenberg.
10.20 -- 10% Note due May 19, 2001 by and between Castle Dental Centers, Inc. and 1st Dental Care,
Inc. in the principal amount of $1,787,938.
10.21 -- 6.36% Note due May 19, 2000 by and between Castle Dental Centers, Inc. and 1st Dental
Care, Inc. in the principal amount of $656,588.
10.22 -- 6.36% Note due May 19, 2000 by and between Castle Dental Centers, Inc. and M&B Dental Lab,
Inc. in the principal amount of $286,775.
`10.23 -- Management Services Agreement effective May 19, 1996 by and between Castle Dental Centers
of Florida, Inc. and Castle 1st Dental Care, P.A.
10.24 -- Amendment to Management Services Agreement between Castle Dental Centers of Florida, Inc.
and Castle 1st Dental Care, P.A., dated as of August ___, 1996.
10.25 -- Accounts Receivable Purchase Agreement dated May 19, 1996, between Castle 1st Dental Care,
P.A. and Castle Dental Centers of Florida, Inc.
10.26 -- Trade Name License Agreement effective May 19, 1996 by and between Castle Dental Centers
of Florida, Inc. and Castle 1st Dental Care, P.A.
10.27 -- Trademark License Agreement effective May 19, 1996 by and between Castle Dental Centers of
Florida, Inc. and Castle 1st Dental Care, P.A.
`10.28 -- Employment Agreement dated May 19, 1996 by and between Castle Dental Centers of Florida,
Inc. and Lester B. Greenberg, D.D.S.
`10.29 -- Asset Purchase Agreement dated April 29, 1996 by and among Castle Dental Centers of
Tennessee, Inc. and Mid-South Dental Center, P.C. and G. Powell Bilyeu, D.D.S.
10.30 -- 10% Note due May 30, 2001 by and between Castle Dental Centers, Inc. and Mid-South Dental
Centers, P.C. in the principal amount of $750,000.
10.31 -- Accounts Receivable Purchase Agreement dated May 31, 1996, between Castle Mid-South Dental
Centers, P.C. and Castle Dental Centers of Tennessee, Inc.
`10.32 -- Management Services Agreement effective May 31, 1996 by and between Castle Dental Centers
of Tennessee, Inc. and Castle Mid-South Dental Center, P.C.
10.33 -- Amendment to Management Services Agreement between Castle Dental Centers of Tennessee,
Inc. and Castle Mid-South Dental Center, P.C., dated as of August 16, 1996.
10.34 -- Trade Name License Agreement effective May 31, 1996 by and between Castle Dental Centers
of Tennessee, Inc. and Castle Mid-South Dental Centers, P.C.
10.35 -- Trademark License Agreement effective May 31, 1996 by and between Castle Dental Centers of
Tennessee, Inc. and Castle Mid-South Dental Centers, P.C.
</TABLE>
II-4
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
`10.36 -- Employment Agreement dated May 31, 1996 by and between Castle Dental Centers of Tennessee,
Inc., and G. Powell Bilyeu, D.D.S.
`10.37 -- Asset Purchase Agreement dated August 9, 1996 by and among Castle Dental Centers, Inc.;
Castle Dental Centers of Texas, Inc.; Consolidated Industries, Inc.; S.A. Dental Services,
P.C.; C.A. Dental Services, P.C.; S.C.A. Dental Services, P.C.; Austin Periodontist
Associates, Inc.; Joseph A. Bonola, D.D.S.; and Kristen Bonola.
`10.38 -- Plan and Agreement of Reorganization dated August
9, 1996 by and among Castle Dental Centers, Inc.;
Castle Dental Centers of Texas, Inc.; N.A. Dental
Services, P.C.; EFW Dental Services, P.C.; HDC Dental
Services, P.C.; Midcities Dental Services, P.C.; NEFW
Dental Services, P.C.; West Ft. Worth Dental Services,
P.C.; Joseph A. Bonola, D.D.S.; Kristen Bonola; and
Larry Charles Jackson.
10.39 -- 10% Note due July 9, 2001 between Castle Dental Centers, Inc. and Joseph Bonola in the
principal amount of $1,000,000.
10.40 -- License Agreement effective August 9, 1996 by and between Joseph A. Bonola, D.D.S. and
Castle Dental Centers of Texas, Inc.
`10.41 -- Employment Agreement dated August 9, 1996 by and between Jack H. Castle, D.D.S., P.C., and
Joseph A. Bonola, D.D.S.
10.42 -- Escrow Agreement dated August 9, 1996 by and among N.A. Dental Services, P.C.; EFW Dental
Services P.C.; NEFW Dental Services, P.C.; HDC Dental Services, P.C.; Midcities Dental
Services, P.C.; West Ft. Worth Dental Services, P.C.; Joseph A. Bonola and Kristen Bonola;
Castle Dental Centers of Texas, Inc,.; and the escrow agent named therein.
`10.43 -- Asset Purchase Agreement dated August 21, 1996 by and among Castle Dental Centers of
Arkansas, Inc., Castle Dental Centers of Oklahoma, Inc., Castle Dental Centers, Inc.,
United Dental Care Tom Harris D.D.S. & Associates and Tom Harris.
`10.44 -- Asset Purchase Agreement dated August 21, 1996 by and among Castle Dental Centers of
Louisiana, Inc., Castle Dental Centers, Inc., William T. Harris D.D.S. and Associates (a
Professional Dental corporation) and Tom Harris.
*10.45 -- Asset Purchase Agreement dated August ___, 1996 by and among Castle Dental Centers of New
York, Inc., Castle Dental Centers, Inc., Jules V. Lane D.D.S. d/b/a American Dental
Centers, J.V. Lane Professional Corporation d/b/a American Dental Centers, Lisadent Corp.
and Jules V. Lane D.D.S.
*10.46 -- Management Services Agreement effective August ___, 1996 by & between Castle Dental
Centers of New York, Inc. and J.V. Lane Professional Corporation d/b/a American Dental
Centers.
*10.47 -- Ancillary Agreement dated August ___, 1996 by and among Castle Dental Centers of New York,
Inc., Castle Dental Centers, Inc., Jules V. Lane D.D.S. d/b/a American Dental Centers,
J.V. Lane Professional Corporation d/b/a American Dental Centers, Lisadent Corp. & Jules
V. Lane D.D.S.
*10.48 -- Employment Agreement dated August ___, 1996 by and between Castle Dental Centers of New
York, Inc. and Jules V. Lane D.D.S.
10.49 -- Amended and Restated Credit Agreement dated May 31, 1996 between Castle Dental Centers,
Inc. and NationsBank of Texas, N.A.
10.50 -- $3,000,000 Revolving Credit Note dated May 31, 1996 between Castle Dental Centers, Inc.
and NationsBank of Texas, N.A.
10.51 -- $6,000,000 Term Note dated May 31, 1996 between Castle Dental Centers, Inc. and
NationsBank of Texas, N.A.
10.52 -- $10,000,000 Advancing Term Note dated May 31, 1996 between Castle Dental Centers, Inc. and
NationsBank of Texas, N.A.
10.53 -- Amended and Restated Security Agreement (Stocks, Bonds and Other Securities) dated May 31,
1996 between Castle Dental Centers, Inc. and NationsBank of
Texas, N.A.
</TABLE>
II-5
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C>
10.54 -- Amended and Restated Security Agreement (Accounts, Inventory, Equipment, Chattel Paper,
Documents, Instruments, General Intangibles and Other Property) dated May 31, 1996 between
Castle Dental Centers, Inc. and NationsBank of Texas, N.A.
10.55 -- Amended and Restated Guaranty Agreement dated May 31, 1996 by Jack H. Castle, Jr. in favor
of NationsBank of Texas, N.A.
10.56 -- Guaranty Agreement dated May 31, 1996 by JHCDDS, Inc. in favor of NationsBank of Texas,
N.A.
10.57 -- Amended and Restated Security Agreement (Accounts, Inventory, Equipment, Chattel Paper,
Documents, Instruments, General Intangibles and Other Property) dated May 31, 1996 between
JHCDDS, Inc. and NationsBank of Texas, N.A.
10.58 -- Security Agreement (Accounts, Inventory, Equipment, Chattel Paper, Documents, Instruments,
General Intangibles and Other Property) dated May 31, 1996 between Castle Dental Centers
of Florida, Inc. and NationsBank of Texas, N.A.
10.59 -- Guaranty Agreement dated May 31, 1996 by Castle Dental Centers of Florida, Inc. in favor
of NationsBank of Texas, N.A.
10.60 -- Security Agreement (Accounts, Inventory, Equipment, Chattel Paper, Documents, Instruments,
General Intangibles and Other Property) dated May 31, 1996 between Castle Dental Centers
of Tennessee, Inc. and NationsBank of Texas, N.A.
10.61 -- Guaranty Agreement dated May 31, 1996 by Castle Dental Centers of Tennessee, Inc. in favor
of NationsBank of Texas, N.A.
10.62 -- Lease dated January 1, 1996 by and between Goforth, Inc. and Family Dental Services of
Texas, Inc.
10.63 -- Lease Agreement effective February 20, 1995 by and between Lehndorff Four Oaks Place Joint
Venture and Family Dental Services of Texas, Inc.
11.1 -- Computation of Earnings Per Share.
11.2 -- Computation of Earnings Per Share under SAB No. 55.
11.3 -- Computation of Pro Forma Earnings Per Share.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Coopers & Lybrand, L.L.P.
23.2 -- Consent of Jules V. Lane D.D.S.
27 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
` Exhibit omits certain information which the Company has filed separately with
the Commission pursuant to a confidential treatment request under Rule 406
promulgated under the Securities Act of 1933, as amended.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 14, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Company of expenses incurred
or paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-6
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-7
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CASTLE DENTAL
CENTERS, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF HOUSTON, STATE OF TEXAS, ON SEPTEMBER 3, 1996.
CASTLE DENTAL CENTERS, INC.
By: /s/ JACK H. CASTLE, JR.
JACK H. CASTLE, JR.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Jack H. Castle, Jr. and John M. Slack, with full power to act without
the other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, to sign any and all
applications, registration statements, notices and other documents necessary or
advisable to comply with the applicable state securities laws, and to file the
same, together with all other documents in connection therewith, with the
appropriate state securities authorities, granting unto said attorneys-in-fact
and agents or any of them or their or his substitutes or substitute, full power
and authority to perform and do each and every act and thing necessary and
advisable as fully to all intents and purposes as he might or could perform and
do in person, thereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON SEPTEMBER 3, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------------------------------------------
<S> <C>
/s/ JACK H. CASTLE, JR. Chairman of the Board of Directors,
- ------------------------------------------------------ Chief Executive Officer and
JACK H. CASTLE, JR. Director
(principal executive officer)
/s/ JACK H. CASTLE, D.D.S. Director
- ------------------------------------------------------
JACK H. CASTLE, D.D.S.
/s/ G. KENT KAHLE Director
- ------------------------------------------------------
G. KENT KAHLE
/s/ ROBERT J. CRESCI Director
- ------------------------------------------------------
ROBERT J. CRESCI
/s/ BANNUS B. HUDSON Director
- ------------------------------------------------------
BANNUS B. HUDSON
/s/ ELIZABETH A. TILNEY Director
- ------------------------------------------------------
ELIZABETH A. TILNEY
/s/ JOHN M. SLACK Vice President and Chief Financial
- ------------------------------------------------------ Officer
JOHN M. SLACK (principal financial and accounting
officer)
</TABLE>
II-8
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CASTLE DENTAL CENTERS, INC.
ARTICLE I.
The name of the corporation is Castle Dental Centers, Inc. (the
"Corporation").
ARTICLE II.
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent is The Corporation Trust Company.
ARTICLE III.
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 20,000,000 shares, par value $.001 per share,
consisting of 18,755,263 shares of Common Stock (the "COMMON STOCK") and
1,244,737 shares of Preferred Stock (the "PREFERRED STOCK") of which 1,244,737
shares of Preferred Stock shall be designated as Series A Convertible Preferred
Stock (the "SERIES A PREFERRED STOCK").
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or lack thereof), relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the Preferred Stock and the Common Stock are as
follows:
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A. RIGHTS, PREFERENCES AND RESTRICTIONS OF SERIES A PREFERRED STOCK. The
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A Preferred Stock are as set forth below in this Article.
1. DEFINITIONS. All capitalized terms defined herein will have the
meanings assigned to them above or as specified below. Initially capitalized
terms not defined herein are defined in the Securities Purchase Agreement dated
on or about December 18, 1995, by and among the Corporation and the Investors
named therein, relating to, among other things, the purchase by such Investors
of Shares of Series A Preferred Stock (the "Purchase Agreement):
a. "APPLICABLE PERCENTAGE" shall have the meaning set forth in Section
A(4)(c)(i) of this Article IV.
b. "CONVERTIBLE SECURITIES" shall have the meaning set forth in Section
A(4)(c)(ii) of this Article IV.
c. "EXCLUDED SHARES" shall have the meaning set forth in Section
A(4)(c)(xi) of this Article IV.
d. "FULLY DILUTED OUTSTANDING SHARES" shall have the meaning set forth
in Section A(4)(c)(x) of this Article IV.
e. "INTEREST NOTE PERCENTAGE" shall have the meaning set forth in
Section A(4)(c)(xiii) of this Article IV.
f. "INTEREST NOTES"shall have the meaning set forth in paragraph 1A of
the Purchase Agreement.
g. "LIQUIDATION PREFERENCE" means $.001 per share for each share of
Series A Preferred Stock.
h. "NEWLY ISSUED SECURITIES" shall have the meaning set forth in Section
A(4)(c)(i) of this Article IV.
i. "PURCHASE AGREEMENT" shall have the meaning set forth in the first
paragraph of this Section 1.
j. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
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k. "SERIES A PREFERRED STOCK" means the Series A Convertible Preferred
Stock authorized by this Certificate of Incorporation.
l. "SHARE" shall have the meaning set forth in Section A(4)(a) of this
Article IV.
m. "TRIGGER VALUE" shall have the meaning set forth in Section
A(4)(c)(ii) of this Article IV.
2. DIVIDEND PROVISIONS. Holders of Series A Preferred Stock shall not be
entitled to receive any dividends declared by the Corporation from time to time.
3. LIQUIDATION PREFERENCE.
a. SERIES A PREFERRED STOCK. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series A Preferred Stock shall be entitled to receive, prior
and in preference to any distribution in such liquidation, dissolution or
winding up of any of the assets of the Corporation to the holders of the Common
Stock by reason of their ownership thereof, an amount per share equal to the
Liquidation Preference for each outstanding share of Series A Preferred Stock.
If upon the occurrence of any such distribution, the assets and funds of the
Corporation thus distributed among the holders of the Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the total
preferential amounts due each such holder.
b. COMMON STOCK. After the distributions described in Section A(3)(a) of
this Article IV have been paid, then the remaining assets of the Corporation
available for distribution to stockholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
4. CONVERSION The holders of the Series A Preferred Stock shall have
conversion rights (the "Conversion Rights") as follows:
a. RIGHT TO CONVERT. Subject to the provisions for adjustment
hereinafter set forth in Section A(4)(c) of this Article IV, each share of
Series A Preferred Stock (each, a "Share") shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share, at
the office of the Corporation or any transfer agent for such Series into one
fully paid and nonassessable share of Common Stock.
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b. MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock shall be entitled to convert any of such Shares into shares of Common
Stock, such holder shall surrender the certificate or certificates therefore
duly endorsed, at the office of the Corporation or of any transfer agent for
such Series, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office or at the office of any transfer
agent, that such holder elects to convert all or a part of the Shares of Series
A Preferred Stock represented by such certificate or certificates in accordance
with the terms of this Section A(4), and shall state therein the name or names
in which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. If surrendered certificates
for Series A Preferred Stock are converted only in part, the Corporation will
issue and deliver to the holder or his nominee(s), without charge therefor, a
new certificate or certificates representing the aggregate of the unconverted
Shares. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the Shares of Series A
Preferred Stock to be converted and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the recordholder or holders of such shares of Common Stock as of
such date. If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act, the conversion may, at the
option of any holder tendering Series A Preferred Stock for conversion, be
conditioned upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock issuable upon such conversion of the Series A Preferred Stock shall
not be deemed to have converted such Series A Preferred Stock until immediately
prior to the closing of such sale of securities. The issuance of certificates or
shares of Common Stock upon conversion of Shares of Series A Preferred Stock
shall be made without charge for any issue, stamp or other similar tax in
respect of such issuance.
c. CONVERSION ADJUSTMENT OF SERIES A PREFERRED STOCK. It is the intent
of the Corporation that the shares of Common Stock issuable on conversion of the
Series A Preferred Stock will be equal to the Applicable Percentage of the Fully
Diluted Outstanding Shares of Common Stock. The number of shares of Common Stock
issuable on conversion of the Series A Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) In the event of the issuance of any shares of Common Stock,
preferred stock, warrants, options, rights or other securities convertible into
or exchangeable or exercisable for shares of Common Stock other than Excluded
Shares (collectively, the "Newly Issued Securities") for a consideration (paid
in cash, securities or other property) per share less than the Trigger Value of
such Newly Issued Securities, then the number of shares of
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Common Stock then issuable upon conversion of each Share of Series A Preferred
Stock immediately prior to each such issuance shall forthwith be adjusted by
adding a number of shares of Common Stock equal to the quotient obtained by
dividing (x) that number of shares of Common Stock which, together with the
number of shares of Common Stock issuable upon conversion of all of the Series A
Preferred Stock outstanding immediately prior to such issuance, would represent
the Applicable Percentage of the Fully Diluted Outstanding Shares (after giving
effect to the issuance of the Newly Issued Securities) by (y) the number of
Shares of Series A Preferred Stock then outstanding. The term "Applicable
Percentage" means, as of any date of determination, 22% as adjusted (A) to add
the then current Interest Note Percentage and (B) to give effect to any
conversion or redemption of the Series A Preferred Stock such that immediately
following any such conversion or redemption, the Applicable Percentage shall be
reduced by subtracting (I) the percentage of the Fully Diluted Outstanding
Shares represented by the number of shares of Common Stock issued upon such
conversion (or in the case of redemption, the number of Shares of Common Stock
that would otherwise have been issuable on conversion of the Shares of Series A
Preferred Stock redeemed) from (II) the Applicable Percentage in effect
immediately prior to such conversion or redemption.
(ii) For the purposes of any adjustment of the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock as the
result of the issuance of Newly Issued Securities pursuant to clause (i):
(A) (1) With respect to any securities, other than Convertible
Securities, the term "Trigger Value" means as of any date of
determination, the amount determined by dividing (a) the product
obtained by multiplying (x) the quotient obtained by dividing (i) the
number of Newly Issued Securities by (ii) the number of Fully Diluted
Outstanding Shares (after giving effect to the issuance of the Newly
Issued Securities) by (y) $20,000,000 by (b) the number of Newly Issued
Securities.
(2) With respect to any securities that are convertible into or
exchangeable or exercisable for shares of Common Stock (the "Convertible
Securities"), (a) Trigger Value shall be determined with respect to the
shares of Common Stock that such Convertible Securities are convertible
into or exchangeable or exercisable for in accordance with clause (1)
above and (b) in case any such Convertible Securities are issued in
connection with the issue and sale of other securities of the
Corporation together comprising one integral transaction in which no
specific consideration is allocated to such Convertible Securities by
the parties thereto, the amount of consideration therefor shall be
deemed to be the fair value as determined in good faith by the Board of
Directors of the Corporation; PROVIDED, HOWEVER, that in the case of
clause (b) above, the holders of a majority of the
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outstanding shares of Series A Preferred Stock may refer the question of
valuation for final settlement to a nationally recognized investment
banking firm designated by the holders of a majority of the outstanding
shares of Series A Preferred Stock, and the cost relating to retaining
such investment banking firm shall be borne by the Corporation.
(B) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued;
(C) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or
rights were issued;
(D) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversions
of or exchange for such convertible or exchangeable securities, other
than a change resulting from the antidilution provisions thereof, the
number of shares of Common Stock issuable upon conversion of the Series
A Preferred Stock shall forthwith be readjusted to such number of shares
as would have obtained had the adjustment made upon the issuance of such
options, rights or securities not converted prior to such change been
made upon the basis of such change;
(E) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration
of any options or rights related to such convertible or exchangeable
securities, the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock shall forthwith be readjusted
to such number of shares as would have obtained had such options,
rights, securities or options or rights related to such securities not
been issued.
(iii) If the number of shares of Common Stock outstanding at any time
hereafter is increased by a stock dividend payable in shares of Common Stock or
by a subdivision or split-up of shares of Common Stock, then, following the
record date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the number of shares of
Common Stock issuable on conversion of the Series A Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
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(iv) If at any time hereafter the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date for such combination, the number of
shares of Common Stock issuable on conversion of the Series A Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares.
(v) If any capital reorganization or reclassification or change of the
outstanding capital stock of the Corporation or any consolidation or merger of
the Corporation with another corporation, or the sale of all or substantially
all of its assets to another corporation, or any other merger or consolidation
no matter how effected, shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets (other than cash)
with respect to or in exchange for Common Stock, then, as a condition to such
reorganization, adequate provision shall be made whereby each holder of Series A
Preferred Stock shall thereafter have the right to receive, upon conversion of
the Series A Preferred Stock, on the basis and upon the terms and conditions
specified herein and in lieu of the shares of the Common Stock of the
Corporation immediately theretofore receivable upon, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, change, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the conversion of the Series A Preferred Stock. The Corporation shall not
effect any such reorganization, reclassification, change, consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets or the corporation issuing the securities
into which such shares of Common Stock shall be changed (if other than the
Corporation) shall assume by written instrument executed and mailed or delivered
to each holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to receive.
(vi) All calculations under this Section A(4) of this Article IV shall
be made to the nearest one-tenth of a share.
(vii) Whenever the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock shall be adjusted as provided in this
Section A(4) of this Article IV, the Corporation shall forthwith file, at its
principal office or at such other place as may be designated by the Corporation
a statement, signed by its president or chief financial officer and by its
treasurer, showing in detail the facts requiring such adjustment and
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the number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock that shall be in effect after such adjustment. The Corporation
shall cause a copy of such statement to be sent by first-class, certified mail,
return receipt requested, postage prepaid, to each holder of shares of Series A
Preferred Stock at such holder's address appearing in the Corporation's records.
Where appropriate, such copy may be given in advance and may be included as part
of a notice required to be mailed under the provisions of Section A(4)(viii) of
this Article IV.
(viii) In the event the Corporation shall propose to take any action of
the types described in clause (v) above, the Corporation shall give notice to
each holder of shares of Series A Preferred Stock in the manner set forth in
clause (vii) above at such holder's address appearing in the Corporation's
records, which notice shall specify the record date, if any, with respect to any
such action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action on the shares of Series A
Preferred Stock and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of the Series A Preferred Stock. In the
case of any action that would require the fixing of a record date, such notice
shall be given at least 20 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 30 days prior to the taking of
such proposed action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
(ix) (A) If any event occurs of the type contemplated by the provisions
of this Section 4 but not expressly provided for by such provisions, the Board
of Directors of the Corporation or, at the election of holders of a majority of
the shares of Series A Preferred Stock, an appraiser, will make appropriate
adjustments to the terms and conditions of the shares of Series A Preferred
Stock as may be necessary fully to carry out the adjustments contemplated by
this Section A(4) of this Article IV.
(B) The Corporation will not, by amendment of its Articles of
Incorporation or By-laws or through any reorganization, transfer of assets,
reclassification, merger, dissolution, issue or sale of securities or otherwise,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by the Corporation hereunder but will at all times in good
faith assist in the carrying out of all the necessary or appropriate in order to
protect the rights of the holders of the shares of Series A Preferred Stock
against impairment.
(x) For purposes hereof, the "Fully Diluted Outstanding Shares" of
Common Stock will be the sum (without duplication) of (A) all issued shares of
Common Stock as of such date, PLUS (B) all Excluded Shares (other than 300,000
of the Excluded Shares described
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in Section A(4)(xi)(C) of this Article IV subject to adjustment as described int
he parenthetical in Section A(4)(xi)(C) PLUS (C) all shares of Common Stock
issuable with respect to Convertible Securities. "Convertible Securities" shall
mean evidence of indebtedness, shares of stock and other securities which are
convertible into or exchangeable, with or without payment of additional
consideration in cash or property, for shares of Common Stock (including,
without limitation warrants, options and other rights to purchase) either
immediately or upon the occurrence of a specified date or specified event,
except Excluded Shares.
(xi) For purposes hereof, "Excluded Shares" shall mean (A) shares of
Common Stock issued or issuable upon conversion of shares of Series A Preferred
Stock, (B) shares of Common Stock issued or issuable on exercise of the Common
Stock Warrant issued to GulfStar Investments, Ltd. for 113,158 shares, subject
to adjustment as provided therein (the "GulfStar Warrant"), and (C) 600,000
shares of Common Stock, or options to purchase such shares, issued or issuable
to officers, directors, consultants and employees of the Corporation and its
Subsidiaries (such number and amount to be appropriately adjusted in the event
the Common Stock is subdivided into a greater or combined into a lesser number)
pursuant to any equity incentive plan, agreement, or other arrangement adopted
by the Corporation.
(xii) In determining the consideration paid for Newly Issued Securities,
in case at any time any Newly Issued Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor in the form of such cash, without deduction
of any expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Corporation in connection therewith. In case
at any time any Newly Issued Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair value of such
consideration at the time of such issuance as determined reasonably and in good
faith by the Board of Directors of the Corporation, without deduction of any
expenses incurred or any underwriting commissions, discounts or concessions paid
or allowed by the Corporation in connection therewith. The holders of greater
than 50% of the outstanding shares of Series A Preferred stock shall have the
right to demand, upon written notice to the Corporation given within ten (10)
days after receipt of the determination of fair value pursuant to this paragraph
by the Board of Directors of the Corporation, and in lieu thereof, a
determination of fair value of such consideration to be made by appraisal by an
investment bank as described in the definition of Fair Market Value in paragraph
5E of the Purchase Agreement.
(xiii) In the event the Corporation issues one or more Interest Notes,
then the number of shares of Common Stock issuable upon the conversion of each
Share shall
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forthwith be adjusted such that the aggregate number of shares of Common Stock
issuable on conversion of all of the outstanding Series A Preferred Stock
immediately following such issuance is adjusted (without duplication for any
adjustments previously made pursuant to this clause (xiii) to add a number of
shares of Common Stock which represent that percentage (the "Interest Note
Percentage") of the Fully Diluted Outstanding Shares as is equal to the product
of (A) the aggregate dollar amount of all Interest Notes issued by the Company,
if any, and (B) 0.000003.
(d) NO FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of any shares of any Series of Series A Preferred Stock and the
number of shares of Common Stock to be issued shall be rounded down to the
nearest whole share, and there shall be no payment to a holder of Series A
Preferred Stock for any such rounded fractional share.
(e) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of a share of Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series A Preferred Stock, then
in addition to such other remedies as shall be available to the holder of Series
A Preferred Stock, the Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(g) NOTICES. Any notice required by the provisions of Section A(4) of
this Article IV to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if sent by facsimile transmission, by telex, or if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his, her or its address appearing on the books of the
Corporation.
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5. VOTING RIGHTS. The holder of each share of Series A Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
share of Series A Preferred Stock could then be converted (with any fractional
share determined on an aggregate conversion basis being rounded down to the
nearest whole share), and with respect to such vote, such holder shall have full
voting rights and powers equal to the voting rights and powers of the holders of
Common Stock and shall be entitled, notwithstanding any provision hereof, to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation and applicable law, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote. Subject to Section A(10), holders of Series
A Preferred Stock shall not be entitled to vote as a class on matters submitted
to a vote of stockholders of the Corporation.
6. REQUIRED REDEMPTION OF SERIES A PREFERRED STOCK.
(a) Upon the occurrence of a Change of Control (as defined in the
Purchase Agreement), any holder of Series A Preferred Stock shall have the right
to require the Corporation to redeem at the Option Closing (as defined in the
Purchase Agreement), and the Corporation shall redeem all or any lesser number
of shares of Series A Preferred Stock for a redemption price to be paid at the
Option Closing by certified check or wire transfer of immediately available
funds equal to the greater of (i) the Market Price (as calculated in accordance
with paragraph 5F of the Purchase Agreement) at the time of the Change of
Control Notice (as defined in paragraph 5B of the Purchase Agreement) of the
Common Stock issuable upon conversion of that number of shares of Series A
Preferred Stock being redeemed by the Corporation (ii) the change of control
value of the Common Stock issuable upon conversion of that number of shares of
Series A Preferred Stock being redeemed by the Corporation determined by
applying to such Common Stock the valuation derived from the purchase price
(giving effect to any and all consideration) paid by the acquiring person or
persons in the Change of Control, or (iii) the product of (A) the Premium Amount
(as defined in the Purchase Agreement) and (B) a fraction, the numerator of
which shall equal the number of shares of Common stock issuable upon conversion
of that number of shares of Series A Preferred stock being redeemed by the
Corporation and the denominator of which shall equal the number of shares of
Common Stock issuable upon full conversion of all shares of Series A Preferred
Stock.
(b) Upon the occurrence of a Change of Control, or the Corporation
acquiring knowledge of a pending Change of Control, the Change of Control Notice
shall (i) refer specifically to this paragraph 6(b), (ii) state that the
Corporation may be required to redeem all of the outstanding shares of Series A
Preferred Stock, (iii) contain the Corporation's calculation of the redemption
price for the shares of Series A Preferred Stock to be redeemed
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(including a detail of the Fair Market Value (as defined in paragraph 5E of the
Purchase Agreement) of the Common Stock at the time of the Change of Control
Notice), (iv) indicate that the Corporation will redeem the shares of Series A
Preferred Stock as provided in clause (ii) above at the Option Closing upon
written notice of the exercise of an option by a holder of shares of Series A
Preferred Stock, (v) indicate that the Option Closing for such purchase and sale
shall take place on a date specified in the notice, which date shall be a date
occurring not earlier than 30 days nor more than 60 days after the date on which
the notice is delivered, (vi) indicate where the Option Closing shall take place
and (vii) be delivered by certified mail return receipt requested. A holder of
shares of Series A Preferred Stock shall furnish written notice to the
Corporation of the exercise of an option pursuant to this Section A(6)(b) of
Article IV within at least 10 days prior to the Option Closing. At the Option
Closing the Corporation shall pay the redemption price for the securities being
redeemed determined as described in clause (a) above against delivery of the
securities being purchased. No waiver by a holder of any shares of Series A
Preferred Stock of its right under this Section A(6) to require the redemption
of any or all of the shares of Series A Preferred Stock held by such holder in
respect of a Change of Control shall affect the rights of such holder under this
Section A(6) in respect of any subsequent Change of Control.
(c) If any holder of shares of Series A Preferred Stock exercises all or
any part of its right with respect to the event contemplated in clause (a)
above, or converts all or any lesser number of shares of Series A Preferred
Stock in anticipation of such event, but such event does not occur, such
conversion of shares of Series A Preferred Stock shall be rescinded and such
holder of shares of Series A Preferred Stock will be entitled to the same rights
and remedies as if such exercise had never occurred, including, without
limitation, return of any exercise price paid and the reissuance of its shares
of Series A Preferred Stock (subject to return to the Corporation of any
purchase price received) if the same form and to the same extent as prior to
such exercise or conversion.
7. PUT RIGHT (a) If after December 15, 2001, there is no Liquid
Secondary Market (as defined in the Purchase Agreement), any holder of shares of
Series A Preferred Stock shall have the Put Right (as such term is defined in
paragraph 5C of the Purchase Agreement) to require the Corporation to redeem at
the Put Option Closing (as such term is defined in paragraph 5D of the Purchase
Agreement), and the Corporation shall purchase, all or any lesser number of
shares of Series A Preferred Stock for a purchase price to be paid in accordance
with paragraph 5C of the Purchase Agreement in an amount equal to the Fair
Market Value at the time of the Put Notice (as such term is defined in paragraph
5E of the Purchase Agreement) of the Common Stock issuable upon conversion of
those shares of Series A Preferred Stock being redeemed by the Corporation.
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(b) To exercise its Put Right, any holder of shares of Series A
Preferred Stock shall deliver to the Corporation the Put Notice which shall (i)
refer specifically to this Section A(7) of Article IV, (ii) state the number of
shares of Series A Preferred Stock held by such holder that the Corporation is
required to redeem, (iii) contain such holder's request that the Corporation
determine the Fair Market Value at the time of the Put Notice of the Common
Stock into which the shares of Series A Preferred Stock are convertible, (iv)
indicate that the Put Option Closing for such redemption shall take place on a
date specified in the notice, which date shall be a date occurring not earlier
than 45 days nor more than 60 days after the date on which the notice is
delivered, (v) indicate where the Put Option Closing shall take place and (vi)
be delivered by certified mail return receipt requested. The Corporation
covenants that it will promptly (and in any event no later than 25 days after
receipt of the Put Notice) determine, and notify in writing the holders of
shares of Series A Preferred Stock who have delivered a Put Notice of the Fair
Market Value at the time of the Put Notice of the Common Stock, provided,
however, that in the event that any holder of shares of Series A Preferred Stock
exercises its right to refer the question of valuation to an investment banking
firm, the Put Option Closing shall take place on the later of (1) the date
specified in the Put Notice and (2) 5 business days after the determination of
the Fair Market Value has been completed. At the Put Option Closing, the
Corporation shall pay the first installment of the redemption price for the
securities being purchased against delivery of the securities being redeemed.
8. STATUS OF CONVERTED STOCK. In the event any shares of Series A
Preferred Stock are converted pursuant to Section A(4) of this Article IV, the
shares of Series A Preferred Stock so converted shall be canceled, retired and
eliminated and shall not be reissued by the Corporation. The Certificate of
Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
9. OPTIONAL REDEMPTION OF SERIES A PREFERRED STOCK. (a) Subject to the
rights of holders of shares of Series A Preferred Stock to convert such shares
pursuant to the provisions hereof and the rights of holders of shares of Series
A Preferred Stock to require the Corporation to purchase such shares pursuant to
Section A(6) or (7) of this Article IV, the Series A Preferred Stock shall be
subject to redemption at the Corporation's option, in whole but not in part, at
any time on or after a Qualifying Public Offering (as defined in paragraph 12 of
the Purchase Agreement) of Common Stock.
(b) The redemption price for the Series A Preferred Stock shall be
payable immediately upon redemption, by certified or bank cashier's check, and
shall be in an amount equal to the Liquidation Preference (subject to
appropriate adjustments for stock splits, combinations, recapitalizations, stock
dividends and similar events) multiplied by the number
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of shares of Common Stock issuable upon conversion of the shares of Series A
Preferred Stock so redeemed.
(c) The Corporation shall give each holder of Series A Preferred Stock
written notice of the redemption pursuant to Section A(9)(a) of this Article IV
not less than 60 days prior to the redemption date, specifying such redemption
date, that all of the shares of Series A Preferred Stock are to be redeemed on
such date and that such redemption is to be made pursuant to Section A(9)(a) of
this Article IV. Such notice shall be accompanied by an Officer's Certificate
stating that the applicable conditions set forth in Section A(9) of this Article
IV have been fulfilled. Notice of redemption having been given as aforesaid the
redemption amount due in respect of all of the shares of Series A Preferred
Stock and as calculated in Section A(9)(b), shall become due and payable on such
redemption date unless the holder of such shares of Series A Preferred Stock (i)
shall have converted such shares of Series A Preferred Stock, in whole or in
part, prior to such redemption date pursuant to the terms hereof, (ii) shall
have required the Corporation to redeem such shares of Series A Preferred Stock
pursuant to Section A(6) of this Article IV or exercised their Put Right
pursuant to Section A(7) of this Article IV, or (iii) unless the filing by the
Corporation of a registration statement under the Securities Act relating to the
Common Stock issuable upon conversion of the Series A Preferred Stock shall have
been requested by a holder thereof (either before or after receipt of such
notice) pursuant to the Registration Rights Agreement (as defined in paragraph
12 of the Purchase Agreement), in which case the redemption shall be effected 30
days after the declaration of effectiveness of such registration statement by
the Commission (as defined in paragraph 12 of the Purchase Agreement). Should
the Series A Preferred Stock not be redeemed on such redemption date due to the
Corporation's failure to perform its obligations under this Section A(9) of this
Article IV, such redemption may be effected only after compliance with the
provisions of this Section A(9) of this Article IV from and after such
redemption date.
10. AMENDMENTS. Notwithstanding anything contained herein to the
contrary, any amendment to Section A of this Article IV shall, in addition to
any approvals required by applicable law, require the approval of the holders of
record of Shares representing 66 2/3% of the issued and outstanding Shares of
Series A Preferred Stock,
B. COMMON STOCK.
1. DIVIDEND RIGHTS. The holders of the Common Stock shall be entitled to
receive, when, as, and if declared by the Board of Directors, out of any assets
of the Corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
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2. LIQUIDATION RIGHTS. Upon the liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation shall be distributed as
provided in Section A(3) of this Article IV.
3. REDEMPTION. The Common Stock is not redeemable.
4. VOTING RIGHTS. The holder of each share of Common Stock shall have
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law, except
as otherwise provided herein or by written agreement.
ARTICLE V.
The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
William D. Gutermuth Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Ste. 2900
Houston, Texas 77002
ARTICLE VI.
The powers of the incorporator shall terminate upon the filing of this
Certificate of Incorporation. The names and mailing addresses of the persons who
are to serve as directors until the first annual meeting of stockholders or
until their successors are elected and qualify are:
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NAME MAILING ADDRESS
Jack H. Castle, D.D.S. 1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Jack H. Castle, Jr. 1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
G. Kent Kahle NationsBank Center
Suite 3850
700 Louisiana
Houston, Texas 77002
Robert J. Cresci One Rockefeller Plaza
New York, New York 10020
ARTICLE VII.
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, the Board of Directors is expressly authorized and
empowered to adopt, amend and repeal the Bylaws of the Corporation, subject to
the power of the stockholders of the Corporation to adopt, amend or repeal any
bylaw made by the Board of Directors.
ARTICLE VIII.
Unless and except to the extent that the bylaws of the corporation shall
so require, the election of directors of the corporation need not be by written
ballot.
ARTICLE IX.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation existing hereunder with
respect to any act or omission occurring prior to such amendment, modification
or repeal.
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ARTICLE X
The Corporation shall provide indemnification to certain persons as
provided below.
A. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(collectively, a "Proceeding") (other than a Proceeding by or in the right of
the Corporation) by reason of the fact that the person is or was a director or
officer of the Corporation (which, for purposes hereof, includes any constituent
corporation absorbed by the Corporation in a consolidation or merger), or while
serving as such a director or officer, is or was serving at the request of the
Corporation as a director, officer, partner, joint venturer, trustee, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans), against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such Proceeding if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or Proceeding, had no
reasonable cause to believe the person's conduct was unlawful. The termination
of any Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which the person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or Proceeding, had
reasonable cause to believe that the person's conduct was unlawful.
B. The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
Proceeding by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that the person is or was a director or officer of
the Corporation (which, for purposes hereof, includes any constituent
corporation absorbed by the Corporation in a consolidation or merger), or while
serving as such a director or officer is or was serving at the request of the
Corporation as a director, officer, partner, joint venturer, trustee, employee
or agent of another corporation partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans) against
expenses (including attorney's fees) actually and reasonably incurred by the
person in connection with the defense or settlement of such action or suit if
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which the person shall have been adjudged to be liable to the Corporation unless
and only to the extent that the Delaware Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
the person
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is fairly and reasonably entitled to indemnity for such expenses which the
Delaware Court of Chancery or such other court shall deem proper.
C. Any indemnification under Section A or Section B of this Article X
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section A or Section B of this
Article X. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
Proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, then by independent legal
counsel in a written opinion, or (iii) by a majority vote of the stockholders,
except that shares owned by or voted under the control of directors who are at
the time parties to such Proceeding may not be voted in the determination.
D. Expenses (including attorney's fees) incurred by a director or
officer in defending any Proceeding shall be paid by the Corporation in advance
of the final disposition of such Proceeding but only (i) upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized by this Article X or otherwise and
(ii) in the case of Proceedings brought by or in the right of the Corporation,
only if a determination shall not have been made within 90 days after receipt of
any written request for such advance by such director or officer that
indemnification of the director or officer is not proper in the circumstances
because the director or officer has not met the applicable standard of conduct
set forth in Section B. of this Article X. This determination shall be made (a)
by the Board of Directors by a majority vote of a quorum consisting of directors
who are not parties to such proceeding or (b) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, then by
independent legal counsel in a written opinion, or (c) by a majority vote or the
stockholders, but shares owned by or voted under the control of directors who
are at the time parties to such Proceeding may not be voted in the determination
(collectively, the "Authority"). Such determination as to whether
indemnification is proper may be challenged by the director or officer in any
court of competent jurisdiction and it shall not be a defense to any claims for
advances, nor shall it create a presumption that advances are not proper. The
burden of proving that indemnification is not proper shall be on the
Corporation. Any such determination may be reexamined at any time by the
Authority.
E. The indemnification and advancement of expense provided by, or
granted pursuant to, the other Sections of this Article X shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement or expenses may be entitled under any
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bylaw, agreement, vote of disinterested stockholders or disinterested directors
or otherwise, both as to action in any persons' official capacity and as to
action in another capacity while holding such office.
F. The Corporation, upon authorization of the Board of Directors, may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, partner, joint venturer,
trustee, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such person's
status as such, whether or not at the Corporation would have the power to
indemnify such person against such liability under this Article X.
G. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person.
H. The Corporation may, by action of the Board of Directors, provide
indemnification and advance expenses to employees and agents of the Corporation
upon such terms and conditions as the Board of Directors deems appropriate.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, does hereby make and file this
Certificate of Incorporation, hereby declaring and certifying that the facts
herein stated are true, and accordingly has hereunto set the incorporator's hand
this 15th day of December, 1995.
William D. Gutermuth
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CERTIFICATE OF CORRECTION
OF
CASTLE DENTAL CENTERS, INC.
The undersigned submits this certificate pursuant to Section 103(f) of
the General Corporation Law of the State of Delaware to correct a document which
is an inaccurate record of the corporate action therein referred to, or was
defectively or erroneously executed, sealed or acknowledged.
I. The name of the entity is Castle Dental Centers, Inc.
II. The document to be corrected is the Certificate of Incorporation of
Castle Dental Centers, Inc. (the "Certificate"), which was filed in the Office
of the Secretary of State on the 15th day of December, 1995.
III. The inaccuracy, error, or defect to be corrected is: Section A.1.g. of
ARTICLE IV of the Certificate incorrectly defines "Liquidation Preference" as
$.01 per share for each share of Series A Preferred Stock.
IV. The text of Section A.1.g. of ARTICLE IV of the Certificate is hereby
corrected to read in its entirety as follows:
g. "LIQUIDATION PREFERENCE" means $.001 per share for each share of
Series A Preferred Stock.
IN WITNESS WHEREOF, Castle Dental Centers, Inc. has caused this
Certificate of Correction to be signed by Jack H. Castle, Jr., its President,
and attested by John Slack, its Secretary, this ______ day of December, 1995.
CASTLE DENTAL CENTERS, INC.
Jack H. Castle, Jr.
President
Attest:
John Slack
Secretary
CERTIFICATE OF MERGER
OF
FAMILY DENTAL SERVICES OF TEXAS, INC.
INTO
CASTLE DENTAL CENTERS, INC.
(UNDER SECTION 252 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE)
Castle Dental Centers, Inc. hereby certifies that:
(1) The name and state of incorporation of each of the constituent
corporations are:
(a) Family Dental Services of Texas, Inc., a Texas Corporation
("FDS"); and
(b) Castle Dental Centers, Inc., a Delaware corporation ("CDC").
(2) A Plan and Agreement of Merger has been approved, adopted,
certified, executed, and acknowledged by FDS and by CDC in accordance with the
provisions of subsection (c) of Section 252 of the General Corporation law of
the State of Delaware.
(3) The name of the surviving corporation is Castle Dental Centers, Inc.
(4) The Articles of Incorporation of CDC shall be the Articles of
Incorporation of the surviving corporation.
(5) The surviving corporation is a corporation of the State of Delaware.
(6) The executed Plan and Agreement of Merger is on file at the
principal place of business of CDC at 1360 Post Oak Boulevard, Suite 1300,
Houston, Texas 77056.
(7) A copy of the Plan and Agreement of Merger will be furnished by CDC,
on request and without cost, to any stockholder of FDS or CDC.
(8) The authorized capital stock of FDS is as follows:
CLASS NUMBER OF SHARES PAR VALUE PER SHARE
Common 1,000 no par value
(9) This Certificate of Merger shall become effective on its filing.
IN WITNESS WHEREOF, Castle Dental Centers, Inc. has caused this
Certificate to be signed by Jack H. Castle, Jr., its President, and attested by
Loretta M. Castle, its Secretary on the _____ day of December, 1995.
CASTLE DENTAL CENTERS, INC.,
a Delaware corporation
By:______________________________
Jack H. Castle, Jr.
President
ATTEST:
By:______________________
Loretta M. Castle
Secretary
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO CERTIFICATE OF INCORPORATION
OF CASTLE DENTAL CENTERS, INC.
Castle Dental Centers, Inc., a corporation duly organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
("Company"), does hereby certify:
FIRST: That the Board of Directors of the Company, at a meeting held on
____ __, 1996, adopted the following resolutions, proposing and declaring
advisable and in the best interests of the Company the amendment to the
Certificate of Incorporation of the Company set forth in such resolutions, and
directed that the same be submitted to the stockholders of the Company for
approval:
RESOLVED, that it is hereby proposed that the Certificate of
Incorporation of the Company (the "Certificate") be amended to change
the number of authorized shares of the Company by amending Paragraph 1
of Article IV in its entirety to read as follows:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 35,000,000 shares,
par value $.001 per share, consisting of 30,000,000 shares of
Common Stock (the "Common Stock") and 5,000,000 shares of
Preferred Stock (the "Preferred Stock") of which 1,244,737
shares of Preferred Stock shall be designated as Series A
Convertible Preferred Stock (the "Series A Preferred Stock").
(a) Shares of Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the
Board of Directors, each of said series to be distinctly
designated. The voting powers, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations or restrictions thereof, if any, of
each such series may differ from those of any and all other
series of Preferred Stock at any time outstanding, and the Board
of Directors is hereby expressly granted authority to fix or
alter, by resolution or resolutions, the designation, number,
voting powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and
restrictions thereof, of each such series, including but without
limiting the generality of the foregoing, the following:
-1-
(1) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number
(except where otherwise provided by the Board of Directors in the
resolution establishing such series) may be increased or
decreased (but not below the number of shares of such series then
outstanding) from time to time by like action of the Board of
Directors;
(2) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other
class or classes or any other series of the same or other class
or classes of capital stock of the corporation and whether such
dividends shall be cumulative or noncumulative;
(3) The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares
of any other class or classes or of any other series of the same
or any other class or classes of capital stock of the
corporation, and the terms and conditions of such conversion or
exchange;
(4) Whether or not shares of such series of Preferred Stock shall
be subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on
which, shares of such series of Preferred Stock may be redeemed;
(5) The rights, if any, of the holders of such series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding-up of the corporation or in the event of
any merger or consolidation of or sale of assets by the
corporation;
(6) The terms of any sinking fund or redemption or repurchase or
purchase account, if any, to be provided for shares of such
series of Preferred Stock;
(7) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular
matter, which may be less than, equal to or greater than one
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vote per share, and which may, without limiting the generality of
the foregoing, include the right, voting as a series of Preferred
Stock as a class, to elect one or more directors of the
corporation generally or under such specific circumstances and on
such conditions, as shall be provided in the resolution or
resolutions of the Board of Directors adopted pursuant hereto,
including, without limitation, in the event there shall have been
a default in the payment of dividends on or redemption of any one
or more series of Preferred Stock; and
(8) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications,
limitations and restrictions thereof, as the Board of Directors
shall determine.
; and further
RESOLVED, that it is hereby proposed that the Certificate be further
amended to eliminate stockholder action without a meeting after an
underwritten public offering of the Corporation's Common Stock by adding
Article XI as set forth below:
NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subsequent to a firm
commitment underwritten public offering of the Corporation's
Common Stock in which gross proceeds equal or exceed $25 million
before deducting underwriters' discounts and other expenses of
the offering, any action required or permitted to be taken by the
Stockholders must be effected at a duly called annual or special
meeting of Stockholders and may not be effected without such a
meeting by any consent in writing by such holders.
; and further
SECOND: That the aforesaid amendments were duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
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IN WITNESS WHEREOF, Castle Dental Centers, Inc. has caused this
Certificate of Amendment to be signed by Jack H. Castle, Jr., its Chairman, this
28th day of August, 1996.
CASTLE DENTAL CENTERS, INC.
By: JACK H. CASTLE, JR.
Jack H. Castle, Jr.
Chairman
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EXHIBIT 3.3
BYLAWS
OF
CASTLE DENTAL CENTERS, INC.
A DELAWARE CORPORATION
Date of Adoption
December 18, 1995
<PAGE>
BYLAWS
OF
CASTLE DENTAL CENTERS, INC.
Article 1
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the Corporation
which is required by the state of Delaware to be maintained in the state of
Delaware shall be the registered office named in the charter documents of the
Corporation, or such other office as may be designated from time to time by the
Board of Directors in the manner provided by law.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the state of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article 2
STOCKHOLDERS
SECTION 2.1. PLACE OF MEETINGS. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the state of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
SECTION 2.2. QUORUM; ADJOURNMENT OF MEETINGS. Unless otherwise required
by law or provided in the charter documents of the Corporation or these Bylaws,
(i) the holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at any meeting of stockholders for the transaction of business, (ii) in
all matters other than election of directors, the affirmative vote of the
holders of a majority of such stock so present or represented at any meeting of
stockholders at which a quorum is present shall constitute the act of the
stockholders, and (iii) where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
the shares of such class or classes present in person or represented by proxy at
the meeting shall be the act of such class. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum, subject to the provisions of clauses (ii) and (iii) above.
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Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
Notwithstanding the other provisions of the charter documents of the
Corporation or these Bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, at any meeting of stockholders, whether
or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the
time and place of the holding of the adjourned meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at such meeting. At such
adjourned meeting at which a quorum shall be present or represented any business
may be transacted which might have been transacted at the meeting as originally
called.
SECTION 2.3. ANNUAL MEETINGS. An annual meeting of the stockholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the state of Delaware), on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of stockholders.
SECTION 2.4. SPECIAL MEETINGS. Unless otherwise provided in the charter
documents of the Corporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the President, by a majority of
the Board of Directors, or by a majority of the executive committee (if any), at
such time and at such place as may be stated in the notice of the meeting.
Business transacted at a special meeting shall be confined to the purpose(s)
stated in the notice of such meeting.
SECTION 2.5. RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix a date as
the record date for any such determination of stockholders, which record date
shall not precede the date on which the resolutions fixing the record date are
adopted and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting of stockholders, nor more
than sixty (60) days prior to any other action to which such record date
relates.
If the Board of Directors does not fix a record date for any meeting of
the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance
-2-
with Article 7, Section 7.3 of these Bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose (other than the
consenting to corporate action in writing without a meeting) shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
For the purpose of determining the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the state of incorporation of the Corporation or at its principal place of
business. If the Board of Directors does not fix the record date, and prior
action by the Board of Directors is necessary, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
SECTION 2.6. NOTICE OF MEETINGS. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
President, the Secretary or the other person(s) calling the meeting to each
stockholder entitled to vote thereat not less than ten (10) nor more than sixty
(60) days before the date of the meeting. Such notice may be delivered either
personally or by mail. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such stockholder's
address as it appears on the records of the Corporation.
SECTION 2.7. STOCKHOLDER LIST. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The stockholder list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
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SECTION 2.8. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
determine by resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting, who shall decide all questions touching upon
the qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or, if
an even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
SECTION 2.9. VOTING; ELECTION; INSPECTORS. Unless otherwise required by
law or provided in the charter documents of the Corporation, each stockholder
shall on each matter submitted to a vote at a meeting of stockholders have one
vote for each share of the stock entitled to vote which is registered in his
name on the record date for the meeting. For the purposes hereof, each election
to fill a directorship shall constitute a separate matter. Shares registered in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the bylaws (or comparable body) of such corporation
may determine. Shares registered in the name of a deceased person may be voted
by the executor or administrator of such person's estate, either in person or by
proxy.
All voting, except as required by the charter documents of the
Corporation or where otherwise required by law, may be by a voice vote;
provided, however, upon request of the chairman of the meeting or upon demand
therefor by stockholders holding a majority of the issued and outstanding stock
present in person or by proxy at any meeting a stock vote shall be taken. Every
stock vote shall be taken by written ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. All elections of directors
shall be by written ballots, unless otherwise provided in the charter documents
of the Corporation.
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At any meeting at which a vote is taken by written ballots, the chairman
of the meeting may appoint one or more inspectors, each of whom shall subscribe
an oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the charter documents of the Corporation,
cumulative voting for the election of directors shall be prohibited.
SECTION 2.10. CONDUCT OF MEETINGS. The meetings of the stockholders
shall be presided over by the President, or, if the President is not present, by
a chairman elected at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of such meetings, or, if the Secretary is not present, an
Assistant Secretary shall so act; if neither the Secretary or an Assistant
Secretary is present, then a secretary shall be appointed by the chairman of the
meeting.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in order.
SECTION 2.11. TREASURY STOCK. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 2.11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
SECTION 2.12. ACTION WITHOUT MEETING. Unless otherwise provided in the
charter documents of the Corporation, any action permitted or required by law,
the charter documents of the Corporation or these Bylaws to be taken at a
meeting of stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in the state of incorporation, its principal place of
business, or an officer or agent of the Corporation having custody of the book
in which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered in the manner required by this Section to
the Corporation, written consents signed by a sufficient number of holders to
take action
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are delivered to the Corporation by delivery to its registered office in the
state of incorporation, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Article 3
BOARD OF DIRECTORS
SECTION 3.1. POWER; NUMBER; TERM OF OFFICE. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the charter
documents of the Corporation, the Board of Directors may exercise all the powers
of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be determined from time to time by the Board of Directors
(provided that no decrease in the number of directors which would have the
effect of shortening the term of an incumbent director may be made by the Board
of Directors). If the Board of Directors makes no such determination, the number
of directors shall be three. Each director shall hold office for the term for
which such director is elected, and until such director's successor shall have
been elected and qualified or until such director's earlier death, resignation
or removal.
Unless otherwise provided in the charter documents of the Corporation,
directors need not be stockholders nor residents of the state of Delaware.
SECTION 3.2. QUORUM; VOTING. Unless otherwise provided in the charter
documents of the Corporation, a majority of the number of directors fixed in
accordance with Section 3.1 shall constitute a quorum for the transaction of
business of the Board of Directors and the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 3.3. PLACE OF MEETINGS; ORDER OF BUSINESS. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the state of incorporation of the Corporation, as the Board of
Directors may from time to time determine. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the President or by the Board of Directors.
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SECTION 3.4. FIRST MEETING. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which a
quorum shall be present, held after the annual meeting of stockholders, the
Board of Directors shall elect the officers of the Corporation.
SECTION 3.5. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the President, or in the President's absence, by another officer
of the Corporation. Notice of such regular meetings shall not be required.
SECTION 3.6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, or, on the written request of any
director, by the Secretary, in each case on at least twenty-four (24) hours'
personal, written, telegraphic, cable or wireless notice to each director. Such
notice, or any waiver thereof pursuant to Article 7, Section 7.3 hereof, need
not state the purpose or purposes of such meeting, except as may otherwise be
required by law or provided for in the charter documents of the Corporation or
these Bylaws. Meetings may be held at any time without notice if all the
directors are present or if those not present waive notice of the meeting in
writing.
SECTION 3.7. REMOVAL. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
SECTION 3.8. VACANCIES; INCREASES IN THE NUMBER OF DIRECTORS. Unless
otherwise provided in the charter documents of the Corporation, vacancies
existing on the Board of Directors for any reason and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director; and any
director so chosen shall hold office until the next annual election and until
such director's successor shall have been elected and qualified, or until such
director's earlier death, resignation or removal.
SECTION 3.9. COMPENSATION. Directors and members of standing committees
may receive such compensation as the Board of Directors from time to time shall
determine to be appropriate, and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the Board of Directors.
SECTION 3.10. ACTION WITHOUT A MEETING; TELEPHONE CONFERENCE MEETING.
Unless otherwise restricted by the charter documents of the Corporation, any
action required or permitted to be taken at any meeting of the Board of
Directors or any committee designated by the Board of Directors may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings
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of the Board of Directors or committee. Such consent shall have the same force
and effect as a unanimous vote at a meeting, and may be stated as such in any
document or instrument filed with the Secretary of State of the state of
incorporation of the Corporation.
Unless otherwise restricted by the charter documents of the Corporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors, may
participate in a meeting of such Board of Directors or committee, as the case
may be, by means of a conference telephone connection or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
SECTION 3.11. APPROVAL OR RATIFICATION OF ACTS OR CONTRACTS BY
STOCKHOLDERS. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote, and
such consent shall be as valid and binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.
Article 4
COMMITTEES
SECTION 4.1. DESIGNATION; POWERS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, with
each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee shall have the power or authority of the Board of
Directors in reference to amending the charter documents of the Corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing these Bylaws or adopting new
bylaws for the Corporation. Any such designated committee may authorize the seal
of the Corporation to be affixed
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to all papers which may require it. In addition to the above, such committee or
committees shall have such other powers and limitations of authority as may be
determined from time to time by the Board of Directors.
SECTION 4.2. PROCEDURE; MEETINGS; QUORUM. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the Board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct of business by the Board of
Directors, shall apply as nearly as may be possible. At every meeting of any
such committee, the presence of a majority of all the members thereof shall
constitute a quorum, except as provided in Section 4.3 of this Article 4, and
the affirmative vote of a majority of the members present shall be necessary for
the adoption by it of any resolution.
SECTION 4.3. SUBSTITUTION AND REMOVAL OF MEMBERS; VACANCIES. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
Article 5
OFFICERS
SECTION 5.1. NUMBER, TITLES AND TERM OF OFFICE. The officers of the
Corporation shall be a President, Treasurer, a Secretary, and such other
officers as the Board of Directors may from time to time elect or appoint
(including, but not limited to, a Chairman of the Board, and or more Vice
Presidents, (anyone or more of whom may be designated Executive Vice President
or Senior Vice President) Vice Chairman of the Board, one or more Assistant
Secretaries and one or more Assistant Treasurers). Each officer shall hold
office until such officer's successor shall be duly elected and shall qualify or
until such officer's death or until such officer shall resign or shall have been
removed. Any number of offices may be held by the same person, unless the
Articles of Incorporation of the Corporation provide otherwise. Except for the
Chairman of the Board and the Vice Chairman of the Board, no officer need be a
director.
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SECTION 5.2. POWERS AND DUTIES OF THE PRESIDENT. The President shall be
the chief executive officer of the Corporation. Subject to the control of the
Board of Directors and the Executive Committee (if any), the President shall
have general executive charge, management and control of the properties,
business and operations of the Corporation with all such powers as may be
reasonably incident to such responsibilities; may agree upon and execute all
leases, contracts, evidences of indebtedness and other obligations in the name
of the Corporation and may sign all certificates for shares of capital stock of
the Corporation; and shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to the
President by the Board of Directors. The President shall preside at all meetings
of the stockholders and of the Board of Directors.
SECTION 5.3. VICE PRESIDENTS. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the
Board, the President or the Vice Chairman of the Board of the Corporation. Each
Vice President shall have such other powers and duties as from time to time may
be assigned to such Vice President by the Board of Directors, the Chairman of
the Board, the President or the Vice Chairman of the Board.
SECTION 5.4. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
stockholders, in books provided for that purpose; shall attend to the giving and
serving of all notices; may in the name of the Corporation affix the seal of the
Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all certificates
for shares of capital stock of the Corporation; shall have charge of the
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to the Secretary by the Board of Directors, the Chairman of the Board,
the President or the Vice Chairman of the Board; and shall in general perform
all acts incident to the office of Secretary, subject to the control of the
Board of Directors, the Chairman of the Board, the President or the Vice
Chairman of the Board.
SECTION 5.5. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the Board of Directors, the President, or
the Secretary. The Assistant Secretaries shall exercise the powers of the
Secretary during that officer's absence or inability or refusal to act.
SECTION 5.6. TREASURER. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board
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of Directors or the President. The Treasurer shall perform all acts incident to
the position of Treasurer, subject to the control of the Board of Directors or
the President; and the Treasurer shall, if required by the Board of Directors,
give such bond for the faithful discharge of the Treasurer's duties in such form
as the Board of Directors may require.
SECTION 5.7. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the President,
or the Treasurer. The Assistant Treasurers shall exercise the powers of the
Treasurer during that officer's absence or inability or refusal to act.
SECTION 5.8. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President, together
with the Secretary or any Assistant Secretary shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of security holders of or with respect to any action of security holders
of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
SECTION 5.9. DELEGATION. For any reason that the Board of Directors may
deem sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
Article 6
CAPITAL STOCK
SECTION 6.1. CERTIFICATES OF STOCK. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the charter documents of the Corporation, as shall be
approved by the Board of Directors. Every holder of stock represented by
certificates shall be entitled to have a certificate signed by or in the name of
the Corporation by the President or a Vice President and the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation representing the number of shares (and, if the stock of the
Corporation shall be divided into classes or series, certifying the class and
series of such shares) owned by such stockholder which are registered in
certified form; provided, however, that any of or all the signatures on the
certificate may be facsimile. The stock record books and the blank stock
certificate books shall be kept by the Secretary or at the office of such
transfer agent or transfer agents as the Board of Directors may from time to
time determine. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature or signatures shall have been placed
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upon any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
SECTION 6.2. TRANSFER OF SHARES. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 6.3. OWNERSHIP OF SHARES. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the state of
Delaware.
SECTION 6.4. REGULATIONS REGARDING CERTIFICATES. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning the issue, transfer and registration or the
replacement of certificates for shares of capital stock of the Corporation.
SECTION 6.5. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate theretofore issued by it which is alleged to
have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
Article 7
MISCELLANEOUS PROVISIONS
SECTION 7.1. FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of January of each year.
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SECTION 7.2. CORPORATE SEAL. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds, and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may, if
the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contract or
other documents. Duplicates of the seal may be kept for use by any Assistant
Secretary.
SECTION 7.3. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required to be given by law, the charter documents of the Corporation or under
the provisions of these Bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission (including by telecopy
or facsimile transmission) or (ii) by deposit of the same in a post office box
or by delivery to an overnight courier service company in a sealed prepaid
wrapper addressed to the person entitled thereto at such person's post office
address, as it appears on the records of the Corporation, and such notice shall
be deemed to have been given on the day of such transmission or mailing or
delivery to courier, as the case may be.
Whenever notice is required to be given by law, the charter documents of
the Corporation or under any of the provisions of these Bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person, including without limitation a director, at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the charter documents of the Corporation or these Bylaws.
SECTION 7.4. FACSIMILE SIGNATURES. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
SECTION 7.5. RELIANCE UPON BOOKS, REPORTS AND RECORDS. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
SECTION 7.6. APPLICATION OF BYLAWS. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of the
state of Delaware, or of any other governmental body or power having
jurisdiction over this Corporation, or over the subject matter to
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which such provision of these Bylaws applies, or may apply, such provision of
these Bylaws shall be inoperative to the extent only that the operation thereof
unavoidably conflicts with such law, and shall in all other respects be in full
force and effect.
Article 8
AMENDMENTS
SECTION 8.1. AMENDMENTS. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation, subject to
the right of the stockholders entitled to vote with respect thereto to amend or
repeal such Bylaws as adopted or amended by the Board of Directors.
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EXHIBIT 3.4
BYLAWS AMENDMENT ADOPTED BY THE BOARD OF DIRECTORS
OF CASTLE DENTAL CENTERS, INC. ON _______________, 1996
BYLAWS
RESOLVED, that in accordance with Article VII of the Certificate of
Incorporation of the Corporation, Section 4 of Article 2 of the Corporation's
Bylaws shall be amended to read in its entirety as follows:
"SECTION 2.4. SPECIAL MEETINGS. Unless otherwise provided in the charter
documents of the Corporation, special meetings of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, by a majority of the Board of Directors, or by a majority of
the executive committee (if any), at such time and at such place as may
be stated in the notice of the meeting. Business transacted at such
meeting shall be confined to the purpose(s) stated in the notice of such
meeting."
RESOLVED, that Section 12 of Article 2 shall be amended to read in its
entirety as follows:
"SECTION 2.12.ACTION WITHOUT MEETING. Unless otherwise provided in the
charter documents of the Corporation, prior to a firm commitment
underwritten public offering of the Corporation's Common Stock in which
gross proceeds equal or exceed $25 million before deducting
underwriters' discounts and other expenses of the offering (the
"Offering"), any action permitted or required by law, the charter
documents of the Corporation or these Bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered
to the Corporation by delivery to its registered office in the state of
incorporation, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless,
within sixty (60) days of the earliest dated consent delivered in the
manner required by this Section to the Corporation, written consents
signed by a sufficient number of holders to take action are delivered to
the Corporation by delivery to its registered office in the state of
incorporation, its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery
-1-
made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to
those stockholders who have not consented in writing.
Subsequent to the Offering, any action required or permitted to be taken
by the Stockholders must be effected at a duly called annual or special
meeting of Stockholders and may not be effected without such a meeting
by any consent in writing by such holders."
RESOLVED, that the following Sections shall be added to Article 2 of the
Corporation's Bylaws:
"SECTION 2.13. CHAIRMAN OF STOCKHOLDER MEETINGS. Each annual and special
meeting of Stockholders held in person shall be presided over by a
chairman, who shall have the exclusive authority to, among other things,
determine (a) whether business and nominations have been properly
brought before such meetings, and (b) the order in which business and
nominations properly brought before such meeting shall be considered.
The chairman of each annual and special meeting shall be the Chairman of
the Board of Directors, or such person as shall be appointed by the
resolution approved by the majority of the Board of Directors.
SECTION 2.14. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered
by the Stockholders may be made at an annual meeting of
Stockholders (A) pursuant to the Corporation's notice of
meeting, (B) by or at the direction of the Board of
Directors or (C) by any Stockholder who was a
Stockholder of record at the time of giving of notice
provided for in this Section, who is entitled to vote at
the meeting and who complies with the notice procedures
set forth in this Section.
(ii) For nominations or other business to be properly
brought before an annual meeting by a Stockholder
pursuant to section
-2-
2.14(a)(i) of this ARTICLE 2, the Stockholder must have
given timely notice thereof in writing to the Secretary
of the Corporation and such other business must
otherwise be a proper matter for Stockholder action. To
be timely, a Stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the
Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of
business on the ninetieth (90th) day prior to the first
(1st) anniversary of the preceding year's annual
meeting; PROVIDED, HOWEVER, that in the event that the
date of the annual meeting is more than thirty (30) days
before or more than sixty (60) days after such
anniversary date, notice by the Stockholder to be timely
must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such
annual meeting and not later than the close of business
on the later of the sixtieth (60th) day prior to such
annual meeting or the tenth (10th) day following the day
on which public announcement of the date of such meeting
is first made by the Corporation. In no event shall the
public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a
Stockholders's notice as described above. Such
Stockholder's notice shall set forth:
(A) as to each person whom the Stockholder
proposes to nominate for election or reelection
as a Director all information relating to such
person that is required to be disclosed in
solicitations of proxies for election of
Directors in an election contest, or is
otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT") and
Rule 14a- 11 thereunder (including such person's
written consent to being named in the proxy
statement as a nominee and to serving as a
Director if elected);
(B) as to any other business that the
Stockholder proposes to bring before the
meeting, a brief description of the business
desired to be brought before the meeting, the
reasons for conducting such business at the
meeting and any material interest in such
business of such Stockholder and the beneficial
owner, if any, on whose behalf the proposal is
made; and
-3-
(C) as to the Stockholder giving the notice and
the beneficial owner, if any, on whose behalf
the nomination or proposal is made (1) the name
and address of such Stockholder, as they appear
on the Corporations's books, and of such
beneficial owner and (2) the class and number of
shares of the Corporation which are owned
beneficially and of record by such Stockholder
and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of
Section 2.14(a)(ii) of this ARTICLE 2 to the contrary,
in the event that the number of Directors to be elected
to the Board of Directors is increased and there is no
public announcement by the Corporation naming all of the
nominees for Director or specifying the size of the
increased Board of Directors at least seventy (70) days
prior to the first (1st) anniversary of the preceding
year's annual meeting, a Stockholder's notice required
by this Section shall also be considered timely, but
only with respect to nominees for any new positions
created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the
Corporation not later than the close of business on the
tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall
be conducted at a special meeting of Stockholders as shall have
been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of
Stockholders at which Directors are to be elected pursuant to
the Corporation's notice of meeting (a) by or at the direction
of the Board of Directors or (b) provided that the Board of
Directors has determined that Directors shall be elected at such
meeting, by any Stockholder who is a Stockholder of record at
the time of giving of notice provided for in this Section 2.14,
who shall be entitled to vote at the meeting and who complies
with the notice procedures set forth in this Section 2.14. In
the event the Corporation calls a special meeting of
Stockholders for the purpose of electing one or more Directors
to the Board of Directors, any such Stockholder may nominate a
person or persons (as the case may be), for election to such
positions(s) as specified in the Corporation's notice of
meeting, if the Stockholder's notice required by Section
2.14(a)(ii) of this ARTICLE 2 shall be delivered to the
Secretary at the principal executive
-4-
offices of the Corporation not earlier than the close of
business on the ninetieth (90th) day prior to such special
meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the
tenth (10th) day following the day on which public announcement
is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for
the giving of a Stockholder's notice as described above.
(c) GENERAL.
(i) Only such persons who are nominated in accordance
with the procedures set forth in this Section 2.14 shall
be eligible to serve as Directors and only such business
shall be conducted at a meeting of Stockholders as shall
have been brought before the meeting in accordance with
the procedures set forth in this Section 2.14. Except as
otherwise provided by applicable law, the Chairman of
the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth
in this Section 2.14 and, if any proposed nomination or
business is not in compliance with this Section 2.14, to
declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 2.14, "PUBLIC
ANNOUNCEMENT" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associate Press
or comparable national news service or in a document
publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or
15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 2.14, a Stockholder shall also comply with all
applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the
matters set forth in this Section 2.14. Nothing in this
Section 2.14 shall be deemed to affect any rights
-5-
(A) of Stockholders to request inclusion of
proposals in the Corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act;
or
(B) of the holders of any series of Common Stock
or Preferred Stock or any outstanding Voting
Indebtedness to elect Directors under specified
circumstances.
Notwithstanding any other provisions of the Certificate of Incorporation
of the Corporation, and notwithstanding that a lesser percentage may be
permitted from time to time by applicable law, no provision of this
Section 2.14 of ARTICLE 2 may be altered, amended or repealed in any
respect, nor may any provision inconsistent therewith be adopted, unless
such alteration, amendment, repeal or adoption is approved by the
affirmative vote of the holders of at least 80 percent of the combined
voting power of the then outstanding shares of the Corporation's stock
entitled to vote generally at elections of Directors voting together as
a single class, and at least 80 percent of each class, series and
issuance of combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors
voting separately as a class, series and issuance."
; and further
RESOLVED, that Section 8.1 of the Corporation's Bylaws is hereby amended
to read in its entirety as follows:
"SECTION 8.1. AMENDMENTS. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation,
subject to the right of the stockholders entitled to vote with respect
thereto to amend or repeal such Bylaws as adopted or amended by the
Board of Directors; provided, however, that unless a different
percentage is called for in a particular provision hereof, any amendment
or repeal of the Bylaws of the Corporation by the stockholders shall be
by a vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast by holders of voting stock with respect to such
amendment or repeal."
-6-
SEE REFERENCE TO RESTRICTIONS ON REVERSE SIDE
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
NUMBER SHARES
-000- -0-
CASTLE DENTAL CENTERS, INC.
COMMON STOCK
THIS CERTIFIES THAT SPECIMEN is the registered holder of ZERO (0)
fully paid and non-assessable shares of Common Stock, $0.001 par value, of
Castle Dental Centers, Inc., transferable only on the books of the Corporation
by the holder hereof in person or by duly authorized Attorney upon surrender of
this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and to be sealed with
the Seal of the Corporation on this ____ day of December, 1995.
- ------------------------- -------------------------
President Secretary
$0.001
par value
No. -000-
CASTLE DENTAL CENTERS, INC.
CERTIFICATE
FOR
-0-
SHARES
OF
COMMON STOCK
ISSUED TO
SPECIMEN
DATED
December , 1995
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS (THE
"ACTS"). THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE ACTS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND CAN BE TRANSFERRED ONLY PURSUANT TO THE TERMS OF A SECURITYHOLDERS'
AGREEMENT DATED AS OF DECEMBER 18, 1995 AMONG THE COMPANY AND CERTAIN HOLDERS OF
ITS SECURITIES. A COPY OF SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
For Value Received, hereby sell, assign, and transfer unto
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the Common Stock represented by the with Certificate, and do hereby
irrevocably constitute and appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said Stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated 19
In presence of
- ---------------------------------------- -----------------------------------
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OF ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.2
SECURITYHOLDERS AGREEMENT
AGREEMENT, dated as of December 18, 1995, among CASTLE DENTAL CENTERS, INC.
a Delaware corporation (the "Company"), Jack H. Castle, D.D.S., P.C, a Texas
professional corporation ("New PC"), the investors listed on Exhibit I.A
hereto (the "Investors"), the shareholders of the Company listed on Exhibit
I.B hereto (the "Shareholders") and the shareholders of New PC listed on
Exhibit I.C hereto (the "PC Holders").
RECITALS
WHEREAS, the Company, New PC and JHCDDS, Inc., a Texas professional
corporation ("Old PC") are concurrently herewith entering into a Securities
Purchase Agreement with the Investors, dated as of the date hereof (the
"Securities Purchase Agreement"), authorizing the issuance and delivery of (i)
$7,500,000 of 12% Senior Subordinated Notes (the "Notes") and (ii) 1,244,737
shares of the Company's Series A Convertible Preferred Stock, par value $.001
per share (the "Convertible Preferred Stock").
WHEREAS, it is a condition to the execution of the Securities Purchase
Agreement that the parties hereto enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used but not defined herein
shall have the meaning ascribed to them in the Securities Purchase Agreement. As
used herein, the following terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to any person or entity, (i) any
other person or entity which, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with such
person or entity, and (ii) in the case of any individual, the spouse, lineal
descendants or ancestors of such individual, any trust for the benefit of such
individual or over which such individual may exercise a power of appointment and
any trust entirely for the benefit of such spouse and/or lineal descendants
and/or such individual. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a person or entity, whether by virtue of the ownership of voting
stock, by contract or otherwise.
"COMPANY" shall have the meaning set forth in the preamble.
"CONVERTIBLE PREFERRED STOCK" shall have the meaning set forth in the
first recital.
"INITIATING SHAREHOLDER" shall have the meaning specified in Section
2.4(a).
"INVESTORS" shall have the meaning set forth in the preamble.
"NOTES" shall have the meaning set forth in the first recital.
"OWNED" as to any Shares or PC shares, as applicable, shall mean all
Shares as to which any Person would be deemed to be a beneficial owner or PC
Shares, as applicable, within the meaning of Rule 13d-3 of the Exchange Act.
"PC SHARES" shall mean any shares of Capital Stock of New PC.
"PARTICIPATING OFFEREE" shall have the meaning specified in Section
2.4(a).
"PARTICIPATION NOTICE" shall have the meaning specified in Section
2.4(a).
"PARTICIPATION SECURITIES" shall have the meaning specified in Section
2.4(a).
"PARTICIPATION TRANSFER" shall have the meaning specified in Section
2.4(a).
"SECURITIES" shall mean the Notes and the Convertible Preferred Stock.
"SECURITIES PURCHASE AGREEMENT" shall have the meaning set forth in the
first recital.
"SHAREHOLDERS" shall have the meaning set forth in the preamble.
"SHARES" shall mean the shares of Common Stock and any other shares of
capital stock of the Company.
"THIRD PARTY" or "THIRD PARTIES" shall mean any person, firm,
corporation or other entity, but, as to any Shareholder, shall not include the
estate of such Shareholder.
"TRANSFER" shall have the meaning set forth in Section 2.1(b) hereof.
"TRANSFEREE" shall mean any Person acquiring Shares from a Shareholder
and any subsequent transferee of any such Person herein referred to as a
"Transferee" of such Person.
ARTICLE II
RESTRICTIONS ON TRANSFER
Section 2.1 TRANSFER OF SHARES AND PC SHARES. During the term of this
Agreement, no Shareholder or PC Holder shall, directly or indirectly, offer,
sell, assign, transfer, grant a participation interest in, pledge, encumber or
otherwise dispose of, or place in trust (voting or otherwise) (each such
transaction being herein called a "Transfer") to any Third Party any Shares or
PC Shares, as applicable, Owned by such Shareholder or PC Holder unless such
transfer is in accordance with the provisions of this Agreement.
Section 2.2 AGREEMENT TO BE BOUND. No Transfer of Shares or PC Shares, as
applicable, by a Shareholder or PC Holder shall be effective unless (i) the
certificates representing such Shares or PC Shares, as applicable, issued to the
Transferee shall bear the legend provided in Section 2.3 and (ii) the Transferee
(if not already a party hereto) shall have executed and delivered to each
Investor and Shareholder (or PC Holder, as applicable), as a condition precedent
to such Transfer, an instrument or instruments reasonably satisfactory to such
parties confirming that the Transferee agrees to be bound by the terms of this
Agreement in the same manner as such Transferee's transferor, except as
otherwise provided in this Agreement.
Section 2.3 RESTRICTIVE LEGEND. Each certificate evidencing Shares Owned by
each Shareholder or PC Shares Owned by each PC Holder shall be conspicuously
stamped or otherwise imprinted with a legend in substantially the following
form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND CAN BE TRANSFERRED ONLY PURSUANT TO THE
TERMS OF A SECURITYHOLDERS' AGREEMENT DATED AS OF DECEMBER 18, 1995
AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS SECURITIES. A COPY OF
SUCH AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE
HOLDER HEREOF UPON WRITTEN REQUEST.
Section 2.4 PARTICIPATION RIGHTS. Except as set forth in Section 2.5, no
Shareholder may Transfer any Shares Owned by such Shareholder as long as any
Notes remain outstanding. Thereafter, any Shareholder hereto may Transfer any
shares of Common Stock Owned by such Shareholder if the following terms and
conditions have been satisfied:
(a) Any Shareholder hereto (the "Initiating Shareholder") shall give
notice of any intended Transfer (each, a "Participation Transfer") to each
Investor (each, a "Participating Offeree"). Such notice (the "Participation
Notice") shall set forth the terms and conditions of such proposed
Participation Transfer, including the name of the prospective transferee, the
number of Shares proposed to be Transferred (the "Participation Securities"),
the purchase price per share proposed to be paid therefor, the payment terms and
type of Participation Transfer to be effectuated, and any other material terms
and conditions of such proposed Participation Transfer. Within 20 days following
the delivery of the Participation Notice by the Initiating Shareholder, each
Participating Offeree shall have the right, but not the obligation, to
participate in such Participation Transfer by Transferring (up to the number of
shares of Common Stock Owned by such Participating Offeree), that number of
shares equal to the product obtained by multiplying (i) the total number of
shares of Common Stock proposed to be Transferred in the Participation Transfer
times (ii) a
fraction, the numerator of which shall be equal to the aggregate number of
shares of Common Stock Owned by such Participating Offeree (or issuable upon
conversion in full of any Convertible Preferred Stock held thereby) immediately
prior to the Participation Transfer and the denominator of which is equal to the
sum of (x) the aggregate number of shares of Common Stock Owned by the
Initiating Shareholder immediately prior to the Participation Transfer plus (y)
the aggregate number of shares of Common Stock Owned by all other Participating
Offerees (or issuable upon conversion in full of any Convertible Preferred Stock
held thereby) immediately prior to the Participation Transfer and (z) the
aggregate number of shares of Common Stock comprising the numerator. In the
event that a Participating Offeree elects not to participate in the
Participation Transfer, then the other Participating Offerees may sell
additional shares PRO RATA to the extent of such Participating Offeree's
non-participation. Any such Participation Transfers shall be on the same terms
and conditions as the proposed Participation Transfer by the Initiating
Shareholder.
(b) The closing of any proposed Participating Transfer in respect of which
a Participation Notice has been delivered shall occur not earlier than 30 days
nor more than 90 days after the date the last Participation Notice has been
given. The closing shall be held at 10:00 a.m., local time, on the date of
closing at the principal office of the Company, or at such other time or place
as the parties to such transaction mutually agree. At the closing, the
Initiating Shareholder, together with all Participating Offerees electing to
transfer shares of Common Stock, shall deliver to the proposed Transferee (i)
certificates evidencing the shares of Common Stock to be transferred pursuant
thereto, free and clear of any lien, claim or encumbrance and (ii) such other
documents, including, without limitation, executed stock powers and evidence of
ownership and authority, as the Transferees shall reasonably request, and shall
receive in exchange therefor the consideration to be paid or delivered by the
proposed Transferee in respect of such shares as described in the Participation
Notice.
(c) Notwithstanding anything contained in this Section 2.4, the Transfers
permitted by this Section 2.4 shall not include pledges or encumbrances of
Shares.
Section 2.5 PERMITTED TRANSFERS. Notwithstanding any provision in this
Article II to the contrary, any individual Shareholder or PC Holder may
Transfer, without compliance with the requirements of Section 2.4, Shares or PC
Shares (a) pursuant to the PC Stock Option Agreement or any successor agreement,
(b) to the immediate family members (including grandchildren) or the estate of
any such Shareholder or PC Holder (including, without limitation, any Transfer
by such Shareholder or PC Holder to or among any trust, custodial or other
similar accounts or funds in which such Shareholder or PC Holder or other member
of his immediate family serves as trustee, custodian or a similar fiduciary
capacity) pursuant to a bona fide gift, in each instance or (c) to Castle
Interests, Ltd., so long as such entity is beneficially owned exclusively by any
of the persons referred to in clause (b) of this Section 2.5, subject always to
the terms and provisions of this Agreement. Any such Transferee shall receive
and hold the Shares so transferred subject to the terms and provisions of this
Agreement (including the restrictions on Transfer in this Article II) and shall
be deemed a Shareholder or PC Holder, as applicable, for purposes hereof.
Section 2.6 IMPROPER TRANSFER. Any attempt to Transfer any Shares or PC
Shares not in compliance with this Agreement shall be null and void and neither
the Company nor New PC, as the case may be, nor any transfer agent shall give
any effect in the Company's or New PC's stock records to such attempted
Transfer.
Section 2.7 ADJUSTMENT OF TIME PERIODS. The closings referred to in
Sections 2.4(b) shall be extended for such amount of time as is necessary for
expiration of all regulatory holding periods and to obtain any governmental and
regulatory consents and approvals necessary in respect of the purchase or sale
of Shares to take place at such closing.
ARTICLE III
MISCELLANEOUS
Section 3.1 BOARD OF DIRECTORS, POLICY BOARD. (a) As long as (i) any of the
Notes are outstanding or (ii) 20% of the Convertible Preferred Stock or 20% of
the Common Stock obtained through conversion of the Convertible Preferred Stock
remains outstanding, (x) the Company and the Shareholders shall take all action
within their respective power, including, but not limited to, the voting of
capital stock of the Company, required to cause the Board of Directors of the
Company to at all times consist of at least 4
and no more than 7 members, one of whom shall be designated by the Investors
(the "Designee") and (y) New PC and the PC Holders shall take all action
within their respective power, including, but not limited to, the voting of
capital stock of New PC, required to cause the Policy Board (as defined in the
Management Agreement) of New PC to at all times consist of at least 4 and no
more than 7 members, one of whom shall be designated by the Investors (the "PC
Designee"). Each of the Shareholders and the Company agree to vote any of their
Shares which are outstanding at all meetings of stockholders of the Company (or
any written consents in lieu thereof) in which directors are elected in favor of
the Designee. Each of the PC Holders and New PC agree to vote any of their PC
Shares which are outstanding at all meetings of stockholders of New PC (or any
written consents in lieu thereof) in which members of the Policy Board are
elected in favor of the PC Designee.
(b) In the event that the Designee or PC Designee, as applicable, (the
"Withdrawing Member"), designated in the manner set forth in Section 3.1 (a)
above is unable to serve, or once having commenced to serve, is removed or
withdraws from the Board of Directors of the Company or the Policy Board of New
PC, as applicable, such Withdrawing Member's replacement (the "Substitute
Member") on the Board of Directors of the Company or the Policy Board of New
PC, as applicable, will be designated by the Investors. The Company and the
Shareholders agree to take all action within their respective power, including,
but not limited to, the voting of outstanding capital stock of the Company or
New PC, as applicable, to cause the election of such Substitute Member as soon
as practicable following his designation.
(c) In the event the Investors entitled to designate a Director or member
of the Policy Board pursuant to this Agreement cease to be so entitled, the
vacancy resulting therefrom shall be filled by the remaining directors or
members of the Policy Board or by the stockholders in the manner provided by
applicable law or the number of directors constituting the Board or members of
the Policy Board shall be reduced. In the event the Investors entitled to
designate a Director or member of the Policy Board pursuant to this Agreement
choose not to designate a Director or member of the Policy Board, such
directorship or membership shall remain vacant.
Section 3.2 TERMINATION OF AGREEMENT. This Agreement shall terminate as
follows:
(i) upon the agreement of the Company, New PC, the Shareholders, the
PC Holders and the Investors; or
(ii) on such date as there are no longer any Notes or Convertible
Preferred Stock (or any securities issued upon conversion of the
Convertible Preferred Stock) outstanding and all shares of Common Stock
which may be issued upon conversion of the Convertible Preferred Stock
shall be free of any restrictions on transfer, including, but not limited
to, any restrictions pursuant to Rule 144 of the Securities Act, as such
rule may be amended from time to time.
Section 3.3 REPRESENTATIONS. Each party hereto represents that (i) the
execution and delivery of this Agreement and the performance of such party's
obligations hereunder will not violate or conflict with any material agreement
to which such party is a party or any law, rule, license, regulation, judgment,
order, ruling or decree governing or affecting such party; (ii) no consents or
filings with any governmental authority or any other person are required to be
obtained or made in connection with such party's execution, delivery and
performance of this Agreement; and (iii) this Agreement constitutes the valid
and binding obligation of such party, enforceable against such party in
accordance with its terms.
Section 3.4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS
AND PC HOLDERS. Each Shareholder and PC Holder represents and warrants to the
Investors that all the shareholders of the Company and/or New PC, as the case
may be, who are Affiliates of such Shareholder or PC Holder, as the case may be,
are parties to this Agreement. Each Shareholder and PC Holder represents and
warrants that this Agreement does not violate any material agreement,
instrument, order, writ, judgment or decree to which it is a party, or by which
any of its properties or assets are bound. Each Shareholder and PC Holder
covenants that if after the date hereof any person or entity who is or becomes a
shareholder of the Company or New PC is or becomes an Affiliate of any
Shareholder or PC Holder, then such Shareholder or PC Holder shall cause such
person or entity to become a party to this Agreement.
Section 3.5 SUCCESSORS AND ASSIGNS. All agreements contained herein by or
on behalf of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not, including, without limitation, any Person who acquires any Securities (or
any securities issued in exchange for any of the Notes or upon conversion of any
Convertible Preferred Stock) from any party.
Section 3.6 NOTICES. All communications provided for hereunder shall be
sent by first class mail or overnight courier and, if to any Investor, addressed
to the Investor in the manner in which its address appears on Exhibit I.A
hereto, with a copy to William J. Grant, Jr., Esq., at Willkie Farr & Gallagher,
153 East 53rd Street, New York, New York 10022; if to any Shareholder, addressed
to the Shareholder at the address set forth below such Shareholder's name on
Exhibit I.B hereto; if to any PC Holder, addressed to the PC Holder at the
address set forth below such PC Holder's name on Exhibit I.C hereto; and if to
the Company, addressed to it at 1360 Post Oak Blvd., Suite 1300, Houston, Texas
77056, Attention: Office of the President, or to such other address with respect
to any party as such party shall notify the other in writing.
Section 3.7 DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
Section 3.8 GOVERNING LAW. The corporate law of the State of Delaware will
govern all issues concerning the relative rights of the Company, on the one
hand, and the Shareholders and the Investors, on the other hand. The corporate
law of the State of Texas will govern all issues concerning the relative rights
of New PC, on the one hand, and the PC Holders and Investors, on the other hand.
All other questions concerning the construction, validity and interpretation of
this Agreement will be governed by, and construed and enforced in accordance
with, the law of the State of New York without regard to the conflicts of laws
principles thereof.
Section 3.9 REMEDIES. In case any one or more of the provisions set forth
in this Agreement shall have been breached by the Company or any Shareholder or
Investor, the Company or the Shareholders or Investors (or any of them), as
applicable, may proceed to protect and enforce its or their rights either by
suit in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such provision contained in this Agreement. The Company, or
any Investor acting pursuant to this Section 3.10 shall be indemnified against
all liability, loss or damage, together with all reasonable costs and expenses
related thereto (including reasonable legal and accounting fees and expenses) in
accordance with paragraph 12B of the Securities Purchase Agreement.
Section 3.10 ENTIRE AGREEMENT. This Agreement, the Securities Purchase
Agreement and the Registration Rights Agreement and the other writings referred
to herein or delivered pursuant hereto contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
Section 3.11 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 3.12 AMENDMENTS. This Agreement may not be changed orally, but only
by an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
Section 3.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
EXHIBIT I.A (INVESTORS)
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLAN OF ICI
AMERICAN HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
DECLARATION OF TRUST FOR
DEFINED BENEFIT PLAN OF
ZENECA HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, NY 10020
EXHIBIT I.B (SHAREHOLDERS)
NAME AND ADDRESSES SHARES OWNED OF RECORD
- ---------------------------------------- ----------------------
Jack H. Castle, Jr., Trustee....... 1,428,000
Castle Interests, Ltd.............. 1,028,000
Lisa G. Castle Donnell, Trustee.... 116,000
Jack H. Castle..................... 714,000
Loretta Castle..................... 714,000
EXHIBIT I.C (PC HOLDERS)
NAMES AND ADDRESSES SHARES OWNED OF RECORD
- --------------------------------------------------------------
Jack H. Castle, D.D.S.............. 1000 shares
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
CASTLE DENTAL CENTERS, INC.
By: JACK H. CASTLE, JR.
Name: Jack H. Castle, Jr.
Title: President
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
JACK H. CASTLE, D.D.S., P.C.
By: JACK H. CASTLE, JR.
Name: Jack H. Castle, D.D.S.
Title: President
INVESTORS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: ROBERT J. CRESCI
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN
HOLDING INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: ROBERT J. CRESCI
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDING INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: ROBERT J. CRESCI
Robert J. Cresci
Managing Director
SHAREHOLDERS:
JACK H. CASTLE, JR.
JACK H. CASTLE, JR., AS TRUSTEE
OF THE CASTLE 1995 GIFT TRUST
f/b/o JACK H. CASTLE, JR.
CASTLE INTERESTS, LTD.
By: JACK H. CASTLE, JR.
Jack H. Castle, Jr.
General Partner
By: JACK H. CASTLE, D.D.S.
Jack H. Castle, D.D.S.
General Partner
By: LORETTA M. CASTLE
Loretta M. Castle
General Partner
LISA G. CASTLE DONNELL
LISA G. CASTLE DONNELL, AS TRUSTEE
OF THE CASTLE 1995 GIFT TRUST
f/b/o LISA G. CASTLE DONNELL
JACK H. CASTLE, D.D.S.
JACK H. CASTLE D.D.S.
LORETTA M. CASTLE
LORETTA M. CASTLE
GULFSTAR INVESTMENTS, LTD.
By: G. KENT KANLE
Name: G. Kent Kanle
Title: LTD Partner
EXHIBIT 4.3
AMENDMENT, WAIVER AND CONSENT
THIS AMENDMENT, WAIVER AND CONSENT is dated as of the 20th day of
August, 1996, and is given by Pecks Management Partners Ltd. ("Pecks") on behalf
of Delaware State Employees' Retirement Fund and the pension plans of ZENECA
Holdings, Inc. and ICI American Holdings, Inc. (collectively, the "Pecks
Investors").
WHEREAS, Pecks, on behalf of the Pecks Investors, is the holder of
1,244,737 shares of Series A Convertible Preferred Stock of Castle Dental
Centers, Inc., a Delaware corporation (the "Company"); and
WHEREAS, the Company desires to amend the Securityholders Agreement (as
defined below) to reflect the original intent of the parties; and
WHEREAS, Jack H. Castle, D.D.S. and Loretta M. Castle (the "Selling
Stockholders") desire to offer and sell 450,000 shares (the "Shares") of the
common stock, par value $.001, of the Company (the "Common Stock") in connection
with the Company's registered public offering of its Common Stock; and
WHEREAS, the Pecks Investors hold a co-sale right under Section 2.4(a)
of the Securityholders Agreement (the "Securityholders Agreement") dated as of
December 18, 1995 among the Company, Jack H. Castle, D.D.S., P.C., JHCDDS, Inc.
and the Pecks Investors;
NOW THEREFORE, in consideration of the mutual promises and
considerations among the parties hereto, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. CONSENT AND WAIVER. Pecks, on behalf of the Pecks Investors, hereby
consents to the sale of the Shares by the Selling Stockholders, and hereby
waives its co-sale right as more fully described in Section 2.4(a) of the
Securityholders Agreement.
2. AMENDMENT. In accordance with Section 3.12 of the Securityholders
Agreement, the fourth and fifth lines of Section 3.1 are hereby amended to read
in their entirety as follows:
"...through conversion of the Convertible Preferred Stock is held by the
Investors, (x) the Company and the Shareholders shall take all..."
<PAGE>
PECKS MANAGEMENT PARTNERS LTD.
By:___________________________
Mr. Robert J. Cresci
Managing Director
-2-
EXHIBIT 4.4
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") made as of this 19th
day of May, 1996, is by and among CASTLE DENTAL CENTERS, INC., a Delaware
corporation (the "Corporation"), having its principal office at 1360 Post Oak
Boulevard, Suite 1300, Houston, Texas 77056, and certain stockholders of the
Corporation listed on Schedule A attached hereto (collectively, the
"Stockholders").
BACKGROUND
The Corporation is a corporation duly organized and existing under
the laws of the State of Delaware. Each of the Stockholders owns that number of
shares of Common Stock set forth opposite the name of each such Stockholder on
Schedule A attached hereto. The issuance by the Corporation of Common Stock to
the 1st Dental Stockholder (as herein defined) was made pursuant to the
provisions of an Asset Purchase Agreement dated as of May 19, 1996, by and among
Castle Dental Centers of Florida, Inc., 1st Dental Care, Inc. and Lester B.
Greenberg, D.D.S. and Elisa Greenberg (the "Asset Purchase Agreement"), and the
execution and delivery of this Agreement by the 1st Dental Stockholder is a
condition to the consummation of the transactions contemplated by the Asset
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound hereby, agree as follows:
SECTION I
DEFINITIONS.
As used herein, the following terms shall have the meanings
assigned to them above or as specified below:
"AFFILIATE" shall have the meaning provided in Rule 501(b)
promulgated under the Securities Act.
"CASTLE STOCKHOLDER" shall mean the Stockholders so designated
on Schedule A attached hereto.
-1-
"COMMON STOCK" shall mean the Corporation's Common Stock,
$.001 par value, as authorized on the date of this Agreement.
"CORPORATION" shall have the meaning set forth in the first
paragraph of this Agreement above.
"DESIGNATED OFFERING" shall mean a firmly underwritten public
offering registered under the Securities Act with an aggregate minimum gross
offering price to the public of $25,000,000.
"1ST DENTAL STOCKHOLDER" shall mean the Stockholder so
designated on Schedule A attached hereto.
"NOTICE" shall have the meaning set forth in Section 2.1.
"PERMITTED TRANSFER" shall mean a Shares Transfer (i) to a
corporate Affiliate or shareholders who are accredited investors in the case of
a transferring 1st Dental Stockholder that is a corporation, (ii) to any of its
general or limited partners or any Affiliate thereof in the case of a
transferring 1st Dental Stockholder that is a partnership, (iii) to any spouse,
parents, brothers, sisters, children (natural or adopted), stepchildren or
grandchildren or a trust for any of their benefit or to an estate or to a
beneficiary thereunder, or for other bona fide estate planning purposes in the
case of a transferring 1st Dental Stockholder that is an individual, (iv) from
one 1st Dental Stockholder to another 1st Dental Stockholder, or (v) to a
financial institution as collateral to secure bona fide indebtedness of a 1st
Dental Stockholder (each, a "Permitted Transferee"); provided that prior to and
as a condition of such Shares Transfer, such Permitted Transferee shall agree in
writing to be bound by the terms and conditions of this Agreement.
"PERSON" shall mean and include an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"SALE SHARES" shall have the meaning set forth in Section 2.1.
"SHARES TRANSFER" shall have the meaning set forth in Section
2.1.
-2-
"STOCKHOLDERS" shall have the meaning set forth in the
Preamble above.
SECTION II
RIGHT OF FIRST REFUSAL
2.1 COMMON STOCK. Except for sales and transfers contemplated elsewhere in
this Agreement, if a 1st Dental Stockholder desires to transfer any or all of
the Common Stock then owned by such 1st Dental Stockholder, whether acquired as
of the date of this Agreement or thereafter ("Shares Transfer"), then at least
sixty days prior to any Shares Transfer other than a Permitted Transfer, such
1st Dental Stockholder will give notice (the "Notice") to the Corporation and
the Castle Stockholders of its intention to effect the Shares Transfer. The
Notice will set forth (i) the number of shares of Common Stock to be sold by the
1st Dental Stockholder (the "Sale Shares"), (ii) the date or proposed date of
the Shares Transfer and the name and address of the transferee, (iii) the
principal terms of the Shares Transfer, including the cash or other property or
consideration to be received upon such Shares Transfer, and (iv) the percentage
which the number of Sales Shares constitutes with respect to the aggregate
number of shares of Common Stock then held by the transferring 1st Dental
Stockholder. Any transferee of Common Stock shall take such Common Stock subject
to this Agreement, and if requested by the Corporation, shall execute a
counterpart hereof, or similar instrument.
2.2 CORPORATION'S OPTION The Corporation shall have the option, but not
the obligation, to purchase the Sale Shares on the same terms as specified in
the Notice. Within 20 days after the giving of the Notice, the Corporation shall
give written notice to the transferring 1st Dental Stockholder and the Castle
Stockholders stating whether or not it elects to exercise its option, the number
of Sale Shares, if any, it elects to purchase, and a date and time for
consummation of the purchase not less than 60 or more than 90 days after the
giving of the Notice. Failure by the Corporation to give such notice within such
time period shall be deemed an election by it not to exercise its option.
2.3 CASTLE STOCKHOLDERS' OPTION If the Corporation fails to exercise the
option with respect to all of the Sale Shares, the Castle Stockholders shall
thereupon have the option, but not the obligation, to purchase the remaining
Sale Shares on the same terms as specified in the Notice. After the expiration
of the 20-day period in Section 2.2 hereof, but within 30 days after the giving
of the Notice, any electing Castle Stockholder shall give written notice to the
transferring 1st Dental Stockholder and the Corporation stating whether or not
such Castle Stockholder elects to exercise
-3-
its option, the number of Sale Shares, if any, such Castle Stockholder elects to
purchase, and (unless a closing date has already been set) a date and time for
consummation of the purchase not more than 90 days after the giving of such
notice by the transferring 1st Dental Stockholder. Failure by such Castle
Stockholder to give such notice within such time period shall be deemed an
election by such Castle Stockholder not to exercise such Castle Stockholder's
option. If more than one Castle Stockholder exercises this option, each shall be
entitled to purchase its pro rata portion of the remaining Sale Shares based on
their relative respective ownerships of Common Stock.
2.4 TRANSFERS VOID. Any attempted transfer in violation of the terms of
this Article II shall be ineffective to vest in any transferee any interest held
by the transferring 1st Dental Stockholder in the shares. Without limiting the
foregoing, any purported Shares Transfer in violation of this Article II shall
be ineffective as against the Corporation and the Castle Stockholders, and the
Corporation and Castle Stockholders shall have a continuing right and option
(but not an obligation), until the restrictions contained in this Article II
terminate, to purchase the shares purported to be transferred by the 1st Dental
Stockholder for a price and on terms the same as those at which the purported
Shares Transfer was effected.
2.5 TERMINATION OF RESTRICTIONS. The restrictions set forth in this
Article II shall be inapplicable to a Designated Offering and the provisions of
this Article II shall terminate upon the consummation of a Designated Offering.
SECTION III
LEGEND ON STOCK CERTIFICATES.
Each certificate of the 1st Dental Stockholders representing shares of
Common Stock of the Corporation owned by them shall bear the following legend:
THE TRANSFER OF THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED AS OF MAY
19, 1996, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, AMONG THE
ISSUER AND CERTAIN HOLDERS OF OUTSTANDING CAPITAL STOCK OF SUCH
CORPORATION. NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS ARE FULFILLED.
-4-
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE ISSUER.
SECTION IV
SEVERABILITY; GOVERNING LAW
If any provisions of this Agreement shall be determined to be illegal and
unenforceable by any court of law, the remaining provisions shall be severable
and enforceable in accordance with their terms. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware.
SECTION V
BENEFITS OF AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, legal representatives and
heirs.
SECTION VI
REMEDIES
In case any one or more of the covenants and/or agreements set forth
in this Agreement shall have been breached, any party hereto may proceed to
protect and enforce its rights either by suit in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement.
SECTION VII
NOTICES
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person, sent by facsimile transmission to the telephone number set
forth below, or such other number as may hereinafter be designated in writing by
the recipient to the sender listing all parties, or duly sent by first class
-5-
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the addressor listing
all parties:
a. If to the Corporation, to:
Castle Dental Centers, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Attention: President
Facsimile No. 713-513-1401
b. If to the Stockholders:
At the addresses shown on Schedule A hereto
All such notices, advises and communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of facsimile transmission, on the date of transmission, and (c) in
the case of mailing, on the third day after the posting thereof.
SECTION VIII
CHANGES
The terms and provisions of this Agreement may not be modified or amended,
or any of the provisions hereof waived, temporarily or permanently, except
pursuant to the written consent of the Corporation and the Stockholders.
SECTION IX
CAPTIONS
The captions herein are inserted for convenience only and shall not
define, limit, extend or describe the scope of this Agreement or affect the
construction hereof.
-6-
SECTION X
NOUNS AND PRONOUNS
Whenever the context may require, any pronouns used herein shall include
the corresponding masculine, feminine or neuter forms and the singular form of
names and pronouns shall include the plural and vice-versa.
SECTION XI
MERGER PROVISION
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements between or among the parties relating thereto.
SECTION XII
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their behalf.
CASTLE DENTAL CENTERS, INC.
By:
Jack H. Castle, Jr., President
-7-
STOCKHOLDERS
------------------------------------------------
JACK H. CASTLE, JR., AS TRUSTEE OF THE CASTLE
1995 GIFT TRUST f/b/o JACK H. CASTLE, JR.
CASTLE INTERESTS, LTD.
By:______________________________________________
Jack H. Castle, Jr.
General Partner
By:______________________________________________
Jack H. Castle, D.D.S.
General Partner
By:_______________________________________________
Loretta M. Castle
General Partner
-------------------------------------------------
LISA G. CASTLE DONNELL, AS TRUSTEE OF THE
CASTLE 1995 GIFT TRUST f/b/o LISA G. CASTLE
DONNELL
-------------------------------------------------
JACK H. CASTLE, D.D.S.
-8-
--------------------------------------------------
LORETTA M. CASTLE
1ST DENTAL CARE, INC.
By:______________________________________________
President
-9-
SCHEDULE A
1ST DENTAL STOCKHOLDER
NAME SHARES HELD
1st Dental Care, Inc. 145,242
CASTLE STOCKHOLDERS
NAME SHARES OWNED OF RECORD
Jack H. Castle, Jr., Trustee 1,428,000
Castle Interests, Ltd 1,028,000
Lisa G. Castle Donnell, Trustee 116,000
Jack H. Castle 714,000
Loretta Castle 714,000
-10-
TABLE OF CONTENTS
SECTION I
DEFINITIONS............................................................1
SECTION II
RIGHT OF FIRST REFUSAL.................................................3
SECTION III
LEGEND ON STOCK CERTIFICATES...........................................4
SECTION IV
SEVERABILITY; GOVERNING LAW............................................5
SECTION V
BENEFITS OF AGREEMENT..................................................5
SECTION VI
REMEDIES...............................................................5
SECTION VII
NOTICES................................................................5
SECTION VIII
CHANGES................................................................6
SECTION IX
CAPTIONS...............................................................6
SECTION X
NOUNS AND PRONOUNS.....................................................7
SECTION XI
MERGER PROVISION.......................................................7
SECTION XII
COUNTERPARTS...........................................................7
Schedule A Stockholders
-i-
STOCKHOLDERS' AGREEMENT
BY AND AMONG
CASTLE DENTAL CENTERS, INC.
AND THE PERSONS
LISTED ON
SCHEDULE A HERETO
DATED: AS OF MAY 19, 1996
EXHIBIT 4.5
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") made as of this 31st
day of May, 1996, is by and among CASTLE DENTAL CENTERS, INC., a Delaware
corporation (the "Corporation"), having its principal office at 1360 Post Oak
Boulevard, Suite 1300, Houston, Texas 77056, and certain stockholders of the
Corporation listed on Schedule A attached hereto (collectively, the
"Stockholders").
BACKGROUND
The Corporation is a corporation duly organized and existing under
the laws of the State of Delaware. Each of the Stockholders owns that number of
shares of Common Stock set forth opposite the name of each such Stockholder on
Schedule A attached hereto. The issuance by the Corporation of Common Stock to
the Mid-South Stockholders (as herein defined) was made pursuant to the
provisions of an Asset Purchase Agreement dated April 29, 1996, by and among
Castle Dental Centers of Tennessee, Inc., Mid-South Dental Center, P.C. and G.
Powell Bilyeu, D.D.S. (the "Asset Purchase Agreement"), and the execution and
delivery of this Agreement by the Mid-South Stockholders is a condition to the
consummation of the transaction contemplated by the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound hereby, agree as follows:
SECTION I
DEFINITIONS.
As used herein, the following terms shall have the meanings
assigned to them above or as specified below:
"AFFILIATE" shall have the meaning provided in Rule 501(b)
promulgated under the Securities Act.
"CASTLE STOCKHOLDER" shall mean the Stockholders so designated
on Schedule A attached hereto.
-1-
"COMMON STOCK" shall mean the Corporation's Common Stock,
$.001 par value, as authorized on the date of this Agreement.
"CORPORATION" shall have the meaning set forth in the first
paragraph of this Agreement above.
"DESIGNATED OFFERING" shall mean a firmly underwritten public
offering registered under the Securities Act with an aggregate minimum gross
offering price to the public of $25,000,000 at a per share price (determined on
a Common Stock equivalent basis) of at least $5.00 per share (before deduction
of underwriters' discounts and commissions), as adjusted for stock splits, stock
dividends, stock combinations or stock reclassification.
"MID-SOUTH STOCKHOLDERS" shall mean the Stockholders so
designated on Schedule A attached hereto.
"NOTICE" shall have the meaning set forth in Section 2.1.
"PERMITTED TRANSFER" shall mean a Shares Transfer to a
corporate Affiliate in the case of a transferring Mid-South Stockholder that is
a corporation, to any of its general or limited partners or any Affiliate
thereof in the case of a transferring Mid-South Stockholder that is a
partnership, to any spouse, parents, brothers, sisters, children (natural or
adopted), stepchildren or grandchildren or a trust for any of their benefit or
to an estate or to a beneficiary thereunder in the case of a transferring
Mid-South Stockholder that is an individual, or from one Mid-South Stockholder
to another Mid-South Stockholder (each, a "Permitted Transferee"); provided that
prior to and as a condition of such Shares Transfer, such Permitted Transferee
shall agree in writing to be bound by the terms and conditions of this
Agreement.
"PERSON" shall mean and include an individual, a corporation,
a partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"SALE SHARES" shall have the meaning set forth in Section 2.1.
"SHARES TRANSFER" shall have the meaning set forth in Section
2.1.
-2-
"STOCKHOLDERS" shall have the meaning set forth in the
Preamble above.
SECTION II
RIGHT OF FIRST REFUSAL
2.1 COMMON STOCK. Except for sales and transfers contemplated elsewhere in
this Agreement, if a Mid-South Stockholder desires to transfer any or all of the
Common Stock then owned by such Mid-South Stockholder ("Shares Transfer"), then
at least sixty days prior to any Shares Transfer other than a Permitted
Transfer, such Mid-South Stockholder will give notice (the "Notice") to the
Corporation and the Castle Stockholders of its intention to effect the Shares
Transfer. The Notice will set forth (i) the number of shares of Common Stock to
be sold by the Mid- South Stockholder (the "Sale Shares"), (ii) the date or
proposed date of the Shares Transfer and the name and address of the transferee,
(iii) the principal terms of the Shares Transfer, including the cash or other
property or consideration to be received upon such Shares Transfer, and (iv) the
percentage which the number of Sales Shares constitutes with respect to the
aggregate number of shares of Common Stock then held by the transferring
Mid-South Stockholder. Any transferee of Common Stock shall take such Common
Stock subject to this Agreement, and if requested by the Corporation, shall
execute a counterpart hereof, or similar instrument.
2.2 CORPORATION'S OPTION The Corporation shall have the option, but not
the obligation, to purchase the Sale Shares on the same terms as specified in
the Notice. Within 20 days after the giving of the Notice, the Corporation shall
give written notice to the transferring Mid-South Stockholder and the Castle
Stockholders stating whether or not it elects to exercise its option, the number
of Sale Shares, if any, it elects to purchase, and a date and time for
consummation of the purchase not less than 60 or more than 90 days after the
giving of the Notice. Failure by the Corporation to give such notice within such
time period shall be deemed an election by it not to exercise its option.
2.3 CASTLE STOCKHOLDERS' OPTION If the Corporation fails to exercise the
option with respect to all of the Sale Shares, the Castle Stockholders shall
thereupon have the option, but not the obligation, to purchase the remaining
Sale Shares on the same terms as specified in the Notice. After the expiration
of the 20-day period in Section 2.2 hereof, but within 30 days after the giving
of the Notice, any electing Castle Stockholder shall give written notice to the
transferring Mid-South Stockholder and the Corporation stating whether or not
such Castle Stockholder elects to exercise its option, the number of Sale
Shares, if any, such Castle Stockholder elects to purchase, and (unless
-3-
a closing date has already been set) a date and time for consummation of the
purchase not more than 90 days after the giving of such notice by the
transferring Mid-South Stockholder. Failure by such Castle Stockholder to give
such notice within such time period shall be deemed an election by such Castle
Stockholder not to exercise such Castle Stockholder's option. If more than one
Castle Stockholder exercises this option, each shall be entitled to purchase its
pro rata portion of the remaining Sale Shares based on their relative respective
ownerships of Common Stock.
2.4 TRANSFERS VOID. Any attempted transfer in violation of the terms of
this Article II shall be ineffective to vest in any transferee any interest held
by the transferring Mid-South Stockholder in the shares. Without limiting the
foregoing, any purported Shares Transfer in violation of this Article II shall
be ineffective as against the Corporation and the Castle Stockholders, and the
Corporation and Castle Stockholders shall have a continuing right and option
(but not an obligation), until the restrictions contained in this Article II
terminate, to purchase the shares purported to be transferred by the Mid-South
Stockholder for a price and on terms the same as those at which the purported
Shares Transfer was effected.
2.5 The restrictions set forth in this Article II shall be inapplicable to
a Designated Offering and the provisions of this Article II shall terminate upon
the consummation of a Designated Offering.
SECTION III
LEGEND ON STOCK CERTIFICATES.
Each certificate of the Mid-South Stockholders representing shares of
Common Stock of the Corporation owned by them shall bear the following legend:
THE TRANSFER OF THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED AS OF MAY 31,
1996, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, AMONG THE ISSUER
AND CERTAIN HOLDERS OF OUTSTANDING CAPITAL STOCK OF SUCH CORPORATION.
NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS ARE FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
-4-
RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER.
SECTION IV
SEVERABILITY; GOVERNING LAW
If any provisions of this Agreement shall be determined to be illegal and
unenforceable by any court of law, the remaining provisions shall be severable
and enforceable in accordance with their terms. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware.
SECTION V
BENEFITS OF AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, legal representatives and
heirs.
SECTION VI
REMEDIES
In case any one or more of the covenants and/or agreements set forth
in this Agreement shall have been breached, any party hereto may proceed to
protect and enforce its rights either by suit in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement.
SECTION VII
NOTICES
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person, sent by facsimile transmission to the telephone number set
forth below, or such other number as may hereinafter be designated in writing by
the recipient to the sender listing all parties, or duly sent by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the
-5-
address set forth below or such other address as may hereafter be designated in
writing by the addressee to the addressor listing all parties:
a. If to the Corporation, to:
Castle Dental Centers, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Attention: President
Facsimile No. 713-513-1401
b. If to the Stockholders:
At the addresses shown on Schedule A hereto
All such notices, advises and communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of facsimile transmission, on the date of transmission, and (c) in
the case of mailing, on the third day after the posting thereof.
SECTION VIII
CHANGES
The terms and provisions of this Agreement may not be modified or amended,
or any of the provisions hereof waived, temporarily or permanently, except
pursuant to the written consent of the Corporation and the Stockholders.
SECTION IX
CAPTIONS
The captions herein are inserted for convenience only and shall not
define, limit, extend or describe the scope of this Agreement or affect the
construction hereof.
-6-
SECTION X
NOUNS AND PRONOUNS
Whenever the context may require, any pronouns used herein shall include
the corresponding masculine, feminine or neuter forms and the singular form of
names and pronouns shall include the plural and vice-versa.
SECTION XI
MERGER PROVISION
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements between or among the parties relating thereto.
SECTION XII
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their behalf.
CASTLE DENTAL CENTERS, INC.
By:
Jack H. Castle, Jr., President
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STOCKHOLDERS
--------------------------------------------
JACK H. CASTLE, JR., AS TRUSTEE OF THE
CASTLE 1995 GIFT TRUST f/b/o JACK H. CASTLE,
JR.
CASTLE INTERESTS, LTD.
By:_________________________________________
Jack H. Castle, Jr.
General Partner
By:_________________________________________
Jack H. Castle, D.D.S.
General Partner
By:_________________________________________
Loretta M. Castle
General Partner
--------------------------------------------
LISA G. CASTLE DONNELL, AS TRUSTEE OF THE
CASTLE 1995 GIFT TRUST f/b/o LISA G. CASTLE
DONNELL
--------------------------------------------
JACK H. CASTLE, D.D.S.
-8-
--------------------------------------------
LORETTA M. CASTLE
--------------------------------------------
G. POWELL BILYEU, D.D.S.
-9-
SCHEDULE A
MID-SOUTH STOCKHOLDERS
NAME SHARES HELD
G. Powell Bilyeu, D.D.S. 150,000
CASTLE STOCKHOLDERS
NAME SHARES OWNED OF RECORD
Jack H. Castle, Jr., Trustee 1,428,000
Castle Interests, Ltd 1,028,000
Lisa G. Castle Donnell, Trustee 116,000
Jack H. Castle 714,000
Loretta Castle 714,000
-10-
TABLE OF CONTENTS
SECTION I
DEFINITIONS............................................................1
SECTION II
RIGHT OF FIRST REFUSAL.................................................3
SECTION III
LEGEND ON STOCK CERTIFICATES...........................................4
SECTION IV
SEVERABILITY; GOVERNING LAW............................................5
SECTION V
BENEFITS OF AGREEMENT..................................................5
SECTION VI
REMEDIES...............................................................5
SECTION VII
NOTICES................................................................5
SECTION VIII
CHANGES................................................................6
SECTION IX
CAPTIONS...............................................................6
SECTION X
NOUNS AND PRONOUNS.....................................................7
SECTION XI
MERGER PROVISION.......................................................7
SECTION XII
COUNTERPARTS...........................................................7
Schedule A Stockholders
-i-
Doc. No. 9
STOCKHOLDERS' AGREEMENT
BY AND AMONG
CASTLE DENTAL CENTERS, INC.
AND THE PERSONS
LISTED ON
SCHEDULE A HERETO
DATED: AS OF MAY 31, 1996
-ii-
EXHIBIT 4.6
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") made as of this 9th day
of August, 1996, is by and among CASTLE DENTAL CENTERS, INC., a Delaware
corporation (the "Corporation"), having its principal office at 1360 Post Oak
Boulevard, Suite 1300, Houston, Texas 77056, and certain stockholders of the
Corporation listed on Schedule A attached hereto (collectively, the
"Stockholders").
BACKGROUND
The Corporation is a corporation duly organized and existing under the
laws of the State of Delaware. Each of the Stockholders owns that number of
shares of Common Stock set forth opposite the name of each such Stockholder on
Schedule A attached hereto. The issuance by the Corporation of Common Stock to
the Horizon Stockholder (as herein defined) was made pursuant to the provisions
of that certain Plan and Agreement of Reorganization (the "Plan of
Reorganization") dated as of July __, 1996, by and among Castle Dental Centers,
Inc., Castle Dental Centers of Texas, Inc., N.A. Dental Services, P.C., EFW
Dental Services, P.C., HDC Dental Services, P.C., Midcities Dental Services,
P.C., NEFW Dental Services, P.C. and West Ft. Worth Dental Services, P.C.
(collectively, the "Dental Centers") and Joseph A. Bonola, D.D.S., Kristen
Bonola and Larry C. Jackson, D.D.S. (collectively, the "Shareholders"), and the
execution and delivery of this Agreement by the Dental Centers and the
Shareholders is a condition to the consummation of the transactions contemplated
by the Plan of Reorganization.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and obligations hereinafter set forth, the parties hereto, intending
to be legally bound hereby, agree as follows:
SECTION I
DEFINITIONS.
As used herein, the following terms shall have the meanings assigned to
them above or as specified below:
"AFFILIATE" shall have the meaning provided in Rule 501(b)
promulgated under the Securities Act.
"CASTLE STOCKHOLDER" shall mean the Stockholders so designated on
Schedule A attached hereto.
<PAGE>
"COMMON STOCK" shall mean the Corporation's Common Stock, $.001
par value, as authorized on the date of this Agreement.
"CORPORATION" shall have the meaning set forth in the first
paragraph of this Agreement above.
"DESIGNATED OFFERING" shall mean a firmly underwritten public
offering registered under the Securities Act with an aggregate minimum gross
offering price to the public of $25,000,000.
"HORIZON STOCKHOLDER" shall mean the Stockholders so designated
on Schedule A attached hereto.
"NOTICE" shall have the meaning set forth in Section 2.1.
"PERMITTED TRANSFER" shall mean a Shares Transfer (i) to a
corporate Affiliate in the case of a transferring Horizon Stockholder that is a
corporation, (ii) to any of its general or limited partners or any Affiliate
thereof in the case of a transferring Horizon Stockholder that is a partnership,
(iii) to any spouse, parents, brothers, sisters, children (natural or adopted),
stepchildren or grandchildren or a trust for any of their benefit or to an
estate or to a beneficiary thereunder, or for other bona fide estate planning
purposes in the case of a transferring Horizon Stockholder that is an
individual, (iv) from one Horizon Stockholder to another Horizon Stockholder
whether pursuant to the Plan of Reorganization or otherwise, (v) to a financial
institution as collateral to secure bona fide indebtedness of a Horizon
Stockholder; or (vi) from Joseph A. Bonola, D.D.S. to David Jones, D.D.S.
pursuant to that certain Settlement Agreement and Mutual Release dated August 5,
1996 (each, a "Permitted Transferee"); provided that prior to and as a condition
of such Shares Transfer, such Permitted Transferee shall agree in writing to be
bound by the terms and conditions of this Agreement.
"PERSON" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
"SALE SHARES" shall have the meaning set forth in Section 2.1.
"SHARES TRANSFER" shall have the meaning set forth in Section
2.1.
"STOCKHOLDERS" shall have the meaning set forth in the Preamble
above.
-2-
SECTION II
RIGHT OF FIRST REFUSAL
2.1 COMMON STOCK. Except for sales and transfers contemplated elsewhere
in this Agreement, if a Horizon Stockholder desires to transfer any or all of
the Common Stock then owned by such Horizon Stockholder, whether acquired as of
the date of this Agreement or thereafter ("Shares Transfer"), then at least
sixty days prior to any Shares Transfer other than a Permitted Transfer, such
Horizon Stockholder will give notice (the "Notice") to the Corporation and the
Castle Stockholders of its intention to effect the Shares Transfer. The Notice
will set forth (i) the number of shares of Common Stock to be sold by the
Horizon Stockholder (the "Sale Shares"), (ii) the date or proposed date of the
Shares Transfer and the name and address of the transferee, (iii) the principal
terms of the Shares Transfer, including the cash or other property or
consideration to be received upon such Shares Transfer, and (iv) the percentage
which the number of Sales Shares constitutes with respect to the aggregate
number of shares of Common Stock then held by the transferring Horizon
Stockholder. Any transferee of Common Stock shall take such Common Stock subject
to this Agreement, and if requested by the Corporation, shall execute a
counterpart hereof, or similar instrument.
2.2 CORPORATION'S OPTION The Corporation shall have the option, but not
the obligation, to purchase the Sale Shares on the same terms as specified in
the Notice. Within 20 days after the giving of the Notice, the Corporation shall
give written notice to the transferring Horizon Stockholder and the Castle
Stockholders stating whether or not it elects to exercise its option, the number
of Sale Shares, if any, it elects to purchase, and a date and time for
consummation of the purchase not less than 60 or more than 90 days after the
giving of the Notice. Failure by the Corporation to give such notice within such
time period shall be deemed an election by it not to exercise its option.
2.3 CASTLE STOCKHOLDERS' OPTION If the Corporation fails to exercise the
option with respect to all of the Sale Shares, the Castle Stockholders shall
thereupon have the option, but not the obligation, to purchase the remaining
Sale Shares on the same terms as specified in the Notice. After the expiration
of the 20-day period in Section 2.2 hereof, but within 30 days after the giving
of the Notice, any electing Castle Stockholder shall give written notice to the
transferring Horizon Stockholder and the Corporation stating whether or not such
Castle Stockholder elects to exercise its option, the number of Sale Shares, if
any, such Castle Stockholder elects to purchase, and (unless a closing date has
already been set) a date and time for consummation of the purchase not more than
90 days after the giving of such notice by the transferring Horizon Stockholder.
Failure by such Castle Stockholder to give such notice within such time period
shall be deemed an election by such Castle Stockholder not to exercise such
Castle Stockholder's option. If more than one Castle
-3-
Stockholder exercises this option, each shall be entitled to purchase its pro
rata portion of the remaining Sale Shares based on their relative respective
ownerships of Common Stock.
2.4 TRANSFERS VOID. Any attempted transfer in violation of the terms of
this Article II shall be ineffective to vest in any transferee any interest held
by the transferring Horizon Stockholder in the shares. Without limiting the
foregoing, any purported Shares Transfer in violation of this Article II shall
be ineffective as against the Corporation and the Castle Stockholders, and the
Corporation and Castle Stockholders shall have a continuing right and option
(but not an obligation), until the restrictions contained in this Article II
terminate, to purchase the shares purported to be transferred by the Horizon
Stockholder for a price and on terms the same as those at which the purported
Shares Transfer was effected.
2.5 TERMINATION OF RESTRICTIONS. The restrictions set forth in this
Article II shall be inapplicable to a Designated Offering and the provisions of
this Article II shall terminate upon the consummation of a Designated Offering.
SECTION III
LEGEND ON STOCK CERTIFICATES.
Each certificate of the Horizon Stockholder representing shares of
Common Stock of the Corporation owned by them shall bear the following legend:
THE TRANSFER OF THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED AS OF
AUGUST 9, 1996, AS THE SAME MAY BE AMENDED FROM TIME TO TIME,
AMONG THE ISSUER AND CERTAIN HOLDERS OF OUTSTANDING CAPITAL STOCK
OF SUCH CORPORATION. NO TRANSFER OF THESE SECURITIES SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS ARE FULFILLED. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE ISSUER.
SECTION IV
SEVERABILITY; GOVERNING LAW
-4-
If any provisions of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Delaware.
SECTION V
BENEFITS OF AGREEMENT
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, legal representatives and
heirs.
SECTION VI
REMEDIES
In case any one or more of the covenants and/or agreements set forth in
this Agreement shall have been breached, any party hereto may proceed to protect
and enforce its rights either by suit in equity and/or by action at law,
including, but not limited to, an action for damages as a result of any such
breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement.
SECTION VII
NOTICES
All notices, requests, consents and other communications hereunder to
any party shall be deemed to be sufficient if contained in a written instrument
delivered in person, sent by facsimile transmission to the telephone number set
forth below, or such other number as may hereinafter be designated in writing by
the recipient to the sender listing all parties, or duly sent by first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the addressor listing
all parties:
a. If to the Corporation, to:
Castle Dental Centers, Inc.
1360 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
Attention: President
Facsimile No. 713-513-1401
-5-
b. If to the Stockholders:
At the address that such Stockholder shall have furnished
to the Corporation in writing
All such notices, advises and communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of facsimile transmission, on the date of transmission, and (c) in
the case of mailing, on the third day after the posting thereof.
SECTION VIII
CHANGES
The terms and provisions of this Agreement may not be modified or
amended, or any of the provisions hereof waived, temporarily or permanently,
except pursuant to the written consent of the Corporation and the Stockholders.
SECTION IX
CAPTIONS
The captions herein are inserted for convenience only and shall not
define, limit, extend or describe the scope of this Agreement or affect the
construction hereof.
SECTION X
NOUNS AND PRONOUNS
Whenever the context may require, any pronouns used herein shall include
the corresponding masculine, feminine or neuter forms and the singular form of
names and pronouns shall include the plural and vice-versa.
SECTION XI
MERGER PROVISION
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements between or among the parties relating thereto.
-6-
SECTION XII
COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
[The remainder of this page has been intentionally left blank.]
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf.
CASTLE DENTAL CENTERS, INC.
By:
Jack H. Castle, Jr., President
STOCKHOLDERS
JACK H. CASTLE, JR., AS TRUSTEE OF THE CASTLE
1995 GIFT TRUST f/b/o JACK H. CASTLE, JR.
CASTLE INTERESTS, LTD.
By:
Jack H. Castle, Jr.
General Partner
By:
Jack H. Castle, D.D.S.
General Partner
By:
Loretta M. Castle
General Partner
-8-
LISA G. CASTLE DONNELL, AS TRUSTEE OF THE
CASTLE 1995 GIFT TRUST f/b/o LISA G. CASTLE
DONNELL
JACK H. CASTLE, D.D.S.
LORETTA M. CASTLE
N. A. DENTAL SERVICES, P.C.
By:________________________________________
Name:______________________________________
Title______________________________________
EFW DENTAL SERVICES, P.C.
By:________________________________________
Name:______________________________________
Title:_____________________________________
-9-
HDC DENTAL SERVICES, P.C.
By:________________________________________
Name:______________________________________
Title:_____________________________________
MIDCITIES DENTAL SERVICES, P.C.
By:________________________________________
Name:______________________________________
Title:_____________________________________
NEFW DENTAL SERVICES, P.C.
By:________________________________________
Name:______________________________________
Title:_____________________________________
WEST FT. WORTH DENTAL SERVICES, P.C.
By:________________________________________
Name:______________________________________
Title:_____________________________________
-10-
-------------------------------------------
Joseph A. Bonola, D.D.S.
-------------------------------------------
Kristen Bonola
-------------------------------------------
Larry Charles Jackson
-11-
SCHEDULE A
HORIZON STOCKHOLDERS
BEFORE THE LIQUIDATION AND DISSOLUTION CONTEMPLATED BY THE PLAN OF
REORGANIZATION
NAME SHARES HELD
EFW Dental Centers, P.C. 20,555
NEFW Dental Centers, P.C. 67,778
HDC Dental Services, P.C. 62,778
Midcities Dental Services, P.C. 68,889
West Ft. Worth Dental Services, P.C. 57,778
N. A. Dental Services, P.C. 47,222
AFTER THE LIQUIDATION AND DISSOLUTION CONTEMPLATED BY THE PLAN OF REORGANIZATION
NAME SHARES HELD
Joseph A. Bonola, D.D.S. 320,000
Larry C. Jackson, D.D.S. 5,000
CASTLE STOCKHOLDERS
NAME SHARES OWNED OF RECORD
Jack H. Castle, Jr., Trustee 1,428,000
Castle Interests, Ltd 1,028,000
Lisa G. Castle Donnell, Trustee 116,000
Jack H. Castle 714,000
Loretta Castle 714,000
-12-
TABLE OF CONTENTS
SECTION I
DEFINITIONS............................................................1
SECTION II
RIGHT OF FIRST REFUSAL.................................................2
SECTION III
LEGEND ON STOCK CERTIFICATES...........................................4
SECTION IV
SEVERABILITY; GOVERNING LAW............................................4
SECTION V
BENEFITS OF AGREEMENT..................................................4
SECTION VI
REMEDIES...............................................................5
SECTION VII
NOTICES................................................................5
SECTION VIII
CHANGES................................................................5
SECTION IX
CAPTIONS...............................................................6
SECTION X
NOUNS AND PRONOUNS.....................................................6
SECTION XI
MERGER PROVISION.......................................................6
SECTION XII
COUNTERPARTS...........................................................6
-i-
================================================================================
STOCKHOLDERS' AGREEMENT
BY AND AMONG
CASTLE DENTAL CENTERS, INC.
AND THE PERSONS
LISTED ON
SCHEDULE A HERETO
DATED: AS OF AUGUST 9, 1996
================================================================================
-ii-
EXHIBIT 4.7
[FORM OF REGISTRATION RIGHTS AGREEMENT]
REGISTRATION RIGHTS AGREEMENT, dated as of December 18, 1995, among
CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "Company"), the
purchasers whose names appear under the heading "Purchasers" on the signature
page hereof (the "Purchasers") and the shareholders and investors whose names
appear under the heading "Inside Shareholders" on the signature pages hereof
(the "Inside Shareholders").
1. BACKGROUND. The Company is a party to a securities purchase
agreement, dated as of December 18, 1995 (the "Securities Purchase Agreement"),
entered into with the Purchasers, pursuant to which the Company issued to the
Purchasers (i) $7,500,000 of 12% Senior Subordinated Notes (the "Notes") and
(ii) 1,244,737 shares of Series A Convertible Preferred Stock, par value $.001
per share (the "Convertible Preferred Stock"). In addition, the Company intends
to issue and deliver to GulfStar Investments, Ltd. a warrant to purchase 113,158
shares of the Company's Common Stock (the "Gulfstar Warrant").
In connection with the Securities Purchase Agreement, the Company
entered into this Registration Rights Agreement, to which the Purchasers who
received securities under the Securities Purchase Agreement became parties.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1. REGISTRATION OF REGISTRABLE SECURITIES ON REQUEST. (a) REQUEST.
At any time subsequent to the Company's initial Public Offering (as defined in
the Securities Purchase Agreement), the holder or holders of in excess of 50% of
the Registrable Securities shall twice have the right to request in writing that
the Company effect an underwritten registration under the Securities Act of
1933, as amended (the "Securities Act") of all or part of such holders'
Registrable Securities; PROVIDED that the aggregate Fair Market Value (as
defined in the Securities Purchase Agreement) of the Registrable Securities
requested to be so registered is at least $4,000,000. The Company will promptly
give written notice of such requested registration to all other holders of
Registrable Securities and all holders of Registrable Inside Shareholder
Securities, which holders shall be entitled to include their Registrable
Securities in such registration subject to Sections 2.1(b) and 2.1(g). Thereupon
the Company will use its best efforts to effect the registrations under the
Securities Act of:
1
(i) the Registrable Securities which the Company has been so requested to
register by such holders; and
(ii) subject to Sections 2.1(b) and 2.1(g), all other Registrable Securities and
Registrable Inside Shareholder Securities which the Company has been requested
to register by the holders thereof by written request given to the Company
within 30 days after the giving of such written notice by the Company (which
request shall specify the intended method of dispo sition of such Registrable
Securities and Registrable Inside Shareholder Securities) all to the extent
requisite to permit the disposition of the Registrable Securities and
Registrable Inside Shareholder Securities so to be registered.
(b) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall
effect a registration pursuant to this Section 2.1, no securities other than
Registrable Securities shall be included among the securities covered by such
registration unless (i) the managing underwriter of such offering shall have
advised each holder of Registrable Securities to be covered by such registra
tion in writing that the inclusion of such other securities would not in the
underwriter's reasonable judgment adversely affect such offering or (ii) the
holders of a majority of Registrable Securities to be covered by such
registration shall have consented in writing to the inclusion of such other
securities. The Company will not grant to any person at any time on or after the
date hereof the right to be included among the securities registered pursuant to
this Section 2.1 that is inconsistent with the provisions of this Section
2.1(b); PROVIDED, HOWEVER, that subject to Section 2.1(g), Registrable Inside
Shareholder Securities may be included in a registration effected pursuant to
this Section 2.1.
(c) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form or prospectus of the
Commission (i) as shall be selected by the Company and as shall be reasonably
acceptable to the holders of more than 50% (by number of shares) of the
Registrable Securities so to be registered and (ii) as shall permit the
disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified in their request for such
registration. The Company agrees to include in any such registration statement
all information which holders of Regis trable Securities being registered shall
reasonably request.
(d) EXPENSES. The Company will pay all Registration Expenses in
connection with the registration requests made pursuant to this Section 2.1.
(e) EFFECTIVE REGISTRATION STATEMENT. A registration
requested pursuant to this Section 2.1 shall not be deemed to
have been effected and shall not count as a requested
2
registration pursuant to Section 2.1 (a) hereof (i) unless a registration
statement with respect thereto has become effective, (ii) unless a registration
statement has been filed with the Commission and prior to its becoming effective
a majority of holders of the Registrable Securities to be registered has decided
to terminate the registration process, (iii) if after it has become effective,
such registration 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 the fault of a holder of Registrable Securities and the
Registrable Securities covered thereby have not been sold, or (iv) if the
conditions to closing specified in the selling agreement or underwriting
agreement entered into in connection with such registration are not satisfied or
waived by the parties thereto other than a holder of Registrable Securities.
(f) UNDERWRITERS. Any registration effected pursuant to this Section
2.1 shall at the election of the holders of at least 50% of the Registrable
Securities be an underwritten public offering on a firm commitment basis or a
best efforts basis. The managing underwriter or underwriters thereof shall be
selected by the Company and such underwriter as well as the price, terms and
provisions of the offering shall be subject to the approval of the Company and
the holders of more than 50% (by number of shares) of the Registrable Securities
to be so registered.
(g) APPORTIONMENT IN REGISTRATIONS REQUESTED. If, in connection with
a registration requested pursuant to this Section 2.1, the managing underwriter
shall advise the Company in writing (with a copy to each holder of Registrable
Securities and Registrable Inside Shareholder Securities requesting
registration) that, in its opinion, the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering within a price range accept able to the holders of more than 50% (by
number of shares) of the Registrable Securities requested to be included in such
registra tion, the number of securities that are otherwise entitled to be
included in such registration shall be allocated in the following manner: (i)
all Registrable Inside Shareholder Securities shall be reduced, on a pro rata
basis (based on the number of securities requested to be included in such
registration) and (ii) if, after the exclusion of such securities, further
reductions are still required, the Registrable Securities requested to be
included in such registration shall be reduced pro rata among the holders
thereof requesting such registration on the basis of the percentage of the
Registrable Securities of the Company held by the holders of Registrable
Securities which have requested that such Registrable Securities be included. In
connection with any registration as to which the provisions of this clause (g)
apply, no securities other than Registrable Securities or Registrable Inside
Shareholder Securities shall be covered by such registration and if the pro
ration as aforesaid results in the exclusion of in excess of 15% of the
Registrable Securities originally sought to be registered, the request shall
not be counted for purposes of determining the number of registrations pursuant
to Section 2.1 hereof.
2.2. REGISTRATIONS ON FORM S-3. Following its initial Public
Offering, the Company shall use its best efforts to qualify for registration on
Form S-3 promulgated under the Securities Act or any successor form thereto
("Form S-3") for secondary sales. Anything contained in Section 2.1 to the
contrary notwithstanding, at such time as the Company shall have qualified for
the use of Form S-3, the holder or holders of in excess of 20% of the
Registrable Securities shall have the right to request in writing an unlimited
number of registrations on Form S-3 of Registrable Securities, which request or
requests shall (i) specify the number of Registrable Securities intended to be
sold or disposed of and the holders thereof, (ii) state the intended method of
disposition of such Registrable Securities and (iii) relate to Registrable
Securities having an anticipated aggregate gross offering price (before
underwriting discounts and commissions) of at least $500,000. A requested
registration on Form S-3 form in compliance with this Section 2.2 shall not
count as a registration statement initiated pursuant to Section 2.1 but shall
otherwise be treated as a registration initiated pursuant to, and shall, except
as otherwise expressly provided in this Section 2.2, be subject to Section 2.1.
2.3. "PIGGYBACK" REGISTRATIONS. (a) RIGHT TO INCLUDE REGISTRABLE
SECURITIES AND REGISTRABLE INSIDE SHAREHOLDER SECURITIES. If the Company at any
time prior to an initial Public Offering proposes to register any of its equity
securities, or at any time thereafter proposes to register any of its securities
(including, without limitation, debt or equity securities), under the Securities
Act (other than by a registration on Form S-4, Form S-8 or any successor or
similar form, or in connection with a tender offer, merger, or other
acquisition, and other than pursuant to Section 2.1 or Section 2.2), whether or
not for sale for its own account, it will each such time give prompt written
notice to all holders of Registrable Securities and Registrable Inside
Shareholder Securities of its intention to do so and of such holders' rights
under this Section 2.3. Upon the written request of any such holder made within
20 days after the date of any such notice given in accordance with Section 7
hereof, the Company will use its best efforts to effect the registration under
the Securities Act of all Registrable Securities and Registrable Inside
Shareholder Securities which the Company has been so requested to register by
the holders thereof, to the extent requisite to permit the disposition of the
Registrable Securities and Registrable Inside Shareholder Securities so to be
registered, PROVIDED that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination
4
to each holder of Registrable Securities and Registrable Inside Shareholder
Securities and, thereupon, (i) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable Securities or
Registrable Inside Shareholder Securities in connection with such registration
(but not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to request that such registration be
effected as a registration under Section 2.1 or Section 2.2, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities or Registrable Inside Shareholder
Securities, for the same period as the delay in registering such other
securities. No registration effected under this Section 2.3 shall relieve the
Company of its obligation to effect any registration upon request under Section
2.1 or Section 2.2. The Company will pay all Registration Expenses in connection
with each registration of Registrable Securities and Registrable Inside
Shareholder Securities requested pursuant to this Section 2.3.
(b) APPORTIONMENT IN "PIGGYBACK" REGISTRATIONS. If (i) a
registration pursuant to this Section 2.3 involves an underwritten offering of
the securities being registered, whether or not for sale for the account of the
Company, to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized national or regional standing under underwriting
terms appropriate for such a transaction, and (ii) the managing underwriter of
such underwritten offering shall inform the Company and the holders of the
Registrable Securities requesting such registration by letter of its belief that
the number of securities requested to be included in such registrat ion exceeds
the number which can be sold in (or during the time of) such offering or that
the inclusion would adversely affect the marketing or the selling price of the
securities to be sold by the Company therein, then the Company may include all
securities proposed by the Company to be sold for its own account and may
decrease the number of Registrable Securities, Registrable Inside Shareholder
Securities and other securities of the Company so proposed to be sold and so
requested to be included in such registration (pro rata on the basis of the
percentage of the securities of the Company held by the holders of such
Registrable Securities, Registrable Inside Shareholder Securities and such other
securities) to the extent necessary to reduce the number of securities to be
included in the registra tion to the level recommended by the managing
underwriter. Notwithstanding the foregoing, if the registration referred to
herein involves an underwritten offering of securities being registered for sale
by holders of securities other than Registrable Securities (pursuant to the
exercise by such holders of demand registration rights or otherwise), the
Company will include in such registration the securities proposed by such
holders to be sold and may decrease the number of Registrable Securities,
Registrable Inside Shareholder Securities and such
5
other securities exercising "piggyback" registration rights proposed to be sold
in such registration (pro rata on the basis of the percentage of the securities
sought to be registered held by such holders of Registrable Securities and such
other securities exercising "piggyback" registration rights) proposed to be sold
in such registration to the extent necessary to reduce the number of securities
to be included in the registration to the level recommended by the managing
underwriter. In such case, no securities shall be offered for sale by the
Company.
2.4. REGISTRATION PROCEDURES. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities or Registrable Inside Shareholder Securities under the Securities Act
as provided in Sections 2.1, 2.2 and 2.3, the Company will as expeditiously as
possible:
(i) prepare and (as soon thereafter as possible or in any
event no later than 45 days after the end of the period within which
requests for registration may be given to the Company) file with the
Commission the requisite registration statement to effect such regis
tration and thereafter use its best efforts to cause such
registration statement to become effective, PROVIDED that the
Company may discontinue any regis tration of its securities which
are not Registrable Securities or Registrable Inside Shareholder
Securities (and, under the circumstances specified in Section
2.3(a), its securities which are Registrable Securities or
Registrable Inside Shareholder Securities) at any time prior to the
effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration state ment and the prospectus used
in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as
all of such securities have been disposed of in accordance with the
intended methods of disposi tion by the seller or sellers thereof
set forth in such registration statement or for 6 months, whichever
period is shorter;
(iii) furnish to each seller of Registrable Securities or
Registrable Inside Shareholder Securities covered by such
registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and
any summary prospectus) and any other
6
prospectus filed under Rule 424 or Rule 430A under the Securities
Act, in conformity with the requirements of the Securities Act, and
such other documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securi ties or blue sky laws
of such jurisdictions as each seller thereof shall reasonably
request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and take any
other action which may be reasonably necessary to enable such seller
to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not
for any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this subdivision (iv) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction or subject itself to be required to pay any franchise
or income taxes in any such jurisdiction.
(v) use its best efforts to cause all Registrable Securities
and Registrable Inside Shareholder Securities covered by such
registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities or Registrable Inside Shareholder
Securities;
(vi) furnish to each seller of Registrable Securities or
Registrable Inside Shareholder Securities a signed counterpart,
addressed to such seller, except as provided in (y) below (and the
underwriters, if any), of
(x) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated
the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such seller
or, if such registration includes an underwritten public
offering, to such underwriter, and
(y) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing
under the underwriting agreement), signed by the independent
7
public accountants who have certified the Company's financial
statements included in such registration statement, addressed
to each seller, to the extent the same can be reasonably
obtained, and addressed to the underwriters, if any, cover ing
substantially the same matters with respect to such
registration statement (and the prospectus included therein)
and, in the case of the accoun tants' letter, with respect to
events subsequent to the date of such financial statements, as
are customarily covered in accountants' letters deliv ered to
the underwriters in underwritten public offerings of
securities and such other financial matters as such seller or
such holder (or the underwriters, if any) may reasonably
request;
(vii) notify each seller of Registrable Securi ties and
Registrable Inside Shareholder Securities covered by such
registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as
then in effect, includes an untrue state ment of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and at the request
of any such seller or holder promptly prepare to furnish to such
seller or holder a reason able number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact
or omit to state a mater ial fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, an earnings state ment covering the period of at least
twelve months, but not more than eighteen months, beginning with the
first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securi ties Act, and, in the case
of a registration requested pursuant to Section 2.1 or 2.2 hereof,
will furnish to each such seller at least two business days prior to
the filing thereof a copy of any amendment or supplement to such
registration statement or prospectus and shall not file any thereof
to which any such seller
8
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities and Registrable Inside
Shareholder Securities covered by such registration statement from
and after a date not later than the effective date of such
registration statement; and
(x) use its best efforts to list all Registrable Securities
and Registrable Inside Shareholder Securities covered by such
registration statement on any securities exchange on which any of
the Registrable
Securities is then listed.
Notwithstanding the foregoing, the Company may defer its obligations
under Section 2.1 and, in the case of clause (ii) below only, Section 2.2, for a
period of no more than (i) 90 days in any 365-day period, if the Company's Board
of Directors determines in good faith based upon a written opinion of counsel
that filing such a registration statement would require a public disclosure by
the Company, which disclosure would interfere with a material transaction then
under consideration by the Company, PROVIDED that once such information has been
publicly disclosed, the Company shall promptly proceed to fulfill its
obligations under Section 2.1 and (ii) 180 days from the most recent effective
date of any registration statement of the Company filed under the Securities Act
and pursuant to Section 2.1 occurring prior to the request for registration made
pursuant to Section 2.1.
The Company may require each proposed seller of Registrable
Securities or Registrable Inside Shareholder Securities as to which any
registration is being effected to promptly furnish the Company, as a condition
precedent to including such holder's Registrable Securities or Registrable
Inside Shareholder Securities in any registration, such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each holder of Registrable Securities and Registrable Inside
Shareholder Securities agrees by acquisition of such Registrable Securities or
Registrable Inside Shareholder Securities that upon receipt of any notice from
the Company of the happening of any event of the kind described in subdivision
(vii) of this Section 2.4, such holder will forthwith discontinue such holder's
disposition of Registrable Securities or Registrable Inside Shareholder
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
9
amended prospectus contemplated by subdivision (vii) of this Section 2.4 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such holder's
possession of the prospectus relating to such Registrable Securities or
Registrable Inside Shareholder Securities current at the time of receipt of such
notice.
2.4. UNDERWRITTEN OFFERINGS. (a) REQUESTED UNDER WRITTEN OFFERINGS.
If requested by the underwriters for any offering by holders of Registrable
Securities pursuant to a registration requested under Section 2.1, the Company
will enter into an underwriting agreement with such underwriters for such
offering, such agreement to be satisfactory in substance and form to the
Company, to holders of more than 50% of the Registrable Securities included in
such registration and the underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of this type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.7. The holders of the Registrable
Securities and Registrable Inside Shareholder Securities will cooperate with the
Company in the negotiation of the underwriting agreement and will give
consideration to the reasonable requests of the Company regarding the form
thereof, PROVIDED that nothing herein contained shall diminish the foregoing
obligations of the Company. The holders of Registrable Securities or Registrable
Inside Shareholder Securities to be distributed by such underwriters shall be
parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such holders of Registrable Securities and
Registrable Inside Shareholder Securities and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of such holders of
Registrable Securities and Registrable Inside Shareholder Securities. Other than
as required under Section 2.3 hereof, any such holder of Registrable Securities
or Registrable Inside Shareholder Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements typical in an
offering of this type, including those regarding such holder, such holder's
Registrable Securities or Registrable Inside Shareholder Securities, and such
holder's intended method of distribution, any other information supplied by such
holder to the Company for use in the Registration Statement and any other
representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company
at any time proposes to register any of its securities under the
Securities Act as contemplated by Section 2.3 and such securities
are to be distributed by or through one or more underwriters, the
Company will, if requested by any holder of Registrable
10
Securities as provided in Section 2.3 and subject to the provisions of Sections
2.3(a), 2.3(b) and 2.4, arrange for such underwriters to include all the
Registrable Securities and Registrable Inside Shareholder Securities to be
offered and sold by such holder among the securities to be distributed by such
underwriters. The holders of Registrable Securities and Registrable Inside
Shareholder Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and may,
at their option, require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
of such underwriters shall also be made to and for the benefit of such holders
of Registrable Securities and Registrable Inside Shareholder Securities and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the obligations of
such holders of Registrable Securities and Registrable Inside Shareholder
Securities. Other than as required under Section 2.4 hereof, any such holder of
Registrable Securities or Registrable Inside Shareholder Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties, or
agreements typical in an offering of this type, including those regarding such
holder, such holder's Registrable Securities or Registrable Inside Shareholder
Securities and such holder's intended method of distribution, any other
information supplied by such holder to the Company for use in the Registration
Statement and any other representation required by law.
2.6. PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities and Registrable Inside Shareholder Securities registered under such
registration statement, their underwriters, if any, and their respective counsel
(such holders' counsel to be appointed by the holders of more than 50% by number
of shares) of the Registrable Securities being registered, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
2.7. INDEMNIFICATION. (a) INDEMNIFICATION BY THE
COMPANY. In the event of any registration of any securities of
the Company under the Securities Act, the Company will, and
hereby does, indemnify and hold harmless the seller of any
Registrable Securities or Registrable Inside Shareholder
11
Securities covered by such registration statement, its directors and officers,
each other Person who participates as an underwriter in the offering or sale of
such securities and such other Person, if any, who controls such seller or any
such underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or any
such director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabili ties (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact con tained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary pros pectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such seller and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon (a) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, said preliminary or final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such seller, specifically for use in
the preparation thereof or (b) an untrue statement or alleged untrue statement,
omission or alleged omission in a prospectus if such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in an amendment or
supplement to the prospectus or in the final prospectus, which amendment,
supplement or final prospectus is delivered to such seller and such seller
thereafter fails to deliver such prospectus as so amended or supplemented prior
to or concurrently with the sale of registered Registrable Securities or
Registrable Inside Shareholder Securities to the person asserting such loss,
claim, damage, liability or expense. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, under writer or controlling person and shall
survive the transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE PURCHASERS AND INSIDE SHAREHOLDERS. The
Purchasers and the Inside Shareholders will, and hereby do, indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision
(a) of this Section 2.7) the Company, each director of the Company, each officer
of the Company and each other Person, if any, who con trols the Company within
the meaning of the Securities Act with
12
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any prelimi nary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such state ment or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Purchaser or Inside Shareholder for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer or con trolling Person and shall survive the
transfer of such securities by such Purchaser or Inside Shareholder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, PROVIDED that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liabil ity in respect to such claim or
litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities or Registrable Inside Shareholder Securities with respect to any
required registration or other qualification of securities under any Federal or
state law or regulation of any governmental authority other than the Securities
Act.
13
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will
not effect or permit to occur any combination or subdivision of shares which
would adversely affect the ability of the holders of Registrable Securities to
include such Registrable Securities in any registration of its securities
contemplated by this Section 2 or the marketability of such Registrable Securi
ties under any such registration.
3. DEFINITIONS. As used herein, unless the context
otherwise requires, the following terms have the following
respective meanings:
COMMISSION: The Securities and Exchange Commission or any
other Federal agency at the time administering the
Securities Act.
COMMON STOCK: All shares now or hereafter authorized and designated as the
Common Stock of the Company and stock of any other class with which such
shares may hereafter have been exchanged or reclassified.
CONVERTIBLE PREFERRED STOCK: As defined in Section 1.
EXCHANGE ACT: The Securities Exchange Act of 1934.
PERSON: A corporation, an association, a partnership, a
business, an individual, a governmental or political sub
division thereof or a governmental agency.
REGISTRABLE INSIDE SHAREHOLDER SECURITIES: (a) All shares of Common Stock
held by the Inside Shareholders on the date hereof and any shares of
Common Stock issuable upon exercise of the Gulfstar Warrant or (b)
securities issued or issuable with respect to such Warrant or Common Stock
by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments.
As to any particular Registrable Inside Shareholder Securities, such
securities shall cease to be Registrable Inside Shareholder Securities
when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such
registration statement, (b) they shall have been distributed to the public
pursuant to Rule 144 (or any
14
successor provision) under the Securities Act, or (c) they shall have
ceased to be outstanding.
REGISTRABLE SECURITIES: The Common Stock issuable upon the conversion of
Convertible Preferred Stock and any (a) Convertible Preferred Stock or (b)
securities issued or issuable with respect to such Convertible Preferred
Stock or Common Stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise upon any required
adjustments.
As to any particular Registrable Securities, such securities shall cease
to be Registrable Securities when (a) a regis tration statement with
respect to the sale of such securi ties shall have become effective under
the Securities Act and such securities shall have been disposed of in
accor dance with such registration statement, (b) they shall have been
distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, or (c) they shall have ceased to be
outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's performance
of or compliance with Section 2, including, without limitation, 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 reasonable fees and disbursements of counsel for
the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, the reasonable fees and
disbursements of one counsel (except in the event of a conflict of
interest, then such number of counsel as is appropriate to resolve such
conflict) retained by the holder or holders of more than 50% (by number of
shares) of the Registrable Securities being registered, premiums and other
costs of policies of insurance obtained by the Company against liabilities
arising out of the public offering of the Registrable Securities being
registered and any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities, including reasonable fees of
underwriters counsel including qualifications of Securities under blue sky
laws, but excluding all agency fees and commissions, underwriting
discounts and commissions and transfer taxes, if any.
SECURITIES ACT: The Securities Act of 1933, as amended.
4. RULE 144. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12
of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act, the Company will file the
15
reports required to be filed by it, and in the manner required to be filed by
it, under the Securities Act and the Exchange Act (or, if the Company is not
required to file such reports, will, upon the request of any holder of
Registrable Securities, make publicly available other information) and will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (a) Rule 144 under the Securities
Act, as such Rule may be amended from time to time or (b) any similar rule or
regulation hereafter adopted by the Commission ("Rule 144"). Upon the request of
any holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended 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 to such amendment, action or omission to act, of the holder or
holders of 66 2/3% or more (by number of shares) of Registrable Securities. Each
holder of any Registrable Securities at the time or thereafter outstanding shall
be bound by any consent authorized by this Section 5, whether or not such
Registrable Securities shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the bene ficial owner thereof, the
beneficial owner thereof may upon the giving of written notice to the Company,
at its election, be treated as the holder of such Registrable Securities for
purposes of any request or other action by any holder or holders of Regis trable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any holder or holders of
Registrable Securities contem plated by this Agreement. The Company may require
assurances reasonably satisfactory to it of such owner's beneficial owner ship
of such Registrable Securities.
7. NOTICES. All communications provided for hereunder shall be sent
by first-class mail or overnight courier and (a) if addressed to a party other
than the Company, addressed to such party in the manner set forth in the
Securities Purchase Agreement, or at such other address as such party shall have
furnished to the Company in writing, or (b) if addressed to any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) if
addressed to the Company, at 1360 Post Oak Blvd., Suite 1300, Houston, Texas
77056, to the attention of its President, or at such other address, or to the
attention of such other officer, as
16
the Company shall have furnished to each holder of Registrable Securities at the
time outstanding.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addi tion, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent holder of any Registrable Securities, subject
to the provisions respecting the minimum numbers or percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein.
9. DESCRIPTIVE HEADINGS. The descriptive headings of
the several sections and paragraphs of this Agreement are
inserted for reference only and shall not limit or otherwise
affect the meaning hereof.
10. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with, and the rights of the parties
shall be governed by, the laws of the State of New York.
11. COUNTERPARTS. This Agreement may be executed
simultaneously in any number of counterparts, each of which shall
be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
17
IN WITNESS WHEREOF, the parties have caused this Agree ment to be executed and
delivered by their respective officers thereunto duly authorized as of the date
first above written.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
18
PURCHASERS:
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: _________________________________
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ICI AMERICAN
HOLDINGS INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: __________________________________
Robert J. Cresci
Managing Director
DECLARATION OF TRUST FOR DEFINED
BENEFIT PLAN OF ZENECA HOLDINGS
INC.
By: Pecks Management Partners Ltd.
Its Investment Advisor
By: __________________________________
Robert J. Cresci
Managing Director
19
INSIDE SHAREHOLDERS:
----------------------------------
JACK H. CASTLE, JR., AS TRUSTEE
OF THE CASTLE 1995 GIFT TRUST
f/b/o JACK H. CASTLE, JR.
CASTLE INTERESTS, LTD.
By: __________________________________
Jack H. Castle, Jr.
General Partner
By: __________________________________
Jack H. Castle, D.D.S.
General Partner
By: __________________________________
Loretta M. Castle
General Partner
______________________________________
LISA G. CASTLE DONNELL, AS TRUSTEE
OF THE CASTLE 1995 GIFT TRUST
f/b/o LISA G. CASTLE DONNELL
______________________________________
JACK H. CASTLE, D.D.S.
______________________________________
LORETTA M. CASTLE
GULFSTAR INVESTMENTS, LTD.
By: __________________________________
Name:
Title:
20
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of May 19, 1996 (the
"Agreement"), by and between CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "Company"), and 1ST DENTAL CARE, INC. (the "Holder").
1. INTRODUCTION. Contemporaneously with the execution and delivery of
this Agreement, the Holder acquired an aggregate of 145,242 shares of the common
stock, $.001 par value per share, of the Company (the "Common Stock").
Additionally, the Holder is the payee under the Convertible Note (as hereinafter
defined) issued by the Company pursuant to which additional shares of Common
Stock may be issued to the Holder. The Company has agreed to grant to the Holder
certain registration rights with respect to the shares of Common Stock held by
the Holder or acquired by the Holder on conversion of the Convertible Note as
more fully set forth herein. Prior to the date hereof, the Company entered into
a Registration Rights Agreement dated as of December 18, 1995, with purchasers
of the Company's Series A Convertible Preferred Stock and certain other parties
(the "Original Registration Rights Agreement"). Certain terms used herein are
defined in the Original Registration Rights Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 "PIGGYBACK" REGISTRATIONS.
(a) RIGHT TO INCLUDE HOLDER SECURITIES. If the Company at
any time proposes to register any Common Stock under the Securities Act (other
than by a registration on Form S-4, Form S-8 or any successor or similar form,
or in connection with a tender offer, merger, or other acquisition), for sale
for its own account, and such Common Stock is to be distributed by or through
one or more underwriters on a firm commitment basis, it will at such time give
prompt written notice to all Holders of Holder Securities (as hereinafter
defined) of its intention to do so and of such Holders' rights under this
Section 2.1. Upon the written request of any such Holder made within 20 days
after the date of any such notice given in accordance with Section 7 hereof, the
Company will use its reasonable best efforts to effect the registration under
the Securities Act of all Holder Securities which the Company has been so
requested to register by the Holders thereof, and to arrange for such
underwriters to include all the Holder Securities to be offered and sold by such
Holder among the Common Stock to be distributed by such underwriters, PROVIDED
that if, at any time after giving written notice of its intention to register
its Common Stock and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of its Common Stock, the Company
may, at its election, give written notice of such determination to each Holder
of Holder Securities and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its
-1-
obligation to register any Holder Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Holder Securities for
the same period as the delay in registering its Common Stock. The Holders of
Holder Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between the Company and such underwriters. Any such
Holder of Holder Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties, or agreements typical in an offering of this type,
including those regarding such Holder, such Holder's Holder Securities and such
Holder's intended method of distribution, any other information supplied by such
Holder to the Company for use in the registration statement and any other
representation required by law. The Company will pay all Registration Expenses
in connection with each registration of Holder Securities requested pursuant to
this Section 2.1.
(b) APPORTIONMENT IN "PIGGYBACK" REGISTRATIONS. If the
managing underwriter of such underwritten offering shall inform the Company and
the Holders of the Holder Securities requesting such registration in writing of
its belief that the aggregate number of shares of Common Stock requested to be
included in such registration (including any securities of other securityholders
of the Company included in such registration pursuant to the terms of the
Original Registration Rights Agreement) exceeds the number which can be sold in
(or during the time of) such offering or that the inclusion would adversely
affect the marketing or the selling price of the Common Stock to be sold by the
Company therein, then the Company may include all securities proposed by the
Company to be sold for its own account and may decrease or eliminate the number
of Holder Securities requested to be included in such registration to the extent
necessary to reduce the number of shares of Common Stock to be included in the
registration to the level recommended by the managing underwriter. In the event
that such a reduction is necessary, the number of Holder Securities to be
included in such registration shall be reduced, on a pro rata basis among
Holders (based on the total number of shares of Common Stock owned by Holders
and other parties (but excluding for purposes of this calculation Common Stock
which constitutes Registrable Inside Shareholder Securities and Registrable
Securities) and requested to be included in such registration), prior to any
reduction in the number of Registrable Inside Shareholder Securities and
Registrable Securities to be included in such registration.
2.2 REGISTRATION PROCEDURES. If and whenever the Company is
required to use its reasonable best efforts to effect the registration of any
Holder Securities under the Securities Act as provided in Section 2.1, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission the
requisite registration statement to effect such registration and thereafter use
its reasonable best efforts to cause
-2-
such registration statement to become effective, PROVIDED that the
Company may discontinue any registration of its securities at any time
prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement until such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or for six months, whichever
period is shorter;
(iii) furnish to each seller of Holder Securities
covered by such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto, such
number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 or Rule 430A under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller may reasonably request;
(iv) use its best efforts to register or qualify
all Holder Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller thereof shall
reasonably request, to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and take any other action
which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it would not
but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such jurisdiction
or subject itself to be required to pay any franchise or income taxes in any
such jurisdiction;
(v) use its reasonable best efforts to cause all
Holder Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the disposition
of such Holder Securities;
(vi) furnish to each seller of Holder Securities a
signed counterpart, addressed to such seller, of:
-3-
(x) an opinion of counsel for the Company,
dated the date of the closing under the underwriting agreement, reasonably
satisfactory in form and substance to such underwriter, and
(y) a "comfort" letter, dated the effective
date of such registration statement and dated the date of the closing under the
underwriting agreement, signed by the independent public accountants who have
certified the Company's financial statements included in such registration
statement, addressed to each seller, to the extent the same can be reasonably
obtained, and addressed to the underwriters, covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in accountants' letters delivered to the underwriters in underwritten public
offerings of securities and such other financial matters as such seller or the
underwriters may reasonably request;
(vii) notify each seller of Holder Securities
covered by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request of any
such seller or holder promptly prepare to furnish to such seller or Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the sellers
of such securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made;
(viii) otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months, but not more than
18 months, beginning with the first full calendar month after the effective date
of such registration statement, which earnings statement shall satisfy the
provisions of Section ll(a) of the Securities Act;
-4-
(ix) provide and cause to be maintained a transfer
agent and registrar for all Holder Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(x) use its best efforts to list all Holder
Securities covered by such registration statement on any securities exchange on
which any of the Company's Common Stock is then listed.
The Company may require each proposed seller of Holder Securities
as to which any registration is being effected to promptly furnish the Company,
as a condition precedent to including such Holder's Holder Securities in any
registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Each Holder of Holder Securities agrees by acquisition of such
Holder Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.2, such Holder will forthwith discontinue its disposition of Holder
Securities pursuant to the registration statement relating to such Holder
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 2.2 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Holder Securities current at the
time of receipt of such notice.
2.3 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders of Holder
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel (such counsel representing Holders to be
appointed by the holders of more than 50% by number of shares of Common Stock
being registered other than shares being registered by the Company) the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
-5-
2.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will indemnify and hold harmless the seller of any Holder Securities
covered by such registration statement, its directors and officers, each other
Person, if any, who controls such seller within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller or any such director or officer or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse such seller and each such director, officer and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; PROVIDED, HOWEVER, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon (a) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, said preliminary or final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such seller, specifically for use in
the preparation thereof or (b) an untrue statement or alleged untrue statement,
omission or alleged omission in a prospectus if such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in an amendment or
supplement to the prospectus or in the final prospectus, which amendment,
supplement or final prospectus is delivered to such seller and such seller
thereafter fails to deliver such prospectus as so amended or supplemented prior
to or concurrently with the sale of registered Holder Securities to the person
asserting such loss, claim, damage, liability or expense. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such seller or any such director, officer or controlling person and
shall survive the transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE HOLDERS. The Holders will, and
hereby do, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.5) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission
-6-
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Holder for use in the
preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such securities by such Holder.
(c) NOTICE. Promptly after receipt by an indemnified party
of notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.5, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action,
PROVIDED that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.5, except to the extent that the
indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) INDEMNIFICATION PAYMENTS. The indemnification required
by this Section 2.5 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.5 ADJUSTMENTS AFFECTING HOLDER SECURITIES. The Company will not
effect or permit to occur any combination or subdivision of shares which would
adversely affect the ability of the holders of Holder Securities to include such
Holder Securities in any registration of its securities contemplated by this
Section 2 or the marketability of such Holder Securities under any such
registration.
-7-
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.
COMMON STOCK: Common Stock of the Company, $.001 par value per share, and stock
of any other class with which such shares may hereafter have been exchanged or
reclassified.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
CONVERTIBLE NOTE. That certain Convertible Promissory Note of even date herewith
issued to 1st Dental Care, Inc. in the original principal amount of $943,363.
HOLDER SECURITIES: The Common Stock (a) issued to the Holders on the date of
this Agreement and (b) issued to the Holders on conversion of the Convertible
Note, and any securities issued or issuable with respect to such Common Stock by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise upon any required adjustments.
As to any particular Holder Securities, such securities shall cease to be Holder
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they are eligible
for distribution to the public under Rule 144(k), or (d) they shall have ceased
to be outstanding.
PERSON: A corporation, an association, a partnership, a business, an individual,
a governmental or political sub-division thereof or a governmental agency.
REGISTRABLE INSIDE SHAREHOLDER SECURITIES: Shall have the meaning assigned to
such term in the Original Registration Rights Agreement.
REGISTRABLE SECURITIES: Shall have the meaning assigned to such term in the
Original Registration Rights Agreement.
REGISTRATION EXPENSES: All expenses incident to the Company's performance of or
compliance with Section 2, including, without limitation, 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
-8-
processing, duplicating and printing expenses, messenger and delivery expenses,
the reasonable fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"comfort" letters required by or incident to such performance and compliance,
the reasonable fees and disbursements of one counsel (except in the event of a
conflict of interest, then such number of counsel as is appropriate to resolve
such conflict) retained by the holder or holders of more than 50% by number of
shares of Common Stock being registered other than shares registered by the
Company, premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Securities and the Holder Securities being registered and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, including reasonable fees of underwriters counsel including
qualification of securities under blue sky laws, but excluding all agency fees
and commissions, underwriting discounts and commissions and transfer taxes, if
any.
SECURITIES ACT: The Securities Act of 1933, as amended.
4. RULE 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it, and in the manner required to be
filed by it, under the Securities Act and the Exchange Act (or, if the Company
is not required to file such reports, will, upon the request of any Holder of
Holder Securities, make publicly available other information) and will take such
further action as any Holder of Holder Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell Holder
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
rule may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the Commission ("Rule 144"). Upon the request of any Holder
of Holder Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended 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 to such amendment, action or omission to act, of the holder or holders
of 662/3% or more (by number of shares) of Holder Securities. Each holder of any
Holder Securities at the time or thereafter outstanding shall be bound by any
consent authorized by this Section 5, whether or not such Holder Securities
shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Holder
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may upon the giving of written notice to the Company,
at its election, be treated as the Holder of such Holder Securities for
-9-
purposes of any request or other action by any Holder or Holders of Holder
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Holder Securities held by any Holder or Holders of
Holder Securities contemplated by this Agreement. The Company may require
assurances reasonably satisfactory to it of such owner's beneficial ownership of
such Holder Securities.
7. NOTICES. All communications provided for hereunder shall be sent by
first-class mail or overnight courier and (a) if addressed to a party other than
the Company, addressed to such party at the address set forth on the signature
page hereof, or at such other address as such party shall have furnished to the
Company in writing, or (b) if addressed to any other Holder of Holder
Securities, at the address that such Holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Holder Securities
who has furnished an address to the Company, or (c) if addressed to the Company,
at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056, to the attention
of its President, or to the attention of such other officer, as the Company
shall have furnished to each Holder of Securities at the time outstanding.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent Holder of any Holder Securities.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the state of Delaware.
11. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
12. EXTENSION OF ADDITIONAL REGISTRATION RIGHTS. The Holders acknowledge
that the Company retains the right to extend the same or similar registration
rights to other holders of its securities, and that such action by the Company
shall not constitute a breach of or a default under this Agreement. It is the
intent of the parties hereto that this Agreement be read consistently with
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the Original Registration Rights Agreement, but in the event of a conflict
therewith, the provisions of the Original Registration Rights Agreement shall
control.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
CASTLE DENTAL CENTERS, INC.
By: Jack H. Castle, Jr.
President
ADDRESS: HOLDER:
1st Dental Care, Inc. By:__________________________
29605 U.S. Highway 19N., Suite 180 Lester B. Greenberg, D.D.S.
Clearwater, Florida 34621 President
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EXHIBIT 4.9
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of May 31, 1996 (the "Agreement"),
by and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the
"Company"), and G. Powell Bilyeu, D.D.S. (the "Holder").
1. INTRODUCTION. Contemporaneously with the execution and delivery of this
Agreement, the Holder acquired 150,000 shares of the common stock, $.001 par
value per share, of the Company (the "Common Stock"). The Company has agreed to
grant to the Holder certain registration rights with respect to the shares of
Common Stock held by the Holder as more fully set forth herein. Prior to the
date hereof, the Company entered into a Registration Rights Agreement dated as
of December 18, 1995, with purchasers of the Company's Series A Convertible
Preferred Stock and certain other parties (the "Original Registration Rights
Agreement"). Certain terms used herein are defined in the Original Registration
Rights Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 "PIGGYBACK" REGISTRATIONS.
(a) RIGHT TO INCLUDE HOLDER SECURITIES. If the Company at any
time proposes to register any Common Stock under the Securities Act (other than
by a registration on Form S-4, Form S-8 or any successor or similar form, or in
connection with a tender offer, merger, or other acquisition), for sale for its
own account, and such Common Stock is to be distributed by or through one or
more underwriters on a firm commitment basis, it will at such time give prompt
written notice to all Holder of Holder Securities (as hereinafter defined) of
its intention to do so and of such Holder's rights under this Section 2.1. Upon
the written request of any such Holder made within 20 days after the date of any
such notice given in accordance with Section 7 hereof, the Company will use its
reasonable best efforts to effect the registration under the Securities Act of
all Holder Securities which the Company has been so requested to register by the
Holder, and to arrange for such underwriters to include all the Holder
Securities to be offered and sold by such Holder among the Common Stock to be
distributed by such underwriters, PROVIDED that if, at any time after giving
written notice of its intention to register its Common Stock and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of its Common Stock, the Company may, at its election, give
written notice of such determination to each Holder of Holder Securities and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Holder Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Holder Securities for
the same period as the delay in registering its Common Stock. The Holders of
Holder Securities to be distributed by such
1
underwriters shall be parties to the underwriting agreement between the Company
and such underwriters. Any such Holder of Holder Securities shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties, or
agreements typical in an offering of this type, including those regarding such
Holder, such Holder's Holder Securities and such Holder's intended method of
distribution, any other information supplied by such Holder to the Company for
use in the registration statement and any other representation required by law.
The Company will pay all Registration Expenses in connection with each
registration of Holder Securities requested pursuant to this Section 2.1.
(b) APPORTIONMENT IN "PIGGYBACK" REGISTRATIONS. If the
managing underwriter of such underwritten offering shall inform the Company and
the Holder of the Holder Securities requesting such registration in writing of
its belief that the aggregate number of shares of Common Stock requested to be
included in such registration (including any securities of other securityholders
of the Company included in such registration pursuant to the terms of the
Original Registration Rights Agreement) exceeds the number which can be sold in
(or during the time of) such offering or that the inclusion would adversely
affect the marketing or the selling price of the Common Stock to be sold by the
Company therein, then the Company may include all securities proposed by the
Company to be sold for its own account and may decrease or eliminate the number
of Holder Securities requested to be included in such registration to the extent
necessary to reduce the number of shares of Common Stock to be included in the
registration to the level recommended by the managing underwriter. In the event
that such a reduction is necessary, the number of Holder Securities to be
included in such registration shall be reduced, on a pro rata basis among
Holders (based on the total number of shares of Common Stock owned by Holders
and other parties (but excluding for purposes of this calculation Common Stock
which constitutes Registrable Inside Shareholder Securities and Registrable
Securities) and requested to be included in such registration), prior to any
reduction in the number of Registrable Inside Shareholder Securities and
Registrable Securities to be included in such registration.
2.2 REGISTRATION PROCEDURES. If and whenever the Company is required
to use its reasonable best efforts to effect the registration of any Holder
Securities under the Securities Act as provided in Section 2.1, the Company will
as expeditiously as possible:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use its
reasonable best efforts to cause such registration statement to become
effective, PROVIDED that the Company may discontinue any registration of
its securities at any time prior to the effective date of the registration
statement relating thereto;
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(ii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered
by such registration statement until such time as all of such securities
have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such
registration statement or for six months, whichever period is shorter;
(iii) furnish to each seller of Holder Securities
covered by such registration statement such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 or Rule
430A under the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably
request;
(iv) use its best efforts to register or qualify all
Holder Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller thereof
shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
take any other action which may be reasonably necessary to enable such
seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction or
subject itself to be required to pay any franchise or income taxes in any
such jurisdiction;
(v) use its reasonable best efforts to cause all Holder
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Holder Securities;
(vi) furnish to each seller of Holder Securities a
signed counterpart, addressed to such seller, of:
(x) an opinion of counsel for the Company, dated
the date of the closing under the underwriting agreement, reasonably
satisfactory in form and substance to such underwriter, and
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(y) a "comfort" letter, dated the effective date
of such registration statement and dated the date of the closing
under the underwriting agreement, signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, addressed to each seller,
to the extent the same can be reasonably obtained, and addressed to
the underwriters, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' letter, with respect
to events subsequent to the date of such financial statements, as
are customarily covered in accountants' letters delivered to the
underwriters in underwritten public offerings of securities and such
other financial matters as such seller or the underwriters may
reasonably request;
(vii) notify each seller of Holder Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made, and at the request of any such seller or holder
promptly prepare to furnish to such seller or Holder a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the sellers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(viii)otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least 12 months, but not
more than 18 months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section ll(a) of the Securities
Act;
(ix) provide and cause to be maintained a transfer agent
and registrar for all Holder Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
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(x) use its best efforts to list all Holder Securities
covered by such registration statement on any securities exchange on which
any of the Company's Common Stock is then listed.
The Company may require each proposed seller of Holder Securities as
to which any registration is being effected to promptly furnish the Company, as
a condition precedent to including such Holder's Holder Securities in any
registration, such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing.
Each Holder of Holder Securities agrees by acquisition of such
Holder Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.2, such Holder will forthwith discontinue its disposition of Holder
Securities pursuant to the registration statement relating to such Holder
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 2.2 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Holder Securities current at the
time of receipt of such notice.
2.3 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders of Holder
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel (such counsel representing Holders to be
appointed by the holders of more than 50% by number of shares of Common Stock
being registered other than shares being registered by the Company) the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holder's and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will indemnify and hold harmless the seller of any Holder Securities
covered by such registration statement, its directors and officers, each other
Person, if any, who controls such seller within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller or any such
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director or officer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such seller and each such director, officer and controlling person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon (a) an untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement, said preliminary or
final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such seller, specifically for use in the preparation thereof or
(b) an untrue statement or alleged untrue statement, omission or alleged
omission in a prospectus if such untrue statement or alleged untrue statement,
omission or alleged omission is corrected in an amendment or supplement to the
prospectus or in the final prospectus, which amendment, supplement or final
prospectus is delivered to such seller and such seller thereafter fails to
deliver such prospectus as so amended or supplemented prior to or concurrently
with the sale of registered Holder Securities to the person asserting such loss,
claim, damage, liability or expense. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer or controlling person and shall survive the
transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE HOLDERS. The Holder will, and
hereby does, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.5) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Holder for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of such
securities by such Holder.
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(c) NOTICE. Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim
referred to in the preceding subdivisions of this Section 2.5, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action,
PROVIDED that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 2.5, except to the extent that the
indemnifying party is prejudiced by such failure to give notice. In case any
such action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
party and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.5 shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
2.5 ADJUSTMENTS AFFECTING HOLDER SECURITIES. The Company will not
effect or permit to occur any combination or subdivision of shares which would
adversely affect the ability of the holders of Holder Securities to include such
Holder Securities in any registration of its securities contemplated by this
Section 2 or the marketability of such Holder Securities under any such
registration.
3. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
COMMON STOCK: Common Stock of the Company, $.001 par value per share, and stock
of any other class with which such shares may hereafter have been exchanged or
reclassified.
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EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
HOLDER SECURITIES: The Common Stock held by the Holder and any securities issued
or issuable with respect to such Common Stock by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise upon any required
adjustments.
As to any particular Holder Securities, such securities shall cease to be Holder
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they are eligible
for distribution to the public under Rule 144(k), or (d) they shall have ceased
to be outstanding.
PERSON: A corporation, an association, a partnership, a business, an individual,
a governmental or political sub-division thereof or a governmental agency.
REGISTRABLE INSIDE SHAREHOLDER SECURITIES: Shall have the meaning assigned to
such term in the Original Registration Rights Agreement.
REGISTRABLE SECURITIES: Shall have the meaning assigned to such term in the
Original Registration Rights Agreement.
REGISTRATION EXPENSES: All expenses incident to the Company's performance of or
compliance with Section 2, including, without limitation, 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
reasonable fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"comfort" letters required by or incident to such performance and compliance,
the reasonable fees and disbursements of one counsel (except in the event of a
conflict of interest, then such number of counsel as is appropriate to resolve
such conflict) retained by the holder or holders of more than 50% by number of
shares of Common Stock being registered other than shares registered by the
Company, premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Securities and the Holder Securities being registered and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, including reasonable fees of underwriters counsel including
qualification of securities under blue sky laws, but excluding all agency fees
and commissions, underwriting discounts and commissions and transfer taxes, if
any.
-8-
SECURITIES ACT: The Securities Act of 1933, as amended.
4. RULE 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it, and in the manner required to be
filed by it, under the Securities Act and the Exchange Act (or, if the Company
is not required to file such reports, will, upon the request of any Holder of
Holder Securities, make publicly available other information) and will take such
further action as any Holder of Holder Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell Holder
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
rule may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the Commission ("Rule 144"). Upon the request of any Holder
of Holder Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended 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 to such amendment, action or omission to act, of the holder or holders
of 662/3% or more (by number of shares) of Holder Securities. Each holder of any
Holder Securities at the time or thereafter outstanding shall be bound by any
consent authorized by this Section 5, whether or not such Holder Securities
shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Holder Securities
are held by a nominee for the beneficial owner thereof, the beneficial owner
thereof may upon the giving of written notice to the Company, at its election,
be treated as the Holder of such Holder Securities for purposes of any request
or other action by any Holder of Holder Securities pursuant to this Agreement or
any determination of any number or percentage of shares of Holder Securities
held by any Holder of Holder Securities contemplated by this Agreement. The
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Holder Securities.
7. NOTICES. All communications provided for hereunder shall be sent by
first-class mail or overnight courier and (a) if addressed to a party other than
the Company, addressed to such party at the address set forth on the signature
page hereof, or at such other address as such party shall have furnished to the
Company in writing, or (b) if addressed to any other Holder of Holder
Securities, at the address that such Holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Holder Securities
who has furnished an address to the Company, or (c) if addressed to the
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Company, at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056, to the
attention of its President, or to the attention of such other officer, as the
Company shall have furnished to each Holder of Securities at the time
outstanding.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent Holder of any Holder Securities.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the state of Delaware.
11. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
12. EXTENSION OF ADDITIONAL REGISTRATION RIGHTS. The Holder acknowledges
that the Company retains the right to extend the same or similar registration
rights to other holders of its securities, and that such action by the Company
shall not constitute a breach of or a default under this Agreement. It is the
intent of the parties hereto that this Agreement be read consistently with the
Original Registration Rights Agreement, but in the event of a conflict
therewith, the provisions of the Original Registration Rights Agreement shall
control.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
CASTLE DENTAL CENTERS, INC.
By:_____________________________
Jack H. Castle, Jr.
President
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ADDRESS: HOLDER:
___________________________ ______________________________________
___________________________ G. Powell Bilyeu, D.D.S.
___________________________
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EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of August 9, 1996 (the
"Agreement"), by and among CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "Company"), and Joseph A. Bonola, D.D.S. and Larry C. Jackson, D.D.S.
(collectively, the "Holders").
1. INTRODUCTION. Contemporaneously with the execution and delivery of
this Agreement, the Holders acquired a beneficial interest in an aggregate of
325,000 shares of the common stock, $.001 par value per share, of the Company
(the "Common Stock"). The Company has agreed to grant to the Holders certain
registration rights with respect to the shares of Common Stock held by the
Holders as more fully set forth herein. Prior to the date hereof, the Company
entered into a Registration Rights Agreement dated as of December 18, 1995, with
purchasers of the Company's Series A Convertible Preferred Stock and certain
other parties, as may be amended from time to time (the "Original Registration
Rights Agreement"), and other agreements regarding registration of Common Stock
with other parties. Certain terms used herein which are not otherwise defined
are defined in the Original Registration Rights Agreement.
2. REGISTRATION UNDER SECURITIES ACT.
2.1 "PIGGYBACK" REGISTRATIONS.
(a)RIGHT TO INCLUDE HOLDER SECURITIES. If the Company at
any time proposes to register any Common Stock under the Securities Act (other
than by a registration on Form S-4, Form S-8 or any successor or similar form,
or in connection with a tender offer, merger, or other acquisition), for sale
for its own account, and such Common Stock is to be distributed by or through
one or more underwriters on a firm commitment basis, it will at such time give
prompt written notice to all Holders of Holder Securities (as hereinafter
defined) of its intention to do so and of such Holders' rights under this
Section 2.1. Upon the written request of any such Holder made within 20 days
after the date of any such notice given in accordance with Section 7 hereof, the
Company will use its reasonable best efforts to effect the registration under
the Securities Act of all Holder Securities which the Company has been so
requested to register by the Holders thereof, and to arrange for such
underwriters to include all the Holder Securities to be offered and sold by such
Holder among the Common Stock to be distributed by such underwriters, PROVIDED
that if, at any time after giving written notice of its intention to register
its Common Stock and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for any
reason not to register or to delay registration of its Common Stock, the Company
may, at its election, give written notice of such determination to each Holder
of Holder Securities and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Holder Securities
in connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith), and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Holder Securities for the same period as the delay in registering its Common
Stock. The Holders of Holder Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the Company and such
underwriters. Any such Holder of Holder Securities shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties, or agreements typical in an
offering of this type, including those regarding such Holder, such Holder's
Holder Securities and such Holder's intended method of distribution, any other
information supplied by such Holder to the Company for use in the registration
statement and any other representation required by law. The Company will pay all
Registration Expenses in connection with each registration of Holder Securities
requested pursuant to this Section 2.1.
(b) APPORTIONMENT IN "PIGGYBACK" REGISTRATIONS. If the
managing underwriter of such underwritten offering shall inform the Company and
the Holders of the Holder Securities requesting such registration in writing of
its belief that the aggregate number of shares of Common Stock requested to be
included in such registration (including any securities of other security
holders of the Company included in such registration pursuant to the terms of
the Original Registration Rights Agreement) exceeds the number which can be sold
in (or during the time of) such offering or that the inclusion would adversely
affect the marketing or the selling price of the Common Stock to be sold by the
Company therein, then the Company may include all securities proposed by the
Company to be sold for its own account and may decrease or eliminate the number
of Holder Securities requested to be included in such registration to the extent
necessary to reduce the number of shares of Common Stock to be included in the
registration to the level recommended by the managing underwriter. In the event
that such a reduction is necessary, the number of Holder Securities to be
included in such registration shall be reduced, on a pro rata basis among
Holders and other parties who have requested to be included in such registration
pursuant to similar registration rights agreements (based on the total number of
shares of Common Stock owned by Holders and such other parties) (but excluding
for purposes of this calculation Common Stock which constitutes Registrable
Inside Shareholder Securities and Registrable Securities), prior to any
reduction in the number of Registrable Inside Shareholder Securities and
Registrable Securities to be included in such registration.
2.2 REGISTRATION PROCEDURES. If and whenever the Company is
required to use its reasonable best efforts to effect the registration of any
Holder Securities under the Securities Act as provided in Section 2.1, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use
its reasonable best efforts to cause
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such registration statement to become effective, PROVIDED that the
Company may discontinue any registration of its securities at any time
prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have
been disposed of in accordance with the intended methods of disposition
by the seller or sellers thereof set forth in such registration
statement or for six months, whichever period is shorter;
(iii) furnish to each seller of Holder Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 or
Rule 430A under the Securities Act, in conformity with the requirements
of the Securities Act, and such other documents, as such seller may
reasonably request;
(iv) use its best efforts to register or qualify all Holder
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller thereof
shall reasonably request, to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
take any other action which may be reasonably necessary to enable such
seller to consummate the disposition in such jurisdictions of the
securities owned by such seller, except that the Company shall not for
any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction or
subject itself to be required to pay any franchise or income taxes in
any such jurisdiction;
(v) use its reasonable best efforts to cause all Holder
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Holder Securities;
(vi) furnish to each seller of Holder Securities a signed
counterpart, addressed to such seller, of:
-3-
(x) an opinion of counsel for the Company, dated the date of the
closing under the underwriting agreement, reasonably satisfactory in
form and substance to such underwriter, and
(y) a "comfort" letter, dated the effective date of such
registration statement and dated the date of the closing under the
underwriting agreement, signed by the independent public accountants who
have certified the Company's financial statements included in such
registration statement, addressed to each seller, to the extent the same
can be reasonably obtained, and addressed to the underwriters, covering
substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in accountants'
letters delivered to the underwriters in underwritten public offerings
of securities and such other financial matters as such seller or the
underwriters may reasonably request;
(vii) notify each seller of Holder Securities covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made, and at the request of any such seller or
holder promptly prepare to furnish to such seller or Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the sellers of
such securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(viii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least 12 months, but not
more than 18 months, beginning with the first full calendar month after
the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section ll(a) of the
Securities Act;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Holder Securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement; and
-4-
(x) use its best efforts to list all Holder Securities covered
by such registration statement on any securities exchange on which any
of the Company's Common Stock is then listed.
The Company may require each proposed seller of Holder
Securities as to which any registration is being effected to promptly furnish
the Company, as a condition precedent to including such Holder's Holder
Securities in any registration, such information regarding such seller and the
distribution of such securities as the Company may from time to time reasonably
request in writing.
Each Holder of Holder Securities agrees by acquisition of such
Holder Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii) of this
Section 2.2, such Holder will forthwith discontinue its disposition of Holder
Securities pursuant to the registration statement relating to such Holder
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by subdivision (vii) of this Section 2.2 and, if
so directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the prospectus relating to such Holder Securities current at the
time of receipt of such notice.
2.3 PREPARATION; REASONABLE INVESTIGATION. In connection with
the preparation and filing of each registration statement under the Securities
Act pursuant to this Agreement, the Company will give the Holders of Holder
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel (such counsel representing Holders to be
appointed by the holders of more than 50% by number of shares of Common Stock
being registered other than shares being registered by the Company) the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and each
amendment thereof or supplement thereto, and will give each of them such access
to its books and records and such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.4 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will indemnify and hold harmless the seller of any Holder Securities
covered by such registration statement, its directors and officers, each other
Person, if any, who controls such seller within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller or any such director or officer or controlling person may
become subject under the Securities Act or otherwise,
-5-
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse such seller and each such
director, officer and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (a) an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, said preliminary or final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
seller, specifically for use in the preparation thereof or (b) an untrue
statement or alleged untrue statement, omission or alleged omission in a
prospectus if such untrue statement or alleged untrue statement, omission or
alleged omission is corrected in an amendment or supplement to the prospectus or
in the final prospectus, which amendment, supplement or final prospectus is
delivered to such seller and such seller thereafter fails to deliver such
prospectus as so amended or supplemented prior to or concurrently with the sale
of registered Holder Securities to the person asserting such loss, claim,
damage, liability or expense. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any such director, officer or controlling person and shall survive the transfer
of such securities by such seller.
(b) INDEMNIFICATION BY THE HOLDERS. The Holders will,
and hereby do, indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.4) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Holder for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of such
securities by such Holder.
(c) NOTICE. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding
-6-
subdivisions of this Section 2.4, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action, PROVIDED that the failure of
any indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 2.4, except to the extent that the indemnifying party is prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified party and indemnifying parties may
exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) INDEMNIFICATION PAYMENTS. The indemnification
required by this Section 2.4 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.5 ADJUSTMENTS AFFECTING HOLDER SECURITIES. The Company will
not effect or permit to occur any combination or subdivision of shares which
would adversely affect the ability of the holders of Holder Securities to
include such Holder Securities in any registration of its securities
contemplated by this Section 2 or the marketability of such Holder Securities
under any such registration.
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act.
COMMON STOCK: Common Stock of the Company, $.001 par value per share, and stock
of any other class with which such shares may hereafter have been exchanged or
reclassified.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
-7-
HOLDER SECURITIES: The Common Stock issued to the Holders on the date of this
Agreement and any securities issued or issuable with respect to such Common
Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise upon any required adjustments.
As to any particular Holder Securities, such securities shall cease to be Holder
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been distributed to the public pursuant to Rule
144 (or any successor provision) under the Securities Act, (c) they are eligible
for distribution to the public under Rule 144(k), or (d) they shall have ceased
to be outstanding.
PERSON: A corporation, an association, a partnership, a business, an individual,
a governmental or political sub-division thereof or a governmental agency.
REGISTRABLE INSIDE SHAREHOLDER SECURITIES: Shall have the meaning assigned to
such term in the Original Registration Rights Agreement.
REGISTRABLE SECURITIES: Shall have the meaning assigned to such term in the
Original Registration Rights Agreement.
REGISTRATION EXPENSES: All expenses incident to the Company's performance of or
compliance with Section 2, including, without limitation, 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
reasonable fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"comfort" letters required by or incident to such performance and compliance,
the reasonable fees and disbursements of one counsel (except in the event of a
conflict of interest, then such number of counsel as is appropriate to resolve
such conflict) retained by the holder or holders of more than 50% by number of
shares of Common Stock being registered other than shares registered by the
Company, premiums and other costs of policies of insurance obtained by the
Company against liabilities arising out of the public offering of the
Registrable Securities and the Holder Securities being registered and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, including reasonable fees of underwriters counsel including
qualification of securities under blue sky laws, but excluding all agency fees
and commissions, underwriting discounts and commissions and transfer taxes, if
any.
SECURITIES ACT: The Securities Act of 1933, as amended.
-8-
4. RULE 144. If the Company shall have filed a registration statement
pursuant to the requirements of Section 12 of the Exchange Act or a registration
statement pursuant to the requirements of the Securities Act, the Company will
file the reports required to be filed by it, and in the manner required to be
filed by it, under the Securities Act and the Exchange Act (or, if the Company
is not required to file such reports, will, upon the request of any Holder of
Holder Securities, make publicly available other information) and will take such
further action as any Holder of Holder Securities may reasonably request, all to
the extent required from time to time to enable such Holder to sell Holder
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
rule may be amended from time to time or (b) any similar rule or regulation
hereafter adopted by the Commission ("Rule 144"). Upon the request of any Holder
of Holder Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended 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 to such amendment, action or omission to act, of the holder or holders
of 662/3% or more (by number of shares) of Holder Securities. Each holder of any
Holder Securities at the time or thereafter outstanding shall be bound by any
consent authorized by this Section 5, whether or not such Holder Securities
shall have been marked to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Holder
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may upon the giving of written notice to the Company,
at its election, be treated as the Holder of such Holder Securities for purposes
of any request or other action by any Holder or Holders of Holder Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Holder Securities held by any Holder or Holders of Holder Securities
contemplated by this Agreement. The Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Holder
Securities.
7. NOTICES. All communications provided for hereunder shall be sent by
first-class mail or overnight courier and (a) if addressed to a party other than
the Company, addressed to such party at the address set forth on the signature
page hereof, or at such other address as such party shall have furnished to the
Company in writing, or (b) if addressed to any other Holder of Holder
Securities, at the address that such Holder shall have furnished to the Company
in writing, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Holder Securities
who has furnished an address to the Company, or (c) if addressed to the Company,
at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056, to the attention
of its President, or to the attention of such other officer, as the Company
shall have furnished to each Holder of Securities at the time outstanding.
-9-
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the parties hereto other than the Company shall also be for the benefit of
and enforceable by any subsequent Holder of any Holder Securities.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. This agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the state of Delaware.
11. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
12. EXTENSION OF ADDITIONAL REGISTRATION RIGHTS. The Holders acknowledge
that the Company retains the right to extend the same or similar registration
rights to other holders of its securities, and that such action by the Company
shall not constitute a breach of or a default under this Agreement. It is the
intent of the parties hereto that this Agreement be read consistently with the
Original Registration Rights Agreement, but in the event of a conflict
therewith, the provisions of the Original Registration Rights Agreement shall
control.
13. LOCK-UP AGREEMENT. If requested in writing by the underwriters for
the initial underwritten public offering of securities of the Company, the
Holders shall agree not to sell publicly any shares of Common Stock (other than
Common Stock being registered in such offering), without the consent of such
underwriters, for a period of not more than 270 days following the effective
date of the registration statement relating to such offering.
[The remainder of this page intentionally left blank.]
-10-
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:______________________________________
Jack H. Castle, Jr.
President
ADDRESS: HOLDERS:
- --------------------------- -----------------------------
- --------------------------- Joseph A. Bonola, D.D.S.
- ---------------------------
ADDRESS:
- --------------------------- -----------------------------
- --------------------------- Larry C. Jackson, D.D.S.
- ---------------------------
-11-
EXHIBIT 10.1
CASTLE DENTAL CENTERS, INC.
$7,500,000
12% Senior Subordinated Notes due 2002
and
Series A Convertible Preferred Stock
SECURITIES PURCHASE AGREEMENT
Dated as of December 18, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
NO.
1. AUTHORIZATION OF ISSUE OF SECURITIES ................................... 1
1A. Senior Subordinated Notes ................................... 1
1B. Convertible Preferred Stock ................................. 2
2. PURCHASE AND SALE OF SECURITIES ........................................ 2
2A. Purchase and Sale ........................................... 2
2B. Closing ..................................................... 2
3. CONDITIONS OF CLOSING .................................................. 3
3A. Opinion of Counsel to the Company and Castle PC ............. 3
3B. Representations and Warranties .............................. 3
3C. Articles of Incorporation and By-laws ....................... 3
3D. Purchase Permitted by Applicable Laws ....................... 4
3E. Securityholders Agreement ................................... 4
3F. Registration Rights Agreement ............................... 4
3G. Management Agreement ........................................ 4
3H. Compliance with Securities Laws ............................. 4
3I. Proceedings ................................................. 5
3J. No Adverse U.S. Legislation, Action or Decision ............. 5
3K. Approval and Consents ....................................... 5
3L. Material Changes ............................................ 5
3M. Board Nominee ............................................... 6
3N. Use of Proceeds ............................................. 6
3O. Bank Debt Agreement ......................................... 6
3P. Accountant's Comfort Letter ................................. 6
3Q. Certificate of Incorporation ................................ 6
3R. [Intentionally Omitted] ..................................... 6
3S. PC Stock Option Agreement ................................... 6
3T. Deferred Compensation Agreement ............................. 7
3U. Completion of the Reorganization ............................ 7
3V. Accounts Receivable Purchase Agreement ...................... 7
4. PAYMENTS AND PREPAYMENTS OF THE SENIOR NOTES ........................... 7
4A. General 7
4B. Mandatory Payments and Prepayments of the Senior Subordinated
Notes ..................................................... 7
4C. Prepayments of the Senior Subordinated Notes upon a Change of
Control ................................................... 8
4D. Optional Prepayments of the Senior Subordinated Notes ....... 8
4E. Notice of Prepayments ....................................... 9
4F. Mandatory Payments and Partial Prepayments Pro Rata ......... 9
5. REQUIRED REDEMPTION AND OPTIONAL REDEMPTION OF THE CONVERTIBLE
PREFERRED STOCK ...................................................... 9
5A. Option of Holders to Put Convertible Preferred Stock
upon a Change of Control .................................. 9
5B. Exercise of the Change of Control Put Option ................ 10
5C. Put Option of Holders of Shares of Convertible Preferred
Stock upon the Absence of a Liquid Secondary Market ...... 10
5D. Exercise of the Put Option .................................. 11
5E. Fair Market Value ........................................... 11
5F. Market Price ................................................ 12
5G. Optional Redemption of the Convertible Preferred Stock ...... 12
5H. Notice of Redemption ........................................ 13
6. AFFIRMATIVE COVENANTS .................................................. 13
6A. Financial Statements ........................................ 14
6B. Use of Proceeds ............................................. 16
6C. Books and Records; Inspection of Property ................... 16
6D. Covenant to Secure Senior Subordinated Notes Equally ........ 17
6E. Additional Covenants Pending the Closing .................... 17
6F. Stock to be Reserved ........................................ 17
6G. Compliance With Laws, etc ................................... 17
6H. ERISA ....................................................... 18
6I. Corporate Existence; Maintenance of Properties .............. 19
6J. Insurance ................................................... 19
6K. Further Assurances .......................................... 19
6L. Filing of Reports Under the Exchange Act .................... 19
6M. Securities Act Registration Statements ...................... 20
6N. Notices of Certain Events ................................... 21
6O. Board Nominee ............................................... 21
6P. Listing of Common Stock ..................................... 22
6Q. Environmental Laws .......................................... 22
6R. Additional Management Positions ............................. 24
6S. Wind Up of Old PC ........................................... 24
6T. Guarantee By New PC ......................................... 24
7. NEGATIVE COVENANTS ..................................................... 24
7A. Financial Covenants ......................................... 25
7B. Restrictions on Indebtedness and Repayment of Indebtedness .. 26
7C. Restrictions on Liens ....................................... 27
7D. Restricted Payments ......................................... 28
7E. Loans, Advances and Investments ............................. 28
7F. Leases ...................................................... 29
7G. Transactions With Affiliates ................................ 29
7H. Merger ...................................................... 29
7I. Disposition of Substantial Assets ........................... 30
7J. Sale of Stock and Debt of Subsidiaries ...................... 30
7K. Certain Contracts ........................................... 30
7L. Conduct of Business ......................................... 31
7M. No Amendments ............................................... 31
7N. Registration Rights ......................................... 31
7O. Offering of Securities ...................................... 31
7P. Compensation Arrangements ................................... 31
8. SUBORDINATION .......................................................... 32
8A. Subordinated Debt Subordinate to Senior Debt ................ 32
8B. Suspension of Right to Receive Payments of Subordinated Debt 32
8B(1). Failure to Pay Principal of or Interest on Senior Debt .... 32
8B(2). Acceleration of Payment of Senior Debt or Subordinated Debt 33
8B(3). Bankruptcy or Insolvency .................................. 34
8C. Rights of Holders of Senior Debt Not to Be Impaired ......... 34
8D. Company's Obligation Unconditional .......................... 35
8E. Payments Held in Trust ...................................... 35
8F. Subrogation ................................................. 35
8G. Reliance by Holders on Final Order or Decree ................ 36
8H. Legend ...................................................... 36
9. EVENTS OF DEFAULT ...................................................... 36
9A. General 36
9B. Other Remedies .............................................. 40
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND CASTLE PC ........... 41
10A. Organization, Qualification and Authority ................... 41
10B. Financial Statements ........................................ 42
10C. Capital Stock and Related Matters ........................... 42
10D. Actions Pending ............................................. 43
10E. Outstanding Debt; Defaults .................................. 43
10F. Title to Properties ......................................... 43
10G. Taxes ....................................................... 44
10H. Conflicting Agreements ...................................... 44
10I. Offering of Securities ...................................... 44
10J. Broker's or Finder's Commissions ............................ 45
10K. Regulation G, etc ........................................... 45
10L. Environmental Matters ....................................... 45
10M. ERISA ....................................................... 46
10N. Possession of Franchises, Licenses, etc ..................... 46
10O. Patents, etc ................................................ 47
10P. Holding Company and Investment Company Status ............... 47
10Q. Governmental Consents ....................................... 47
10R. Insurance Coverage .......................................... 48
10S. Subsidiaries ................................................ 48
10T. Disclosure .................................................. 48
10U. Related Party Transactions .................................. 48
10V. Registration Rights ......................................... 49
10W. Absence of Foreign or Enemy Status .......................... 49
10X. Agreements with Affiliates .................................. 49
10Y. Convertible Preferred Stock and Equity of the Company ....... 49
11. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS ....................... 49
12. DEFINITIONS ........................................................... 50
13. MISCELLANEOUS ......................................................... 60
13A. Home Office Payment ......................................... 60
13B. Indemnification ............................................. 61
13C. Consent to Amendments ....................................... 62
13D. Form, Registration, Transfer and Exchange of Senior
Subordinated Notes; Lost Senior Subordinated Notes ........ 63
13E. Provisions Applicable if any of the Securities are Sold ..... 63
13F. Restrictive Legends ......................................... 64
13G. Persons Deemed Owners ....................................... 64
13H. Survival of Representations and Warranties .................. 64
13I. Successors and Assigns ...................................... 64
13J. Notices ..................................................... 65
13K. Descriptive Headings ........................................ 65
13L. GOVERNING LAW; CONSENT TO JURISDICTION ...................... 65
13M. Delay Fees .................................................. 66
13N. Remedies .................................................... 66
13O. Entire Agreement ............................................ 66
13P. Severability ................................................ 67
13Q. Amendments .................................................. 67
13R. Payment Date ................................................ 67
13S. WAIVER OF TRIAL BY JURY ..................................... 67
13T. Counterparts ................................................ 67
EXHIBITS
Exhibit A Form of Senior Subordinated Notes and Interest Notes
Exhibit B Form of PC Guarantee
Exhibit C Form of Certificate of Incorporation
Exhibit D-1 Form of Opinion of Counsel to the Company and Castle PC
Exhibit D-2 Form of Opinion of Special Counsel to the Company and Castle PC
Exhibit D-3 Form of Risk Analysis Letter
Exhibit E Form of Management Agreement
Exhibit F Form of Registration Rights Agreement
Exhibit G Form of Securityholders Agreement
<PAGE>
To the Investors named on the signature pages hereto:
The undersigned, CASTLE DENTAL CENTERS, INC. (the "COMPANY"), a
Delaware corporation, Jack H. Castle, D.D.S., P.C. ("New PC"), a Texas
professional corporation, JHCDDS, Inc. ("Old PC" and collectively with New PC,
"Castle PC"), a Texas professional corporation, and each of the investors named
on the signature pages hereto (the "INVESTORS"), hereby agree as follows:
1. AUTHORIZATION OF ISSUE OF SECURITIES.
1A. SENIOR SUBORDINATED NOTES. The Company will authorize the
issuance, sale and delivery to the Investors of its senior subordinated notes
("SENIOR SUBORDINATED NOTES" and individually called a "SENIOR SUBORDINATED
NOTE") in the aggregate principal amount of $7,500,000, to be dated the date of
issue thereof, to mature (subject to Section 4 hereof) December 18, 2002 and to
bear interest on the unpaid balances thereof from the date thereof at the rate
of 12% per annum until the principal thereof shall become due and payable. Such
Senior Subordinated Notes shall be substantially in the form of Exhibit A
attached hereto. Interest will be payable quarterly in arrears in cash on the
last day of March, June, September and December in each year, commencing on
March 31, 1996; PROVIDED, HOWEVER, that the Company may, subject to the consent
of the holders of the Senior Subordinated Notes, which consent may be withheld
in the sole discretion of the holders of the Senior Subordinated Notes issue
interest notes ("INTEREST NOTES" and individually called an "INTEREST NOTE") in
lieu of a cash payment of any or all interest due during such period. Such
Interest Notes shall be substantially in the form of Exhibit A attached hereto.
For purposes of this Agreement, all references to the Senior Subordinated Notes
shall be deemed to include any and all Interest Notes. The Senior Subordinated
Notes shall bear a legend on their face, indicating that the Senior Subordinated
Notes have been issued with original issue discount and the name and address of
the Company's representative who, upon the request of a holder, can supply
information about such original issue discount.
1B. CONVERTIBLE PREFERRED STOCK. The Company will also authorize
the issuance, sale and delivery to the Investors of 1,244,737 shares of its
Series A Convertible Preferred Stock, par value $.001 per share, (herein called
the "CONVERTIBLE PREFERRED STOCK", and the Senior Subordinated Notes and the
Convertible Preferred Stock shall be referred to herein collectively as the
"SECURITIES"). The powers, designations, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of the Convertible Preferred Stock are set forth in the
Certificate of Incorporation of the Company in the form of Exhibit C attached
hereto (the "CERTIFICATE OF INCORPORATION").
2. PURCHASE AND SALE OF SECURITIES.
2A. PURCHASE AND SALE. The Company hereby agrees to sell to the
Investors and, subject to the terms and conditions herein set forth, the
Investors severally agree to purchase from the Company, the securities set forth
opposite the name of each of the Investors on the Signature pages hereof. The
parties hereby agree that (a) the aggregate purchase price for the Senior
Subordinated Notes is $7,498,755.26 and (b) the aggregate purchase price for the
Convertible Preferred Stock is $1,244.74.
2B. CLOSING. The purchase and delivery of the Securities to be
purchased by the Investors shall take place at a closing (the "CLOSING") at the
offices of Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York 10022, at 10:00 a.m., local time, on December 18, 1995 (or at
such other time and place or on such other Business Day thereafter as the
parties hereto shall agree) (herein called the "CLOSING DATE"). On the Closing
Date, the Company will deliver the Securities to be purchased by the Investors
payable to or registered in the names of the Investors and/or the Investors'
nominees or other designees specified on the signatures pages hereof in the
amounts set forth opposite the name of the Investors on the signature pages
hereof, against receipt of the purchase price therefor by wire transfer to
NationsBank Texas, Houston, Texas, ABA #: 111000025, Account #: 2664811824,
Reference: Castle Dental Centers, Inc. If at the Closing, the Company shall, in
breach of this Agreement, fail to tender to the Investors any of the Securities
to be purchased by them or if any of the conditions specified in Section 3
hereof shall not have been satisfied or waived by the Investors, the Investors
shall, at their election, be relieved of all further obligations under this
Agreement without thereby waiving any other rights they may have by reason of
such failure or such non-fulfillment. Notwithstanding anything to the contrary,
the obligation of the Company to deliver any Securities to any Investor at the
Closing shall be conditioned on its concurrent receipt of the purchase price of
all of the Securities from the Investors.
3. CONDITIONS OF CLOSING. The Investors' obligation to purchase
and pay for the Securities to be purchased by them hereunder is subject to the
satisfaction, on or before the Closing Date, of the following conditions:
3A. OPINION OF COUNSEL TO THE COMPANY AND CASTLE PC. The
Investors shall have received from (i) Bracewell & Patterson, L.L.P., counsel to
the Company and Castle PC, a legal opinion addressed to the Investors and dated
the Closing Date, substantially in the form of Exhibit D-1 attached hereto and
(ii) from Jenkens & Gilchrist, special counsel to the Company and Castle PC, a
legal opinion and Risk Analysis Letter addressed to the Investors in the form of
Exhibit D-2 and D-3, respectively attached hereto. Such opinions shall also
cover such other matters incident to the matters herein contemplated as the
Investors may reasonably request, including the form of all papers and the
validity of all proceedings.
3B. REPRESENTATIONS AND WARRANTIES. Each of the representations
and warranties contained in Section 10 hereof and those otherwise made in
writing by or on behalf of the Company or Castle PC and contained in any
document, certificate or other written statement provided to the Investors, in
connection with the transactions contemplated by this Agreement shall be true
and correct in all material respects when made and on and as of the Closing
Date, except to the extent of changes caused by the transactions herein
contemplated; all of the covenants and obligations of the Company hereunder to
be performed or observed on or prior to the Closing shall have been duly
performed or observed; there shall exist on the Closing Date and after giving
effect to such transactions no Default or Event of Default; and the Company and
Castle PC shall have delivered to the Investors an Officer's Certificate, dated
the Closing Date, to the foregoing effects.
3C. ARTICLES OF INCORPORATION AND B--LAWS. The Investors shall
have received certificates, dated the Closing Date, of the Secretary of the
Company and its Subsidiaries attaching (i) true and complete copies of the
Articles of Incorporation of the Company and its Subsidiaries as filed with the
appropriate state officials of its jurisdiction of incorporation with all
amendments thereto, (ii) true and complete copies of the By-laws of the Company
and its Subsidiaries in effect as of such date, (iii) certificates of good
standing of the appropriate officials of the jurisdiction of incorporation of
the Company and its Subsidiaries and of each state in which each of the Company
and its Subsidiaries is required to be qualified to do business as a foreign
corporation, (iv) resolutions of the Board of Directors of the Company
authorizing (a) the execution, delivery and performance of the Related
Documents, (b) the issuance and delivery of the Securities and (c) the
reservation for issuance of a sufficient number of shares of Common Stock into
which the Convertible Preferred Stock may be exercised to permit such exercise,
(v) resolutions of the Board of Directors of Castle PC authorizing the
execution, delivery and performance of the Related Documents to which it is a
party, and (vi) certificate as to the incumbency of the officers of the Company
and Castle PC executing this Agreement or any other Related Documents.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and
payment for the Securities shall not be prohibited by any applicable law or
governmental regulation (including, without limitation, Regulations G, T and X
of the Board of Governors of the Federal Reserve System) and shall not subject
the Investors to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and the Investors
shall have received such certificates or other evidence as they may request to
establish compliance with this condition.
3E. SECURITYHOLDERS AGREEMENT. The Investors shall have received
a fully executed counterpart of the Securityholders Agreement and such
Securityholders Agreement shall be in full force and effect and no term or
condition thereof shall have been amended, modified or waived.
3F. REGISTRATION RIGHTS AGREEMENT. The Investors shall have
received a fully executed counterpart of the Registration Rights Agreement and
such Registration Rights Agreement shall be in full force and effect and no term
or condition thereof shall have been amended, modified or waived.
3G. MANAGEMENT AGREEMENT. The Investors shall have received a
fully executed counterpart of the Management Agreement and such Management
Agreement shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived.
3H. COMPLIANCE WITH SECURITIES LAWS. The offering and sale of
the Securities under this Agreement shall have complied with all applicable
requirements of federal and state securities laws, and the Investors shall have
received evidence of such compliance in form and substance satisfactory to them.
3I. PROCEEDINGS. All required corporate and other proceedings
taken or required to be taken in connection with the transactions contemplated
hereby and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Investors and their counsel, and the Investors and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
3J. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No
legislation, order, rule, ruling or regulation shall have been enacted or made
by or on behalf of any governmental body, department or agency of the United
States, nor shall any legislation have been introduced and favorably reported
for passage to either House of Congress by any committee of either such House to
which such legislation has been referred for consideration, nor shall any
decision of any court of competent jurisdiction within the United States have
been rendered which, in the Investors' reasonable judgment, would materially and
adversely affect their investment in the Securities. There shall be no action,
suit, investigation or proceeding, pending or threatened, against or affecting
the Company, its Subsidiaries or any of their respective properties or rights,
or any of their respective affiliates, associates, officers or directors, before
any court, arbitrator or administrative or governmental body which (i) seeks to
restrain, enjoin, prevent the consummation of or otherwise affect the
transactions contemplated by any of the Related Documents or (ii) questions the
validity or legality of any such transaction or seeks to recover damages or to
obtain other relief in connection with any such transaction, and there shall be
no valid basis for any such action, proceeding or investigation.
3K. APPROVAL AND CONSENTS. The Company and Castle PC shall have
duly received all authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of all federal, state and local governmental
authorities necessary or advisable for the issuance of the Securities and the
consummation of the transactions contemplated hereby and by the Related
Documents, and all thereof shall be in full force and effect at the time of the
Closing. The Company and Castle PC shall have delivered to the Investors an
Officer's Certificate, dated the Closing Date, to such effect.
3L. MATERIAL CHANGES. Since December 31, 1994 there shall not
have been any changes in the business of the Company or any of its Subsidiaries
which have or could reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect, nor shall there have been any development or
discovery or any material contingency or other liability which could have such
effect. There shall exist no defaults under the provisions of any instrument
evidencing Indebtedness of the Company or any of its Subsidiaries and the
Company and Castle PC shall have delivered to the Investors an Officer's
Certificate, dated the Closing Date, to such effect.
3M. BOARD NOMINEE. The Board of Directors of the Company shall
be constituted as contemplated by Section 3.1 of the Securityholders Agreement
and the nominee designated by the Investors shall have been appointed to the
Board of Directors effective upon the Closing.
3N. USE OF PROCEEDS. The Investors shall have received evidence
in form and substance reasonably satisfactory to them with respect to the use of
proceeds by the Company in accordance with paragraph 6B.
3O. BANK DEBT AGREEMENT. All of the conditions precedent to the
execution, delivery and performance of the Bank Debt Agreement shall have been
satisfied or waived in writing by the Bank and the Bank Debt Agreement shall be
in full force and effect. The Investors shall have received (i) a copy of any
waiver referred to in this paragraph 3O and (ii) an Officer's Certificate, dated
the Closing Date, to the effect that no default or event of default exists under
the Bank Debt Agreement and that the only condition precedent to the
consummation of the transactions contemplated by the Bank Debt Agreement is
contained in Section 6.01(k) thereof.
3P. ACCOUNTANT'S COMFORT LETTER. The Investors shall have
received from Coopers & Lybrand a procedures letter dated the Closing Date, in
form and substance satisfactory to the Investors.
3Q. CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation shall have been filed with the Secretary of State of the State of
Delaware and the Investors shall have received a certificate, dated the Closing
Date, of the Secretary of the Company attaching a true and complete copy of the
Certificate of Incorporation as filed with the Secretary of State of the State
of Delaware. 3R. [Intentionally Omitted] 3S. PC STOCK OPTION AGREEMENT. The
Investors shall have received a fully executed counterpart of the PC Stock
Option Agreement and such Agreement shall be in full force and effect and no
term or condition thereof shall have been amended, modified or waived. 3T.
DEFERRED COMPENSATION AGREEMENT. The Investors shall have received a fully
executed counterpart of the Deferred Compensation Agreement and such Agreement
shall be in full force and effect and no term or condition thereof shall have
been amended, modified or waived. 3U. COMPLETION OF THE REORGANIZATION. The
Company shall have (i) merged with Family Dental Services of Texas, Inc.; and
the Company shall be the surviving corporation and (ii) acquired all of the
capital stock of Old PC pursuant to the terms of the Stock Purchase Agreement.
3V. ACCOUNTS RECEIVABLE PURCHASE AGREEMENT. The Investors shall have received a
fully executed counterpart of the Accounts Receivable Purchase Agreement and
such Agreement shall be in full force and effect and no term or condition
thereof shall have been amended, modified or waived. 4. PAYMENTS AND PREPAYMENTS
OF THE SENIOR SUBORDINATED NOTES.
4A. GENERAL. The Senior Subordinated Notes shall be subject to
mandatory payments as specified in paragraph 4B and to the optional prepayments
under the circumstances set forth in paragraphs 4C and 4D. No partial prepayment
of the Senior Subordinated Notes pursuant to paragraph 4D shall relieve the
Company of its obligations to make any of the required prepayments pursuant to
paragraph 4B.
4B. MANDATORY PAYMENTS AND PREPAYMENTS OF THE SENIOR
SUBORDINATED NOTES.
(a) On the sixth anniversary of the Closing Date, 50% of the
principal amount of the Senior Subordinated Notes then outstanding, together
with all accrued and unpaid interest thereon to and including such date, shall
become immediately due and payable and shall be paid by the Company to the
holders of the Senior Subordinated Notes. On the seventh anniversary of the
Closing Date, the principal amount of the Senior Subordinated Notes then
outstanding, together with all accrued and unpaid interest thereon to and
including such date, shall become immediately due and payable by the Company and
shall be paid by the Company to the Investors. On December 18, 2002, the
principal amount of the Interest Notes then outstanding, together with all
accrued and unpaid interest thereon to and including such date, shall become
immediately due and payable and shall be paid by the Company to the holders of
the Interest Notes.
(b) Two (2) days after the Company's consummation of any
Qualifying Public Offering, the principal amount of the Senior Subordinated
Notes and Interest Notes outstanding, together with all accrued and unpaid
interest thereon to and including such date, shall become due and payable and
shall be paid by the Company to the holders of the Senior Subordinated Notes
and/or Interest Notes. No later than 30 days prior to any Public Offering, the
Company shall provide written notice to the holders of Senior Subordinated Notes
and/or Interest Notes setting forth estimates of the proceeds to the Company
from such Public Offering.
4C. PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES UPON A CHANGE
OF CONTROL. Upon a Change of Control the principal amount of the Senior
Subordinated Notes and Interest Notes outstanding, together with all accrued and
unpaid interest thereon to the Repayment Date shall become due and payable on
the Repayment Date and shall be paid by the Company to the holders of the Senior
Subordinated Notes and/or Interest Notes. Upon the occurrence of a Change of
Control, or the Company acquiring knowledge of a pending Change of Control, the
notice furnished to each holder of Senior Subordinated Notes and/or Interest
Notes under paragraph 6N shall (i) refer specifically to paragraph 4C, (ii)
state that the Company will prepay the principal amount of all of the Senior
Subordinated Notes and/or Interest Notes outstanding held by each holder of
Senior Subordinated Notes and/or Interest Notes, together with all accrued and
unpaid interest to the date of prepayment and (iii) indicate that the Company
will prepay the Senior Subordinated Notes and Interest Notes as provided in
clause (ii) above simultaneously with such Change of Control (the "REPAYMENT
DATE"). If a proposed Change of Control shall not occur, (i) the Company shall
have no obligation under this paragraph 4C to prepay any Senior Subordinated
Notes or Interest Notes notwithstanding the fact that the notice required
pursuant to Section 6N had previously been delivered in connection with such
proposed Change of Control, (ii) the obligations of the Company under this
paragraph 4C shall not be affected with respect to any subsequent Change of
Control, and (iii) if any holder of Convertible Preferred Stock shall have
converted all or any shares of Convertible Preferred Stock after receiving the
notice referred to in this paragraph 4C, the Company shall be required, at the
election of such holder, to issue new shares of Convertible Preferred Stock in
exchange for the Common Stock issued upon conversion of such shares of
Convertible Preferred Stock.
4D. OPTIONAL PREPAYMENTS OF THE SENIOR SUBORDINATED NOTES. The
Senior Subordinated Notes and Interest Notes shall be subject to prepayment, in
whole or in part, at the option of the Company at any time and from time to time
at a price equal to (x) the outstanding principal amount of the Senior
Subordinated Notes to be prepaid PLUS (y) all accrued and unpaid interest
thereon up to and including the date of prepayment.
4E. NOTICE OF PREPAYMENTS. In the event of prepayment pursuant
to paragraph 4D, written notice of such prepayment shall be given by the Company
by first-class, certified mail, return receipt requested, postage prepaid to the
holders of the Senior Subordinated Notes and/or Interest Notes at their
respective addresses as the same appear on the records of the Company, 30 days
prior to the prepayment date, specifying the prepayment date, the principal
amount of the Senior Subordinated Notes and Interest Notes to be prepaid on such
date and that such prepayment is to be made pursuant to paragraph 4D. Notice of
prepayment having been given as aforesaid, the principal amount of the Senior
Subordinated Notes and Interest Notes specified in such notice, together with
interest thereon to the prepayment date, shall become due and payable on such
prepayment date.
4F. MANDATORY PAYMENTS AND PARTIAL PREPAYMENTS PRO RATA. If
there is more than one holder of the Senior Subordinated Notes and/or Interest
Notes, the aggregate principal amount of each partial prepayment of the Senior
Subordinated Notes and Interest Notes shall be allocated among the holders of
the Senior Subordinated Notes and Interest Notes at the time outstanding in
proportion to the unpaid principal amounts of the Senior Subordinated Notes and
Interest Notes respectively held by each such holder. For purposes of allocation
pursuant to this paragraph 4F only, each Senior Subordinated Note and Interest
Note (to the extent possible) shall be rounded to the nearest $1,000.
5. REQUIRED REDEMPTION AND OPTIONAL REDEMPTION OF THE
CONVERTIBLE PREFERRED STOCK.
5A. OPTION OF HOLDERS TO PUT CONVERTIBLE PREFERRED STOCK UPON A
CHANGE OF CONTROL. Upon the occurrence of a Change of Control, any holder of
shares of Convertible Preferred Stock shall have the right upon written notice
as hereinafter provided in paragraph 5B to require the Company to redeem at the
Option Closing (as hereinafter defined), and the Company agrees to so purchase
out of funds legally available therefor, all or any of the shares of Convertible
Preferred Stock. The redemption price for such shares of Convertible Preferred
Stock shall be paid by certified check at the Option Closing or by wire transfer
of immediately available funds denominated in U.S. dollars to one or more
accounts designated by the holders of such shares of Convertible Preferred Stock
to the Company prior to the Option Closing in an amount equal to the greater of
(i) the Market Price, if any (as calculated in accordance with paragraph 5F
below) at the time of the Change of Control Notice of the Common Stock into
which such shares of Convertible Preferred Stock are convertible; (ii) the
change of control value of the Common Stock into which such shares of
Convertible Preferred Stock are convertible determined by applying to such
Common Stock the valuation derived from the purchase price (giving effect to any
and all consideration) paid by the acquiring Person or Persons in the Change of
Control; and (iii) the Premium Amount.
5B. EXERCISE OF THE CHANGE OF CONTROL PUT OPTION. Upon the
occurrence of a Change of Control, or the Company acquiring knowledge of a
pending Change of Control, the notice furnished to each holder of Securities
under clause (iv) of paragraph 6N (the "CHANGE OF CONTROL NOTICE") shall (i)
refer specifically to this paragraph 5B, (ii) state that the Company may be
required to redeem all of the outstanding shares of Convertible Preferred Stock,
(iii) contain the Company's calculation of the redemption price for the shares
of Convertible Preferred Stock to be redeemed (including a detail of the Fair
Market Value of the Common Stock at the time of the Change of Control Notice),
(iv) indicate that the Company will redeem the shares of Convertible Preferred
Stock as provided in clause (ii) above at the Option Closing upon written notice
of the exercise of an option by a holder of shares of Convertible Preferred
Stock, (v) indicate that a closing (the "OPTION CLOSING") for such purchase and
sale shall take place on a date specified in the notice, which date shall be a
date occurring not earlier than 30 days nor more than 60 days after the date on
which the notice is delivered, (vi) indicate where the Option Closing shall take
place and (vii) be delivered by certified mail return receipt requested. A
holder of shares of Convertible Preferred Stock shall furnish written notice to
the Company of the exercise of an option pursuant to paragraph 5B within at
least 10 days prior to the Option Closing. At the Option Closing, the Company
shall pay the redemption price for the securities being redeemed determined as
described above against delivery of the securities being purchased. No waiver by
a holder of any shares of Convertible Preferred Stock of its right under this
paragraph 5B to require the redemption of any or all of the shares of
Convertible Preferred Stock held by such holder in respect of a Change of
Control shall affect the rights of such holder under this paragraph 5B in
respect of any subsequent Change of Control.
5C. PUT OPTION OF HOLDERS OF SHARES OF CONVERTIBLE PREFERRED
STOCK UPON THE ABSENCE OF A LIQUID SECONDARY MARKET. If after December 18, 2001,
there is no Liquid Secondary Market, any holder of shares of Convertible
Preferred Stock shall have the right (the "PUT RIGHT") upon delivery of a Put
Notice (as hereinafter defined in paragraph 5D), to require the Company to
redeem at the Put Option Closing (as hereinafter defined in paragraph 5D), and
the Company agrees to so purchase out of funds legally available therefor, all
or any of the shares of Convertible Preferred Stock. The redemption price for
the shares of Convertible Preferred Stock shall be paid in three (3) equal
annual installments commencing with the Put Option Closing (each such payment,
an "INSTALLMENT") by certified check or by wire transfer of immediately
available funds denominated in U.S. dollars to one or more accounts designated
by the holders of the shares of Convertible Preferred Stock to the Company prior
to the Put Option Closing in an amount equal to the Fair Market Value at the
time of the Put Notice relating to the Common Stock into which the shares of
Convertible Preferred Stock subject to the Put Right are convertible. The
redemption price for the Convertible Preferred Stock shall bear interest on the
unpaid balances thereof at the rate of 12% per annum from and after the Put
Option Closing until the balance thereof shall have been paid in full.
5D. EXERCISE OF THE PUT OPTION. To exercise its Put Right, any
holder of shares of Convertible Preferred Stock shall deliver to the Company a
written notice (the "PUT NOTICE") which shall (i) refer specifically to this
paragraph 5D, (ii) state the number of shares of Convertible Preferred Stock
held by such holder that the Company is required to redeem, (iii) contain such
holder's request that the Company determine the Fair Market Value at the time of
the Put Notice of the Common Stock into which the shares of Convertible
Preferred Stock are convertible, (iv) indicate that a closing (the "PUT OPTION
CLOSING") for such redemption shall take place on a date specified in the
notice, which date shall be a date occurring not earlier than 45 days nor more
than 60 days after the date on which the notice is delivered, (v) indicate where
the Put Option Closing shall take place and (vi) be delivered by certified mail
return receipt requested. The Company covenants that it will promptly (and in
any event no later than 25 days after receipt of the Put Notice) determine, and
notify in writing the holders of shares of Convertible Preferred Stock who have
delivered a Put Notice of the Fair Market Value at the time of the Put Notice of
the Common Stock in accordance with paragraph 5E below; PROVIDED, HOWEVER, that
in the event that any holder of shares of Convertible Preferred Stock exercises
its right to refer the question of valuation to an investment banking firm, the
Put Option Closing shall take place on the later of (1) the date specified in
the Put Notice and (2) 5 Business Days after the determination of the Fair
Market Value has been completed in accordance with paragraph 5E below. At the
Put Option Closing, the Company shall pay the first installment of the
redemption price for the securities being purchased determined as described in
paragraph 5E below against delivery of the securities being redeemed.
5E. FAIR MARKET VALUE. The term "FAIR MARKET VALUE" means the
value (which shall not take into effect any minority discounts) of the Common
Stock as determined by the price per share of such Common Stock which the
Company could obtain from a willing buyer (not a current employee, officer,
consultant or director or any Affiliate of any such Person) for such shares sold
by the Company, as determined in good faith by the Board of Directors of the
Company; PROVIDED, HOWEVER, that if (i) the Investors' nominee on the Board of
Directors of the Company has not affirmatively voted in favor of such
determination made by the Board of Directors of the Company, or (ii) there is no
such nominee, the Investors may refer the question of valuation (which shall not
take into effect any minority discounts) for final settlement to a nationally
recognized investment banking firm designated by the Investors and reasonably
acceptable to the Company; and PROVIDED, FURTHER, that if the parties cannot
agree on such a firm, each party shall choose a nationally recognized investment
banking firm, which shall choose a third firm which shall be nationally
recognized and that third firm shall determine the Fair Market Value, which
determination shall be final and binding. The cost relating to retaining any
investment banking firm(s) pursuant to this paragraph 5E shall be borne by the
Company.
5F. MARKET PRICE. As used in this Section 5, the term "MARKET
PRICE" of any security shall mean the value determined in accordance with the
following provisions:
(i) if such security is listed on a national securities exchange
registered under the Exchange Act, a price equal to the average of the closing
sales prices for such security on such exchange for each day during the 20
trading days preceding the day of the Change of Control Notice; and
(ii) if not so listed under clause (i) above and such security
is quoted on the NASDAQ system, a price equal to the average of the average of
the closing bid and asked prices for such security quoted on such system each
day during the 20 trading days preceding the day of the Change of Control
Notice.
5G. OPTIONAL REDEMPTION OF THE CONVERTIBLE PREFERRED STOCK. (a)
Subject to the rights of holders of shares of Convertible Preferred Stock to
convert such shares of Convertible Preferred Stock pursuant to the provisions of
the Certificate of Incorporation and the rights of holders of shares of
Convertible Preferred Stock to put such shares of Convertible Preferred Stock
pursuant to paragraphs 5A or 5C hereof, the shares of Convertible Preferred
Stock shall be subject to redemption at the Company's option, in whole but not
in part, at any time on or after a Qualifying Public Offering of Common Stock.
(b) The redemption price for the shares of Convertible Preferred
Stock shall be payable immediately upon redemption, by certified or bank
cashier's check, and shall be $.001 (subject to appropriate adjustments for
stock splits, combinations, recapitalizations, stock dividends and similar
events) multiplied by the number of shares of Common Stock issuable upon
conversion of the shares of Convertible Preferred Stock so redeemed.
5H. NOTICE OF REDEMPTION. The Company shall give each holder of
shares of Convertible Preferred Stock written notice of the redemption pursuant
to paragraph 5G not less than 60 days prior to the redemption date, specifying
such redemption date, that all of the outstanding shares of Convertible
Preferred Stock are to be redeemed on such date and that such redemption is to
be made pursuant to paragraph 5G. Such notice shall be accompanied by an
Officer's Certificate stating that the applicable conditions set forth in
paragraph 5G have been fulfilled. Notice of redemption having been given as
aforesaid, the redemption amount due in respect of all of the shares of
Convertible Preferred Stock and as calculated in paragraph 5G(b), shall become
due and payable on such redemption date unless the holder of such shares of
Convertible Preferred Stock (i) shall have converted such shares of Convertible
Preferred Stock, in whole or in part, prior to such redemption date pursuant to
the terms of the Certificate of Incorporation, (ii) shall have put such shares
of the Convertible Preferred Stock, in whole or in part, pursuant to paragraph
5A or 5C or (iii) unless the filing by the Company of a registration statement
under the Securities Act relating to the Common Stock obtainable upon conversion
of the shares of Convertible Preferred Stock shall have been requested by a
holder thereof (either before or after receipt of such notice) pursuant to the
Registration Rights Agreement, in which case the redemption shall be effected 30
days after the declaration of effectiveness of such registration statement by
the Commission. Should the shares of Convertible Preferred Stock not be redeemed
on such redemption date due to the Company's failure to perform its obligations
under this paragraph 5H, such redemption may be effected only after compliance
with the provisions of this Section 5 from and after such redemption date.
6. AFFIRMATIVE COVENANTS. All covenants contained herein shall
be given independent effect so that if a particular action or condition is not
permitted by any such covenant, the fact that such action or condition would be
permitted by an exception to, or otherwise be within the limitations of, another
covenant shall not avoid the occurrence of a Default if such action is taken or
condition exists. The provisions of this Section 6 are for the benefit of the
Investors so long as they hold any of the Securities and, to the extent set
forth herein, for the benefit of each other holder of the Securities; PROVIDED,
HOWEVER, that upon the later to occur of (x) the consummation of a Qualifying
Public Offering and (y) repayment in full of any and all amounts (including,
without limitation, principal and interest) due under the Senior Subordinated
Notes and the Interest Notes outstanding, the Company and its Subsidiaries shall
no longer be bound by the covenants set forth in paragraphs 6A (other than
6A(v)), 6B, 6C, 6D, 6E, 6G, 6H, 6I, 6J, 6K, 6N, 6Q (other than 6Q(iv)) and 6R.
6A. FINANCIAL STATEMENTS. The Company and Castle PC will deliver
to each holder of Securities:
(i) as soon as practicable and in any event within 45 days after
the end of each month in each fiscal year commencing with October, 1995, the
consolidated and consolidating statements of income and changes in stockholders'
equity and cash flow of the Company and its Subsidiaries for such month and for
the period from the beginning of the current fiscal year to the end of such
month and a consolidated and consolidating balance sheet of the Company and its
Subsidiaries as at the end of the most recent year and at the end of such month,
setting forth in each case in comparative form figures for the corresponding
period in the preceding fiscal year, all in reasonable detail and reasonably
satisfactory in scope to the holders of Securities and prepared in accordance
with GAAP on a basis consistent with past practice and certified by the chief
financial officer or chief executive officer of the Company as fairly presenting
the financial condition of the Company and its Subsidiaries, subject to the
changes resulting from audit, year-end adjustments and absence of footnotes;
PROVIDED, HOWEVER that the Company shall not be required to deliver comparative
form figures comparing the months ending in fiscal 1996 to those in fiscal 1995
as the monthly figures were not calculated in fiscal 1995;
(ii) as soon as practicable and in any event within 45 days
after the end of each quarterly period in each fiscal year, consolidated and
consolidating statements of income, changes in stockholders' equity and cash
flow of the Company and its Subsidiaries for such quarterly period and for the
period from the beginning of the current fiscal year to the end of such
quarterly period and a consolidated and consolidating balance sheet of the
Company and its Subsidiaries as at the end of the most recent year and at the
end of such quarterly period, setting forth in each case in comparative form
figures for the corresponding period in the preceding fiscal year, all in
reasonable detail and reasonably satisfactory in scope to the holders of
Securities and prepared in accordance with GAAP on a basis consistent with past
practice and certified by the chief financial officer or chief executive officer
of the Company as fairly presenting the financial condition of the Company and
its Subsidiaries, subject to the changes resulting from audit and year-end
adjustments;
(iii) as soon as practicable and in any event within 120 days
after the end of each fiscal year, consolidated and consolidating statements of
income, changes in stockholders' equity and cash flow of the Company and its
Subsidiaries for such year, and a consolidated and consolidating balance sheet
of the Company and its Subsidiaries as at the end of such year, setting forth in
each case in comparative form corresponding figures from the preceding annual
audit, all in reasonable detail and reasonably satisfactory in scope to the
holders of Securities, and in each case audited by Coopers & Lybrand or such
other independent public accountants of recognized national standing selected by
the Company, and reasonably satisfactory to the holders of Securities, whose
report in each case shall state that such consolidated financial statements
present fairly the results of operations and cash flows of the Company and its
Subsidiaries, in accordance with GAAP on a basis consistent with prior years and
that the examination by such accountants has been made in accordance with
generally accepted auditing standards then in effect in the United States;
(iv) as soon as practicable and in any event by the end of each
fiscal year beginning with fiscal year 1995, a budget for the Company and its
Subsidiaries, as approved by the Board of Directors of the Company and Castle
PC, for the following fiscal year setting forth in comparative form
corresponding figures from the preceding fiscal year, in reasonable detail and
certified as to its good-faith preparation by the chief financial officer or
chief executive officer of the Company;
(v) promptly upon transmission thereof, copies of all financial
statements, information circulars, proxy statements and reports as the Company
or any Subsidiary shall send to its stockholders that are material to the
business of the Company and its Subsidiaries, taken as a whole and copies of all
registration statements and prospectuses and all reports which it or any of its
officers or directors file with the Commission (or any governmental body or
agency succeeding to the functions of the Commission) or with any securities
exchange on which any of its securities are listed or with NASDAQ, and copies of
all press releases and other statements made available generally by the Company
or its Subsidiaries to the public concerning material developments in the
business of the Company and its Subsidiaries;
(vi) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any of its Subsidiaries by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Company or any of its Subsidiaries; and
(vii) with reasonable promptness, such other financial and/or
operating data as the holders of Securities may reasonably request.
Together with each delivery of the financial statements required
by clauses (ii) and (iii) above, the Company, on behalf of itself and Castle PC,
will deliver to each holder of Securities an Officer's Certificate (a)
demonstrating (with computations in reasonable detail) compliance by the Company
and its Subsidiaries with the provisions of paragraph 7A, (b) stating that the
Company and its Subsidiaries are in compliance with the provisions of paragraphs
7B, 7C, 7D and 7E, and (c) stating that there exists no Default or Event of
Default or, if any Default or Event of Default exists, specifying the nature
thereof, the period of existence thereof and what action the Company proposes to
take with respect thereto. Together with each delivery of financial statements
required by clause (iii) above, the Company will deliver to each holder of
Securities a certificate of the accountants referred to in such clause (iii)
stating that, in making the audit necessary to the certification of such
financial statements, they have obtained no knowledge of any Default or Event of
Default or, if, to their knowledge any such Default or Event of Default exists,
specifying the nature and period of existence thereof; PROVIDED, HOWEVER, that
such accountants shall not be liable to anyone by reason of their failure to
obtain knowledge of any such Default or Event of Default which would not be
disclosed in the course of an audit conducted in accordance with generally
accepted auditing standards then in effect in the United States. Each holder of
Securities is hereby authorized to deliver a copy of any financial statement or
certificate delivered pursuant to this paragraph 6A to any regulatory body
having jurisdiction over such holder that requests or requires delivery of such
information.
6B. USE OF PROCEEDS. The proceeds of the sale of the Securities
shall be used (i) to repurchase capital stock of the Company in accordance with
Schedule 6B, (ii) for general working capital purposes and (iii) the
acquisitions of dental practices.
6C. BOOKS AND RECORDS; INSPECTION OF PROPERTY. The Company will
keep, and will cause each of its Subsidiaries to keep, proper books of record
and account in which full, true and correct entries in conformity in all
material respects with GAAP shall be made of all material dealings and
transactions in relation to their business and activities. Subject to any
applicable restrictions relating to the confidentiality of patient information
set forth in any PC Management Agreement to which the Company is a party, the
Company will, upon reasonable advance notice, permit any Person representing any
Investor and designated in writing by such holder, at such holder's expense, to
visit and inspect any of the properties of the Company and its Subsidiaries
during normal business hours in a manner which does not unduly interrupt the
normal course of business, to examine the corporate, financial and operating
records of the Company or any of its Subsidiaries and make copies thereof or
extracts therefrom and to discuss the affairs, finances and accounts of any of
such corporations with the directors, officers and independent accountants of
the Company and its Subsidiaries, all at such reasonable times and as often as
the holders may reasonably request.
6D. COVENANT TO SECURE SENIOR SUBORDINATED NOTES EQUALLY. If the
Company or any of its Subsidiaries shall create or assume any Lien upon any of
its property or assets, whether now owned or hereafter acquired, other than
Liens permitted by the provisions of paragraph 7C hereof, it will make or cause
to be made effective provisions whereby the Senior Subordinated Notes will be
secured by such Lien equally and ratably with any and all other Indebtedness
thereby secured as long as any such other Indebtedness shall be so secured.
6E. ADDITIONAL COVENANT PENDING THE CLOSING. Pending the
Closing, neither the Company nor Castle PC will, without the prior written
consent of the Investors, take any action which would result (i) in any of the
representations or warranties contained in this Agreement not being true and
correct in all material respects at and as of the time immediately after such
action or (ii) in any of the covenants contained in this Agreement becoming
incapable of performance. Pending the Closing, the Company and Castle PC will
promptly advise the Investors of any action or event of which either becomes
aware which has the effect of making incorrect, in any material respect, any of
such representations or warranties or which has the effect of rendering any of
such covenants incapable of performance. The Company and Castle PC will duly
perform, in all material respects, all of its respective obligations required to
be performed under each of the Related Documents to which it is a party.
6F. STOCK TO BE RESERVED. The Company covenants that all shares
of Common Stock that may be issued upon conversion of the Convertible Preferred
Stock will, upon issuance, be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof. The
Company further covenants that during the period within which the Convertible
Preferred Stock may be converted, the Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to permit the
conversion of all of the outstanding shares of Convertible Preferred Stock.
6G. COMPLIANCE WITH LAWS, ETC. The Company and Castle PC will,
and will cause each of the Company's Subsidiaries to, comply with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority, and obtain and maintain in good standing all licenses,
permits and approvals from any and all governments, governmental commissions,
boards or agencies of jurisdictions in which they or any of the Company's
Subsidiaries carries on business required in respect of the operations of the
Company and its Subsidiaries, except for those with which the failure to comply
or maintain would not have a Material Adverse Effect.
6H. ERISA. Promptly (and in any event within 30 days) after the
Company or any of its Subsidiaries knows or has reason to know that a Reportable
Event with respect to any Pension Plan has occurred, that any Pension Plan is or
may be terminated, reorganized, partitioned or declared insolvent under Title IV
of ERISA or that the Company or any of its Subsidiaries will or may incur any
liability to or on account of a Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA or promptly upon becoming aware of the occurrence of any
(i) event requiring the Company or any of its Subsidiaries to provide security
to a Pension Plan under Section 401(a)(29) of the Code, (ii) "prohibited
transaction", as such term is defined in Section 4975 of the Code or in Section
406 of ERISA, in connection with any Pension Plan or any trust created
thereunder for which a statutory or administrative exemption is not available,
(iii) notice of intent to terminate a Pension Plan or Pension Plans having been
filed under Title IV of ERISA by the Company or any of its Subsidiaries, any
Pension Plan administrator or any combination of the foregoing, (iv) institution
of proceedings by the PBGC to terminate or to cause a trustee to be appointed to
administer any Pension Plan, (v) partial or complete withdrawal by the Company
or a Subsidiary from any multiemployer Pension Plan, (vi) institution of
proceedings by a fiduciary of any Pension Plan against the Company or any of its
Subsidiaries to enforce Section 515 of ERISA and such proceeding shall not have
been dismissed within 30 days thereafter, (vii) failure of the Company or a
Subsidiary to make a required installment under Section 412(m) of the Code or
any other payment required under Section 412 of the Code or to pay any amount
which it shall have become liable to pay to the PBGC or to a Pension Plan under
Title IV of ERISA on or before the due date, (viii) application by the Company
or a Subsidiary for a waiver of the minimum funding standard under Section 412
of the Code or Section 302 of ERISA, or (ix) "reorganization" (as defined in
Section 418 of the Code or Title IV of ERISA) of any Pension Plan which is a
multiemployer Pension Plan, the Company will deliver to each holder of
Securities, a certificate of the chief financial officer of the Company, setting
forth information as to such occurrence and what action, if any, the Company is
required or proposes to take with respect thereto, together with any notices
concerning such occurrences which are (a) required to be filed by the Company or
the plan administrator of any such Pension Plan controlled by the Company or any
of its Subsidiaries with the PBGC, or (b) received by the Company or any of its
Subsidiaries from any plan administrator of a multiemployer or other Pension
Plan not under their control. The Company shall furnish to each holder of
Securities a copy of each annual report (Form 5500 Series) of any Pension Plan
received or prepared by it or any of its Subsidiaries. Each annual report and
any notice required to be delivered hereunder shall be delivered no later than
30 days after the later of the date such report or notice is filed with the
Internal Revenue Service or the PBGC or the date such report or notice is
received by the Company or any of its Subsidiaries, as the case may be.
6I. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company
(i) will do or cause to be done all things reasonably necessary to preserve and
keep in full force and effect its corporate existence, rights and franchises and
the corporate existence, rights and franchises of its Subsidiaries (except as
specifically permitted by paragraphs 7H and 7I hereof), (ii) will cause its
material properties and the material properties of its Subsidiaries to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereto, and (iii) will, and will
cause each of its Subsidiaries to, qualify and remain qualified to conduct
business in each jurisdiction where the nature of the business of or ownership
of property by the Company or such Subsidiary may require such qualification.
6J. INSURANCE. The Company will maintain, and will cause each of
its Subsidiaries to maintain, with financially sound and reputable insurance
companies, funds or underwriters, insurance for itself and its Subsidiaries of
the kinds, covering the risks and in the relative proportionate amounts usually
carried by companies conducting business activities similar to those of the
Company and its Subsidiaries. From and after a Public Offering, the Company will
use its best efforts to obtain and maintain directors and officers liability
insurance similar to the insurance usually carried by companies conducting
business activities similar to those of the Company and its Subsidiaries.
6K. FURTHER ASSURANCES. The Company and Castle PC shall
cooperate with any of the Investors and execute such further instruments and
documents as the Investors shall reasonably request to carry out to the
satisfaction of such Investors the transactions contemplated by this Agreement.
6L. FILING OF REPORTS UNDER THE EXCHANGE ACT. The Company shall,
and shall cause each of its Subsidiaries to, give prompt notice to each Investor
of the filing of any registration statement (an "EXCHANGE ACT REGISTRATION
STATEMENT") pursuant to the Exchange Act relating to any class of securities of
the Company or any of its Subsidiaries and the effectiveness of such Exchange
Act Registration Statement and, with respect to equity securities, the number of
shares of such class of equity security outstanding as reported in such Exchange
Act Registration Statement. If and for so long as the Company or any of its
Subsidiaries has a class of equity securities required to be registered under
the Exchange Act, the Company and such Subsidiaries shall (i) comply in all
material respects with the reporting requirements of the Exchange Act, and (ii)
comply in all material respects with all other public information reporting
requirements of the Commission that are a condition to the availability of an
exemption from the Securities Act (under Rule 144 thereof, as amended from time
to time, or successor rule thereto or otherwise) for the sale of shares of
Common Stock by any Investor. The Company shall, and shall cause each of its
Subsidiaries to, cooperate with each Investor in supplying such information as
may be reasonably necessary for such Investor to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act (under
Rule 144 thereunder or otherwise) for the sale of shares of Common Stock by any
Investor.
6M. SECURITIES ACT REGISTRATION STATEMENTS. The Company
covenants that it shall not, and shall cause each of its Subsidiaries not to,
file any registration statement under the Securities Act covering any securities
unless it shall first have given to each Investor 20 days written notice
thereof. The Company further covenants that each Investor shall have the right,
at any time when it may reasonably be deemed by such Investor or the Company or
any of its Subsidiaries to be a controlling person of the Company or any of its
Subsidiaries, to participate in the preparation of such registration statement
(regardless of whether or not an Investor will be a selling security holder in
connection with such registration statement) and to request the insertion
therein of material furnished to the Company or any of its Subsidiaries in
writing which in such Investor's reasonable judgment should be included. In
connection with any registration statement referred to in this paragraph 6M, the
Company will indemnify each Investor, its partners, officers and directors and
each person, if any, who controls such Investor within the meaning of Section 15
of the Securities Act (collectively, the "INVESTOR PARTIES"), against all
losses, claims, damages, liabilities and expenses caused by any untrue statement
or alleged untrue statement of a material fact contained in any registration
statement or prospectus or any preliminary prospectus or any amendment thereof
or supplement thereto or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement or omission or alleged omission contained in written
information furnished to the Company or any of its Subsidiaries by such Investor
Parties expressly for use in such registration statement. If, in connection with
any such registration statement, such Investor Parties shall furnish written
information to the Company or any of its Subsidiaries expressly for use in the
registration statement, such Investor will indemnify the Company, its directors,
each of its officers who signs such registration statement and each person, if
any, who controls the Company within the meaning of the Securities Act against
all losses, claims, damages, liabilities and expenses caused by any untrue
statement or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the registration
statement or prospectus or any preliminary prospectus or any amendment thereof
or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or such omission or alleged omission is contained in information so
furnished in writing by such Investor for use therein. The provisions of this
paragraph 6M are in addition to, and not in limitation of, the provisions of the
Registration Rights Agreement.
6N. NOTICES OF CERTAIN EVENTS. The Company shall promptly give
notice to each holder of Securities (i) of the occurrence of any Default or
Event of Default, (ii) of any default or event of default under any contractual
obligation of the Company or any of its Subsidiaries if such default or event of
default, individually or in the aggregate, relates to a contractual obligation
equal to or in excess of $25,000, (iii) of any pending or threatened litigation,
investigation or proceeding to which the Company or any of its Subsidiaries is
or is threatened to be a party which, if such pending or threatened litigation,
investigation or proceeding were adversely determined, would create a liability
of the Company or its Subsidiaries equal to or in excess of $100,000 that is not
fully covered by insurance held by the Company or its Subsidiaries, or (iv) of a
Change of Control Event. Any notice delivered pursuant to this paragraph 6N
shall be accompanied by an Officer's Certificate specifying the details of the
occurrence referred to therein and stating what action the Company proposes to
take with respect thereto. In addition to the foregoing, in the case
contemplated by clause (iv) of the first sentence of this paragraph 6N, the
Company will also comply with the provisions of paragraphs 4C, 5B and 5D hereof.
6O. BOARD NOMINEE. As long as (x) any Senior Notes are
outstanding or (y) 20% of the Convertible Preferred Stock or 20% of the Common
Stock obtained through conversion of the Convertible Preferred Stock remains
outstanding, the Company will use its best efforts to (i) have one nominee
designated by the Investors elected to the Board of Directors of the Company and
(ii) cause the number of directors and the composition of the Board of Directors
of any Subsidiary (other than any Related Professional Service Entity) to be
identical to the number of directors and composition of the Board of Directors
of the Company; PROVIDED, HOWEVER, that if the number of directors or the
composition of the Board of Directors of any Subsidiary (other than any Related
Professional Service Entity) differs from the number of directors or the
composition of the Board of Directors of the Company, then and in addition to
the requirement of clause (i) above, the Company will, and will cause such
Subsidiary (other than any Related Professional Service Entity) to, use its best
efforts to, have one nominee designated by the Investors elected to the Board of
Directors of such Subsidiary. Any director designated by the Investors shall
receive (A) all materials distributed to the Board of Directors of the Company
or any Subsidiary, as the case may be, whether provided to directors in advance
of, during or after, any meeting of the applicable Board of Directors,
regardless of whether such director shall be in attendance at any such meeting,
(B) the same compensation (other than compensation payable to the other outside
members of the Board of Directors of the Company or any Subsidiary, as the case
may be, shall receive in his or her capacity as a director and (C) reimbursement
of the reasonable out-of-pocket expenses of such director incurred in attending
the meetings of the Board of Directors of the Company or any Subsidiary, as the
case may be. The Company and Castle PC shall take the actions required by
Section 3.1 of the Securityholders Agreement with respect to the Policy Board
(as defined in the Management Agreement) of New PC.
6P. LISTING OF COMMON STOCK. The Company covenants and agrees
for the benefit of the Investors and each holder of any Common Stock issued upon
conversion of the Convertible Preferred Stock, that at the time of and in
connection with the listing of Common Stock or any equity securities of any
Subsidiary on any national securities exchange, it will, at its expense, use its
best efforts to cause the shares of Common Stock issuable from time to time upon
conversion of the Convertible Preferred Stock to be approved for listing,
subject to notice of issuance, and will provide prompt notice to each such
exchange of the issuance thereof from time to time.
6Q. ENVIRONMENTAL LAWS.
(i) The Company will comply with, and will cause each of its
Subsidiaries to comply with, and use its best efforts to ensure compliance by
all tenants and subtenants and with respect to all of its assets with, all
licenses, permits and other authorizations required under all applicable laws,
regulations and other requirements of Governmental Authorities relating to
pollution or to the protection of the environment (the "ENVIRONMENTAL LAWS") and
obtain and comply with and maintain, and use its best efforts to ensure that all
tenants and subtenants obtain and comply with and maintain, any and all
licenses, approvals, registrations or permits required by Environmental Laws,
except to the extent that failure to so comply or to obtain and comply with and
maintain such licenses, approvals, registrations and permits does not have, and
could not reasonably be expected to result in, a Material Adverse Effect.
(ii) The Company will, and will cause each of its Subsidiaries
to, conduct and complete all investigations, studies, sampling and testing, and
all remedial, removal and other actions, required under Environmental Laws and
promptly comply with all lawful orders and directives of all Governmental
Authorities with respect to Environmental Laws, except to the extent that the
same are being contested in good faith by appropriate proceedings or the
pendency of such proceedings would not have a Material Adverse Effect.
(iii) The Company will, and will cause each of its Subsidiaries
to, notify the holders of the Securities of any of the following that is
reasonably likely to have a Material Adverse Effect:
(a) any claim with respect to any Environmental Law that the Company
or any of its Subsidiaries receives, including one to take or pay for any
remedial, removal, response or cleanup or other action with respect to any
hazardous substance, hazardous waste, contaminant, pollutant or toxic
substance (as such terms are defined in any applicable Environmental Law)
(collectively, "HAZARDOUS SUBSTANCES") contained on or generated from any
property owned or leased by the Company or any of its Subsidiaries;
(b) any notice of any alleged violation of or knowledge by the
Company or any of its Subsidiaries of a condition that might reasonably
result in a violation of any Environmental Law; and
(c) any commencement of or receipt of written intent to commence any
judicial or administrative proceeding or investigation alleging a violation
or potential violation of any requirement of any Environmental Law by the
Company or any of its Subsidiaries.
(iv) Without limiting the generality of paragraph 13B, the Company
will, and will cause each of its Subsidiaries to, indemnify the Investors and
each holder from time to time of the Securities and each of their respective
directors, officers, employees, agents, partners and Affiliates (each such
person being called an "INDEMNITEE" and collectively, the "INDEMNITEES")
against, and hold each Indemnitee harmless from, any claims, demands, penalties,
fines, liabilities, settlements, damages, costs and expenses (including
reasonable counsel fees, charges and disbursements) of whatever kind or nature
arising out of, or in any way relating to, the violation of, noncompliance with
or liability under any Environmental Laws applicable to the operations of the
Company or any orders, requirements or demands of Governmental Authorities
related thereto, including, without limitation, attorneys' and consultants'
fees, investigation and laboratory fees, Response Costs (as such term is defined
in CERCLA), court costs and litigation expenses, except to the extent that any
of the foregoing are found by a final and nonappealable decision of a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Indemnitee seeking indemnification therefor. The obligation
of the Company under this paragraph 6Q shall survive the payment of the Senior
Subordinated Notes and the conversion of the Convertible Preferred Stock.
(v) Neither the Company's nor any of its Subsidiaries' plants
and facilities will use, manage, treat, store or dispose of any Hazardous
Substances in violation of any Environmental Laws.
6R. ADDITIONAL MANAGEMENT POSITIONS. As soon as practicable and
in any event within 180 days after the Closing Date, the Company shall hire an
individual satisfactory to the Investors to hold the position of Chief Operating
Officer.
6S. WIND UP OF OLD PC. The Company covenants and agrees that
upon its acquisition of the stock of Old PC, that it will promptly wind up the
affairs of Old PC and effect its dissolution in compliance with The Texas
Professional Corporation Act (32 TEX. REV. CIV. STAT. ANN. Art. 1528(e)).
6T. GUARANTEE BY NEW PC. If, at anytime, the Bank is granted a
guarantee of the Indebtedness under the Bank Debt Agreement, the New PC will
execute and deliver, subject to the provisions of Section 8.13 of the Bank Debt
Agreement, a guarantee substantially int he form of Exhibit B hereto.
7. NEGATIVE COVENANTS. All covenants contained herein shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that such action or condition would
be permitted by an exception to, or otherwise be within the limitations of,
another covenant shall not avoid the occurrence of a Default if such action is
taken or condition exists. The provisions of this Section 7 are for the benefit
of the Investors so long as they hold any of the Securities and for the benefit
of each other holder of Securities; PROVIDED, HOWEVER, that upon repayment in
full of any and all amounts (including, without limitation, principal and
interest) due under the Senior Subordinated Notes, the Company or any of its
Subsidiaries, as the case may be, shall no longer be bound by the covenants
contained in paragraphs 7A through 7F and 7H through 7L.
7A. FINANCIAL COVENANTS.
(i) CAPITAL EXPENDITURES. The Company will not, and will not
permit its Subsidiaries to, make any expenditures for fixed or capital assets
if, after giving effect thereto, the aggregate of all such expenditures would
exceed the amount applicable for the fiscal years indicated below:
PERIOD AMOUNT
1996 $3,500,000
1997 $3,000,000
1998 and thereafter $2,500,000
(ii) CURRENT RATIO. The Company will not permit, nor will it
permit any Subsidiary to permit, the ratio of (x) the combined consolidated
current assets of the Company and its Subsidiaries to (y) the combined
consolidated current liabilities of the Company and its Subsidiaries to be less
than 1.5 to 1.0 at any time.
(iii) RATIO OF INTANGIBLES TO NET WORTH. The Company will not
permit, nor will it permit any Subsidiary to permit, the ratio of (x) the
combined intangibles of the Company and its Subsidiaries to (y) the combined net
worth of the Company and its Subsidiaries to be greater than 0.6 to 1.0 at any
time. As used in this paragraph 7A(iii), "NET WORTH" shall mean, without
duplication, the sum of the Company's and its Subsidiaries' net worth plus all
Indebtedness of the Company under this Agreement and the Senior Subordinated
Notes.
(iv) NET WORTH. The Company will not permit, nor will it permit
any Subsidiary to permit, the combined net worth of the Company and its
Subsidiaries to be less than $4,560,000 at any time, with such minimum amount
being permanently increased by an amount equal to 75% of positive net income of
the Company and its Subsidiaries during each fiscal quarter and 100% of equity
capital raised by the Company and its Subsidiaries, PROVIDED, such minimum
amount shall not be decreased as a result of any losses or negative earnings. As
used in this paragraph 7A(iv), "NET WORTH" shall mean the sum of, without
duplication, the Company's and its Subsidiaries' net worth plus all Indebtedness
of the Company under this Agreement and the Senior Subordinated Notes.
(v) LEVERAGE RATIO. The Company will not permit, nor will it
permit any Subsidiary to permit, the Combined Leverage Ratio as of the end of
any fiscal quarter (calculated on a rolling four quarter basis) to be greater
than 2.5 to 1.0. For any calculation period which would include one or more
quarters prior to the Stock Purchase or any other future acquisition of any
Related Professional Services Entity or other Person, the "rolling four
quarters" shall include "pro forma" the EBITDA of Old PC or such Person for such
prior periods adjusted to reflect costs and expenses which the Old PC or such
Person would have included had a Management Services Agreement in the form of
the Management Agreement been in effect between the Company and Old PC or such
Person, as the case may be, (adding back appropriate executive salaries and non-
cash charge offs relating to this transaction and the transactions contemplated
hereby). As used in this paragraph 7A(v), "COMBINED LEVERAGE RATIO" shall mean
the ratio of (x) the sum of, without duplication, the Senior Funded Indebtedness
of the Company and its Subsidiaries to (y) EBITDA.
(vi) FIXED CHARGE COVERAGE RATIO. The Company will not permit,
nor will it permit any Subsidiary to permit, the Fixed Charge Coverage Ratio as
of the end of any fiscal quarter (calculated on a rolling four quarter basis) to
be less than 0.9 to 1.0 through December 30, 1997, nor less than 1.25 to 1.0
thereafter. For any calculation period which would include one or more quarters
prior to the Stock Purchase or any other future acquisition of any Related
Professional Services Entity or other Person, the "rolling four quarters" shall
include (i) "pro forma" the EBITDA of Old PC for such prior periods adjusted to
reflect costs and expenses which the Old PC or such Person would have included
had a Management Services Agreement in the form of the Management Agreement been
in effect between the Company and Old PC or such Person as the case may be,
(adding back appropriate executive salaries and non- cash charge offs relating
to this transaction) and (ii) deferred compensation and current maturities on
long-term debt of the Company and, without duplication, its Subsidiaries and
payments under Capitalized Lease Obligations assumed for such prior periods on
the same basis as in effect during the most current quarterly period. For the
purposes of this paragraph 7A(vi), "Fixed Charge Coverage Ratio" shall mean the
ratio for the relevant period of (i) EBITDA plus lease and rental expense of the
Company and, without duplication, its Subsidiaries plus deferred compensation
pursuant to the Deferred Compensation Agreement to (ii) interest plus lease and
rental expense of the Company and, without duplication, its Subsidiaries plus
deferred compensation pursuant to the Deferred Compensation Agreement plus
current maturities on long-term debt and capital leases of the Company and,
without duplication, its Subsidiaries.
7B. RESTRICTIONS ON INDEBTEDNESS AND REPAYMENT OF INDEBTEDNESS.
Each of Castle PC and the Company covenants that it will not incur, create,
assume or suffer to exist any Indebtedness or permit any of its Subsidiaries to
do any of the foregoing, other than the following:
(i) Senior Debt;
(ii) Indebtedness represented by the Senior Subordinated Notes
and this Agreement;
(iii) Indebtedness of the Company which by its terms is
subordinated to the Senior Subordinated Notes, provided that no such
Indebtedness is guaranteed or incurred by any Subsidiary of the
Company; and
(iv) Indebtedness secured by Liens permitted pursuant to
paragraph 7C.
In addition, each of Castle PC and the Company covenants that it will
not, and will not permit any Subsidiary to, prepay any Indebtedness junior to,
or pari-passu with, the Senior Subordinated Notes; PROVIDED, HOWEVER, that the
Company may (i) prepay Indebtedness that is pari-passu with the Senior
Subordinated Notes if the Senior Subordinated Notes are prepaid pro-rata with
such pari-passu Indebtedness and (ii) make payments under the Deferred
Compensation Agreement in accordance with the terms thereof.
7C. RESTRICTIONS ON LIENS. Each of Castle PC and the Company
covenants that it will not and will not permit any Subsidiary to create, assume
or suffer to exist any Lien upon any of its property or assets, whether now
owned or hereafter acquired, except:
(i) Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
therefor;
(iii) Liens made to secure performance of bids, tenders,
contracts (other than repayment of borrowed money), or leases, or to secure
statutory obligations, surety or appeal bonds, or indemnity, performance or
other similar bonds in the ordinary course of business;
(iv) Liens made to secure Senior Debt;
(v) Liens incurred through Purchase Money Security Interests in
amounts which do not exceed the fair market value of the asset securing such
Liens; and
(vi) Liens or deposits made to secure payment of workers'
compensation, or in connection with the participation in any fund in connection
with workers' compensation, unemployment insurance, pensions or other social
security programs.
7D. RESTRICTED PAYMENTS. Each of Castle PC and the Company
covenants that as long as any of the Senior Subordinated Notes are outstanding
it will not make, and will not permit any Subsidiary to make, any Restricted
Payments.
7E. LOANS, ADVANCES AND INVESTMENTS. Each of Castle PC and the
Company covenants that it will not, and will not permit any of its Subsidiaries
to, make or permit to remain outstanding any loan or advance to, or guarantee,
endorse or otherwise be or become contingently liable, directly or indirectly,
in connection with the obligations, stock or dividends of, or own, purchase or
acquire any stock, obligations or securities of, or make any Investment in, any
Person except that the Company or any of its Subsidiaries may:
(i) own, purchase or acquire Permitted Investments;
(ii) endorse negotiable instruments for collection in the
ordinary course of business, make or permit to remain outstanding
travel, moving and other like advances to officers, employees and
consultants in the ordinary course of business or make or permit to
remain outstanding lease, utility and other similar deposits in the
ordinary course of business;
(iii) make an Investment in a Person, provided the amount of
such Investment (including the amount of any guarantee, endorsement or
other liability with respect thereto) shall not exceed $25,000
individually or $100,000 in the aggregate;
(iv) make an Investment in a Person that becomes a Subsidiary
as a result of such Investment; provided that such Investments: (a)
relate to the acquisition of dental practices, (b) do not exceed
$3,000,000 in aggregate purchase price for the Company and its
Subsidiaries in any one fiscal year , (c) the Company shall deliver to
the Investors pro forma financial statements reflecting the proposed
acquisition and related calculations demonstrating compliance with all
covenants contained herein, relating to financial and accounting
matters, together with a description in reasonable detail of the
nature and reasons for the proposed transaction, (d) immediately after
giving effect to such transaction, no Default or Event of Default
shall exist and be continuing, and (e) such Person executes a
guarantee in substantially the form of Exhibit B hereto and PROVIDED,
FURTHER that any Investment in excess of $1,000,000 in any one dental
practice or any Investment in any dental practice which has incurred a
net income loss for any of its last three fiscal years shall require
approval of the Investors; and
(v) make an Investment in a Related Professional Services Entity
and pursuant to which the Company or a Subsidiary obtains the right to
purchase shares of capital stock of a Related Professional Services
Entity under certain circumstances requiring the replacement of the
holder of any licenses required in the conduct of business by such
Related Professional Services Entity.
7F. LEASES. Each of Castle PC and the Company covenants that it
will not enter into, or permit any of its Subsidiaries to enter into, any leases
of real or personal property (except in the normal course of business at
reasonable rents comparable to those paid for similar leasehold interests in the
area, or at comparable amounts payable by companies in the same business as the
Company or such Subsidiary which are similarly situated) as lessee or sublessee,
with initial terms (excluding options to renew or extend any term, whether or
not exercised) of more than twelve years.
7G. TRANSACTIONS WITH AFFILIATES. Except as permitted by
paragraph 7P and except for arrangements pursuant to which the Company or a
Subsidiary has the right to purchase the shares of capital stock a Related
Professional Services Entity under certain circumstances requiring the
replacement of the holder of licenses required in the conduct of business by a
Related Professional Services Entity, each of Castle PC and the Company
covenants that it will not, and will not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service), with any holder of 5% or more of any
class of equity securities of the Company or with any Affiliate of the Company
or of any such holder on terms that are less favorable to such Subsidiary or the
Company than those that would be obtainable at the time from any Person who is
not such a holder or Affiliate.
7H. MERGER. Each of Castle PC and the Company covenants that it
will not, and will not permit any of its Subsidiaries to, enter into any
transaction of merger or consolidation (which does not constitute a Change of
Control) or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution) (other than any sales or transfers by a Subsidiary to the Company
or to another Subsidiary or by the Company to a Subsidiary), except that the
Company may (i) enter into or permit a transaction of purchase, merger or
consolidation if the merger or consolidation is between two or more wholly owned
Subsidiaries of the Company or between the Company and one or more wholly owned
Subsidiaries of the Company and (ii) enter into a merger in connection with an
investment permitted by paragraph 7E.
7I. DISPOSITION OF SUBSTANTIAL ASSETS. Except pursuant to a
transaction which constitutes a Change of Control, each of Castle PC and the
Company covenants that it will not, and will not permit any of its Subsidiaries
to, sell, dispose of or otherwise convey (by merger, consolidation, sale of
stock or otherwise), in any single or related series of sales, dispositions or
conveyances, any assets of the Company, Castle PC or any Subsidiary if the
aggregate fair market value (determined in good faith by the Board of Directors
of the Company) of all assets so sold, disposed of or conveyed by the Company
and its Subsidiaries after the date hereof would exceed 20% of the aggregate
fair market value of the total assets of the Company and its Subsidiaries as of
the end of the most recently ended fiscal year of the Company. Notwithstanding
this paragraph 7I, no assets of the Company or its Subsidiaries shall be sold,
disposed of or otherwise conveyed at less than fair market value (determined in
good faith by the Board of Directors of the Company).
7J. SALE OF STOCK AND DEBT OF SUBSIDIARIES. Each of Castle PC
and the Company covenants that it will not, and will not permit any of its
Subsidiaries to sell or otherwise dispose of, or part with control of, any
shares of stock or Indebtedness of any Subsidiary, except to the Company or
another Subsidiary.
7K. CERTAIN CONTRACTS. Except as otherwise specifically
permitted by any other provision of this Section 7, each of Castle PC and the
Company covenants that it will not, and will not permit any of its Subsidiaries
to, enter into or be a party to (i) any contract for the purchase of materials,
supplies or other property or services if such contract (or any related
document) requires that payment for such materials, supplies or other property
or services shall be made regardless of whether or not delivery of such
materials, supplies or other property or services is ever made or tendered, (ii)
any contract to rent or lease (as lessee) any real or personal property if such
contract (or any related document) requires that the lessee purchase or
otherwise acquire securities or obligations of the lessor (unrelated to the
lease in question), (iii) any contract for the sale or use of materials,
supplies or other property, or the rendering of services, if such contract (or
any related document) provides that payment for such materials, supplies or
other property, or the use thereof, or payment for such services, shall be
subordinated to any indebtedness (of the purchaser or user of such materials,
supplies or other property or the Person entitled to the benefit of such
services) owed or to be owed to any Person, (iv) any other contract which is,
or, in economic effect, is substantially equivalent to, a guarantee or (v) any
contract providing for the making of loans, advances or capital contributions to
any Person other than a Subsidiary, or for the purchase of any property from any
Person, in each case primarily in order to enable such Person to maintain
working capital, net worth or any other balance sheet condition or to pay debts,
dividends or expenses.
7L. CONDUCT OF BUSINESS. Each of Castle PC and the Company
covenants that it will not, and will not permit any of its Subsidiaries to,
engage in any business other than the business engaged in by the Company and its
Subsidiaries on the date hereof.
7M. NO AMENDMENTS. Each of Castle PC and the Company covenants
that it will not, and will not permit any of its Subsidiaries to, amend (i) the
Company's or any of its Subsidiaries' Articles of Incorporation or By-laws in a
manner which impairs the rights, privileges or preferences of the Securities,
(ii) the Related Documents in any manner that impairs any right or privilege of
the holders of the Senior Subordinated Notes (including, without limitation,
enlarging the rights or privileges of any other Persons at the expense of the
holders of the Senior Subordinated Notes), (iii) the Bank Debt Agreement or any
other Financing Document in any manner that impairs any right of the Senior
Subordinated Notes.
7N. REGISTRATION RIGHTS. The Company covenants that it will not
hereafter enter into any agreement with respect to its securities any provision
of which is inconsistent with or as favorable as the rights granted to the
Investors in the Registration Rights Agreement.
7O. OFFERING OF SECURITIES. The Company will not take any action
which would subject the issuance or sale of any of the Securities to the
provisions of Section 5 of the Securities Act or violate the provisions of any
securities or Blue Sky Law of any applicable jurisdiction.
7P. COMPENSATION ARRANGEMENTS. Except as set forth on Schedule
7P, each of Castle PC and the Company covenants that it will not, and will not
permit any of its Subsidiaries to, make compensation payments (whether in the
form of salaries, consulting fees, bonuses, commissions or other supplemental
compensation) to Jack Castle, Jr. or Dr. Jack Castle.
8. SUBORDINATION.
8A. SUBORDINATED DEBT SUBORDINATE TO SENIOR DEBT. The Senior
Subordinated Notes and the Interest Notes shall be junior and subordinate to all
Senior Debt (as defined in Section 12) to the extent and in the manner provided
in this Section 8 and each holder of a Senior Subordinated Note, by its
acceptance thereof, agrees to be bound by the provisions of this Section 8. The
Senior Subordinated Notes and the Interest Notes shall not be junior or
subordinate to any Indebtedness of the Company other than the Senior Debt. For
purposes hereof, Indebtedness evidenced by the Senior Subordinated Notes and the
Interest Notes, including any refinancing, extension or modification thereof,
shall constitute "SUBORDINATED DEBT".
8B. SUSPENSION OF RIGHT TO RECEIVE PAYMENTS OF SUBORDINATED
DEBT.
8B(1). FAILURE TO PAY PRINCIPAL OF OR INTEREST ON SENIOR DEBT.
(a) Upon (i) the maturity of Senior Debt by lapse of time, acceleration or
otherwise, (ii) any failure by the Company to make any payment of principal when
due with respect to Senior Debt or (iii) any default in the payment by the
Company of any interest or other amounts due with respect to Senior Debt, all
principal thereof and all interest thereon and other amounts due in connection
therewith, shall first be paid in full, or such payment duly provided for in
cash or in a manner satisfactory to the holders of such Senior Debt, before any
payment or distribution of any kind or character, whether in cash, property or
securities, shall be paid or delivered with respect to Subordinated Debt, and
any payment or distribution of any kind or character, whether in cash, property
or securities, which may be payable or deliverable with respect to the
Subordinated Debt shall be paid or delivered directly to the holders of Senior
Debt, ratably, for application in payment thereof, unless and until all Senior
Debt shall have been paid in full and in cash.
(b) Upon the occurrence of (i) any default with respect to
Senior Debt of the types described in clause (i), (ii) or (iii) of paragraph
8B(1)(a), or (ii) any other default under any Senior Debt which would, with the
giving of notice or the passage of time, or both, permit the holders of such
Senior Debt to accelerate the maturity thereof, then, unless and until such
default with respect to Senior Debt shall have been cured or waived in writing
by the holders of such Senior Debt, no payment shall be made by the Company with
respect to the principal of or interest or other amounts due with respect to
Subordinated Debt; PROVIDED, HOWEVER, that in the case of a default described in
clause (ii) above this paragraph shall not prevent the making of any payment for
longer than the longer of (x) 180 days after the giving of notice by any of the
holders of Senior Debt to the Company based upon such default (a "DEFAULT
NOTICE") and (y) any period during which Senior Debt in respect of which such
notice has been given has become due and payable in its entirety by reason of
its acceleration and such acceleration has not been rescinded or annulled and
such Senior Debt has not been paid in full. A holder of Senior Debt may deliver
more than one Default Notice to the Company, PROVIDED, that the Company shall
not be prevented from making, and the holders of the Subordinated Debt shall not
be prevented from receiving by reason of a Default Notice, any payments with
respect to principal or interest of or other amounts due with respect to the
Senior Subordinated Notes for a period in excess of 180 days during any 365 day
period.
(c) Upon the occurrence of (i) any default with respect to
Senior Debt of the types described in clause (i), (ii) or (iii) of paragraph
8B(1)(a), or (ii) the giving of any Default Notice, the Company shall not make
any payments, and the holders of the Subordinated Debt shall not receive, ask,
demand, sue for any payment or otherwise exercise their remedies against the
Company with respect to the Subordinated Debt or this Agreement, unless and
until such default with respect to Senior Debt has been cured or waived in
writing; PROVIDED, HOWEVER, that the provisions of this paragraph shall not
apply (x) for longer than 180 days after the giving of a Default Notice by the
holders of Senior Debt to the Company based upon such default and (y) from and
after the date upon which the relevant Senior Debt has become due and payable in
its entirety by reason of its acceleration or otherwise, PROVIDED that the
provisions of paragraphs 8B(1)(a) and 8B(2) shall thereupon apply.
8B(2). ACCELERATION OF PAYMENT OF SENIOR DEBT OR SUBORDINATED
DEBT. If at the time any payment or prepayment with respect to any Subordinated
Debt or any purchase, redemption or other retirement (whether at the option of
the holder or otherwise) of Subordinated Debt is to be made, directly, or
indirectly, or immediately after giving effect thereto (i) the Senior Debt or
Subordinated Debt shall have been declared by the holders thereof due and
payable before its expressed maturity and (ii) such acceleration shall not have
been expressly rescinded in writing by the holders of Senior Debt pursuant to
the relevant Senior Debt Agreement or by the holders of Subordinated Debt
pursuant to this Agreement, as the case may be, then any payment or distribution
of any kind or character, whether in cash, property or securities, which may be
payable or deliverable with respect to Subordinated Debt shall be paid or
delivered directly to the holders of Senior Debt, ratably, for application in
payment thereof, unless and until all Senior Debt shall have been paid in full
or such acceleration shall have been rescinded.
8B(3). BANKRUPTCY OR INSOLVENCY. In the event of (a) any
insolvency, bankruptcy, liquidation, reorganization or other similar
proceedings, or any receivership proceedings in connection therewith, relative
to the Company or (b) any proceedings for voluntary liquidation, dissolution or
other winding-up of the Company, whether or not involving insolvency or
bankruptcy proceedings, then all Senior Debt shall first be paid in full, or
such payment shall have been duly provided for, before any further payment is
made with respect to Subordinated Debt. In any of such proceedings, any payment
or distribution of any kind or character, whether in cash, property or
securities, which may be payable or deliverable with respect to Subordinated
Debt shall be paid or delivered directly to the holders of Senior Debt, ratably,
for application in payment thereof, unless and until all Senior Debt shall have
been paid in full; PROVIDED, HOWEVER, that in the event that payment or delivery
of any cash, property or securities to any holders of Subordinated Debt is
authorized by a final non-appealable order or decree giving effect, and stating
in such order or decree that effect is given, to the subordination of
Subordinated Debt to Senior Debt, and made by a court of competent jurisdiction
in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency receivership or similar proceeding under any
applicable law, no payment or delivery of such cash, property or securities
payable or deliverable with respect to Subordinated Debt shall be made to the
holders of Senior Debt. Anything in this Section 8 to the contrary
notwithstanding, no payment or delivery shall be made to holders of Senior Debt
of securities that are issued and delivered to holders of Subordinated Debt
pursuant to liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding, or upon any
merger, consolidation, sale, lease, transfer or other disposal not prohibited by
the provisions of this Agreement, by the Company, as reorganized, or by the
corporation succeeding to the Company or acquiring its property and assets, if
(i) such securities are subordinate and junior at least to the extent provided
in this Section 8 to the payment of all Senior Debt then outstanding and to the
payment of any securities that are issued in exchange or substitution for any
Senior Debt then outstanding and (ii) such securities mature no earlier than the
scheduled maturity of the Indebtedness under the Bank Debt Agreement.
8C. RIGHTS OF HOLDERS OF SENIOR DEBT NOT TO BE IMPAIRED. No
right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act by any such holder, or by any
noncompliance by the Company with the terms and provisions and covenants herein
contained, regardless of any knowledge thereof any such holder may have or
otherwise be charged with. The provisions of this Section 8 are intended to be
for the benefit of, and shall be enforceable directly by, any one or more of the
holders from time to time of the Senior Debt. Each of the holders of
Subordinated Debt waives notice of or proof of reliance on this Agreement and
protest, demand for payment and notice of default by the holders of Senior Debt.
8D. COMPANY'S OBLIGATION UNCONDITIONAL. The provisions of this
Section 8 are solely for the purpose of defining the relative rights of the
holders of Senior Debt, on the one hand, and the holders of Subordinated Debt,
on the other hand, against the Company and its property. Nothing herein shall
impair, as between the Company and the holders of Subordinated Debt, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders thereof the full amount of Subordinated Debt in accordance with the
terms thereof and the provisions hereof and, except as expressly provided in
paragraph 8B(1)(c), nothing herein shall prevent the holder of any Subordinated
Debt from exercising all remedies otherwise permitted by applicable law or
hereunder upon Default hereunder or under any Subordinated Debt (including,
without limitation, the right to demand and sue for payment and performance
hereof of the Subordinated Debt and to accelerate the maturity hereof as
provided in Section 9 hereof), subject to the rights under this Section 8 of
holders of Senior Debt to receive cash, property or securities otherwise payable
or deliverable to the holders of Subordinated Debt. The failure to make any
payment with respect to Subordinated Debt by reason of any provision of this
Section 8 shall not be construed as preventing the occurrence of an Event of
Default under Section 9.
8E. PAYMENTS HELD IN TRUST. If the holder of any Subordinated
Debt shall receive any payment or delivery of cash, property or securities in
respect of such Subordinated Debt which such holder is not entitled to receive
under the provisions of this Section 8, such holder will hold any amount so
received in trust for the holders of Senior Debt and will forthwith turn over to
the agent for the account of the holders of Senior Debt such payment or delivery
in the form received to be applied in payment or prepayment of Senior Debt;
PROVIDED, HOWEVER, that no holder of Subordinated Debt shall be obligated to
determine whether a payment received by it was appropriately made by the
Company.
8F. SUBROGATION. Upon the payment in full of all Senior Debt and
termination of any Senior Debt Agreement, the holders of Subordinated Debt shall
be subrogated to the rights of the holders of Senior Debt to receive payments or
distributions of assets of the Company applicable to Senior Debt until all
Subordinated Debt shall have been paid in full. For the purpose of subrogation,
no payments to the holders of Senior Debt of any cash, property or securities
that the holders of Subordinated Debt would be entitled to receive and retain
but for the provisions of this Section 8, and no payment over pursuant to the
provisions of this Section 8 to holders of Senior Debt by holders of
Subordinated Debt, shall, as between the Company and its creditors (other than
the holders of Senior Debt), on the one hand, and the holders of Subordinated
Debt, on the other, be deemed to be a payment by the Company with respect to the
Senior Debt.
8G. RELIANCE BY HOLDERS ON FINAL ORDER OR DECREE. Anything in
this Section 8 to the contrary notwithstanding, in the event that payment or
delivery of any cash, property or securities to any holders of Subordinated Debt
is authorized by a final non-appealable order or decree giving effect to the
subordination of the Indebtedness represented by Subordinated Debt to Senior
Debt, and made by a court of competent jurisdiction in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceedings under any applicable law, no such payment or
delivery of cash, property or securities payable or deliverable with respect to
the Indebtedness represented by Subordinated Debt shall be made to the holders
of Senior Debt, nor shall any payment or delivery be made to holders of Senior
Debt of securities that are issued and delivered to holders of Subordinated Debt
pursuant to liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceedings, or upon any
merger, consolidation, sale, lease, transfer or other disposition not prohibited
by the provisions of this Agreement, by the Company, as reorganized, or by the
corporation succeeding to the Company or acquiring its properties and assets, if
(i) such securities are subordinate and junior at least to the extent provided
in this Section 8 to the payment of all Senior Debt then outstanding and to the
payment of any securities that are issued in exchange or substitution for any
Senior Debt then outstanding and (ii) such securities mature no earlier than the
scheduled maturity of the Indebtedness under the Bank Debt Agreement.
8H. LEGEND. The Senior Subordinated Notes shall be conspicuously
legended indicating that their payment is subordinated to Senior Debt pursuant
to the terms of this Agreement.
9. EVENTS OF DEFAULT.
9A. GENERAL. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal or
interest of or premiums (if any) on any Senior Subordinated Notes or Interest
Notes or on any Installment payment required pursuant to paragraph 5C when the
same shall become due, either by the terms thereof or otherwise as herein
provided;
(ii) the Company defaults in the payment when due, either by the
terms thereof or otherwise as herein provided, of any other amounts on any
Senior Subordinated Notes or Interest Notes and such default shall continue
unremedied for five or more days;
(iii) the Company or any of its Subsidiaries (x) defaults in any
payment of principal of or interest on any other obligation for money borrowed
(or any Capitalized Lease Obligation, any obligation under a conditional sale or
other title retention agreement, any obligation issued or assumed as full or
partial payment for property whether or not secured by a Purchase Money Security
Interest or any obligation under notes payable or drafts accepted representing
extensions of credit) and such default shall continue beyond any applicable
grace period or (y) fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such obligation is created
(or if any other event thereunder or under any such agreement shall occur and be
continuing), and in the case of (y) above, the effect of such default, failure
or other event is to cause, or, with respect to any Indebtedness other than the
Bank Debt Agreement, to permit the holder or holders of such obligation (or a
trustee on behalf of such holder or holders) to cause an obligation of more than
$100,000 to become due prior to any stated maturity;
(iv) any representation or warranty made by the Company or
Castle PC herein or in any writing furnished in connection with or pursuant to
this Agreement or any other Related Agreement shall be false in any material
respect on the date as of which made;
(v) the Company or Castle PC defaults, or any Subsidiary thereof
shall cause the Company to default, in the performance or observance of any of
its agreements contained in paragraph 6D;
(vi) the Company defaults, or any Subsidiary thereof shall cause
the Company to default, in the performance or observance of any of its
agreements contained in paragraph 7A;
(vii) the Company or Castle PC defaults, or any Subsidiary
thereof shall cause the Company to default, in the performance or observance of
any of the agreements contained in Section 6 or 7 or in the performance or
observance of any other agreement, term or condition contained herein or in the
Related Documents and any such default shall not have been remedied within 20
days after such default shall first become known to any officer of the Company,
Castle PC or such Subsidiary;
(viii) the Company or any of its Subsidiaries makes an
assignment for the benefit of creditors generally or is generally not paying its
debts as such debts become due;
(ix) any decree or order for relief in respect of the Company or
any of its Subsidiaries is entered under any Bankruptcy Law of any jurisdiction;
(x) the Company or any of its Subsidiaries petitions or applies
to any tribunal for, or consents to, the appointment of, or taking possession
by, a trustee, receiver, custodian, liquidator or similar official of the
Company or any of its Subsidiaries, of any substantial part of the assets of the
Company or any of its Subsidiaries, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than proceedings
for the voluntary liquidation and dissolution of a Subsidiary) relating to the
Company or any of its Subsidiaries under the Bankruptcy Law of any other
jurisdiction;
(xi) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any of its Subsidiaries and
the Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 45 days;
(xii) any order, judgment or decree is entered in any
proceedings against the Company or any of its Subsidiaries decreeing the
dissolution of the Company and such Subsidiary and such order, judgment or
decree remains unstayed and in effect for more than 60 days;
(xiii) any order, judgment or decree is entered in any
proceedings against the Company or any of its Subsidiaries decreeing a split-up
of the Company or such Subsidiary which requires the divestiture of substantial
assets of the Company and its Subsidiaries, taken as a whole, and such order,
judgment or decree remains unstayed and in effect for more than 60 days;
(xiv) a final judgment in an amount in excess of $50,000 is
rendered against the Company or any of its Subsidiaries and, within 30 days
after entry thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 60 days after expiration of any such stay, such
judgment is not discharged;
(xv) the Company or any of its Subsidiaries fails to meet its
obligations under the minimum funding standard provided for in Section 412 of
the Code for any plan year or in the case of a single employer-plan a waiver of
such standard is sought or granted under Section 412(d) of the Code, or any
Pension Plan subject to Title IV of ERISA is, has been or is likely to be
terminated or the subject of termination proceedings under ERISA, or the Company
or any Subsidiary or an ERISA Affiliate has incurred or is likely to incur a
liability to or on account of any Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, and there results from any such event or events a
liability or a material risk of incurring a liability to the PBGC or any Pension
Plan which, if incurred, would have a Material Adverse Effect, or the Company or
any of its Subsidiaries has engaged in a prohibited transaction that would
result in a liability, penalty or tax under ERISA or Section 4975 of the Code,
as the case may be, which would have a Material Adverse Effect; or
(xvi) the Management Agreement is terminated by the Company for
cause or by New PC for any reason;
then (a) upon the occurrence of any Event of Default described in the foregoing
clauses (vii), (viii), (ix), (x), (xi) or (xii), the unpaid principal amount of
and accrued interest on the Senior Subordinated Notes outstanding shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company, and (b) upon the occurrence and during the continuation
of any other Event of Default, the holders of a majority of the aggregate unpaid
principal amount of the Senior Subordinated Notes may, at their option and in
addition to any right, power or remedy permitted by law or equity, by notice in
writing to the Company, declare all of the Senior Subordinated Notes to be, and
all of the Senior Subordinated Notes shall thereupon be and become, forthwith
due and payable together with interest accrued thereon; PROVIDED, HOWEVER, that
upon the occurrence and during the continuance of an Event of Default described
in clause (i) or (ii) above with respect to any Senior Subordinated Note, the
holder of such Senior Subordinated Note may, by written notice to the Company
declare such Senior Subordinated Note to be, and the same shall forthwith become
due and payable, together with the interest accrued thereon, without
presentment, further demand, protest or other requirements of any kind, all of
which are hereby expressly waived by the Company. If any holder of any Senior
Subordinated Note shall exercise the option specified in the proviso to the
preceding sentence, the Company will forthwith give written notice thereof to
the holders of all other outstanding Senior Subordinated Notes and each such
holder may (whether or not such notice is given or received), by written notice
to the Company, declare the unpaid principal amount of all Senior Subordinated
Notes held by it to be, and the same shall forthwith become, due and payable,
together with the interest accrued thereon, without presentment, further demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company.
At any time after any declaration of acceleration is made as
provided above, the holders of at least a majority of the aggregate unpaid
principal amount of the Senior Subordinated Notes may, by written instrument
filed with the Company, rescind and annul such declaration and the consequences
thereof, PROVIDED, HOWEVER, that at the time any such declaration is annulled
and rescinded:
(i) no judgment or decree shall have been entered for the
payment of any monies due pursuant to the Senior Subordinated Notes and the
other Related Documents;
(ii) all arrears of interest upon all the Senior Subordinated
Notes and all other sums payable under the Senior Subordinated Notes and the
other Related Documents (except any principal, interest or premium on the Senior
Subordinated Notes which has become due and payable solely by reason of such
declaration under this paragraph 9A) shall have been duly paid or waived;
(iii) the Company shall not have paid any amounts which have
become due solely by reason of such declaration; and
(iv) each and every other Event of Default shall have been
waived or otherwise made good or cured;
and PROVIDED, FURTHER, that no such rescission and annulment shall extend to or
after any subsequent Default or Event of Default or impair any right consequent
thereon.
9B. OTHER REMEDIES. If any Event of Default shall occur and be
continuing, the holder of any Security may proceed to protect and enforce its
rights under this Agreement and such Security by exercising such remedies as are
available to such holder in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the Investors or any other holder of any Security is intended to
be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND CASTLE PC.
Each of Castle PC and the Company represents and warrants to each Investor that:
10A. ORGANIZATION, QUALIFICATION AND AUTHORITY. The Company and
each of its Subsidiaries is a corporation or professional corporation, as the
case may be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and is duly qualified to do
business as a foreign corporation and in good standing in each jurisdiction in
which the character of its properties or the nature of its business makes such
qualification necessary, except where the failure to so qualify would not have a
Material Adverse Effect. The Company and each of its Subsidiaries has the
corporate power to own its properties and to carry on its business as now being
conducted. The Company has all requisite corporate power and authority to enter
into each of the Related Documents, to issue and sell the Securities hereunder,
and to issue the shares of Common Stock upon conversion of the Convertible
Preferred Stock, and has the requisite corporate power and authority to carry
out the transactions contemplated hereby and thereby to be performed by it, and
the execution, delivery and performance hereof and thereof have been duly
authorized by all necessary corporate action. Castle PC has all requisite
corporate power and authority to enter into each of the Related Documents to
which it is a party and has the requisite corporate power and authority to carry
out the transactions contemplated hereby and thereby to be performed by it, and
the execution, delivery and performance hereof and thereof have been duly
authorized by all necessary corporate action. This Agreement constitutes, and
each other agreement (including the Related Documents) or instrument (including
the Securities) executed and delivered by the Company and Castle PC pursuant
hereto or thereto or in connection herewith or therewith will constitute, legal,
valid and binding obligations of the Company and Castle PC enforceable against
the Company and Castle PC in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws or by the application of
principles of equity.
10B. FINANCIAL STATEMENTS. The Company has furnished the
Investors with (a) the audited balance sheet of the Company and its Subsidiaries
as of December 31, 1994, together with the related statements of income, changes
in stockholders' equity and cash flow of the Company and its Subsidiaries for
such period, (b) the unaudited balance sheet of the Company and its Subsidiaries
as of September 30, 1995, together with the related unaudited statements of
income, changes in stockholders' equity and cash flow of the Company and its
Subsidiaries, for such nine-month period (the "INTERIM FINANCIALS"). Such
financial statements (including any related schedules and notes) have been
prepared in accordance with GAAP consistently applied throughout the period or
periods in question and show all material liabilities, direct or contingent,
required to be shown in accordance with GAAP consistently applied throughout the
period or periods in question and fairly present, in all material respects, the
financial condition of the Company for the periods indicated therein, except for
normal audit adjustments in the case of the Interim Financials. There has been
no material adverse change in the business, condition (financial or other),
assets, properties, rights, operations or prospects of the Company and its
Subsidiaries since December 31, 1994.
10C. CAPITAL STOCK AND RELATED MATTERS. As of the Closing Date,
and after giving effect to the transactions contemplated hereby and pursuant to
the Related Documents, (i) the authorized capital stock of the Company will
consist of a total of 20,000,000 shares as follows: (a) 18,755,263 shares of
Common Stock, par value $.001 per share, of which 4,000,000 shares are issued
and outstanding, the ownership and the consideration paid for such shares is as
set forth on Schedule 10C and 1,244,737 shares of which are reserved for
issuance upon conversion of the Convertible Preferred Stock and (b) 1,244,737
shares of Convertible Preferred Stock, par value $.001 per share, of which
1,244,737 shares are issued and outstanding; (ii) all issued and outstanding
shares shall have been duly and validly issued, fully paid and non-assessable;
(iii) no shares of Common Stock or Convertible Preferred Stock will be owned or
held by or for the account of the Company or any of its Subsidiaries; (iv)
except as set forth on Schedule 10C, neither the Company nor any of its
Subsidiaries will have outstanding any securities convertible into or
exchangeable for any shares of capital stock or any rights (either preemptive or
other) to subscribe for or to purchase, or any options for the purchase of, or
any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any other character relating to the issuance of,
any capital stock, or any stock or securities convertible into or exchangeable
for any capital stock; (v) except as set forth on Schedule 10C, neither the
Company nor any of its Subsidiaries will be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or warrants or options to purchase shares of its
capital stock; (vi) except as set forth on Schedule 10C, neither the Company nor
any of its Subsidiaries is a party to any agreement (other than this Agreement
and the Securityholders Agreement) restricting the transfer of any shares of its
capital stock; and (vii) neither the Company nor any of its Subsidiaries will
have filed or be required to file, pursuant to Section 12 of the Exchange Act, a
registration statement relating to any class of debt or equity securities as of
the date hereof.
10D. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries or any of their properties or rights, by or
before any court, arbitrator or administrative or governmental body, which if
adversely decided, could have a Material Adverse Effect.
10E. OUTSTANDING DEBT; DEFAULTS. Neither the Company nor any of
its Subsidiaries (i) has outstanding Indebtedness, except as permitted by
paragraph 7B, and there exist no material defaults under the provisions of any
instrument evidencing such Indebtedness or of any agreement relating thereto,
(ii) is in default under its Articles of Incorporation (as amended to date) or
By-laws, (iii) is in violation of or in default under or with respect to any
indenture, mortgage, lease or any other contract or agreement to which it is a
party or by which it or any of its property is bound or affected in any respect
which could have a Material Adverse Effect, (iv) has any material debts,
liabilities, obligations (whether absolute, accrued, contingent or otherwise) of
any nature whatsoever other than (A) liabilities appearing on the financial
statements, (B) liabilities incurred in the ordinary course of business since
September 30, 1995, (C) liabilities under contracts to which the Company is a
party and which are listed on Schedule 10E hereto or which have an obligation
thereunder of less than $10,000 and which were entered into in the ordinary
course of business or (D) liabilities described on the other schedules hereto or
(v) is in material default with respect to any order, writ, injunction or decree
of any court or any Federal, state, municipal or other domestic or foreign
governmental department, commission, board, bureau, agency or instrumentality,
and there exists no condition, event or act which constitutes, or which after
notice, lapse of time, or both, would constitute, such a violation or default
under any of the foregoing.
10F. TITLE TO PROPERTIES. Each of the Company and its
Subsidiaries has (i) marketable, sufficient and legal title to its real property
(other than real properties which it leases from others), subject to no Lien of
any kind except Liens permitted by paragraph 7C and (ii) good title to all of
its other properties and assets (other than properties and assets which it
leases from others), subject to no Lien of any kind except Liens permitted by
paragraph 7C. Each of the Company and its Subsidiaries enjoys peaceful and
undisturbed possession under all leases necessary in any material respect for
the operation of its properties and assets and all such leases are valid and
subsisting and in full force and effect.
10G. TAXES. Each of the Company and its Subsidiaries has filed
all Federal, state and other income tax returns which are required to be filed,
and each has paid all taxes as shown on said returns and on all assessments
received by it to the extent that such taxes have become due, or except such as
any of the foregoing are being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with
GAAP; and no tax lien has been filed and no claim is being asserted with respect
to any tax or other similar charge.
10H. CONFLICTING AGREEMENTS. Neither the execution or delivery
of the Related Documents, nor the offering, issuance and sale of the Securities
or the shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock, nor fulfillment of or compliance with the terms and provisions
hereof and thereof, will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries pursuant to (i) the Articles
of Incorporation or By-laws of the Company or any of its Subsidiaries, or (ii)
any award of any arbitrator or any agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any of its Subsidiaries is subject. Except as
set forth on Schedule 10H, neither the Company nor any of its Subsidiaries is a
party to, or otherwise subject to any provision contained in, any instrument
evidencing Indebtedness of the Company or any of its Subsidiaries, any agreement
relating thereto or any other contract or agreement (including its Articles of
Incorporation and By-laws) which limits the amount of, or otherwise imposes
restrictions on the incurring of, Indebtedness of the type to be evidenced by
the Senior Subordinated Notes, or contains dividend or redemption limitations on
any capital stock of the Company or any of its Subsidiaries, except for the
Related Documents.
10I. OFFERING OF SECURITIES. The offer, sale and issuance of the
Securities pursuant to this Agreement and the issuance of the Common Stock upon
conversion of the Convertible Preferred Stock, do not require registration of
such securities under the Securities Act or registration or qualification under
any applicable state "blue sky" or securities laws (or if so required, has been
so registered or qualified). The Company has not taken any action which would
subject the issuance or sale of any of the Securities or the Common Shares to
the provisions of Section 5 of the Securities Act or violate the provisions of
any securities or Blue Sky law of any applicable jurisdiction.
10J. BROKER'S OR FINDER'S COMMISSIONS. Except as set forth on
Schedule 10J and except for the payments due to The GulfStar Group, Inc. as set
forth on Schedule 10J, no broker's or finder's fee or commission will be payable
by the Company or any of its Subsidiaries with respect to the issuance and sale
of the Securities or the transactions contemplated hereby or under the Related
Documents.
10K. REGULATION G, ETC. Neither the Company nor any of its
Subsidiaries owns or has any present intention of acquiring, any "margin stock"
as defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System (herein called a "MARGIN STOCK"). None of the proceeds
resulting from the sale of the Securities will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of Regulation G. Neither the
Company nor any of its Subsidiaries nor any agent acting on its behalf has taken
or will take any action which might cause this Agreement or the Securities to
violate Regulation G, Regulation T, Regulation X or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the Exchange Act,
in each case as in effect now or as the same may hereafter be in effect.
10L. ENVIRONMENTAL MATTERS. (i) The Company and each of its
Subsidiaries is in compliance with all licenses, permits and other
authorizations required under all Environmental Laws, with the exceptions of
instances that will not in the aggregate result in any Material Adverse Effect.
(ii) Neither the Company nor any of its Subsidiaries has
received written notice of any failure to comply with, nor has any such notice
been issued that has not been fully satisfied so as to bring the subject
property into full compliance with, all Environmental Laws.
(iii) All licenses, permits or registrations (or any extensions
thereof) required under any Environmental Law for the business of the Company or
any of its Subsidiaries have been obtained and the Company, and its
Subsidiaries, as the case may be, will be in compliance therewith, except in
such instances as will not in the aggregate result in a Material Adverse Effect.
(iv) Neither the Company nor any of its Subsidiaries is in
noncompliance with, breach of or default under any applicable writ, order,
judgment, injunction or decree where such noncompliance, breach or default would
materially and adversely affect the ability of the Company or any of its
Subsidiaries to operate any real property owned or leased by them and no event
has occurred and is continuing that, with the passage of time or the giving of
notice or both, would constitute such noncompliance, breach or default
thereunder.
(v) No Hazardous Substance has been Released (as such term is
defined in CERCLA) (and no oral or written notification of such Release has been
filed) (whether or not in a reportable or threshold planning quantity) at, on or
under any property owned or leased by the Company or any of its Subsidiaries, or
to be acquired or leased by the Company or any of its Subsidiaries, during the
period of the Company's or any of its Subsidiaries' ownership or lease of such
property, or to the knowledge of the Company at any time previous to such
ownership or lease, under conditions that require remedial action under
applicable Environmental Laws, no property now or previously owned or leased by
the Company or any of its Subsidiaries has, directly or indirectly, transported
or arranged for the transportation of any Hazardous Substances to any site
listed, or proposed for listing, on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar Federal,
state or foreign list of sites requiring investigation or cleanup. Neither the
Company nor any of its Subsidiaries is aware of any event, condition or
circumstance involving environmental pollution or contamination, or employee
safety or health relating to the use or handling of, or exposure to, Hazardous
Substances, that could result in a Material Adverse Effect.
10M. ERISA. The Company and each of its Subsidiaries has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Pension Plan and is in compliance in all material
respects with the provisions of ERISA and the Code. Neither the Company nor any
of its Subsidiaries has incurred any liability to the PBGC (other than annual
premiums due to the PBGC) or a Pension Plan under Title IV of ERISA. The
execution and delivery by the Company of this Agreement and the purchase and
delivery of the Securities will not involve any prohibited transaction within
the meaning of ERISA or Section 4975 of the Code. The Company has delivered to
the Investors a complete list and accurate description of each Pension Plan or
other employee benefit plan covered by ERISA maintained or contributed to by the
Company and each of its Subsidiaries.
10N. POSSESSION OF FRANCHISES, LICENSES, ETC. The Company and
each of its Subsidiaries possesses all franchises, certificates, licenses,
permits and other authorizations from governmental political subdivisions or
regulatory authorities, that are necessary for the ownership, maintenance and
operation of its properties and assets, except where the failure to be in such
compliance would not have a Material Adverse Effect, and the Company and each of
its Subsidiaries is not in violation of any thereof in any material respect.
10O. PATENTS, ETC. The Company and each of its Subsidiaries owns
or has the right to use all patents, trademarks, service marks, trade names,
copyrights, industrial designs, licenses and other rights, free from non-
customary burdensome restrictions, which are necessary for the operation of its
business substantially as presently conducted. No product, process, method,
substance, part or other material presently sold by or employed by the Company
in connection with its business may infringe any patent, trademark, service
mark, trade name, copyright, industrial design, license or other right owned by
any other Person. No claim or litigation is pending or threatened against or
affecting the Company or any of its Subsidiaries contesting their right to sell
or use any such product, process, method, substance, part or other material
which would prevent, inhibit or render obsolete the production or sale of any
products of, or substantially reduce the projected revenues of, the Company or
any of its Subsidiaries, or otherwise have a Material Adverse Effect.
10P. HOLDING COMPANY AND INVESTMENT COMPANY STATUS. Neither the
Company nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company", or a "public utility", within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or a
"public utility" within the meaning of the Federal Power Act, as amended.
Neither the Company nor any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
10Q. GOVERNMENTAL CONSENTS. Neither the nature of the Company or
any of its Subsidiaries nor any of their businesses or properties, nor any
relationship between the Company or any of its Subsidiaries and any other
Person, nor any circumstance in connection with the offer, issue, sale or
delivery of the Securities being purchased by the Investors hereunder is such as
to require on behalf of the Company or any of its Subsidiaries any consent,
approval or other action by or any notice to or filing with any court or
administrative or governmental body in connection with the execution, delivery
and performance of this Agreement, the other Related Documents, the offer,
issue, sale or delivery of the Securities being purchased hereunder, the
issuance of the shares of Common Stock upon conversion of the Convertible
Preferred Stock or fulfillment of or compliance with the terms and provisions
hereof or the Securities being purchased hereunder, except for such filings or
consents all of which have been heretofore made or obtained.
10R. INSURANCE COVERAGE. The business and properties of the
Company and each of its Subsidiaries are insured for the benefit of the Company
and each of its Subsidiaries in amounts deemed adequate by the Company's
management against risks usually insured against by Persons operating businesses
similar to those of the Company and each of its Subsidiaries in the localities
where such properties are located.
10S. SUBSIDIARIES. The Subsidiaries set forth on Schedule 10S
hereto are the only Subsidiaries of the Company. All the outstanding shares of
stock of such Subsidiaries have been validly issued and are fully paid and
non-assessable and are owned by the Company (or, in the case of Castle PC by Dr.
Jack Castle) free and clear of any Lien or claim. Except as set forth in
Schedule 10S, no such Subsidiary has outstanding stock or securities convertible
into or exchangeable or exercisable for any shares of capital stock, nor does it
have outstanding any rights to subscribe for or to purchase, any options for the
purchase of, any agreements providing for the issuance (contingent or otherwise)
of, or any calls, commitments or claims of any other character relating to the
issuance of, any shares of capital stock or any securities convertible into or
exchangeable or exercisable for any shares of capital stock.
10T. DISCLOSURE. This Agreement and the other Related Documents
(as supplemented pursuant to Schedule 10T), and the other documents,
certificates and written statements furnished to the Investors by or on behalf
of the Company in connection herewith or therewith do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained herein and therein not misleading.
10U. RELATED PARTY TRANSACTIONS. Except as described on Schedule
10U, no current or former stockholder, director, officer of the Company, nor any
"Associate" (as defined in Rule 405 promulgated under the Securities Act) of any
such Person, is presently, directly or indirectly through his affiliation with
any other Person, a party to any transaction with the Company and any Subsidiary
providing for the furnishing of services by or to, or rental of real or personal
property from or to, or otherwise requiring cash payments to or by any such
Person. Except as described on Schedule 10U, in addition, there is no current
relationship or transaction, or presently contemplated relationship or
transaction, involving the Company and any Subsidiary which is described in Item
404 of Regulation S-K promulgated under the Securities Act (but for purposes of
this representation not limited by any dollar amount).
10V. REGISTRATION RIGHTS. Except as contemplated by the
Registration Rights Agreement, no Person has the right to cause the Company or
any of its Subsidiaries to effect the registration under the Securities Act of
any shares of Common Stock or any other securities (including debt securities)
of the Company or any of its Subsidiaries.
10W. ABSENCE OF FOREIGN OR ENEMY STATUS. Neither the Company nor
any of its Subsidiaries is (i) a "national" of a foreign country designated in
Executive Order No. 8389, as amended, or of any "designated enemy country" as
defined in Executive Order No. 9193, as amended, of the President of the United
States of America within the meaning of said Executive Orders, as amended, or of
any regulation issued thereunder, or a "national" of any "designated foreign
country" within the meaning of the Foreign Assets Control regulations, 31 CFR,
Part 500, as amended, or of the Cuban Assets Control Regulations, 31 CFR, Part
515, as amended, of the United States Treasury Department, or (ii) an "Iranian
entity" or a "person subject to the jurisdiction of the United States" in which
an "Iranian entity" has any "interest" within the meaning of the Iranian Assets
Control Regulations, 31 CFR, Part 535, as amended.
10X. AGREEMENTS WITH AFFILIATES. Except as set forth on Schedule
10X, neither the Company nor any of its Subsidiaries is a party to any contract
or agreement with, or any other commitment to, an Affiliate of the Company or
any of its Subsidiaries.
10Y. CONVERTIBLE PREFERRED STOCK AND EQUITY OF THE COMPANY. As
of the Closing Date, upon conversion of the Convertible Preferred Stock held by
the Investors, the shares of Common Stock obtained through such exercise would
represent in the aggregate the percentage of the Fully Diluted Outstanding
Shares of the Company's Common Stock set forth on Schedule 10Y hereto.
11. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor represents and warrants that it is acquiring the Securities to be
purchased by it hereunder for its own account for the purpose of investment and
not with a view to or for sale in connection with any distribution thereof;
PROVIDED, HOWEVER, that nothing herein contained shall prevent the Investors
from selling or transferring any Securities in any transaction that, in the
opinion of their special counsel, is exempt from the registration provisions of
the Securities Act and applicable state securities laws; PROVIDED, FURTHER, that
the Company shall be an addressee of such opinion. The fees and expenses of
counsel in connection with any such opinion shall be borne by the Company. In
addition, each Investor represents and warrants that it has full power and
authority to enter into and perform its obligations under this Agreement and
that this Agreement has been duly authorized, executed and delivered by a Person
authorized to do so.
12. DEFINITIONS. For the purpose of this Agreement, and in
addition to terms defined elsewhere in this Agreement, the following terms shall
have the following meanings. In addition, all terms of an accounting character
not specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"ACCEPTABLE CONTROLLING PERSON" means (i) with respect to the
Company, Jack Castle, Jr., Dr. Jack Castle, Loretta Castle, Castle Interests,
Ltd. (a limited partnership comprised solely of the members of the immediate
family of Dr. Jack Castle), or the members of the immediate family of any of
such persons or a trust the beneficiaries of which are exclusively any of such
persons or the immediate family of any of such persons, or the estate of any of
such persons the executor or executors of which are exclusively any of such
Persons; PROVIDED, that Acceptable Controlling Person" shall exclude Castle
Interests, Ltd. if such entity is not beneficially owned exclusively by members
of the immediate family of any of such persons, and (ii) with respect to New PC,
any person designated by the Company pursuant to the PC Stock Option Agreement
or any successor agreement.
"AFFILIATE" shall mean, with respect to any Person, a Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise. The Investors shall not be deemed to be an Affiliate of the Company
or any of its Subsidiaries.
"ACCOUNTS RECEIVABLE PURCHASE AGREEMENT" shall mean the Accounts
Receivable Purchase Agreement, dated the date hereof, between the Company and
New PC
"BANK" shall mean NationsBank of Texas, N.A. or any other
commercial banking institution or other asset based lender holding Bank Debt.
"BANK DEBT" shall mean Indebtedness incurred by the Company
pursuant to (i) the Bank Debt Agreement or any renewals, extensions, amendments
or modifications thereof and (ii) any other agreement evidencing Indebtedness so
long as such Indebtedness by its terms is (x) not subordinated to any other
Indebtedness of the Company or any Subsidiary and (y) is secured by the assets
of the Company and its Subsidiaries and the terms of which do not restrict, more
than the Bank Debt Agreement does, the Company's ability to pay any and all
amounts due under the Senior Subordinated Notes.
"BANK DEBT AGREEMENT" shall mean the Credit Agreement, dated the
date hereof, between the Company and NationsBank of Texas, N.A., as the same may
be amended from time to time in accordance with its terms.
"BANKRUPTCY LAW" shall mean any bankruptcy, reorganization,
compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect.
"BUSINESS DAY" shall mean any day which is not a Saturday,
Sunday or day on which banks are authorized by law to close in the State of New
York.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all rental
obligations which, under GAAP in effect on the day such obligation is incurred,
are required to be capitalized on the books of the Company or any of its
Subsidiaries, in each case taken at the amount thereof accounted for as
indebtedness (net of interest expense) in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 ET SEQ.)
and any regulations promulgated thereunder.
"CERTIFICATE OF INCORPORATION" shall have the meaning set forth
in paragraph 1B.
"CHANGE OF CONTROL" shall mean at any time,
(a) the acquisition or holding by
(i) any person (as such term is used in section 13(d) and
section 14(d)(2) of the Exchange Act as in effect on the Closing Date) other
than an Acceptable Controlling Person or the Investors, or
(ii) related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the Closing Date) other
than related Acceptable Controlling Persons or Investors constituting such a
group, of legal and/or beneficial ownership of more than twenty-five percent
(25%) of the Common Stock of the Company or New PC outstanding at such time
(excluding for such purpose persons who own shares through any employee benefit
plan of the Company in connection therewith);
(b) all or substantially all of the assets of the Company or
Castle PC are sold or otherwise transferred, in a single transaction or in a
series of related transactions, to any other Person;
(c) any merger, consolidation or other similar transaction of,
or in respect of, the Company or Castle PC which results in the failure by the
owners of Common Stock (or, in the case of Castle PC, Common Stock of Castle PC)
on the Closing Date to, directly or indirectly in the aggregate, maintain
beneficial ownership and voting control of at least fifty percent (50%) of the
outstanding Common Stock of the surviving entity in such merger, consolidation
or similar transaction; or
(d) any liquidation or dissolution of the Company, or action
taken by the Board of Directors of the Company to authorize any such liquidation
or dissolution.
"CHANGE OF CONTROL EVENT" shall mean the earlier of the
occurrence of a Change of Control or the Company acquiring knowledge of a
pending Change of Control.
"CHANGE OF CONTROL NOTICE" shall have the meaning set forth in
paragraph 5B.
"CLOSING" shall have the meaning specified in paragraph 2B.
"CLOSING DATE" shall have the meaning specified in paragraph 2B.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the United States Securities and
Exchange Commission.
"COMMON STOCK" shall mean the shares of Common Stock, par value
$.001 per share, of the Company.
"COMPANY" shall have the meaning specified in the preamble.
"CONSOLIDATED NET INCOME" shall mean with respect to the Company
and its Consolidated Subsidiaries, for any period, the aggregate of the net
income (or loss) of the Company and its Consolidated Subsidiaries after
allowances for taxes for such period, determined on a consolidated basis in
accordance with GAAP; PROVIDED that there shall be excluded from such net income
(to the extent otherwise included therein) the following: (i) the net income of
any Person in which the Company or any Consolidated Subsidiary has an interest
(which interest does not cause the net income of such other Person to be
consolidated with the net income of the Company and its Consolidated
Subsidiaries in accordance with GAAP), except to the extent of the amount of
dividends or distributions actually paid in such period by such other Person to
the Company or to a Consolidated Subsidiary, as the case may be; (ii) the net
income (but not loss) of any Consolidated Subsidiary to the extent that the
declaration or payment of dividends or similar distributions or transfers or
loans by that Consolidated Subsidiary is not at the time permitted by operation
of the terms of its charter or any agreement, instrument or Governmental
Requirement applicable to such Consolidated Subsidiary, or is otherwise
restricted or prohibited in each case determined in accordance with GAAP; (iii)
the net income (of loss) of any Person acquired in a pooling-of-interests
transaction for any period prior to the date of such transaction, (iv) any
extraordinary gains or losses, including gains or losses attributable to
Property sales not in the ordinary course of business; and (v) the cumulative
effect of a change in accounting principles and any gains or losses attributable
to writeups or writedowns of assets.
"CONSOLIDATED SUBSIDIARIES" shall mean each Subsidiary of the
Borrower (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated with the
financial statements of the Borrower in accordance with GAAP.
"CONVERTIBLE PREFERRED STOCK" shall have the meaning specified
in paragraph 1B.
"DEFAULT" shall mean any of the events specified in Section 9
hereof, whether or not any requirement for the giving of notice, the lapse of
time, or both, or any of these conditions, event or act has been satisfied.
"DEFAULT NOTICE" shall have the meaning specified in paragraph
8B(1)(b).
"DEFERRED COMPENSATION AGREEMENT" shall mean the Deferred
Compensation Agreement, dated the date hereof, between the Company and New PC.
"EBITDA" shall mean, for any period, the sum of Consolidated Net
Income for such period plus the following expenses or charges to the extent
deducted from Consolidated Net Income in such period: interest, taxes,
depreciation, depletion and amortization.
"ENVIRONMENTAL LAWS" shall have the meaning specified in
paragraph 6Q
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time. Section references to ERISA are to ERISA
as in effect at the date of this Agreement and any subsequent provisions of
ERISA amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each trade or business (whether or
not incorporated) which together with the Company or a Subsidiary would be
deemed to be a "single employer" within the meaning of Section 4001 of ERISA
immediately following the Closing.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 9, provided that there has been satisfied any requirement in connection
with such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act.
"EXCHANGE ACT" shall mean the United States Securities Exchange
Act of 1934, as amended.
"EXCHANGE ACT REGISTRATION STATEMENT" shall have the meaning
specified in paragraph 6L.
"FAIR MARKET VALUE" shall have the meaning specified in
paragraph 5E.
"FULLY DILUTED OUTSTANDING SHARES" shall mean, when used with
reference to Common Stock on any date of determination, all shares of Common
Stock or any other capital stock of the Company Outstanding at such date and all
shares of Common Stock or any other capital stock of the Company issuable in
respect of the Convertible Preferred Stock issued pursuant to this Agreement and
any other warrants, options or convertible securities.
"FUNDED INDEBTEDNESS" shall mean at any date and with respect to
any Person, all Indebtedness of such Person for borrowed money, any Capital
Lease Obligations of such Person and any guaranty of such Person with respect to
Funded Indebtedness of another person.
"GAAP" shall mean generally accepted accounting principles
consistently applied throughout the period or periods in question.
"GOVERNMENTAL AUTHORITY" shall mean any governmental agency,
authority, instrumentality or regulatory body, other than a court or other
tribunal, in each case whether federal, state, local or foreign.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (whether or not having the force of law), including, without
limitation, Environmental Laws, energy regulations and occupational, safety and
health standards or controls, of any Governmental Authority.
"HAZARDOUS SUBSTANCES" shall have the meaning specified in
paragraph 6Q.
"INDEBTEDNESS" shall mean the principal of, the premium, if any,
and interest on, and all other obligations and liabilities (as obligor,
guarantor or otherwise) with respect to borrowed money and shall include,
without limitation, Funded Indebtedness and/or Current Indebtedness, letters of
credit and any obligation for the deferred purchase price of any property or
services.
"INDEMNITEE" shall have the meaning specified in paragraph 6Q.
"INSTALLMENT" shall have the meaning specified in paragraph 5C.
"INTERIM FINANCIALS" shall have the meaning set forth in
paragraph 10B.
"INVESTMENT" shall mean any stock, partnership or joint venture
interest or other security, any loan, advance, contribution to capital, any
acquisitions of real or personal property (other than real and personal property
acquired in the ordinary course of business), and any purchase or commitment or
option to purchase stock or other securities of or any interest in another
Person or any integral part of any business or the assets comprising such
business or part thereof if the aggregate consideration for such purchase,
commitment or option was in excess of $500,000, or in the aggregate together
with all other such purchasers, commitments or options in excess of $500,000,
and whether existing on the date of this Agreement or hereafter made.
"INVESTOR PARTIES" shall have the meaning set forth in paragraph
6M.
"INVESTORS" shall have the meaning set forth in the preamble.
"LIEN" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, including, without limitation, any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of or
agreement to file any financing statement under the Uniform Commercial Code of
any jurisdiction.
"LIQUID SECONDARY MARKET" shall mean the trading of shares of
Common Stock on the NASDAQ, the American Stock Exchange, the New York Stock
Exchange or any other national securities exchange and the value of such shares
being traded on such exchange is at least $30,000,000.
"MANAGEMENT AGREEMENT" shall mean the Management Services
Agreement between New PC and the Company in the form of Exhibit E attached
hereto.
"MARGIN STOCK" shall have the meaning set forth in paragraph
10K.
"MARKET PRICE" shall have the meaning set forth in paragraph 5F.
"MATERIAL ADVERSE EFFECT" shall mean (i) a material adverse
effect on the business, condition (financial or other), assets, properties,
rights, operations or prospects of the Company and its Subsidiaries taken as a
whole or (ii) any effect which could materially adversely affect the ability of
the Company to perform its respective obligations under any of the Related
Documents.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations system.
"OFFICER'S CERTIFICATE" of a Person shall mean a certificate of
the President, one of the Vice Presidents or the Treasurer or Controller of such
Person.
"OPTION CLOSING" shall have the meaning set forth in paragraph
5B.
"OUTSTANDING" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor entity thereto.
"PC STOCK OPTION AGREEMENT" shall mean the Stock Option
Agreement between Jack H. Castle, D.D.S. and the Company dated the date hereof,
relating to the shares of capital stock of New PC.
"PENSION PLAN" shall mean any single-employer plan, as defined
in Section 4001 of ERISA and subject to Title IV of ERISA, which is maintained
or contributed to (or previously maintained or contributed to during the five
calendar years preceding the Closing) for employees of the Company, any of its
Subsidiaries or any ERISA Affiliates.
"PERMITTED INVESTMENTS" shall mean (i) direct obligations of the
United States, or obligations guaranteed as to principal and interest by the
United States government, (ii) bankers' acceptances and certificates of deposit
issued by any bank or any other bank or trust company or, in the case of any
subsidiary bank of a bank holding company, a bank holding company, having
capital, surplus and undivided profits of at least $500,000,000, the short-term
deposits of which are given an A1 or P1 rating by Standard & Poor's Rating Group
or Moody's Investors Service, Inc., as applicable, (iii) obligations of any bank
or trust company or bank holding company described in clause (ii) above, in
respect of the repurchase of obligations of the type described in clause (i)
hereof, provided that such repurchase obligations shall be fully secured by
obligations of the type described in said clause (i) and the possession of such
obligations shall be transferred to, and segregated from other obligations owned
by, and any such bank's trust company or bank holding company, (iv) commercial
paper given a rating of A1 or P1 by Standard & Poor's Corporation or Moody's
Investors Service, Inc., as applicable and (v) money market funds organized
under the laws of the United States or any state thereof that invest
substantially all of their assets in any of the types of investments described
in clauses (i), (ii), (iii) or (iv); PROVIDED, HOWEVER, that no such investment
shall have a maturity longer than 270 days from the date of acquisition by the
Company or any Subsidiary.
"PERSON" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PREMIUM AMOUNT" shall mean $2,250,000.
"PROPERTY" shall mean any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"PUBLIC OFFERING" shall mean the closing of a public offering of
securities pursuant to a registration statement declared effective under the
Securities Act, except that a Public Offering shall not include an offering made
in connection with a business acquisition or an employee benefit plan.
"PURCHASE MONEY DEBT" shall mean debt of the Company and any
Subsidiary incurred to finance an acquisition of assets which is secured by a
Purchase Money Security Interest.
"PURCHASE MONEY SECURITY INTEREST" shall mean a purchase money
security interest within the meaning of Section 9-107 of the New York Uniform
Commercial Code, as in effect on the date hereof.
"PUT NOTICE" shall have the meaning specified in paragraph 5D.
"PUT OPTION CLOSING" shall have the meaning specified in
paragraph 5D.
"PUT RIGHT" shall have the meaning specified in paragraph 5C.
"QUALIFYING PUBLIC OFFERING" shall mean the sale by one or more
Persons in an underwritten or a best efforts agented public offering registered
under the Securities Act of any securities of the Company (or its successor) or
any of its Subsidiaries which results, together with all prior sales of
securities of the Company (or its successor) or any of its Subsidiaries in such
public offerings, in aggregate gross proceeds from such sales (before
underwriters' discounts and selling commissions) greater than or equal to
$25,000,000.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement between the Company and the Investors in the form of Exhibit F
attached hereto.
"RELATED DOCUMENTS" shall mean this Agreement, the Senior
Subordinated Notes, the Securityholders Agreement, the Registration Rights
Agreement, the Stock Purchase Agreement, the Accounts Receivable Purchase
Agreement, the Management Agreement, the PC Stock Option Agreement, the Deferred
Compensation Agreement and the Certificate of Incorporation.
"RELATED PROFESSIONAL SERVICES ENTITY" means any professional
corporation, professional association or another Person authorized by applicable
law to provide professional dental services with whom the Company or any
Subsidiary enters into a management or other similar agreement pursuant to which
the Company or such Subsidiary provides management, administrative and business
services substantially similar to those provided in the Management Agreement.
"RELEASED" shall have the meaning set forth in paragraph 10L.
"REPAYMENT DATE" shall have the meaning set forth in paragraph
4C.
"REPORTABLE EVENT" shall mean an event described in Section
4043(b) of ERISA with respect to which the 30-day notice requirement has not
been waived by the PBGC.
"RESTRICTED PAYMENT" by any Person shall mean (i) any dividend
or other distribution on any shares of the capital stock (other than dividends
or distributions payable solely in shares of such capital stock) of such Person,
and (ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of the capital stock of such Person (other than
(x) with respect to the Company, the purchase, redemption, retirement or
acquisition of shares of capital stock which remain unvested pursuant to the
Company's stock or option plans or (y) as contemplated by paragraph 6B hereof)
or (b) any option, warrant, convertible or exchangeable security (except the
Convertible Preferred Stock) or other right to acquire shares of the capital
stock of such Person.
"SECURITIES" shall mean "securities" as defined in Section 2(1)
of the Securities Act and includes, with respect to any Person, such Person's
capital stock or other equity interests or any options, warrants or other
securities that are directly or indirectly convertible into, or exercisable or
exchangeable for, such Person's capital stock or other equity interests.
"SECURITIES" shall have the meaning set forth in paragraph 1B.
"SECURITIES ACT" shall mean the United States Securities Act of
1933, as amended.
"SECURITYHOLDERS AGREEMENT" shall mean the Securityholders
Agreement between the Company, certain shareholders thereof and the Investors in
the form of Exhibit G hereto.
"SENIOR DEBT" shall mean all obligations (whether now
outstanding or hereafter incurred) for the payment of which the Company or any
Subsidiary thereof is responsible or liable as obligor, guarantor or otherwise
in respect of the principal, premium (if any), and unpaid interest on and all
other amounts due with respect to (i) Bank Debt and (ii) all renewals,
extensions and refinancings of any such Indebtedness; PROVIDED, HOWEVER, that
the following shall not constitute Senior Debt: (a) Indebtedness evidenced by
the Senior Subordinated Notes or any extension or refunding thereof, (b)
Indebtedness which is expressly made equal in right of payment with the Senior
Subordinated Notes or subordinate and subject in right of payment to the Senior
Subordinated Notes or (c) Indebtedness which purports to be senior to
subordinated debt, including the Senior Subordinated Notes, but subordinate to
the Indebtedness described in the first sentence hereof.
"SENIOR DEBT AGREEMENT" shall mean any agreement evidencing
Senior Debt.
"SENIOR FUNDED INDEBTEDNESS" shall mean all Funded Indebtedness
except the Indebtedness under this Agreement and the Senior Suboridnated Notes.
"SENIOR SUBORDINATED NOTES" shall have the meaning specified in
paragraph 1A.
"STOCK PURCHASE" shall mean that certain acquisition of all
capital stock of Old PC by the Company pursuant to the Stock Purchase Agreement.
"STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase
Agreement, dated the date hereof, between the Company and Jack H. Castle, D.D.S,
Inc.
"SUBORDINATED DEBT" shall have the meaning specified in
paragraph 8A.
"SUBSIDIARY" as to any Person shall mean a corporation or other
entity of which shares or similar stock having ordinary voting power to elect a
majority of the board of directors or other managers of such corporation or
entity are at the time owned, directly or indirectly, through one or more
intermediaries, by such Person. Except as otherwise expressly indicated herein,
references to Subsidiaries shall mean Castle PC, any Subsidiaries of the Company
and any Related Professional Services Entity.
"UCC" shall mean the Uniform Commercial Code as adopted in the
State of New York.
"WHOLLY OWNED" shall mean with respect to any designated Person
that all of the shares or similar stock having ordinary voting power to elect
the board of directors and Indebtedness in respect of borrowing of such Person
is owned by the specified Person or by one or more wholly owned subsidiaries of
such specified Person, or both.
13. MISCELLANEOUS.
13A. HOME OFFICE PAYMENT. The Company agrees that, so long as
the Investors shall hold any Senior Subordinated Note, it will make payments of
principal of and interest on such Senior Subordinated Notes not later than 12:00
noon, New York time, on the date such payment is due, by transfer of immediately
available funds for credit to the Investors. Such payments shall be made to the
account of the Investors specified on the attachments to the signature pages
hereto or such other account in the United States as the Investors may designate
in writing, notwithstanding any contrary provision contained herein or in the
Senior Subordinated Notes or in the Articles of Incorporation of the Company
with respect to the place of payment. Dividends on the shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock shall be paid to the
holders thereof at the registered address of such holders as shown on the
records of the Company. The Company agrees to afford the benefits of this
paragraph 13A to any Person which is the registered transferee of any Security,
and which, in the case of the transferee of any Senior Subordinated Note, has
made the same agreement relating to such Senior Subordinated Note as the
Investors have made in this paragraph 13A.
13B. INDEMNIFICATION. The Company and Castle PC, jointly and
severally, agree, whether or not the transactions hereby contemplated shall be
consummated, to pay, and save the Indemnitees harmless against liability for the
payment of, all reasonable out-of-pocket expenses arising in connection with the
transactions and other agreements and instruments contemplated by this
Agreement, including all taxes, together in each case with interest and
penalties, if any, and any income tax payable by the Indemnitees in respect of
any reimbursement of amounts payable pursuant to this paragraph 13B (but not if
such income tax is payable by an Indemnitee solely because it has deducted from
income the expenses so reimbursed to it), which may be payable in respect of the
execution and delivery of this Agreement including reasonable fees and expenses
of counsel incurred in connection with the preparation and negotiation of this
Agreement, any other agreement or instrument to be executed and delivered in
connection with this Agreement, any subsequent modification hereof or thereof or
consent hereunder or thereunder (regardless of whether any such modifications or
consent becomes effective) or the execution, delivery or acquisition of Senior
Subordinated Note or capital stock issued under or pursuant to this Agreement,
printing, reproduction and similar costs, and the reasonable cost and expenses,
including reasonable attorneys' fees, incurred by any Indemnitee in enforcing
any of its rights hereunder or thereunder, including without limitation
reasonable costs and expenses incurred in any bankruptcy case (including
reasonable fees and expenses of the Indemnitee's counsel in connection with such
bankruptcy case). The Company and Castle PC, jointly and severally, agree to
indemnify the Indemnitees and hold them harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind (including, without
limitation, the reasonable fees and disbursements of the Indemnitees' counsel in
connection with any investigative, administrative or judicial proceeding,
whether or not the Indemnitees be designated a party thereto) which may be
incurred by the Indemnitees, relating to or arising out of this Agreement or the
Securities or any actual or proposed use of the proceeds of the sale of
Securities hereunder, provided that no Indemnitee shall have the right to be
indemnified hereunder for its own gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction. The obligations of the
Company and Castle PC under this paragraph 13B shall survive the transfer of any
Security or shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock and the payment of any Senior Subordinated Note. The
indemnification required by this paragraph 13B shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or expense, loss, damage or liabilities
are incurred.
13C. CONSENT TO AMENDMENTS. This Agreement may be amended and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, or take action which by the express terms
of this Agreement requires the consent of the Investors, only if the Company
shall have obtained the prior written consent to such amendment, action or
omission to act after the Closing Date of the holders of a majority of the
aggregate unpaid principal amount of the Senior Subordinated Notes and each
holder of any Security at the time or thereafter outstanding shall be bound by
any consent authorized by this paragraph 13C, whether or not such Security shall
have been marked to indicate such consent, but any Security issued thereafter
shall contain a reference or bear a notation referring to any such consent;
PROVIDED, HOWEVER, that notwithstanding anything in this paragraph 13C to the
contrary, without the prior written consent of the holder or holders of all
Senior Subordinated Notes at the time outstanding, no consent, amendment or
waiver to or under this Agreement shall extend or reduce the maturity of any
Senior Subordinated Note, or change the principal of, or the rate or time of
payment of interest or any premium payable with respect to any Senior
Subordinated Note, or affect the time, amount or allocation of any required or
optional prepayments, or reduce the proportion of the principal amount of the
Senior Subordinated Notes required with respect to any consent, amendment or
waiver, or affect the provisions of Section 8 or amend the provisions of this
paragraph 13C; and, PROVIDED FURTHER, HOWEVER, that notwithstanding anything in
this paragraph 13C to the contrary, without the prior written consent of the
Bank, no amendment or waiver shall be permitted with respect to the provisions
of Section 8 of this Agreement. The Company shall promptly send copies of any
amendment, waiver or consent (and any request for any such amendment, waiver or
consent) relating to this Agreement or the Securities to each holder of the
Securities and shall consult with such holders in connection with each such
amendment, consent and waiver. No course of dealing between the Company or any
Subsidiary and the holder of any Security nor any delay in exercising any rights
hereunder or under any Security shall operate as a waiver of any rights of any
holder of such Security. As used herein and in the Securities, the term "this
Agreement" and references thereto shall mean this Agreement as it may, from time
to time, be amended or supplemented. Any amendments to this Agreement shall also
require the consent of the Company.
13D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF SENIOR
SUBORDINATED NOTES; LOST SENIOR SUBORDINATED NOTES. The Senior Subordinated
Notes are issuable as registered notes transferable by endorsement and delivery,
each without coupons in denominations of $1,000 and any larger integral multiple
of $1,000. The Company shall keep at its principal office a register in which
the Company shall provide for the registration of the Senior Subordinated Notes.
Upon surrender for registration of transfer of any registered Senior
Subordinated Note at such office, the Company shall, at its expense, execute and
deliver one or more replacing Senior Subordinated Notes of like tenor and of a
like aggregate principal amount which replacing Senior Subordinated Notes shall
be registered Senior Subordinated Notes. At the option of the holder of any
Senior Subordinated Note such Senior Subordinated Notes may be exchanged, for
other Senior Subordinated Notes of any authorized denominations, of a like tenor
and of a like aggregate principal amount, upon surrender of the Senior
Subordinated Note to be exchanged at the office of the Company. Whenever any
Senior Subordinated Notes are so surrendered for exchange, the Company shall
execute and deliver, at its expense, the Senior Subordinated Notes which the
holder thereof making the exchange is entitled to receive. Every Senior
Subordinated Note presented or surrendered for registration of transfer shall be
duly endorsed, or be accompanied by a written instrument of transfer duly
executed, by the holder of such Senior Subordinated Note, or his attorney duly
authorized in writing. Any Senior Subordinated Notes issued in exchange for or
upon transfer shall carry the rights to unpaid interest and interest to accrue
which were carried by the Senior Subordinated Notes so exchanged or transferred,
so that neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the Investors or other evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Senior Subordinated Note held by the Investors and, in the
case of any such loss, theft or destruction, upon receipt of its unsecured
indemnity agreement, or other indemnity reasonably satisfactory to the Company,
or in the case of any such mutilation upon surrender and cancellation of such
Senior Subordinated Note, the Company will make and deliver a replacement Senior
Subordinated Note of like tenor, in lieu of such lost, stolen, destroyed or
mutilated Senior Subordinated Note.
13E. PROVISIONS APPLICABLE IF ANY OF THE SECURITIES ARE SOLD.
The parties acknowledge that, subject to compliance with applicable securities
laws, the Investors shall be free to transfer the Securities without
restriction; PROVIDED, HOWEVER, that (i) the Investors shall not transfer the
Securities to any direct competitor of the Company and (ii) any transferee must
agree to the restriction on sales to direct competitors set forth in clause (i)
of this paragraph 13E. In the event that the Investors should sell or otherwise
transfer any of the Securities or any part thereof to any Person other than the
Company, if any Security shall have been transferred to another holder and such
holder shall have designated in writing the address to which communications with
respect to Security shall be mailed, all notices, certificates, requests,
statements and other documents required to be delivered to the Investors by any
provision hereof by reason of the holding of the transferred Security shall also
be delivered to such holder at such address.
13F. RESTRICTIVE LEGENDS. Each Senior Subordinated Note shall
bear the following (or substantially equivalent) legend on the face or reverse
side thereof:
"The securities represented hereby have not been registered
under the Securities Act of 1933, as amended, or applicable state securities
laws, and the securities may not be sold, transferred or otherwise disposed of
in the absence of such registration or an exemption therefrom under said Act and
such laws and the respective rules and regulations thereunder."
In addition, the shares of Common Stock issuable upon conversion
of the Convertible Preferred Stock shall bear at the time of issuance a legend
in substantially the form set forth above and any legend required by the state
securities or "Blue Sky" laws of any state in which a registered holder thereof
is resident, unless such shares have been registered under the Securities Act.
13G. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Security is registered as the owner and holder of such Security for the purpose
of receiving payment of principal of (and premium, if any) and interest on such
Security and for all other purposes whatsoever, whether or not such Security
shall be overdue, and the Company shall not be affected by notice to the
contrary.
13H. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made in writing by or on
behalf of any party to this Agreement in connection herewith shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by the Investors or on their behalf.
13I. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, all covenants and agreements in this Agreement contained by or on behalf
of the parties hereto shall bind and inure to the benefit of the respective
successors, transferees and assigns of the parties hereto whether so expressed
or not and for greater certainty, a purchaser of Convertible Preferred Stock
from any holder of Convertible Preferred Stock will be entitled to the benefits
of this Agreement and the Company shall be deemed to have received express
notice in writing of any such assignment by a request for registration of the
Convertible Preferred Stock in the name of a subsequent purchaser.
13J. NOTICES. All communications provided for hereunder shall be
sent by first class mail, overnight courier or by fax with hard copy by first
class mail or overnight courier and, if to the Investors, addressed to the
Investors in the manner (except as otherwise provided in paragraph 13A with
respect to payments of principal of (and premium, if any) and interest on the
Senior Subordinated Notes) in which its address appears on the signature page
hereof, with a copy to William J. Grant, Jr., Esq., at Willkie Farr & Gallagher,
One Citicorp Center, 153 East 53rd Street, New York, New York 10022-4677,
telecopy number (212) 821-8111, if to the Company, addressed to it at Castle
Dental Centers, Inc., 1360 Post Oak Blvd., Suite 1300, Houston, Texas 77056, or
to such other address with respect to any party as such party shall notify the
other in writing, and (unless otherwise specified herein) shall be deemed
received 24 hours after it is sent if sent via facsimile (with receipt
confirmed) or overnight courier; PROVIDED, HOWEVER, that any such communication
to the Company may also, at the option of the Investors, be either delivered to
the Company at its address set forth above or to any executive officer of the
Company.
13K. DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections and paragraphs of this Agreement are inserted for convenience
only and do not constitute a part of this Agreement.
13L. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT IS
BEING DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE
PARTIES SHALL BE GOVERNED BY, THE LAW OF SUCH STATE WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES THEREOF. THIS AGREEMENT IS
EFFECTIVE ONLY WHEN DELIVERED AND ENTERED INTO BY THE INVESTORS IN NEW YORK. ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE COMPANY
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY AT ITS ADDRESS SET
FORTH IN PARAGRAPH 13J, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE INVESTORS OR ANY HOLDER OF
A SECURITY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
13M. DELAY FEES. If the Closing shall not actually occur on any
date on which the Closing is scheduled to occur, and the Company shall have
failed to notify each Investor prior to 10:00 A.M. local time, in the place in
which an Investor is located, on the day prior to such scheduled Closing that
such Closing has been postponed, the Company shall pay to each Investor (as
compensation for such Investor's loss of fund and administrative costs) an
amount equal to interest on the purchase price for the Securities to have been
purchased by each such Investor on such scheduled date at such Closing, at the
rate per annum on the Senior Subordinated Notes as if the Senior Subordinated
Notes had been issued on the scheduled date of Closing, for each day from and
including such scheduled date of Closing to but not including the earlier of the
date on which such Closing actually occurs or the date on which the amount to be
paid by each such Investor as said purchase price is available to such Investor
for reinvestment, but in any case not less than one day's interest; PROVIDED,
HOWEVER, that the Company shall not owe any Investor any amount under this
paragraph 13M if the Company has fulfilled all of its obligations under this
Agreement and such Investor is not willing or able to fulfill its obligations on
the scheduled date of Closing.
13N. REMEDIES. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the Company
or any holder of Securities, the Company, or any holder of Securities (or any of
them), as applicable, may proceed to protect and enforce its or their rights
either by suit in equity and/or by action at law, including, but not limited to,
an action for damages as a result of any such breach and/or an action for
specific performance of any such covenant or agreement contained in this
Agreement. Without limitation of the foregoing, the Company agrees that failure
to comply with any of the covenants including, without limitation, those
included in paragraphs 6A, 6B, 6C, 6F, 6L, 6M 6N, 6O and 6Q and those in respect
of the Senior Subordinated Notes will cause irreparable harm and that specific
performance shall be available in the event of any breach thereof. The Company,
or an Investor acting pursuant to this paragraph 13N, shall be indemnified
against all liability, loss or damage, together with all reasonable costs and
expenses related thereto (including reasonable legal and accounting fees and
expenses) in accordance with paragraph 13B.
13O. ENTIRE AGREEMENT. This Agreement, the other Related
Documents and the other writings referred to herein or delivered pursuant hereto
contain the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
13P. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13Q. AMENDMENTS. This Agreement may not be changed orally, but
(subject to the provisions of paragraph 13C) only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
13R. PAYMENT DATE. Notwithstanding any provision of this
Agreement to the contrary, any payment on account of principal of (and premium,
if any) or interest on any Senior Subordinated Note which is due on a date which
is not a Business Day shall be paid on the next succeeding Business Day, and the
amount of interest included in any such payment shall be computed to the date on
which such payment is actually made.
13S. WAIVER OF TRIAL BY JURY. THE COMPANY AND CASTLE PC HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY
APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING
UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT REFERRED
TO HEREIN AND AGREES THAT ANY SUCH DISPUTE SHALL, AT THE OPTION OF ANY INVESTOR
AS THE CASE MAY BE, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
13T. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
JHCDDS, INC.
By:
Name:
Title:
JACK H. CASTLE, D.D.S., P.C.
By:
Name:
Title:
INVESTORS:
The foregoing Agreement is
hereby accepted as of the
date first above written.
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ICI AMERICAN HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By: Principal Amount of Senior
Robert J. Cresci Subordinated Notes: $1,450,000
Managing Director 240,649 shares of Convertible
Preferred Stock
Tax ID Number: 043-171-204
Nominee: NORTHMAN & CO.
Bank: State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, MA 02171
ABA Routing Number: 0110-00028
Account Number: I510 DDA 34758649
for Master Trust/State Street
Boston, MA 02101
BNF: ICI Americas
Physical Delivery
Via Federal Express: State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Courthouse
Level
Boston, MA 02101
Attn: David Kay
Account Name: ICI Americas
Acct.# I510
The foregoing Agreement is
hereby accepted as of the
date first above written.
DECLARATION OF TRUST
FOR DEFINED BENEFIT PLANS
OF ZENECA HOLDINGS INC.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By: _______________________
Robert J. Cresci Principal Amount of Senior
Managing Director Subordinated Notes: $1,000,000
165,965 shares of Convertible
Preferred Stock
Tax ID Number: 042-809861
Nominee: FUELSHIP & COMPANY
Bank: State Street Bank & Trust Company
One Enterprise Drive
Solomon Willard Building, 4A
North Quincy, MA 02171
ABA Routing Number: 0110-00028
Account Number: JG10 DDA 34758508
for Master Trust/State Street
Boston, MA 02101
BNF: Zeneca Holdings
Physical Delivery
Via Federal Express: State Street Bank & Trust Company
225 Franklin Street
Incoming Securities, Courthouse
Level
Boston, MA 02101
Attn: David Kay
Account Name: Zeneca Holdings
Acct.# JG10
The foregoing Agreement is
hereby accepted as of the
date first above written.
DELAWARE STATE EMPLOYEES'
RETIREMENT FUND
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Attention: Robert J. Cresci
By: Pecks Management Partners Ltd.,
Its Investment Adviser
By: _______________________
Robert J. Cresci Principal Amount of Senior
Managing Director Subordinated Notes: $5,050,000
838,123 shares of Convertible
Preferred Stock
Tax ID Number: 516-00-0279
Nominee: NAP & COMPANY
Bank: Mercantile Safe Deposit & Trust Company
2 Hopkins Plaza
Baltimore, MD 21201
Attn: Isabelle Corbett
ABA Routing Number: 052-000618
Account Number: 214380-8 for State of Delaware account.
Physical Delivery: Chemical Bank
A/C State Street Bank and Trust
Company
4 New York Plaza
Ground Floor/Receive Window
New York, New York
Account: Mercantile - Safe
Deposit & Trust
Acct.# QJ25
EXHIBIT A
[Form of Senior Subordinated Notes and Interest Notes]
EXHIBIT B
[Form of PC Guarantee]
EXHIBIT C
[Form of Certificate of Incorporation]
EXHIBIT D-1
[Form of Opinion of Counsel to the Company and Castle PC
EXHIBIT D-2
[Form of Opinion of Special Counsel to the Company and Castle PC]
EXHIBIT D-3
[Form of Risk Analysis Letter]
EXHIBIT E
[Form of Management Agreement]
EXHIBIT F
[Form of Registration Rights Agreement]
EXHIBIT G
[Form of Securityholders Agreement]
SCHEDULE 3B
REPRESENTATIONS AND WARRANTIES
SCHEDULE 6B
USE OF PROCEEDS
SCHEDULE 7P
COMPENSATION SCHEDULE
SCHEDULE 10C
CAPITAL STOCK
AND
CONSIDERATION PAID
RESTRICTIONS ON TRANSFER
OF CAPITAL STOC
SCHEDULE 10E
OUTSTANDING DEBTS
SCHEDULE 10H
CONFLICTING AGREEMENTS
SCHEDULE 10J
BROKERS OR FINDERS COMMISSION
SCHEDULE 10S
SUBSIDIARIES
SCHEDULE 10T
DISCLOSURE
SCHEDULE 10U
RELATED PARTY TRANSACTIONS
SCHEDULE 10X
AGREEMENTS WITH AFFILIATES
SCHEDULE 10Y
CONVERTIBLE PREFERRED STOCK AND EQUITY OF THE COMPANY
22%
EXHIBIT 10.3
SENIOR SUBORDINATED NOTE
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY HAS NOT BEEN REG ISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICA BLE STATE SECURITIES LAWS,
AND IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR ANY EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND
THE RESPEC TIVE RULES AND REGULATIONS THEREUNDER.
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY IS ISSUED WITH ORIGINAL ISSUE
DISCOUNT. FOR INFORMATION CONCERNING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE
DISCOUNT, ISSUE DATE AND YIELD TO MATURITY OF THIS AGREEMENT, CONTACT CASTLE
DENTAL CENTERS, INC. AT 1360 POST OAK BLVD., SUITE 1300, HOUSTON, TEXAS 77056.
THE INDEBTEDNESS EVIDENCED BY THIS SENIOR SUBORDINATED NOTE IS SUBORDINATED TO
OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE
SUBJECT TO THE TERMS OF SECTION 8 OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER 18, 1995 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED
FROM TIME TO TIME PURSUANT TO THE TERMS THEREOF), BETWEEN CASTLE DENTAL CEN
TERS, INC. AND THE INVESTORS NAMED ON THE SIGNATURE PAGES THEREOF.
CASTLE DENTAL CENTERS, INC.
12% Senior Subordinated Note
due December 18, 2002
No. R-1 December 18, 1995
$5,050,000
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "COMPANY"), promises to pay to NAP & COMPANY or registered
assigns, the prin cipal sum of $5,050,000 on December 18, 2002, with interest
(com puted on the basis of a 360-day year of twelve 30-day months) on the unpaid
balance thereof at the rate of 12% per annum from the date hereof, payable
quarterly in arrears in cash on the last day of March, June, September and
December in each year, commencing on March 31, 1996, until the principal hereof
(or any portion thereof), shall have become due and payable (whether at
maturity, upon acceleration, upon notice of prepayment or otherwise) or shall
have been paid; PROVIDED, HOWEVER, that the Company may, at the sole option of
the holder hereof, issue interest notes ("INTEREST NOTES" and individually
called an
1
"INTEREST NOTE"), in the same form and containing the same terms as this Senior
Subordi nated Note, in lieu of any cash payment of interest due hereun der. The
principal amount of the Interest Notes, together with all accrued and unpaid
interest thereon, are due and payable by the Company on December 18, 2002. Upon
the occurrence and during the continuation of any payment default (other than a
payment default in respect of any Installment) under paragraph 9A(i) or
paragraph 9A(ii) of the Agreement (defined below), the rate of interest under
this Senior Subordinated Note shall be increased to a rate per annum from time
to time equal to the lower of (a) 16% and (b) the maximum rate, if any,
permitted by applicable law, compounded quarterly.
Payments of both principal and interest are to be made at the
address shown on the Company's registry or at such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
This Senior Subordinated Note is one of the 12% Senior Subordi nated Notes of
the Company made and delivered by the Company pursuant to a Securities Purchase
Agreement dated as of December 18, 1995 (as amended, supplemented or otherwise
modified from time to time pursuant to the terms thereof, the "AGREEMENT"),
between the Company and the Investors named on the signature pages thereof and
is entitled to the benefits and is subject to the provisions of the Agreement.
As provided in the Agreement, this Senior Subordinated Note is subject to
prepayment in whole or in part in certain cases as specified in the Agreement.
Capi talized terms used but not defined herein shall have the meanings ascribed
to them in the Agreement.
This Senior Subordinated Note is a registered Senior Subordinated Note
and, as provided in the Agreement, upon surren der hereof for registration of
transfer, duly endorsed, or accom panied by a written instrument of transfer
duly executed, by the registered holder hereof or his attorney duly authorized
in writ ing, one or more new Senior Subordinated Notes of like tenor and for a
like aggregate principal amount will be issued to, and registered in the name
of, the transferee. Prior to due present ment for registration of transfer, the
Company and any agent of the Company may treat the person in whose name this
Senior Subor dinated Note is registered as the owner hereof for the purpose of
receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
The Company has agreed to make prepayments of princi pal on the
dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agree ment, shall
occur and be continuing, the principal of this Senior Subordinated Note may be
declared due and payable in the manner and with the effect provided in the
Agreement. Upon the
2
terms set forth in the Agreement, the Company has agreed to pay, and save the
holder hereof harmless against any liability for, lia bilities, losses, damages
and expenses arising in connection with the enforcement by the holder hereof of
any of its rights under this Senior Subordinated Note, the Agreement or any
other Related Document.
3
This Senior Subordinated Note is intended to be per formed in the
State of New York, and shall be construed and en forced in accordance with the
law of such State, without giving effect to the conflicts or choice of law
principles of such State.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
ATTEST:
By:
Name:
Title:
EXHIBIT 10.4
SENIOR SUBORDINATED NOTE
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND
IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR ANY EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND THE
RESPECTIVE RULES AND REGULATIONS THEREUNDER.
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY IS ISSUED WITH ORIGINAL ISSUE
DISCOUNT. FOR INFORMATION CONCERNING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE
DISCOUNT, ISSUE DATE AND YIELD TO MATURITY OF THIS AGREEMENT, CONTACT CASTLE
DENTAL CENTERS, INC. AT 1360 POST OAK BLVD., SUITE 1300, HOUSTON, TEXAS 77056.
THE INDEBTEDNESS EVIDENCED BY THIS SENIOR SUBORDINATED NOTE IS SUBORDINATED TO
OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE
SUBJECT TO THE TERMS OF SECTION 8 OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER 18, 1995 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED
FROM TIME TO TIME PURSUANT TO THE TERMS THEREOF), BETWEEN CASTLE DENTAL CENTERS,
INC. AND THE INVESTORS NAMED ON THE SIGNATURE PAGES THEREOF.
CASTLE DENTAL CENTERS, INC.
12% Senior Subordinated Note
due December 18, 2002
No. R-2 December 18, 1995
$1,000,000
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS,
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "COMPANY"), promises to pay to FUELSHIP & COMPANY or
registered assigns, the principal sum of $1,000,000 on December 18, 2002, with
interest (computed on the basis of a 360-day year of twelve 30-day months) on
the unpaid balance thereof at the rate of 12% per annum from the date hereof,
payable quarterly in arrears in cash on the last day of March, June, September
and December in each year, commencing on March 31, 1996, until the principal
hereof (or any portion thereof), shall have become due and payable (whether at
maturity, upon acceleration, upon notice of prepayment or otherwise) or shall
have been paid; provided, HOWEVER, that the Company may, at the sole option of
the holder hereof, issue interest notes ("INTEREST NOTES" and individually
called an "INTEREST NOTE"), in the same form and containing the same terms as
this Senior Subordinated Note, in lieu of any cash payment of interest due
hereunder. The principal amount of the Interest Notes, together with all accrued
and unpaid interest thereon, are due and payable by the Company on December 18,
2002. Upon the occurrence and during the continuation of any payment default
(other than a payment default in respect of any Installment) under paragraph
9A(i) or paragraph 9A(ii) of the Agreement (defined below), the rate of interest
under this Senior Subordinated Note shall be increased to a rate per annum from
time to time equal to the lower of (a) 16% and (b) the maximum rate, if any,
permitted by applicable law, compounded quarterly.
Payments of both principal and interest are to be made at the
address shown on the Company's registry or at such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
This Senior Subordinated Note is one of the 12% Senior
Subordinated Notes of the Company made and delivered by the Company pursuant to
a Securities Purchase Agreement dated as of December 18, 1995 (as amended,
supplemented or otherwise modified from time to time pursuant to the terms
thereof, the "AGREEMENT"), between the Company and the Investors named on the
signature pages thereof and is entitled to the benefits and is subject to the
provisions of the Agreement. As provided in the Agreement, this Senior
Subordinated Note is subject to prepayment in whole or in part in certain cases
as specified in the Agreement. Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Agreement.
This Senior Subordinated Note is a registered Senior
Subordinated Note and, as provided in the Agreement, upon surrender hereof for
registration of transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed, by the registered holder hereof or his attorney duly
authorized in writing, one or more new Senior Subordinated Notes of like tenor
and for a like aggregate principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company and any agent of the Company may treat the person in whose
name this Senior Subordinated Note is registered as the owner hereof for the
purpose of receiving payment and for all other purposes, and the Company shall
not be affected by any notice to the contrary.
The Company has agreed to make prepayments of principal on the
dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall
occur and be continuing, the principal of this Senior Subordinated Note may be
declared due and payable in the manner and with the effect provided in the
Agreement. Upon the terms set forth in the Agreement, the Company has agreed to
pay, and save the holder hereof harmless against any liability for, liabilities,
losses, damages and expenses arising in connection with the enforcement by the
holder hereof of any of its rights under this Senior Subordinated Note, the
Agreement or any other Related Document.
This Senior Subordinated Note is intended to be performed in the
State of New York, and shall be construed and enforced in accordance with the
law of such State, without giving effect to the conflicts or choice of law
principles of such State.
CASTLE DENTAL CENTERS, INC.
By: /s/ JACK H. CASTLE JR.
Name: Jack H. Castle Jr.
Title: President
ATTEST:
By: /s/ JOHN M. HALL
Name: John M. Hall
Title: Secretary
EXHIBIT 10.5
SENIOR SUBORDINATED NOTE
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND
IT MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR ANY EXEMPTION THEREFROM UNDER SAID ACT AND SUCH LAWS AND THE
RESPECTIVE RULES AND REGULATIONS THEREUNDER.
THE SENIOR SUBORDINATED NOTE REPRESENTED HEREBY IS ISSUED WITH ORIGINAL ISSUE
DISCOUNT. FOR INFORMATION CONCERNING THE ISSUE PRICE, AMOUNT OF ORIGINAL ISSUE
DISCOUNT, ISSUE DATE AND YIELD TO MATURITY OF THIS AGREEMENT, CONTACT CASTLE
DENTAL CENTERS, INC. AT 1360 POST OAK BLVD., SUITE 1300, HOUSTON, TEXAS 77056.
THE INDEBTEDNESS EVIDENCED BY THIS SENIOR SUBORDINATED NOTE IS SUBORDINATED TO
OTHER INDEBTEDNESS PURSUANT TO, AND TO THE EXTENT PROVIDED IN, AND IS OTHERWISE
SUBJECT TO THE TERMS OF SECTION 8 OF THAT CERTAIN SECURITIES PURCHASE AGREEMENT
DATED AS OF DECEMBER 18, 1995 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED
FROM TIME TO TIME PURSUANT TO THE TERMS THEREOF), BETWEEN CASTLE DENTAL CENTERS,
INC. AND THE INVESTORS NAMED ON THE SIGNATURE PAGES THEREOF.
CASTLE DENTAL CENTERS, INC.
12% Senior Subordinated Note
due December 18, 2002
No. R-3 December 18, 1995
$1,450,000
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS,
INC., a corporation organized and existing under the laws of the State of
Delaware (herein called the "COMPANY"), promises to pay to NORTHMAN & CO. or
registered assigns, the principal sum of $1,450,000 on December 18, 2002, with
interest (computed on the basis of a 360-day year of twelve 30-day months) on
the unpaid balance thereof at the rate of 12% per annum from the date hereof,
payable quarterly in arrears in cash on the last day of March, June, September
and December in each year, commencing on March 31, 1996, until the principal
hereof (or any portion thereof), shall have become due and payable (whether at
maturity, upon acceleration, upon notice of prepayment or otherwise) or shall
have been paid; PROVIDED, HOWEVER, that the Company may, at the sole option of
the holder hereof, issue interest notes ("INTEREST NOTES" and individually
called an "INTEREST NOTE"), in the same form and containing the same terms as
this Senior Subordinated Note, in lieu of any cash payment of interest due
hereunder. The principal amount of the Interest Notes, together with all accrued
and unpaid interest thereon, are due and payable by the Company on December 18,
2002. Upon the occurrence and during the continuation of any payment default
(other than a payment default in respect of any Installment) under paragraph
9A(i) or paragraph 9A(ii) of the Agreement (defined below), the rate of interest
under this Senior Subordinated Note shall be increased to a rate per annum from
time to time equal to the lower of (a) 16% and (b) the maximum rate, if any,
permitted by applicable law, compounded quarterly.
Payments of both principal and interest are to be made at the
address shown on the Company's registry or at such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America.
This Senior Subordinated Note is one of the 12% Senior
Subordinated Notes of the Company made and delivered by the Company pursuant to
a Securities Purchase Agreement dated as of December 18, 1995 (as amended,
supplemented or otherwise modified from time to time pursuant to the terms
thereof, the "AGREEMENT"), between the Company and the Investors named on the
signature pages thereof and is entitled to the benefits and is subject to the
provisions of the Agreement. As provided in the Agreement, this Senior
Subordinated Note is subject to prepayment in whole or in part in certain cases
as specified in the Agreement. Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Agreement.
This Senior Subordinated Note is a registered Senior
Subordinated Note and, as provided in the Agreement, upon surrender hereof for
registration of transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed, by the registered holder hereof or his attorney duly
authorized in writing, one or more new Senior Subordinated Notes of like tenor
and for a like aggregate principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company and any agent of the Company may treat the person in whose
name this Senior Subordinated Note is registered as the owner hereof for the
purpose of receiving payment and for all other purposes, and the Company shall
not be affected by any notice to the contrary.
The Company has agreed to make prepayments of principal on the
dates and in the amounts specified in the Agreement.
In case an Event of Default, as defined in the Agreement, shall
occur and be continuing, the principal of this Senior Subordinated Note may be
declared due and payable in the manner and with the effect provided in the
Agreement. Upon the terms set forth in the Agreement, the Company has agreed to
pay, and save the holder hereof harmless against any liability for, liabilities,
losses, damages and expenses arising in connection with the enforcement by the
holder hereof of any of its rights under this Senior Subordinated Note, the
Agreement or any other Related Document.
This Senior Subordinated Note is intended to be performed in the
State of New York, and shall be construed and enforced in accordance with the
law of such State, without giving effect to the conflicts or choice of law
principles of such State.
CASTLE DENTAL CENTERS, INC.
By: /s/ JACK H. CASTLE JR.
Name: Jack H. Castle Jr.
Title: President
ATTEST:
By: /s/ JOHN M. HALL
Name: John M. Hall
Title: Secretary
EXHIBIT 10.6
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective as
of December 18, 1995, by and between CASTLE DENTAL CENTERS, INC., a Delaware
corporation ("Business Manager"), and JACK H. CASTLE, D.D.S., P.C., a Texas
professional corporation ("PC").
RECITALS
This Management Services Agreement is made with reference to the
following facts:
A. PC is a validly existing Texas professional corporation, formed for
and engaged in the practice of dentistry and the provision of dental services to
the general public in and around the Houston, Texas metropolitan area through
individual dentists who are licensed to practice dentistry in the State of Texas
and who are employed or otherwise retained by PC.
B. Business Manager is a validly existing Delaware corporation, which
has been duly formed to manage the business aspects of the dental practice of
PC.
C. PC desires to focus its energies, expertise and time on the practice
of dentistry and on the delivery of dental services to patients, and to
accomplish this goal it desires to delegate the increasingly more complex
business functions of its dental practice to persons with business expertise.
D. PC wishes to engage Business Manager to provide such management,
administrative and business services as are necessary and appropriate for the
day-to-day administration of the nondental aspects of PC's dental practice in
the Practice Territory (as defined below), and Business Manager desires to
provide such services all upon the terms and conditions hereinafter set forth.
E. PC and Business Manager have determined a fair market value for the
services to be rendered by Business Manager, and based on this fair market
value, have developed a formula for compensation for Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
ARTICLE I. DEFINITIONS
For the purposes of this Management Services Agreement, the following
terms shall have the following meanings ascribed thereto, unless otherwise
clearly required by the context in which such term is used.
Section 1.1 ACT. The term "Act" shall mean Chapter Nine (Art. 4543-4551)
of the Civil Statutes of the State of Texas, as amended.
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Section 1.2 ADJUSTED GROSS REVENUE. The term "Adjusted Gross Revenue"
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
Section 1.3 ADJUSTMENTS. The term "Adjustments" shall mean any
adjustments on an accrual basis for uncollectible accounts, third party payor
contractual adjustments, discounts, workers' compensation adjustments,
professional courtesies, and other reductions in collectible revenue that result
from activities that do not result in collectible charges.
Section 1.4 ANCILLARY REVENUE. The term "Ancillary Revenue" shall mean
all other revenue actually recorded each month (net of Adjustments) that is not
Professional Services Revenues or Capitation Revenues consisting only of prepaid
amounts for services previously billed and collected, and shall include (a) any
amounts received by PC as liquidated damages under Section 4.2 or Section 4.3 of
any Dentist's employment agreement, and (b) the proceeds of key person life and
disability insurance as provided for in Section 4.14 below.
Section 1.5 BASE MANAGEMENT FEE. The term "Base Management Fee" shall
mean the amount set forth in Section 6.1.
Section 1.6 BUDGET. The term "Budget" shall mean an operating budget and
capital expenditure budget for each fiscal year as prepared by Business Manager
and adopted by PC.
Section 1.7 BUSINESS MANAGER. The term "Business Manager" shall mean
Castle Dental Centers, Inc., a Delaware corporation, or any entity that succeeds
to the interests of Castle Dental Centers, Inc., a Delaware corporation, and to
whom the obligations of Business Manager are assigned and transferred.
Section 1.8 BUSINESS MANAGER CONSENT. The term "Business Manager
Consent" shall mean the consent granted by Business Manager's representatives to
the Policy Board created pursuant to Article III herein.
Section 1.9 BUSINESS MANAGER EXPENSE. The term "Business Manager
Expense" shall mean an expense or cost incurred by the Business Manager and for
which the Business Manager, and not PC, is financially liable other than
expenses incurred by Business Manager that directly benefit PC which may be
allocated to Office Expense consistent with the Budget.
Section 1.10 CONFIDENTIAL INFORMATION. The term "Confidential
Information" shall mean any information of Business Manager or PC, as
appropriate (whether written or oral), including all notes, studies, patient
lists, information, forms, business or management methods, marketing data, fee
schedules, or trade secrets of the Business Manager or of PC, as applicable,
whether or not such Confidential Information is disclosed or otherwise made
available to one party by the other party pursuant to this Management Services
Agreement. Confidential Information shall also include the terms and provisions
of this Management Services Agreement and any transaction or document executed
by the parties pursuant to this Management Services Agreement. Confidential
Information does not include any information that (i) is or becomes generally
available to and known by the public (other than as a result of an unpermitted
disclosure directly or indirectly by the receiving party or its affiliates,
advisors, or Representatives); (ii) is or becomes available to the receiving
party on a nonconfidential basis
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from a source other than the furnishing party or its affiliates, advisors, or
Representatives, provided that such source is not and was not bound by a
confidentiality agreement with or other obligation of secrecy to the furnishing
party of which the receiving party has knowledge at the time of such disclosure;
or (iii) has already been or is hereafter independently acquired or developed by
the receiving party without violating any confidentiality agreement with or
other obligation of secrecy to the furnishing party.
Section 1.11 CENTER. The term "Center" (collectively referred to as
"Centers") shall mean any office space, clinic, facility, including satellite
facilities, that Business Manager shall own or lease or otherwise procure for
the use of PC, as allowed by law, in the provision of Dental Services pursuant
to this Management Services Agreement.
Section 1.12 DENTAL SERVICES. The term "Dental Services" shall mean
dental care and services, including but not limited to the practice of general
dentistry, orthodontics and all related dental care services provided by PC
through PC's Dentists and other dental care providers that are retained by or
professionally affiliated with PC.
Section 1.13 DENTIST. The term "Dentist" shall mean each individually
licensed professional who is employed or otherwise retained by or associated
with PC, each of whom shall meet at all times the qualifications described in
Section 5.2 and Section 5.3.
Section 1.14 GAAP. The term "GAAP" shall mean generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of the determination. For purposes of this Management Services Agreement, GAAP
shall be applied on an accrual basis in a manner consistent with the historic
practices of the person to which the term applies.
Section 1.15. LICENSING FEE. The term "Licensing Fee" shall mean the
annual amount of One Hundred Thousand Dollars ($100,000), which amount is
payable to Dr. Jack H. Castle as an Office Expense under the terms of the Budget
as consideration for his taking such actions as may be necessary to cause the
shares of capital stock of PC to be held by a person who is lawfully entitled to
do so. This fee is intended to and shall be solely for the purposes described
herein and in no way shall be construed to constitute fee splitting or the
practice of dentistry under the Act.
Section 1.16 MANAGEMENT FEE. The term "Management Fee" shall mean
Business Manager's compensation established as described in Article VI hereof.
Section 1.17 MANAGEMENT SERVICES. The term "Management Services" shall
mean the business, administrative, and management services to be provided for
PC, including without limitation the provision of equipment, supplies, support
services, nondental personnel, office space, management, administration,
financial recordkeeping and reporting, and other business office services.
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Section 1.18 MANAGEMENT SERVICES AGREEMENT. The term "Management
Services Agreement" shall mean this Management Services Agreement by and between
PC and Business Manager and any amendments hereto as may be adopted as provided
in this Management Services Agreement.
Section 1.19 OFFICE EXPENSE. The term "Office Expense" shall mean all
operating and nonoperating expenses incurred by the Business Manager or PC in
the provision of services to or by PC, including the Licensing Fee. Office
Expense shall not include any State or federal income tax, or any other expense
that is a PC Expense or a Business Manager Expense.
Without limitation, Office Expense shall include:
(a) the salaries and benefits of all employees of Business Manager at
the Centers and the salaries and benefits of the nondental employees of PC, but
not the salaries, benefits, or other direct costs of the Dentists;
(b) the direct cost of any employee or consultant that provides services
at or in connection with the Centers for improved clinic performance, such as
management, billing and collections, business office consultation, accounting
and legal services, but only when such services are consistent with the Budget
or otherwise with the consent of the Policy Board;
(c) reasonable recruitment costs and out-of-pocket expenses of Business
Manager or PC directly related to the recruitment of additional dental employees
of PC;
(d) professional liability insurance expenses for Dentists and
comprehensive, general liability and workers' compensation insurance covering
the Centers and employees of PC and Business Manager at each Center;
(e) the expense of using, leasing, purchasing or otherwise procuring
each Center and related equipment, including depreciation;
(f) the cost of capital (whether as actual interest on indebtedness
incurred on behalf of PC or as reasonable imputed interest on capital advanced
by Business Manager, which shall be equal to the average cost of borrowing by
Business Manager from its primary commercial lender as reflected on its most
recent published financial statements) to finance or refinance obligations of
PC, purchase dental or nondental equipment, or finance new ventures of PC;
(g) the Base Management Fee;
(h) the reasonable out-of-pocket travel expenses associated with
attending meetings, conferences, or seminars to benefit PC;
(i) the reasonable costs and expenses associated with marketing,
advertising and promotional activities to benefit PC; and
(j) the cost of dental supplies (including but not limited to drugs,
pharmaceuticals, products, substances, items, or dental devices), office
supplies, inventory, and utilities other than
4
those dental supplies or dental inventory owned by PC on the date of this
Management Services Agreement.
Section 1.20 PC. The term "PC" shall mean Jack H. Castle, D.D.S., P.C.,
a Texas professional corporation.
Section 1.21 PC ACCOUNT. The term "PC Account" shall mean the bank
account of PC established as described in Sections 4.8 and 4.9.
Section 1.22 PC CONSENT. The term "PC Consent" shall mean the consent
granted by PC's representative to the Policy Board created pursuant to Article
III herein. When any provision of this Management Services Agreement requires PC
Consent, PC Consent shall not be unreasonably withheld and shall be binding on
PC.
Section 1.23 PC EXPENSE. The term "PC Expense" shall mean an expense
incurred by the Business Manager or PC that is consistent with the Budget or
otherwise with the consent of the Policy Board and for which PC, and not the
Business Manager, is financially liable. PC Expense shall include such items as
Dentist salaries, benefits, and other direct costs (including professional dues,
subscriptions, continuing dental education expenses, and travel costs for
continuing dental education or other business travel but excluding business
travel requested by Business Manager, which shall be an Office Expense).
Section 1.24 PERFORMANCE FEE. The term "Performance Fee" shall mean the
amount payable to the Business Manager, if any, determined under Section 6.2, as
a Management Fee based upon the Business Manager achieving certain
pre-determined performance criteria.
Section 1.25 POLICY BOARD. The term "Policy Board" shall refer to the
body responsible for developing and implementing management and administrative
policies for the overall operation of PC's facilities.
Section 1.26 PRACTICE TERRITORY. The term "Practice Territory" shall
mean the geographic area within a radius of ten (10) miles of any current or
future facility from which PC provides Dental Services in Texas, representing
the specific geographic boundaries of the dental practice conducted by PC within
its particular urban, metropolitan area.
Section 1.27 PROFESSIONAL SERVICES REVENUES. The term "Professional
Services Revenues" shall mean the sum of all professional fees actually recorded
each month on an accrual basis under GAAP (net of Adjustments) as a result of
Dental Services and related services rendered by the shareholders and dental
employees of PC.
Section 1.28 REPRESENTATIVES. The term "Representatives" shall mean a
party's officers, directors, employees, or other agents or representatives.
Section 1.29 STATE. The term "State" shall mean the State of Texas.
Section 1.30 TERM. The term "Term" shall mean the initial and any
renewal periods of duration of this Management Services Agreement as described
in Section 7.1.
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ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
Section 2.1 APPOINTMENT. PC hereby appoints Business Manager as its sole
and exclusive agent for the management, and administration of the business
functions and business affairs of PC, and Business Manager hereby accepts such
appointment, subject at all times to the provisions of this Management Services
Agreement.
Section 2.2 AUTHORITY. Consistent with the provisions of this Management
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services for PC. Subject to the
terms and conditions of this Management Services Agreement, Business Manager is
hereby expressly authorized to provide the Management Services in any reasonable
manner Business Manager deems appropriate to meet the day-to-day requirements of
the business functions of PC. Business Manager is also expressly authorized to
negotiate and execute on behalf of PC contracts that do not relate to the
provision of Dental Services. PC shall give Business Manager thirty (30) days
prior notice of PC's intent to execute any agreement obligating PC to perform
Dental Services or otherwise creating a binding legal obligation on PC. The
parties acknowledge and agree that PC, through its Dentists, shall be
responsible for and shall have complete authority, responsibility, supervision,
and control over the provision of all Dental Services and other professional
health care services performed for patients, and that all diagnoses, treatments,
procedures, and other professional health care services shall be provided and
performed exclusively by or under the supervision of Dentists as such Dentists,
in their sole discretion, deem appropriate. Business Manager shall have and
exercise absolutely no control or supervision over the provision of Dental
Services.
Section 2.3 PATIENT REFERRALS AND PAYMENTS. Business Manager and PC
agree that the benefits to PC hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission, or any other
arrangement for the provision of any item or service offered by Business Manager
to patients of PC in any facility, laboratory or health care operation
controlled, managed, or operated by Business Manager. Further, Business Manager
and PC agree that the payment of monies hereunder in no way represents the
division, sharing, splitting or other allocation of fees for Dental Services
between PC and Business Manager.
Section 2.4 INTERNAL MANAGEMENT OF PC. Matters involving the internal
management, control, or finances of PC, including specifically the allocation of
professional income among the shareholders and Dentist employees of PC, tax
planning, and investment planning, shall remain the exclusive responsibility of
PC and the shareholders of PC.
Section 2.5 PRACTICE OF DENTISTRY. The parties acknowledge that Business
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of dentistry nor shall Business
Manager now or in the future be regarded as practicing dentistry within the
meaning of Article 4551a of the Act. To the extent any act or service herein
required by Business Manager should be construed by a court of competent
jurisdiction or by the State Board of Dental Examiners to constitute the
practice of dentistry, the requirement to perform that act or service by
Business Manager shall be deemed waived and unenforceable and shall not
constitute a breach or default by Business Manager under this Agreement, and the
parties shall take the actions contemplated by Section 7.2(d) hereof.
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ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD
Section 3.1 FORMATION AND OPERATION OF THE POLICY BOARD. The parties
hereby establish a Policy Board which shall be responsible for developing and
implementing management and administrative policies for the overall operation of
PC's facilities. The Policy Board shall consist of four (4) members. Business
Manager shall designate, in its sole discretion, three (3) members of the Policy
Board. PC shall designate, in its sole discretion, one (1) member of the Policy
Board. The Policy Board member selected by PC shall be a Dentist who holds and
maintains a valid and unrestricted license to practice dentistry in the State. A
majority of each party's representative or representatives to the Policy Board
shall have the authority to make decisions on behalf of the respective party.
Except as may otherwise be provided, the act of a majority of the members of the
Policy Board shall be the act of the Policy Board.
Section 3.2 DUTIES AND RESPONSIBILITIES OF THE POLICY BOARD. The Policy
Board shall have the following duties, obligations, and authority:
(a) CAPITAL IMPROVEMENTS AND EXPANSION. Any renovation and expansion
plans and capital equipment expenditures with respect to PC's facilities shall
be reviewed and approved by the Policy Board and shall be based upon economic
feasibility, dentist support, productivity, technological innovations,
competitive alternatives, age of existing capital equipment, and then current
market conditions.
(b) MARKETING AND ADVERTISING. All marketing and other advertising of
the services performed at PC's facilities shall be subject to the prior review
and approval of the Policy Board.
(c) PATIENT FEES; COLLECTION POLICIES. As a part of the Budget process,
in consultation with PC and Business Manager, the Policy Board shall be advised
of the fee schedule determined by the PC representative to the Policy Board and
shall review and approve the related collection policies for all Dental Services
and ancillary services rendered by PC.
(d) ANCILLARY SERVICES. The Policy Board shall approve PC-provided
ancillary services based upon the pricing, access to and quality of such
services.
(e) PROVIDER AND PAYOR RELATIONSHIPS. Decisions regarding the
establishment or maintenance of relationships with institutional health care
providers and third party payors shall be approved by the Policy Board. The
Policy Board shall review and approve all proposed reimbursement arrangements
with third party payors.
(f) STRATEGIC PLANNING. The Policy Board shall develop long-term
strategic planning objectives, including but not limited to the acquisition of
or merger with any other dental practices in the Practice Territory.
(g) CAPITAL EXPENDITURES. The Policy Board shall determine the priority
of major capital expenditures.
7
(h) DENTIST HIRING. The Policy Board shall recommend to PC the number
and type of Dentists required for the efficient operation of PC's facilities.
The Policy Board shall review and approve any variations to the restrictive
covenants in any dentist employment contract.
Section 3.3 DENTAL TREATMENT DECISIONS. Despite the above listing of
activities and areas of interest, all decisions relating directly or indirectly
to the practice of dentistry will be made solely by PC's representatives to the
Policy Board, but Business Manager's representatives to the Policy Board may
participate in the discussion process. PC's representative to the Policy Board
shall review and shall have exclusive jurisdiction over the resolution of issues
relating to:
(a) Types and levels of Dental Services to be provided;
(b) Recruitment of dentists to PC, including the specific qualifications
and specialties of recruited dentists;
(c) Subject to the Policy Board's authority under Section 3.2(e), fee
schedules; and
(d) Any other function or decision relating to the practice of
dentistry.
The Policy Board meetings shall be held as mutually agreed, but at least
quarterly, in Texas. Meetings shall be open to any shareholder of PC.
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
as are necessary and appropriate for the day-to-day administration of the
business aspects of PC's operations, including without limitation those set
forth in this Article IV in accordance with all law, rules, regulations and
guidelines applicable to the provision of Management Services.
Section 4.1 CENTERS AND EQUIPMENT.
(a) Subject to Section 4.1(b), as necessary and appropriate, taking into
consideration the professional concerns of PC, Business Manager shall in its
reasonable discretion lease, acquire or otherwise procure Centers in a location
or locations reasonably acceptable to PC and shall permit PC to use each such
Center pursuant to this Management Services Agreement, by sublease or otherwise
as required by law.
(b) PC shall not enter into any lease or sublease with respect to a
Center without Business Manager's prior consent. In the event PC is the lessee
of any Center under a lease with an unrelated and nonaffiliated lessor, Business
Manager may require PC to assign such lease to Business Manager upon receipt of
consent from the lessor and Business Manager shall permit PC to use such Center
pursuant to this Management Services Agreement, by sublease or otherwise as
required by law. PC shall use its best efforts to assist in obtaining the
lessor's consent to the assignment. Upon request, PC shall execute any
instruments and shall take any acts that Business Manager may deem necessary to
accomplish the assignment of the lease. Any expenses incurred in the assignment
shall be Office Expenses.
8
(c) Business Manager shall provide all nondental equipment, fixtures,
office supplies, furniture and furnishings deemed reasonably necessary by
Business Manager for the operation of each Center and reasonably necessary for
the provision of Dental Services pursuant to this Management Services Agreement,
by lease, sublease or otherwise as required by law.
(d) Business Manager shall provide, finance, or cause to be provided or
financed dental related equipment as required by PC. PC shall have final
authority in all dental equipment selections, and Business Manager shall have no
authority in regard to dental equipment selection issues. Business Manager may,
however, advise PC on the relationship between its dental equipment decisions
and the overall administrative and financial operations of the practice. All
dental and nondental equipment acquired for the use of PC shall be owned by
Business Manager.
(e) Business Manager shall be responsible for the repair and maintenance
of each Center, consistent with Business Manager's responsibilities under the
terms of any lease or other use arrangement, and for the repair, maintenance,
and replacement of all equipment other than such repairs, maintenance and
replacement necessitated by the negligence or willful misconduct of PC, its
Dentists or other personnel employed by PC, the repair or replacement of which
shall be a PC Expense and not an Office Expense.
Section 4.2 DENTAL SUPPLIES. Business Manager shall order, procure,
purchase and provide on behalf of and as agent for PC all dental supplies
necessary and appropriate for the practice of PC in the reasonable discretion of
PC unless otherwise prohibited by federal and/or State law. Furthermore,
Business Manager shall ensure that each Center is at all times adequately
stocked with the dental supplies that are necessary and appropriate for the
operation of PC and required for the provision of Dental Services. The ultimate
oversight, supervision and ownership for all dental supplies is and shall remain
the sole responsibility of PC. As used in this provision the term "dental
supplies" shall mean all drugs, pharmaceuticals, products, substances, items or
devices whose purchase, possession, maintenance, administration, prescription or
security requires the authorization or order of a licensed health care provider
or requires a permit, registration, certification or other governmental
authorization held by a licensed health care provider as specified under any
federal and/or State law.
Section 4.3 SUPPORT SERVICES. Business Manager shall provide or arrange
for all printing, stationery, forms, postage, duplication or photocopying
services, and other support services as are reasonably necessary and appropriate
for the operation of each Center and the provision of Dental Services therein.
Section 4.4 QUALITY ASSURANCE, RISK MANAGEMENT, AND UTILIZATION REVIEW.
Business Manager shall, upon the request of PC, assist PC in PC's establishment
of procedures to ensure the consistency, quality, appropriateness and necessity
of Dental Services provided by PC, and shall provide administrative support for
PC's overall quality assurance, risk management, and utilization review
programs. Business Manager shall perform these tasks in a manner to ensure the
confidentiality and nondiscoverability of these program actions to the fullest
extent allowable under State and federal law.
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Section 4.5 LICENSES AND PERMITS. Business Manager shall, on behalf of
and in the name of PC, coordinate all development and planning processes, and
apply for and use reasonable efforts to obtain and maintain all federal, State,
and local licenses and regulatory permits required for or in connection with the
operation of PC and equipment (existing and future) located at each Center,
other than those relating to the practice of dentistry or the administration of
drugs by Dentists retained by or associated with PC.
Section 4.6 PERSONNEL. Except as specifically provided in Section 5.2(b)
of this Management Services Agreement, Business Manager shall, consistent with
the Budget, employ or otherwise retain and shall be responsible for selecting,
hiring, training, supervising, and terminating, all management, administrative,
clerical, secretarial, bookkeeping, accounting, payroll, billing and collection
and other nonprofessional personnel as Business Manager deems reasonably
necessary and appropriate to enable Business Manager to perform its duties and
obligations under this Management Services Agreement. All such personnel
employed by Business Manager at each Center shall be reasonably acceptable to PC
and the Business Manager shall consult with PC on the individual who is hired as
PC's office manager. Business Manager shall, consistent with the Budget, have
sole responsibility for determining the salaries and providing such fringe
benefits, and for withholding, as required by law, any sums for income tax,
unemployment insurance, social security, or any other withholding required by
applicable law or governmental requirement.
Section 4.7 CONTRACT NEGOTIATIONS. Business Manager shall advise PC with
respect to and negotiate, either directly or on PC's behalf, as appropriate and
allowed by law, and the Policy Board shall approve all contractual arrangements
between PC and third parties as are reasonably necessary and appropriate for
PC's provision of Dental Services, including, without limitation, negotiated
price agreements with third party payors, alternative delivery systems, or other
purchasers of group health care services.
Section 4.8 BILLING AND COLLECTION. On behalf of and for the account of
PC, Business Manager shall establish and maintain credit and billing and
collection policies and procedures, and shall timely bill and collect all
professional and other fees for all Dental Services provided by PC, or Dentists
employed or otherwise retained by PC. Business Manager shall advise and consult
with PC regarding the fees for Dental Services provided by PC; it being
understood, however, that PC shall establish the fees to be charged for Dental
Services and that Business Manager shall have no authority whatsoever with
respect to the establishment of such fees. In connection with the billing and
collection services to be provided hereunder, and throughout the Term (and
thereafter as provided in Section 7.3), PC hereby grants to Business Manager a
special power of attorney and appoints Business Manager as PC's exclusive true
and lawful agent and attorney-in-fact, and Business Manager hereby accepts such
special power of attorney and appointment, for the following purposes:
(a) To bill PC's patients, in PC's name and on PC's behalf, for all
Dental Services provided by PC to patients.
(b) To bill, in PC's name and on PC's behalf, all claims for
reimbursement or indemnification from Blue Shield/Blue Cross, insurance
companies and all other third party payors or fiscal intermediaries for all
covered billable Dental Services provided by PC to patients.
10
(c) To collect and receive in Business Manager's name and for Business
Manager's account all accounts receivable of PC purchased by Business Manager,
and to deposit such collections in an account selected by Business Manager and
maintained in Business Manager's name.
(d) To collect and receive, in PC's name and on PC's behalf, all
accounts receivable generated by such billings and claims for reimbursement that
have not been purchased by Business Manager, to administer such accounts
including, but not limited to, (i) extending the time of payment of any such
accounts for cash, credit or otherwise; (ii) discharging or releasing the
obligors of any such accounts; (iii) suing, assigning or selling at a discount
such accounts to collection agencies; or (iv) taking other measures to require
the payment of any such accounts.
(e) To deposit all amounts collected under clause (d) above into PC
Account which shall be and at all times remain in PC's name. PC covenants to
transfer and deliver to Business Manager for deposit into PC Account (or, with
respect to accounts receivable purchased by Business Manager, Business Manager's
account) all funds received by PC from patients or third party payors for Dental
Services. Upon receipt by Business Manager of any funds from patients or third
party payors or from PC pursuant hereto for Dental Services, Business Manager
shall immediately deposit those that relate to accounts receivable covered by
clause (d) above into the PC Account. Business Manager shall disburse such
deposited funds to creditors and other persons on behalf of PC, maintaining
records of such receipt and disbursement of funds in accordance with Section
4.9(b).
(f) To take possession of, endorse in the name of PC, and deposit into
the PC Account any notes, checks, money orders, insurance payments, and any
other instruments received in payment for Dental Services that relate to
accounts receivable covered by clause (d) above.
(g) To sign checks, drafts, bank notes or other instruments on behalf of
PC, and to make withdrawals from the PC Account for payments specified in this
Management Services Agreement.
Upon request of Business Manager, PC shall execute and deliver to the financial
institution wherein the PC Account is maintained, such additional documents or
instruments as may be necessary to evidence or effect the special and limited
power of attorney granted to Business Manager by PC pursuant to this Section 4.8
or pursuant to Section 4.9 of this Management Services Agreement. The special
and limited power of attorney granted herein shall be coupled with an interest
and shall be irrevocable except with Business Manager's written consent. The
irrevocable power of attorney shall expire on the later of when this Management
Services Agreement has been terminated, when all accounts receivable purchased
by Business Manager have been collected, or when all Management Fees due to
Business Manager have been paid. If Business Manager assigns this Management
Services Agreement in accordance with its terms, then PC shall execute a power
of attorney in favor of the assignee including substantially the same terms set
forth in this Section 4.8.
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Section 4.9 PC ACCOUNT.
(a) ACCESS. Business Manager shall have access to the PC Account solely
for the purposes contemplated hereby. PC shall neither draw checks on the PC
Account nor request Business Manager to do so.
(b) PRIORITY OF PAYMENTS. Business Manager shall apply on a monthly
basis, except as otherwise stated hereunder, funds that are in the PC Account in
the following order of priority: (i) PC Expenses; (ii) Office Expenses (other
than the Base Management Fee); (iii) Management Fees (both Base Management Fee
and Performance Fee); and (iv) any other expenditures.
Section 4.10 FISCAL MATTERS.
(a) ANNUAL BUDGET.
(1) INITIAL BUDGET. The initial Budget shall be agreed upon and
approved in writing by the parties before the execution of this
Management Services Agreement. The initial Budget shall include a
provision for payment of the Licensing Fee in equal monthly installments
and an exhibit setting forth the criteria under which Business Manager
shall be entitled to receive the Performance Fee.
(2) PROCESS FOR SUCCEEDING BUDGETS. Annually and at least thirty
(30) days prior to the commencement of each fiscal year of PC, Business
Manager, in consultation with PC's representative to the Policy Board,
shall prepare and deliver to PC for PC's approval a proposed Budget,
setting forth an estimate of PC's revenues and expenses for the upcoming
fiscal year (including, without limitation, the Management Fee and
Performance Fee associated with the services provided by Business
Manager hereunder). PC shall review the proposed Budget and either
approve the proposed Budget or request any changes within fifteen (15)
days after receiving the proposed Budget. The Budget shall be adopted by
PC after its approval thereof and may be revised or modified only in
consultation with the Business Manager.
(3) SUCCEEDING BUDGETS; SPECIAL RATES. In each succeeding Budget,
unless the parties otherwise mutually agree or are otherwise precluded
by law or regulation, the criteria for the Performance Fee and Business
Manager's right to receive the Performance Fee shall be continued on the
same basis.
(4) DEADLOCK. In the event the parties are unable to agree on a
Budget by the beginning of the fiscal year, until an agreement is
reached, the Budget for the prior year shall be deemed to be adopted as
the Budget for the current year, with each line item in the Budget (with
the exception of the Base Management Fee and any one-time or
non-recurring expenses included in such prior Budget) increased or
decreased by (i) the percentage by which the Adjusted Gross Revenue in
the current year has increased or decreased compared to the
corresponding period of the prior year; (ii) the increase or decrease
from the prior year in the Consumer Price Index - Health/Medical
Services, Houston, Texas area; and (iii) the proportionate increase or
decrease in mutually agreed
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upon personnel costs as measured by the increase or decrease in
full-time-equivalent personnel.
(5) OBLIGATION OF BUSINESS MANAGER. Business Manager shall use
commercially reasonable efforts to manage and administer the operations
of PC as herein provided so that the actual revenues, costs and expenses
of the operation and maintenance of PC during any applicable period of
PC's fiscal year shall be consistent with the Budget.
(b) ACCOUNTING AND FINANCIAL RECORDS. Business Manager shall establish
and administer accounting procedures, controls, and systems for the development,
preparation, and safekeeping of administrative or financial records and books of
account relating to the business and financial affairs of PC and the provision
of Dental Services all of which shall be prepared and maintained in accordance
with GAAP and applicable laws and regulations. Business Manager shall prepare
and deliver to PC, within one hundred twenty (120) days of the end of each
calendar year, a balance sheet and a profit and loss statement reflecting the
financial status of PC in regard to the provision of Dental Services as of the
end of such calendar year, all of which shall be prepared in accordance with
GAAP consistently applied. In addition, Business Manager shall prepare or assist
in the preparation of any other financial statements or records as PC may
reasonably request.
(c) REVIEW OF EXPENDITURES. PC's representative to the Policy Board
shall review all expenditures related to the operation of PC, but such PC
representative shall not have the power to prohibit or invalidate any
expenditure that is consistent with the Budget. Business Manager shall not have
any authority to make any expenditures not consistent with the Budget without PC
Consent.
(d) TAX MATTERS.
(1) IN GENERAL. Business Manager shall prepare or arrange for
the preparation by an accountant approved in advance by PC
(which approval shall not be unreasonably withheld) of all
appropriate tax returns and reports required of PC.
(2) SALES AND USE TAXES. Business Manager and PC acknowledge
and agree that to the extent that any of the services to
be provided by Business Manager hereunder may be subject
to any State sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from PC and
to remit same to the appropriate tax collection
authorities. PC agrees to pay in addition to the payment
of the Management Fee, the applicable State sales and use
taxes in respect of the portion of the Management Fees
attributable to such services.
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Section 4.11 REPORTS AND RECORDS. Business Manager shall establish,
monitor, and maintain procedures and policies for the timely creation,
preparation, filing and retrieval of all dental records generated by PC in
connection with PC's provision of Dental Services; and, subject to applicable
law, shall use its best efforts to ensure that dental records are promptly
available to Dentists and any other appropriate persons. All such dental records
shall be retained and maintained in accordance with all applicable State and
federal laws relating to the confidentiality and retention thereof. All dental
records shall be and remain the property and under the control of PC and shall
be located at the applicable Center so that they are readily available for
patient care, and PC shall remain the custodian thereof and responsible for
their maintenance. Business Manager shall use its reasonable efforts to preserve
the confidentiality of dental records and use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided, however, in no event shall a breach of said confidentiality be
deemed a default under this Agreement.
Section 4.12 RECRUITMENT OF PC DENTISTS. Upon PC's request, Business
Manager shall perform all administrative services reasonably necessary and
appropriate to recruit potential Dentist personnel to become employees of PC.
Business Manager shall provide PC with model agreements to document PC's
employment, retention or other service arrangements with such individuals. It
will be and remain the sole and complete responsibility of PC to interview,
select, contract with, supervise, control and terminate all Dentists performing
Dental Services or other professional services, and Business Manager shall have
no authority whatsoever with respect to such activities.
Section 4.13 BUSINESS MANAGER'S INSURANCE. Throughout the Term, Business
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
worker's compensation coverage for Business Manager's employed personnel
provided pursuant to this Management Services Agreement, and professional,
casualty and comprehensive general liability insurance covering Business
Manager, Business Manager's personnel, and all of Business Manager's equipment
in such amounts, on such basis and upon such terms and conditions as Business
Manager deems appropriate. Upon the request of PC, Business Manager shall
provide PC with a certificate evidencing such insurance coverage. Business
Manager may also carry, as an Office Expense, key person life and disability
insurance on any shareholder or Dentist employee of PC in amounts determined
reasonable and sufficient by Business Manager. Business Manager shall be the
owner and beneficiary of any such insurance.
Section 4.14 NO WARRANTY. PC acknowledges that Business Manager has not
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of dental practice or income to PC.
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PC
Section 5.1 ORGANIZATION AND OPERATION. PC, as a continuing condition of
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Dental Services in a manner
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consistent with all State and federal laws. PC shall operate and maintain within
the Practice Territory a full time practice of dentistry specializing in the
provision of Dental Services.
Section 5.2 PC PERSONNEL.
(a) DENTAL PERSONNEL. PC shall retain, as a PC Expense and not as an
Office Expense, that number of Dentists as are reasonably necessary and
appropriate in the sole discretion of PC for the provision of Dental Services.
Each Dentist retained by PC shall hold and maintain a valid and unrestricted
license to practice dentistry in the State, and shall be competent in the
practice of dentistry, including any subspecialties that the retained Dentist
will practice on behalf of PC. PC shall enter into and maintain with each such
retained Dentist a written employment agreement in a form reasonably
satisfactory to PC and Business Manager and will not commit and permit to remain
outstanding any breach of such employment agreement that would allow the Dentist
to terminate for cause. PC shall be responsible for paying the compensation and
benefits, as applicable, for all Dentists and any other dental personnel or
other contracted or affiliated dentists, and for withholding, as required by
law, any sums for income tax, unemployment insurance, social security, or any
other withholding required by applicable law. Business Manager may, on behalf of
PC, establish and administer the compensation with respect to such individuals
in accordance with the written agreement between PC and each Dentist. Business
Manager shall neither control nor direct any Dentist in the performance of
Dental Services for patients.
(b) EMPLOYMENT OF NON-DENTIST DENTAL CARE PERSONNEL. PC shall employ or
retain, as an Office Expense, all non-dentist dental care personnel, such as
dental assistants, dental hygienists and dental technicians, required under the
Act or otherwise required by law to work under the direct supervision of a
Dentist or who Business Manager and PC determine should work under the direct
supervision of a Dentist. Such non-dentist dental care personnel shall be under
PC's control, supervision and direction in the performance of Dental Services
for patients.
Section 5.3 PROFESSIONAL STANDARDS. As a continuing condition of
Business Manager's obligations hereunder, each Dentist and any other dental
personnel retained by PC to provide Dental Services must (i) comply with, be
controlled and governed by and otherwise provide Dental Services in accordance
with the code of professional conduct and applicable federal, State and
municipal laws, rules, regulations, ordinances and orders, and the ethics and
standard of care of the dental community wherein any Center is located and (ii)
obtain and retain appropriate dental staff membership with appropriate clinical
privileges at any hospital or health care facility at which Dental Services are
to be provided. Procurement of temporary staff privileges pending the completion
of the dental staff approval process shall satisfy this provision, provided the
Dentist actively pursues full appointment and actually receives full appointment
within a reasonable time.
Section 5.4 DENTAL SERVICES. PC shall ensure that Dentists and
non-dentist dental care personnel are available to provide Dental Services to
patients. In the event that Dentists are not available to provide Dental
Services coverage, PC shall engage and retain LOCUM TENENS coverage as it deems
reasonable and appropriate based on patient care requirements. Dentists retained
on a LOCUM TENENS basis shall meet all of the requirements of Section 5.3, and
the cost of providing LOCUM TENENS coverage shall be a PC Expense. With the
assistance of the Business Manager,
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PC and the Dentists shall be responsible for scheduling Dentist and non-dentist
dental care personnel coverage of all dental procedures. PC shall cause all
Dentists to develop and promote PC.
Section 5.5 PEER REVIEW/QUALITY ASSURANCE. PC shall adopt a peer
review/quality assessment program to monitor and evaluate the quality and
cost-effectiveness of Dental Services provided by dental personnel of PC. Upon
request of PC, Business Manager shall provide administrative assistance to PC in
performing its peer review/quality assurance activities, but only if such
assistance can be provided consistent with maintaining the confidentiality and
nondiscoverability of the processes and actions of the Peer Review/Quality
Assurance process of PC and not be regarded as practicing dentistry under the
Act.
Section 5.6 PC'S INSURANCE. PC shall, as an Office Expense, obtain and
maintain with commercial carriers acceptable to Business Manager appropriate
worker's compensation coverage for PC's employed personnel, if any, and
professional and comprehensive general liability insurance covering PC and each
of the Dentists PC retains or employs to provide Dental Services. The
comprehensive general liability coverage shall be in the minimum amount of One
Million Dollars ($1,000,000) for each occurrence and Two Million Dollars
($2,000,000) annual aggregate; and professional liability coverage shall be in
the minimum amount of Five Hundred Thousand Dollars ($500,000) for each
occurrence and One Million Five Hundred Thousand Dollars ($1,500,000) annual
aggregate. The insurance policy or policies shall provide for at least thirty
(30) days advance written notice to PC from the insurer as to any alteration of
coverage, cancellation, or proposed cancellation for any cause. PC shall cause
to be issued to Business Manager by such insurer or insurers a certificate
reflecting such coverage and shall provide written notice to Business Manager
promptly upon receipt of notice given to Dentist of the cancellation or proposed
cancellation of such insurance for any cause. Upon the termination of this
Management Services Agreement for any reason, PC shall obtain and maintain as a
PC Expense "tail" professional liability coverage, in the amounts specified in
this section for an extended reporting period of 15 years, and PC shall be
responsible for paying all premiums for "tail" insurance coverage. In no event
shall the professional liability insurance carrier be replaced or changed
without PC Consent and Business Manager Consent. PC and Business Manager agree
to use their best efforts to have each other named as additional insureds on the
other's respective professional liability insurance at Business Manager's
expense.
Section 5.7 CONFIDENTIAL AND PROPRIETARY INFORMATION. PC will not
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization, such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
PC will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations; provided, however, that PC may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by PC that such Representatives will be
informed of the confidential nature of the Confidential Information, will agree
to be bound by this Section, and will be directed by PC not to disclose to any
other person any Confidential Information. PC agrees to be responsible for any
breach of this Section by its Representatives. If PC is requested or required
(by oral questions, interrogatories, requests for information or documents,
subpoenas, civil investigative
16
demands, or similar processes) to disclose or produce any Confidential
Information furnished in the course of its dealings with Business Manager or its
affiliates, advisors, or Representatives, PC will (i) provide Business Manager
with prompt notice thereof and copies, if possible, and, if not, a description,
of the Confidential Information requested or required to be produced so that
Business Manager may seek an appropriate protective order or waive compliance
with the provisions of this Section and (ii) consult with Business Manager as to
the advisability of Business Manager's taking of legally available steps to
resist or narrow such request. PC further agrees that, if in the absence of a
protective order or the receipt of a waiver hereunder PC is nonetheless, in the
written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager to any tribunal or to stand
liable for contempt or suffer other censure or penalty, PC may disclose or
produce such Confidential Information to such tribunal legally authorized to
request and entitled to receive such Confidential Information without liability
hereunder; provided, however, that PC shall give Business Manager written notice
of the Confidential Information to be so disclosed or produced as far in advance
of its disclosure or production as is practicable and shall use its best efforts
to obtain, to the greatest extent practicable, an order or other reliable
assurance that confidential treatment will be accorded to such Confidential
Information so required to be disclosed or produced.
Section 5.8 NONCOMPETITION. PC hereby recognizes and acknowledges that
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, PC will be privy to financial and Confidential Information, to which
PC would not otherwise be exposed. The parties also recognize that the services
to be provided by Business Manager will be feasible only if PC operates an
active practice to which the Dentists associated with PC devote their full
professional time and attention. PC agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants.
(a) During the Term of this Management Services Agreement and except for
its obligations pursuant to this Management Services Agreement, PC shall not
establish, operate, or provide Dental Services at a dental office, clinic or
other health care facility anywhere within the Practice Territory.
(b) Except as specifically agreed to by Business Manager in writing, PC
covenants and agrees that during the Term of this Management Services Agreement
and for a period of five (5) years from the date this Management Services
Agreement is terminated, PC shall not directly or indirectly own (excluding
ownership of less than five percent (5%) of the equity of any publicly traded
entity), manage, operate, control, or be otherwise associated with, lend funds
to, lend its name to, or maintain any interest whatsoever in any enterprise (i)
having to do with the provision, distribution, promotion, or advertising of any
type of management or administrative services or products to third parties in
competition with Business Manager, in the Practice Territory; and/or (ii)
offering any type of service(s) or product(s) to third parties substantially
similar to those offered by Business Manager to PC in the Practice Territory.
Notwithstanding the above restriction, nothing herein shall prohibit PC or any
of its shareholders
17
from providing management and administrative services to its or their own dental
practices after the termination of this Management Services Agreement.
(c) The written employment agreements described in Section 5.2 shall
contain covenants of the shareholder employees pursuant to which the
shareholders agree not to compete with PC within the Practice Territory for one
(1) year after termination of the employment agreement in accordance with the
terms, conditions and limitations contained therein.
(d) PC shall obtain formal written agreements from its dentist employees
in the form of Exhibit 5.2(a), pursuant to which the employees agree not to
compete with PC within the Noncompetition Territory (as defined in such
employment agreements) for one (1) year after termination of the employment
agreement in accordance with the terms, conditions and limitations contained
therein.
(e) PC understands and acknowledges that the foregoing provisions in
Section 5.7 and Section 5.8 are designed to preserve the goodwill of Business
Manager and the goodwill of the individual Dentists of PC. Accordingly, if PC
breaches any obligation of Section 5.7 or Section 5.8, in addition to any other
remedies available under this Management Services Agreement, at law or in
equity, Business Manager shall be entitled to enforce this Management Services
Agreement by injunctive relief and by specific performance of the Management
Services Agreement. Additionally, nothing in this paragraph shall limit Business
Manager's right to recover any other damages to which it is entitled as result
of PC's breach. If any provision of the covenants is held by a court of
competent jurisdiction to be unenforceable due to an excessive time period,
geographic area, or restricted activity, the covenant shall be reformed to
comply with such time period, geographic area, or restricted activity that would
be held enforceable.
Section 5.9 NAME, TRADEMARK. PC represents and warrants that, as of the
date hereof, PC conducts its professional practice under the name of, and only
under the name of "Jack H. Castle, D.D.S., P.C." and that such name is the name
of PC under Texas law, and that to its knowledge PC is the sole and absolute
owner of the name. PC covenants and promises that, without the prior written
consent of the Business Manager, PC will not:
(a) take any action or omit to take any action that is reasonably likely
to result in the change or loss of the name;
(b) license, sell, give, or otherwise transfer the name or the right to
use the name to any dental practice, dentist, professional corporation, or any
other entity; or
(c) cease conducting the professional practice of PC under the name.
Section 5.10 PEER REVIEW. PC shall designate a committee of Dentists to
function as a dental peer review committee to review credentials of potential
recruits, perform quality assurance functions, and otherwise resolve dental
competence issues. The dental peer review committee shall function pursuant to
formal written policies and procedures.
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
Section 5.11 INDEMNIFICATION. PC shall indemnify, hold harmless and
defend Business Manager, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), whether or not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of Dental Services or any other acts or omissions by
PC and/or its shareholders, agents, employees and/or subcontractors (other than
Business Manager) during the term hereof. Business Manager shall indemnify, hold
harmless and defend PC, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts, or omissions by Business Manager and/or its shareholders,
agents, employees and/or subcontractors (other than PC) during the term of this
Agreement.
ARTICLE VI. FINANCIAL ARRANGEMENT
Section 6.1 DEFINITIONS. For purposes of this Article VI, capitalized
terms used herein shall have the meanings ascribed as follows:
(a) BASE MANAGEMENT FEE. The Base Management Fee shall be the amount,
calculated on a monthly basis, that is equal to [REDACTED] ([REDACTED]%) of the
Adjusted Gross Revenue attributable to the applicable monthly period.
(b) PERFORMANCE FEE. The Performance Fee shall be the amount, calculated
on a monthly basis, that is calculated in accordance with the Applicable Exhibit
to the Budget.
Section 6.2 MANAGEMENT FEE. PC and Business Manager agree to the
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by Section
4.9 (b), Business Manager shall be paid the following:
(i) the amount of all Office Expenses (other than the Base
Management Fee) paid by the Business Manager on behalf
of PC.
(ii) the Base Management Fee.
(iii) the Performance Fee.
Section 6.3 ADJUSTMENTS. If there are not sufficient funds to pay either
or both of the Base Management Fee or the Performance Fee, all unpaid amounts
shall accumulate and carry over from month to month until paid or until the
termination of this Management Services Agreement, in which case such unpaid
amounts shall be immediately due and payable as of the date of termination.
Amounts carried over shall earn interest at the rate of ten percent (10%) per
annum. Furthermore, the amount of the Performance Fee paid will be monitored and
reconciled on an annual basis and any overpayments of the Performance Fee shall
be promptly refunded by the Business Manager.
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Section 6.4 REASONABLE VALUE. Payment of the Base Management Fee or
Performance Fee is not intended to be and shall not be interpreted or applied as
permitting Business Manager to share in PC's fees for Dental Services or any
other services, but is acknowledged as the parties' negotiated agreement as to
the reasonable fair market value of the equipment, contract analysis and
support, other support services, purchasing, personnel, office space,
management, administration, strategic management and other items and services
furnished by Business Manager pursuant to this Management Services Agreement,
considering the nature and volume of the services required and the risks assumed
by Business Manager.
Section 6.5 PAYMENT OF MANAGEMENT FEE. To facilitate the payment of the
Management Fee as provided in Section 6.1 hereof, PC hereby expressly authorizes
Business Manager to make withdrawals of the Management Fee from the PC Account
as such fee becomes due and payable during the Term and thereafter as provided
in Section 7.3.
Section 6.6 ACCOUNTS RECEIVABLE. To assure that PC receives the entire
amount of professional fees for its services and to assist PC in maintaining
reasonable cash flow for the payment of Office Expenses, Business Manager may,
during the Term, purchase, without recourse to PC for the amount of the
purchase, the accounts receivable of PC arising during the previous month by
transferring the amount set forth below into the PC Account. The consideration
for the purchase shall be an amount equal to the Adjusted Gross Revenue recorded
each month (according to GAAP reflecting adjustments related to the bad debt
reserve). Business Manager shall be entitled to offset Office Expenses
reimbursement due to Business Manager under Section 6.2 above against the amount
payable for the accounts receivable. Although it is the intention of the parties
that Business Manager purchase and thereby become the owner of the accounts
receivable of PC, in the event such purchase shall be ineffective for any
reason, PC is concurrently herewith granting to Business Manager a security
interest in the accounts so purchased, and PC shall cooperate with Business
Manager and execute all documents in connection with the pledge of such
purchased accounts receivable to Business Manager. All collections in respect to
such accounts receivable purchased by Business Manager shall be received by
Business Manager as the agent of PC and shall be endorsed to Business Manager
and deposited in a bank account at a bank designated by Business Manager. To the
extent PC comes into possession of any payments in respect of such accounts
receivable, PC shall direct such payments to Business Manager for deposit in
bank accounts designated by Business Manager.
Section 6.7 DISPUTES REGARDING FEES. PC shall not be entitled to a
set-off or reduction in its Management Fees by reason of its belief that
Business Manager has failed to perform its obligations hereunder or otherwise.
ARTICLE VII. TERM AND TERMINATION
Section 7.1 INITIAL AND RENEWAL TERM. The Term of this Management
Services Agreement will be for an initial period of twenty-five (25) years after
the effective date, and shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business Manager nor PC shall
have given notice of termination of this Management Services Agreement at least
ninety (90) days before the end of the initial term or any renewal
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term, or unless otherwise terminated as provided in Section 7.2 of this
Management Services Agreement.
Section 7.2 TERMINATION.
(a) TERMINATION BY BUSINESS MANAGER. Subject to Section 7.2(c), Business
Manager may only terminate this Management Services Agreement either without
cause upon ninety (90) days' written notice to PC, or upon the occurrence of any
one of the following events which shall be deemed to be "for cause":
(i) The dissolution of PC or the filing of a petition in
voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily or
involuntarily under any State or federal statute for the
protection of debtors;
(ii) PC materially defaults in the performance of any of its
material duties or obligations hereunder, and such default
continues for thirty (30) days after PC receives notice of
the default.
(b) TERMINATION BY PC. Subject to Section 7.2(c) PC may only terminate
this Management Services Agreement upon any of the following occurrences which
shall be deemed to be "for cause":
(i) The dissolution of Business Manager or the filing of a
petition in voluntary bankruptcy, an assignment for the
benefit of creditors, or other action taken voluntarily or
involuntarily under any State or federal statute for the
protection of debtors;
(ii) In the event that Business Manager materially defaults in
the performance of any of its material obligations
hereunder and such default continues for sixty (60) days
after Business Manager receives notice of the default.
Termination by PC hereunder shall require the affirmative vote of three-fourths
of the outstanding voting shares of the common shareholders of PC entitled to
vote.
(c) TERMINATION BY AGREEMENT. In the event PC and Business Manager shall
mutually agree in writing, this Management Services Agreement may be terminated
on the date specified in such written agreement.
(d) LEGISLATIVE, REGULATORY OR ADMINISTRATIVE CHANGE. In the event there
shall be a change in the Act, any federal or State statutes, case laws,
regulations or general instructions, the interpretation of any of the foregoing,
the adoption of new federal or State legislation, or a change in any third party
reimbursement system, any of which are reasonably likely to adversely affect the
manner in which either party may perform or be compensated for its services
under this Management Services Agreement or which shall make this Management
Services Agreement unlawful, the parties shall immediately enter into good faith
negotiations regarding a new service arrangement or basis for compensation for
the services furnished pursuant to this Management
21
Services Agreement that complies with the law, regulation, or policy and that
approximates as closely as possible the economic position of the parties prior
to the change. If good faith negotiations cannot resolve the matter, it shall be
submitted to arbitration as referenced in Section 8.6; provided however that in
the event that the State Board of Dental Examiners issues a final and
non-appealable order revoking the license of any Dentist on the grounds that
PC's entering into and performing its obligations under this Management Services
Agreement is unlawful, PC may terminate this Management Services Agreement upon
thirty (30) days prior written notice.
Section 7.3 EFFECTS OF TERMINATION. Upon termination of this Management
Services Agreement, as hereinabove provided, neither party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fees and PC Expenses relating to services provided prior to the termination of
this Management Services Agreement, (ii) obligations, promises, or covenants set
forth herein that are expressly made to extend beyond the Term, including,
without limitation, indemnities, which provisions shall survive the expiration
or termination of this Management Services Agreement for any reason, and
noncompetition provisions, which provisions shall survive the expiration or
termination of this Management Services Agreement by Business Manager for cause
or by PC in breach of this Agreement, and (iii) the obligations of PC and
Business Manager described in Section 7.4. In effectuating the provisions of
this Section 7.3, PC specifically acknowledges and agrees that Business Manager
shall continue to collect and receive on behalf of PC all cash collections from
accounts receivable in existence at the time this Management Services Agreement
is terminated, it being understood that such cash collections will represent, in
part, compensation to Business Manager for management services already rendered
and compensation on accounts receivable purchased by Business Manager. Upon the
expiration or termination of this Management Services Agreement for any reason
or cause whatsoever, Business Manager shall surrender to PC all books and
records pertaining to PC's dental practice.
Section 7.4 REPURCHASE OBLIGATION. Upon termination of this Management
Services Agreement by Business Manager for cause or by PC in breach of this
Agreement, Business Manager shall have the option, exercisable at any time
within thirty (30) days of such termination, to require PC to:
(a) Purchase from Business Manager at book value the intangible assets,
deferred charges, and all other amounts on the books of the Business Manager
relating to the Management Services Agreement as adjusted through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges, or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as a Center at the greater of the appraised fair market value
thereof or the then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined by Business Manager and PC,
each selecting a duly qualified appraiser, who in turn will agree on a third
appraiser. This agreed-upon appraiser shall perform the appraisal which shall be
binding on both parties. In the event either party fails to select an appraiser
within fifteen (15)
22
days of the selection of an appraiser by the other party, the appraiser selected
by the other party shall make the selection of the third party appraiser;
(c) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Business Manager at any Center and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Business Manager and that relate directly to the performance of
Business Manager's obligations under this Management Services Agreement or the
properties leased or subleased hereunder by Business Manager; and
(e) Purchase from Business Manager at the greater of appraised fair
market value or book value all of the equipment listed as set forth in the
Purchase Agreement or an exhibit thereto, including all replacements and
additions thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other assets,
including inventory and supplies, tangibles and intangibles, set forth on the
books of the Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with GAAP to
reflect operations of each Center, depreciation, amortization, and other
adjustments of assets shown on the books of the Business Manager.
Section 7.5 REPURCHASE OPTION. Upon termination of this Management
Services Agreement by Business Manager in breach of this Agreement or by PC for
cause, PC shall have the option but not the obligation to do all or none of the
following:
(a) Purchase from Business Manager any real estate owned by Business
Manager and used as a Center at book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by Business
Manager and PC, each selecting a duly qualified appraiser, who in turn will
agree on a third appraiser. This agreed-upon appraiser shall perform the
appraisal which shall be binding on both parties. In the event either party
fails to select an appraiser within fifteen (15) days of the selection of an
appraiser by the other party, the appraiser selected by the other party shall
make the selection of the third party appraiser;
(b) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Business Manager at any Center and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(c) Assume all debt, and all contracts, payables, and leases that are
obligations of Business Manager and that relate directly to the performance of
Business Manager's obligations under this Management Services Agreement or the
properties leased or subleased by Business Manager; and
(d) Purchase from Business Manager at book value all of the equipment
listed as set forth in the Purchase Agreement or an exhibit thereto, including
all replacements and additions thereto made by Business Manager pursuant to the
performance of its obligations under this Management Services Agreement, and all
other tangible assets, including inventory and supplies,
23
set forth on the books of the Business Manager as adjusted through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect operations of each Center, depreciation,
amortization, and other adjustments of assets shown on the books of the Business
Manager.
Section 7.6 CLOSING OF REPURCHASE. PC shall pay cash for the repurchased
assets. The amount of the purchase price shall be reduced by the amount of debt
and liabilities of Business Manager, if any, assumed by PC. PC and any Dentist
who is a shareholder of PC shall execute such documents as may be required to
assume the liabilities set forth in Section 7.4(d) or Section 7.5(c) and to
remove or if PC and such Dentist or Dentists can establish in good faith that
such removal is not possible, to indemnify Business Manager from any liability
with respect to such repurchased asset and with respect to any property leased
or subleased by Business Manager. The closing date for the repurchase shall be
determined by Business Manager but shall in no event occur later than one
hundred eighty (180) days from the date of the notice of termination. The
termination of this Management Services Agreement shall become effective upon
the closing of the sale of the assets under Section 7.4 or Section 7.5 (or, if
PC does not exercise its option under Section 7.5, on the date it notifies
Business Manager of such decision). PC shall be released from the restrictive
covenants provided for in Section 5.8 on the closing date. From and after any
termination, each party shall provide the other party with reasonable access of
the books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations that may be required of it.
ARTICLE VIII. MISCELLANEOUS
Section 8.1 ADMINISTRATIVE SERVICES ONLY. Nothing in this Management
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which PC and its
Dentists perform Dental Services or other professional health care services. The
rendition of all Dental Services, including, but not limited to, the
prescription or administration of drugs shall be the sole responsibility of PC
and its Dentists, and Business Manager shall not interfere in any manner or to
any extent therewith. Nothing contained in this Management Services Agreement
shall be construed to permit Business Manager to engage in the practice of
dentistry, it being the sole intention of the parties hereto that the services
to be rendered to PC by Business Manager are solely for the purpose of providing
nondental management and administrative services to PC so as to enable PC to
devote its full time and energies to the professional conduct of its dental
practice and provision of Dental Services to its patients and not to
administration, or practice management.
Section 8.2 STATUS OF CONTRACTOR; AGENCY. It is expressly acknowledged
that the parties hereto are independent contractors and that this Management
Services Agreement is intended to constitute Business Manager as PC's agent.
Nothing herein shall be construed to create an employer/employee, partnership,
or joint venture relationship, or to allow either to exercise control or
direction over the manner or method by which the other performs the services
that are the subject matter of this Management Services Agreement or to permit
Business Manager to take any action that would constitute the practice of
dentistry; provided always that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands and
agrees that (i) the other will not be treated as an employee for federal tax
24
purposes, (ii) neither will withhold on behalf of the other any sums for income
tax, unemployment insurance, social security, or any other withholding pursuant
to any law or requirement of any governmental body or make available any of the
benefits afforded to its employees, (iii) all of such payments, withholdings,
and benefits, if any, are the sole responsibility of the party incurring the
liability, and (iv) each will indemnify and hold the other harmless from any and
all loss or liability arising with respect to such payments, withholdings, and
benefits, if any.
Section 8.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be in writing and shall be
served on the parties at the following respective addresses:
PC: JACK H. CASTLE, D.D.S., P.C.
1360 Post Oak Boulevard, Ste. 1300
Houston, Texas 77056
ATTN: President
Business Manager: CASTLE DENTAL CENTERS, INC.
1360 Post Oak Boulevard, Ste. 1300
Houston, Texas 77056
ATTN: Jack H. Castle, Jr.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted, or desired to be given hereunder shall be
sent either (a) by hand delivery, in which case notice shall be deemed received
when actually delivered, (b) by prepaid certified or registered mail, return
receipt requested, in which case notice shall be deemed received five calendar
days after deposit, postage prepaid in the United States Mail, or (c) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after deposit with such courier.
Section 8.4 GOVERNING LAW. This Management Services Agreement shall be
governed by the laws of the State of Texas applicable to agreements to be
performed wholly within the State. Texas law was chosen by the parties after
negotiation to govern interpretation of this Management Services Agreement
because Harris County, Texas is the seat of management for Business Manager. The
federal and State courts of Harris County, Texas shall be the exclusive venue
for any litigation, special proceeding, or other proceeding between the parties
that may arise out of, or be brought in connection with or by reason of, this
Management Services Agreement.
Section 8.5 ASSIGNMENT. Except as may be herein specifically provided to
the contrary, this Management Services Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that PC may not
assign this Management Services Agreement without the prior written consent of
Business Manager, which consent may be withheld. The sale, transfer, pledge, or
assignment of any of the common shares held by any shareholder of PC or the
issuance by PC of common or other voting shares to any other person, or any
combination of such transactions within a period of one (1) year, such that the
existing shareholder in PC fails to maintain a
25
majority of the voting interests in PC shall be deemed an attempted assignment
by PC, and shall be null and void unless consented to in writing by Business
Manager prior to any such transfer or issuance. Any breach of this provision,
whether or not void or voidable, shall constitute a material breach of this
Management Services Agreement, and in the event of such breach, Business Manager
may terminate this Management Services Agreement upon twenty-four (24) hours
notice to PC.
Section 8.6 ARBITRATION.
(a) GENERAL. The parties shall use good faith negotiation to resolve any
controversy, dispute or disagreement arising out of or relating to this
Management Services Agreement or the breach of this Management Services
Agreement. Any matter not resolved by negotiation shall be submitted to binding
arbitration and such arbitration shall be governed by the terms of this Section
8.6.
(b) SCOPE. Unless otherwise specifically provided herein, the parties
hereto agree that any claim, controversy, dispute or disagreement between or
among any of the parties hereto arising out of or relating to this Management
Services Agreement (other than claims involving any noncompetition or
confidentiality covenant) shall be governed exclusively by the terms and
provisions of this Section 8.6; provided, however, that the terms and provisions
of this Section 8.6 shall not preclude any party hereto from seeking, or a court
of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant herein or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(c) ARBITRATORS. In the event of any claim, controversy, dispute or
disagreement between the parties hereto arising out of or relating to this
Management Services Agreement, and in the further event the parties are unable
to resolve such claim, controversy, dispute or disagreement within thirty (30)
days after notice is first delivered pursuant to Section 8.3, the parties agree
to select arbitrators to hear and decide all such claims under this Section 8.6.
Each party shall select one arbitrator, The two arbitrators so chosen shall then
select a third arbitrator who is experienced in the matter or action that is
subject to such arbitration. If such matter or action involves health-care
issues, then the third arbitrator shall have such qualifications as would
satisfy the requirements of the National Health Lawyers Association Alternative
Dispute Resolution Service. Each of the arbitrators chosen shall be impartial
and independent of all parties hereto. If either of the parties fails to select
an arbitrator within twenty days after the end of such thirty-day period, or if
the arbitrators chosen fail to select a third arbitrator within twenty days,
then any party may in writing request the judge of the United States District
Court for the Southern District of Texas senior in term of service to appoint
the arbitrator or arbitrators and, subject to this Section 8.6, such arbitrators
shall hear all arbitration matters arising under this Section 8.6, and, in
default of such selection, may ask the American Arbitration Association.
26
(d) APPLICABLE RULES.
(i) Each arbitration hearing shall be held at a place in Houston,
Texas acceptable to a majority of the arbitrators. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association to the
extent such rules do not conflict with the terms hereof. The
decision of a majority of the arbitrators shall be reduced to
writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be
entered and execution had in any court of competent jurisdiction
or application may be made to such court for a judicial
acceptance of the award and an order of enforcement. The charges
and expenses of the arbitrators shall be shared equally by the
parties to the hearing.
(ii) The arbitration shall commence within thirty (30) days after the
arbitrators are selected in accordance with the provisions of
this Section 8.6. In fulfilling their duties with respect to the
matter in arbitration, the arbitrators may consider such matters
as, in the opinion of the arbitrators, are necessary or helpful
to make a proper valuation. The arbitrators may consult with and
engage disinterested third parties to advise the arbitrators.
The arbitrators shall not add any interest factor reflecting the
time value of money to the amount of any award granted under any
arbitration hereunder and shall not award any punitive damages.
(iii) If any of the arbitrators selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the
remaining arbitrators or such senior judge (or such judge's
successor) shall select a replacement arbitrator. The procedure
set forth in this Section 8.6 for selecting the arbitrators
shall be followed from time to time as necessary.
(iv) As to the resolution of any claim, controversy, dispute or
disagreement that under the terms hereof is made subject to
arbitration, no lawsuit based on such resolution shall be
instituted by either of the parties hereto, other than to compel
arbitration proceedings or enforce the award of a majority of
the arbitrators.
(v) All privileges under Texas and federal law, including
attorney-client and work- product privileges, shall be preserved
and protected to the same extent that such privileges would be
protected in a federal court proceeding applying Texas law.
Section 8.7 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
Section 8.8 ENFORCEMENT. In the event either party resorts to legal
action to enforce or interpret any provision of this Management Services
Agreement, the prevailing party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
27
Section 8.9 GENDER AND NUMBER. Whenever the context of this Management
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
Section 8.10 ADDITIONAL ASSURANCES. Except as may be herein specifically
provided to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable and
as the requesting party may deem necessary to effectuate this Management
Services Agreement.
Section 8.11 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Whenever
this Management Services Agreement requires any consent or approval to be given
by either party, or either party must or may exercise discretion, and except
where specifically set forth to the contrary, the parties agree that such
consent or approval shall not be unreasonably withheld or delayed, and that such
discretion shall be reasonably exercised.
Section 8.12 FORCE MAJEURE. Neither party shall be liable or deemed to
be in default for any delay or failure in performance under this Management
Services Agreement or other interruption of service deemed to result, directly
or indirectly, from acts of God, civil or military authority, acts of public
enemy, war, accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either party's employees,
or any other similar cause beyond the reasonable control of either party unless
such delay or failure in performance is expressly addressed elsewhere in this
Management Services Agreement.
Section 8.13 SEVERABILITY. The parties hereto have negotiated and
prepared the terms of this Management Services Agreement in good faith with the
intent that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective parties. Accordingly, if
any one or more of the terms, provisions, promises, covenants or conditions of
this Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law. To the extent this
Management Services Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Management Services
Agreement, to the extent possible consistent with its purposes, to conform to
law.
Section 8.14 DIVISIONS AND HEADINGS. The divisions of this Management
Services Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
Section 8.15 AMENDMENTS AND MANAGEMENT SERVICES AGREEMENT EXECUTION.
This Management Services Agreement and amendments hereto shall be in writing and
executed in
28
multiple copies on behalf of PC by its President, and on behalf of Business
Manager by any duly authorized officer thereof. Each multiple copy shall be
deemed an original, but all multiple copies together shall constitute one and
the same instrument.
Section 8.16 ENTIRE MANAGEMENT SERVICES AGREEMENT. With respect to the
subject matter of this Management Services Agreement, this Management Services
Agreement supersedes all previous contracts and constitutes the entire agreement
between the parties. Neither party shall be entitled to benefits other than
those specified herein. No prior oral statements or contemporaneous negotiations
or understandings, except for the Budget, or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Management Services Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated in such amendment(s).
The parties specifically acknowledge that, in entering into and executing this
Management Services Agreement, except for the Budget, the parties rely solely
upon the representations and agreements contained in this Management Services
Agreement and no others.
IN WITNESS WHEREOF, PC and Business Manager have caused this Management
Services Agreement to be executed by their duly authorized representatives, all
as of the day and year first above written.
PC: JACK H. CASTLE, D.D.S., P.C.
By:
Jack H. Castle
President
BUSINESS MANAGER: CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
29
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
CASTLE DENTAL CENTERS, INC.,
A DELAWARE CORPORATION
AND
JACK H. CASTLE, D.D.S., P.C.,
A TEXAS PROFESSIONAL CORPORATION
EFFECTIVE DECEMBER 18, 1995
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE I. DEFINITIONS............................................... 1
Section 1.1 Act.............................................. 1
Section 1.2 Adjusted Gross Revenue........................... 2
Section 1.3 Adjustments...................................... 2
Section 1.4 Ancillary Revenue................................ 2
Section 1.5 Base Management Fee.............................. 2
Section 1.6 Budget........................................... 2
Section 1.7 Business Manager................................. 2
Section 1.8 Business Manager Consent......................... 2
Section 1.9 Business Manager Expense......................... 2
Section 1.10 Confidential Information......................... 2
Section 1.11 Center........................................... 3
Section 1.12 Dental Services.................................. 3
Section 1.13 Dentist.......................................... 3
Section 1.14 GAAP............................................. 3
Section 1.15. Licensing Fee.................................... 3
Section 1.16 Management Fee................................... 3
Section 1.17 Management Services.............................. 3
Section 1.18 Management Services Agreement.................... 4
Section 1.19 Office Expense................................... 4
Section 1.20 PC............................................... 5
Section 1.21 PC Account....................................... 5
Section 1.22 PC Consent....................................... 5
Section 1.23 PC Expense....................................... 5
Section 1.24 Performance Fee.................................. 5
Section 1.25 Policy Board..................................... 5
Section 1.26 Practice Territory............................... 5
Section 1.27 Professional Services Revenues................... 5
Section 1.28 Representatives.................................. 5
Section 1.29 State............................................ 5
Section 1.30 Term............................................. 5
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER............ 6
Section 2.1 Appointment...................................... 6
Section 2.2 Authority........................................ 6
Section 2.3 Patient Referrals and Payments................... 6
Section 2.4 Internal Management of PC........................ 6
Section 2.5 Practice of Dentistry............................ 6
ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD.................... 7
Section 3.1 Formation and Operation of the Policy Board...... 7
Section 3.2 Duties and Responsibilities of the Policy Board.. 7
(a) Capital Improvements and Expansion............... 7
i
(b) Marketing and Advertising........................ 7
(c) Patient Fees; Collection Policies................ 7
(d) Ancillary Services............................... 7
(e) Provider and Payor Relationships................. 7
(f) Strategic Planning............................... 7
(g) Capital Expenditures............................. 7
(h) Dentist Hiring................................... 8
Section 3.3 Dental Treatment Decisions....................... 8
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS
MANAGER...................................................... 8
Section 4.1 Centers and Equipment............................ 8
Section 4.2 Dental Supplies.................................. 9
Section 4.3 Support Services................................. 9
Section 4.4 Quality Assurance, Risk Management, and
Utilization Review............................... 9
Section 4.5 Licenses and Permits.............................10
Section 4.6 Personnel........................................10
Section 4.7 Contract ........................................10
Section 4.8 Billing and Collection...........................10
Section 4.9 PC Account.......................................12
Section 4.10 Fiscal Matters...................................12
Section 4.11 Reports and Records..............................14
Section 4.12 Recruitment of PC Dentists.......................14
Section 4.13 Business Manager's Insurance.....................14
Section 4.14 No Warranty......................................14
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PC......................14
Section 5.1 Organization and Operation.......................14
Section 5.2 PC Personnel.....................................15
Section 5.3 Professional Standards...........................15
Section 5.4 Dental Services..................................15
Section 5.5 Peer Review/Quality Assurance....................16
Section 5.6 PC's Insurance...................................16
Section 5.7 Confidential and Proprietary Information.........16
Section 5.8 Noncompetition...................................17
Section 5.9 Name, Trademark..................................18
Section 5.10 Peer Review......................................18
Section 5.11 Indemnification..................................19
ARTICLE VI. FINANCIAL ARRANGEMENT....................................19
Section 6.1 Definitions......................................19
Section 6.2 Management Fee...................................19
Section 6.3 Adjustments......................................19
Section 6.4 Reasonable Value.................................20
Section 6.5 Payment of Management Fee........................20
Section 6.6 Accounts Receivable..............................20
Section 6.7 Disputes Regarding Fees..........................20
ii
ARTICLE VII. TERM AND TERMINATION....................................20
Section 7.1 Initial and Renewal Term.........................20
Section 7.2 Termination......................................21
Section 7.3 Effects of Termination...........................22
Section 7.4 Repurchase Obligation............................22
Section 7.5 Repurchase Option................................23
Section 7.6 Closing of Repurchase............................24
ARTICLE VIII. MISCELLANEOUS..........................................24
Section 8.1 Administrative Services Only.....................24
Section 8.2 Status of Contractor; Agency.....................24
Section 8.3 Notices..........................................25
Section 8.4 Governing Law....................................25
Section 8.5 Assignment.......................................25
Section 8.6 Arbitration......................................26
Section 8.7 Waiver of Breach.................................27
Section 8.8 Enforcement......................................27
Section 8.9 Gender and Number................................28
Section 8.10 Additional Assurances............................28
Section 8.11 Consents, Approvals, and Exercise of Discretion..28
Section 8.12 Force Majeure....................................28
Section 8.13 Severability.....................................28
Section 8.14 Divisions and Headings...........................28
Section 8.15 Amendments and Management Services Agreement
Execution........................................28
Section 8.16 Entire Management Services Agreement.............29
iii
EXHIBIT 10.7
AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
This Amendment (the "Amendment") to the Management Services Agreement
(the "Agreement"), dated as of December 18, 1995, between Castle Dental Centers,
Inc., a Delaware corporation ("Business Manager"), and Jack H. Castle, D.D.S.,
P.C., a Texas professional corporation ("PC"), is made and entered into as of
the 15th day of August 1996.
1. INTRODUCTION. This Amendment is entered into pursuant to and in
conformity with Section 8.15 of the Agreement. All capitalized terms not
otherwise defined in this Amendment shall have the meanings ascribed to them in
the Agreement.
2. AMENDMENTS. Business Manager and PC hereby agree to amend the
Agreement as follows:
(a) Section 7.1 is hereby amended to read in its entirety as
follows:
"Section 7.1 INITIAL AND RENEWAL TERM. The Term of this
Management Services Agreement will be for an initial
period of forty (40) years after the effective date, and
shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business
Manager nor PC shall have given notice of termination of
this Management Services Agreement at least ninety (90)
days before the end of the initial term or any renewal
term, or unless otherwise terminated as provided in
Section 7.2 of this Management Services Agreement."
3. NO OTHER CHANGES. Except as set forth herein, provisions of the
Agreement shall remain in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument.
-1-
IN WITNESS WHEREOF, Business Manager and PC have caused this Amendment
to be executed as of the date first set forth above.
BUSINESS MANAGER:
CASTLE DENTAL CENTERS, INC.
By:
Jack H. Castle, Jr.
Chairman and Chief Executive Officer
PC:
JACK H. CASTLE, D.D.S., P.C.
By:
Jack H. Castle, D.D.S.
President
-2-
EXHIBIT 10.8
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT (the "Agreement") dated as of
December 18, 1995, between Jack H. Castle, D.D.S., P.C., a Texas professional
corporation ("Seller"), and Castle Dental Centers, Inc., a Delaware corporation
("Buyer").
In connection with the Management Services Agreement of even date
herewith, by and between Buyer and Seller (the "Management Agreement") and for
other good and valuable consideration, Seller has agreed to sell and Buyer has
agreed to purchase the Receivables (as defined below) pursuant to the terms of
this Agreement. Any initially capitalized terms not otherwise defined herein
shall have the meanings assigned to such terms in the Management Agreement.
ARTICLE I
SALE OF RECEIVABLES
SECTION 1.1 PURCHASE AND SALE. Seller will sell to Buyer and Buyer will
purchase all of Seller's present and future accounts receivable, chattel paper,
instruments, general intangibles, and other rights to payment generated by
Seller for billable dental services performed or to be provided in the future
and claims for reimbursement or indemnification from Blue Cross/Blue Shield,
managed care organizations, insurance companies and other third-party payors or
fiscal intermediaries (the "Receivables"). The conveyance and general assignment
of such Receivables by Seller to Buyer, which shall be without recourse to
Seller, shall be made monthly by Seller as of the first day of each month as to
all such Receivables arising during the course of the previous month. Such
conveyance and general assignment shall be effected by virtue of the provisions
of this Section 1.1, without further instrument of conveyance; and Seller hereby
sells, transfers, assigns and conveys all such Receivables and proceeds with
respect to the Receivables to Buyer as of the dates they arise or come into
being.
SECTION 1.2 PURCHASE PRICE. The price to be paid by Buyer to Seller for
any Receivable purchased by Buyer pursuant to this Agreement shall be determined
by Section 6.6 of the Management Services Agreement.
SECTION 1.3 DOCUMENTS. Seller shall present to Buyer the best
documentation or evidence available as to the existence of such Receivables
(which, if requested, shall be endorsed, assigned or otherwise transferred to
Buyer without recourse), together with any supporting records and any security
or collateral therefor which is readily susceptible of delivery.
-1-
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce Buyer to make purchases of Receivables, Seller
represents and warrants to Buyer as set forth in this Article II.
SECTION 2.1 ORGANIZATION, ETC. Seller is a professional corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business, and is
in good standing, in every jurisdiction where the nature of its business
requires it to be so qualified and where failure to be so qualified will not
have a material adverse effect on its business, financial position or results of
operations or impair the enforceability of the Receivables.
SECTION 2.2 CORPORATE POWER, AUTHORITY, ETC. The execution, delivery and
performance by Seller of this Agreement and the other documents to be delivered
by it hereunder, and the transactions contemplated hereby, are within Seller's
corporate powers, have been duly authorized by all necessary corporate action
and
(a) do not contravene or constitute (with or without notice or
lapse of time) a default under:
(i) Seller's charter or by-laws;
(ii) any law, rule or regulation applicable to Seller in
any material respect;
(iii) any contractual restriction contained in any
indenture, loan or credit agreement, lease, mortgage, security
agreement, bond, note, or other agreement or instrument binding
on Seller or affecting its property in any material respect; or
(iv) any order, rule, writ, judgment, award, injunction,
decree or regulation binding on Seller or affecting its property
in any material respect; and
(b) do not result in or require the creation of any material
lien, security interest or other charge or encumbrance upon or with
respect to any of its properties except as otherwise provided for in
this Agreement.
No transaction contemplated hereby requires compliance with any bulk sales act
or similar law. This Agreement and each of the other documents to be delivered
by Seller hereunder have been duly executed and delivered on behalf of Seller.
SECTION 2.3 DUE AUTHORIZATION, ETC. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Seller of this Agreement or the other documents to be
-2-
delivered by it hereunder, EXCEPT for the filing of the UCC Financing Statements
referred to in Section 3.1 which filings have been duly made and are in full
force and effect.
SECTION 2.4 VALIDITY, ENFORCEABILITY, ETC. Assuming due execution and
delivery of this Agreement by Buyer, this Agreement is a legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except as the enforceability thereof may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of equity.
SECTION 2.5 LITIGATION ETC. There are no actions, suits or proceedings
pending or, to the knowledge of Seller, threatened against or directly affecting
Seller or its property before any court, governmental body, administrative
agency or arbitrator in which there is a reasonable possibility of an adverse
decision which would materially adversely affect the ability of Seller to
perform its obligations under this Agreement.
SECTION 2.6 OFFICES, ETC. The chief place of business and chief
executive office of Seller is 1360 Post Oak Boulevard, Suite 1300, Houston,
Texas 77056 and the offices where Seller keeps all of its books, record and
documents concerning the Receivables are located at 1360 Pos Oak Boulevard,
Suite 1300, Houston, Texas 77056 or (or as notified to Buyer in accordance with
Section 7.3) at such other locations in jurisdictions where all action required
to perfect, protect or more fully evidence the ownership interests purchased
hereunder or to enable Buyer to exercise or enforce any of its rights hereunder
has been taken and completed.
SECTION 2.7 OWNERSHIP. Seller owns the Receivables purchased hereunder
free and clear of any lien, security interest, charge or encumbrance other than
as contemplated herein or the Management Services Agreement. No effective
financing statement or other instrument similar in effect covering all or any
part of such Receivables is on file in any recording office, except such as may
have been filed in favor of Buyer relating to this Agreement. As of the date
hereof, there are no instruments or chattel paper representing Receivables.
Seller has no trade names.
SECTION 2.8 TITLE, PERFECTION ETC. This Agreement creates a valid and
perfected first priority ownership interest in the Receivables, and all filings
and other actions necessary or desirable to perfect and protect such ownership
interest have been duly taken.
ARTICLE III
FURTHER ASSURANCES
SECTION 3.1 FINANCING STATEMENTS. Seller will, at its expense, file, and
maintain the filing of, such financing statements or other documents as may be
necessary or appropriate, under the Texas Business and Commerce Code and any
other applicable laws, to perfect and preserve the rights of Buyer hereunder,
and, if requested by Buyer, will furnish to Buyer from time to time opinions of
its counsel that such filings have been made and operate to establish, preserve
and protect Buyer's rights hereunder and in all Receivables sold pursuant hereto
and to create and
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preserve an ownership interest in such Receivables, pursuant to the Texas
Business and Commerce Code.
SECTION 3.2 ADDITIONAL SPECIFIC ASSIGNMENT DOCUMENTATION.
(a) Seller agrees that, when and if it is a party to any
insurance, managed care or similar contract pursuant to which Seller may have
rights to payment for dental services performed or to be performed in the future
and/or claims for reimbursement or indemnification, it will execute a specific
assignment of the revenues under such contract in favor of Buyer in the form
attached hereto as Exhibit A or such other form as may be agreeable to Buyer and
make reasonable effort to cause such assignment to be acknowledged and agreed to
by the account party or other obligor on such contract.
(b) With respect to Receivables which are claims assigned to
Seller by its patients against Blue Cross/Blue Shield, insurance companies,
managed care organizations and other third-party payors or financial
intermediaries (each an "account party"), Seller has executed and delivered to
Buyer the instruction notice letters addressed to substantially all the known
account parties in form attached hereto as Exhibit B ("Assignment Notice
Letters"). Upon request of Buyer or Buyer's lender (NationsBank of Texas, N.A.),
Seller, from time to time, will execute and deliver additional Assignment Notice
Letters as reasonably necessary to give all account parties notice of the
assignments described therein.
SECTION 3.3 FURTHER ASSURANCES.
(a) Seller agrees that from time to time, at the expense of
Seller, Seller will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Buyer may reasonably request, in order to perfect and protect the ownership
interest conveyed or purported to be conveyed hereby or to enable Buyer to
exercise and enforce its rights and remedies hereunder with respect to any
Receivables purchased hereunder. Without limiting the generality of the
foregoing, Seller will: (i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or desirable, or as Buyer may
request, in order to protect and preserve the ownership interest conveyed
hereby; and (ii) if any such Receivable shall be evidenced by a promissory note
or other instrument or chattel paper, deliver and pledge to Buyer hereunder such
note, instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment all in form and substance satisfactory to
Buyer.
(b) Seller hereby authorizes Buyer to file one or more financing
or continuation statements, and amendments thereto, relative to all or any part
of the Receivables purchased hereunder without the signature of Seller where
permitted by law. A carbon, photographic or other reproduction of this Agreement
or any financing statement covering such Receivable or any part thereof shall be
sufficient as a financing statement where permitted by law.
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(c) Seller will furnish to Buyer from time to time statements and
schedules further identifying and describing the Receivables purchased hereunder
and such other reports in connection with such Receivables as Buyer may
reasonably request, all in reasonable detail.
ARTICLE IV
ADMINISTRATION AND COLLECTION
SECTION 4.1 SETTLEMENT PROCEDURES, REPORTING, ETC. With respect to all
billing collection matters, Seller and Buyer agree to comply with the terms and
procedures set forth in Section 4.8 of the Management Agreement.
SECTION 4.2 ACTIONS WITH RESPECT TO RECEIVABLES.
(a) Seller shall instruct all account debtors and obligors on
Receivables to make all payments on Receivables directly to Buyer. All proceeds
of Receivables which may from time to time come into the possession of Seller
shall be held in trust for Buyer, segregated from the other funds of Seller, and
delivered to Buyer immediately in the form received with any necessary
endorsement, such delivery in no event to be later than one Business Day after
receipt thereof by Seller.
(b) In connection with the foregoing, Buyer shall have the right
at any time to take any of the following actions, in its own name or in the name
of Seller: Notify any persons or entities which Buyer believes are account
debtors and obligors on Receivables to make payments directly to Buyer;
compromise or extend time of payment upon such terms as Buyer may determine;
endorse the name of Seller on checks, instruments, or other evidences of payment
on Receivables; make written or verbal requests for verification of amount owing
on Receivables from any persons or entities which Buyer believes are account
debtors and obligors on Receivables; open mail addressed to Seller and, to the
extent of checks or other proceeds of Receivables, dispose of same in accordance
with this Agreement; take action in Buyer's name or Seller's name to enforce
collection; and take all other action necessary to carry out this Agreement and
give effect to Buyer's rights hereunder.
ARTICLE V
COVENANTS
From the date of this Agreement until the six months after the date the
Management Agreement ceases to be in full force and effect for any reason,
Seller will perform the obligations set forth in this Article V.
SECTION 5.1 COMPLIANCE WITH LAWS, ETC. Seller will comply in all
material respects with all material laws, rules, regulations and orders
applicable to it, its business and properties and all Receivables; such
compliance shall include without limitation, paying before the same become
-5-
delinquent all taxes, assessments and governmental charges imposed upon Seller
or upon its property except to the extent contested in good faith.
SECTION 5.2 PRESERVATION OF CORPORATE EXISTENCE. Seller will preserve
and maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of this incorporation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect the interests of Buyer hereunder
or the ability of Seller to perform its obligations under this Agreement.
SECTION 5.3 COMPLIANCE WITH LAWS. Seller will comply with all laws,
rules and regulations and comply with all material contractual requirements of
Blue Cross/Blue Shield, insurance companies, managed care organizations and
other third-party payors or fiscal intermediaries who now or in the future are
account parties of the Receivables and take all such other action as is
reasonably necessary to ensure that Receivables are payable without offset,
defense or counterclaim.
SECTION 5.4 KEEPING OF RECORDS AND BOOKS OF ACCOUNTS. Seller will
maintain and implement, or cause to be maintained and implemented,
administrative and operating procedures (including a reasonable ability to
recreate substantially all material records evidencing Receivables in the event
of the destruction of the originals thereof), and keep and maintain, or cause to
be kept and maintained all books, records, documents and other information
reasonably necessary or advisable for the collection of all Receivables
(including records adequate to permit the daily identification of each
Receivable and all collections of and reductions or adjustments to each
Receivable).
SECTION 5.5 LOCATION OF RECORDS. Seller will keep its chief place of
business and chief executive office, and the offices where it keeps its books,
records and documents concerning the Receivables and all Contracts related
thereto (including all original documents relating thereto), at the address of
Seller specified in Section 2.6 or, upon 30 days' prior written notice to Buyer,
at such other locations in a jurisdiction where all action required to perfect,
protect or more fully evidence the ownership interests purchased hereunder or to
enable Buyer to exercise or enforce any of its rights hereunder will have been
taken and completed.
SECTION 5.6 CREDIT AND COLLECTION POLICY. Seller will comply in all
material respects with its Credit and Collection Policy in effect from time to
time with regard to each Receivable.
SECTION 5.7 SALE TREATMENT. Seller will account for the sale of the
Receivables hereunder as a sale (consistent with generally accepted accounting
principles then in effect) in its financial statements and other information and
reports, including, without, limitation, filings with any governmental authority
or regulatory body.
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SECTION 5.8 SALES, LIENS, OR ASSIGNMENTS OF PURCHASED RECEIVABLES.
Seller will not, except as otherwise provided herein, sell, assign (by operation
of law or otherwise) or otherwise dispose of, or create or suffer to exist any
adverse claim or lien upon or with respect to, in any Receivable or assign any
right to receive income or proceeds in respect thereof.
SECTION 5.9 CHANGE IN BUSINESS; CREDIT COLLECTION POLICY, ETC. Seller
will not make any material change in the character of its business or make any
material change in its Credit and Collection Policy, as adopted from time to
time, which would impair the collectibility of any Receivable.
SECTION 5.10 OTHER AGREEMENTS. Seller will not enter into any agreement
containing any provision which would be violated or breached by the performance
of Seller's obligations hereunder or in connection herewith or under any
instrument or document delivered or to be delivered by it hereunder or in
connection herewith, or any other instrument or document contemplated hereby.
ARTICLE VI
ATTORNEY-IN-FACT
SECTION 6.1 BUYER APPOINTED ATTORNEY-IN-FACT. Seller hereby irrevocably
appoints Buyer as Seller's attorney-in-fact, with full authority in the place
and stead of Seller and in the name of Seller or otherwise, from time to time in
Buyer's discretion, to take any action and to execute any instrument which Buyer
may deem necessary or advisable to accomplish the purposes of this Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO WAIVER. No failure or delay on the part of either party
in exercising any power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or the exercise
of any other power, right or remedy preclude any other or further exercise
thereof or the exercise of any other power, right or remedy.
SECTION 7.2 AMENDMENTS. This Agreement may be modified, amended,
supplemented, or waived, only upon written agreement of the parties.
SECTION 7.3 NOTICES. All communications and notices pursuant to this
Agreement to any party shall be in writing and addressed or delivered or mailed
to it at such address as a party may designate by notice to the other party, and
shall be effective when received.
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SECTION 7.4 LIMITATION OF PERSONAL LIABILITY. Buyer shall have no
recourse against any shareholder of Seller or against any liquidator of Buyer or
any of their respective assets as a result of or relating to any representation,
warranty, covenant, indemnity, or agreement of Seller under this Agreement and
such shareholders and liquidators shall have no liability to Buyer in respect of
the transactions contemplated herein; provided that (a) this provision shall not
limit any liability or recourse resulting from gross negligence or willful
misconduct on the part of any of such shareholder or liquidators and (b) nothing
herein shall limit the obligations and liabilities of Seller to Buyer or any of
Buyer's recourses or rights against Seller.
SECTION 7.5 HEADINGS. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
SECTION 7.6 GOVERNING LAW. The Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas.
SECTION 7.7 COUNTERPARTS. The Agreement may be executed in two or more
counterparts and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
JACK H. CASTLE, D.D.S., P.C.
By:
Name:
Title:
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
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EXHIBIT 10.9
PLAN AND AGREEMENT OF MERGER
OF
FAMILY DENTAL SERVICES OF TEXAS, INC.,
A TEXAS CORPORATION
WITH AND INTO
CASTLE DENTAL CENTERS, INC.,
A DELAWARE CORPORATION
THIS PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"), is entered
into on December __, 1995, by and between FAMILY DENTAL SERVICES OF TEXAS, INC.,
a Texas corporation (the "Acquired Corporation"), and CASTLE DENTAL CENTERS,
INC., a Delaware corporation (the "Surviving Corporation"), both of which are
sometimes referred to herein individually as a "Constituent Corporation" and
collectively as the "Constituent Corporations."
WHEREAS, the respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of the Constituent
Corporations that the Acquired Corporation be merged with and into the Surviving
Corporation, as authorized and permitted by the applicable laws of the States of
Texas and Delaware, pursuant to the terms and conditions set forth in this Plan
of Merger;
NOW, THEREFORE, in consideration of the foregoing and of the premises
and mutual agreements and covenants contained in this Plan of Merger, and for
the purpose of prescribing (1) the terms and conditions of the merger of the
Acquired Corporation with and into the Surviving Corporation (the "Merger"), (2)
the mode of carrying the same into effect, (3) the manner of converting the
shares of the Acquired Corporation into shares of the Surviving Corporation, and
(4) such other details and provisions of the Merger as are deemed necessary and
desirable, the Constituent Corporations, subject to the approval or adoption of
this Plan of Merger by the stockholders or shareholders, as the case may be, of
each of the Constituent Corporations, and subject to the terms and conditions
set forth herein, hereby agree as follows:
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1. THE MERGER. On the Effective Date (as defined below) of the Merger,
the Acquired Corporation shall be merged with and into the Surviving
Corporation, which shall not be a new corporation, but which shall continue its
corporate existence as a Delaware corporation as the Surviving Corporation and
the separate corporate existence of the Acquired Corporation shall cease.
2. CONVERSION OR EXCHANGE OF SHARES. The manner of converting or
exchanging the outstanding shares of the capital stock of the Acquired
Corporation into the shares or other securities of the Surviving Corporation
shall be as follows:
(a) On the Effective Date, each share of the common stock, no par
value per share, of the Acquired Corporation issued and
outstanding immediately prior to the Effective Date shall, by
virtue of the Merger and without action on the part of the
holder thereof, be automatically converted into 4,000 shares of
the common stock, $0.01 par value per share, of the Surviving
Corporation.
(b) On or after the Effective Date, each holder of a certificate
representing shares of the common stock, no par value per share,
of the Acquired Corporation may at such holder's option
surrender such certificate to the Surviving Corporation for
cancellation and receive in exchange therefor a certificate
representing the number of shares of the common stock, $0.01 par
value per share, of the Surviving Corporation into which the
surrendered shares of the Acquired Corporation shall have been
converted in accordance with Section 2(a) above. Until so
surrendered, each outstanding certificate theretofore
representing shares of the common stock, no par value per share,
of the Acquired Corporation shall be deemed for all purposes to
represent the number of shares of the common stock, $0.01 par
value per share, of the Surviving Corporation into which such
shares of the Acquired Corporation shall have been converted. No
certificates or scrips for fractional shares shall be issued.
3. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and Bylaws of the Surviving Corporation as existing, constituted and in effect
immediately prior to the Effective Date shall, from and after the Effective
Date, be and constitute the Articles of Incorporation and Bylaws, respectively,
of the Surviving Corporation, until amended as provided in the articles or
bylaws.
4. EFFECTIVE DATE. The effective date of the merger ("Effective Date")
will be December __, 1995.
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5. SECRETARY CERTIFICATION. The Secretary of the Surviving Corporation,
by signing below, certifies that the Plan of Merger has been adopted by the
Board of Directors of the Surviving Corporation pursuant to subsection 251(f) of
the General Corporation Law of Delaware and that no shares of stock of the
Surviving Corporation were issued prior to the adoption by the Board of
Directors of the resolution approving the Plan of Merger.
IN WITNESS WHEREOF, this Plan of Merger is executed as of the ____ day
of December 1995, to be effective as of the Effective Date.
FAMILY DENTAL SERVICES OF TEXAS, INC.,
a Texas corporation
By:
Jack H. Castle, Jr., President
ATTEST:
By:
Loretta M. Castle, Secretary
CASTLE DENTAL CENTERS, INC.,
a Delaware corporation
By:
Jack H. Castle, Jr., President
ATTEST:
By:
Loretta M. Castle, Secretary
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EXHIBIT 10.10
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made and entered into
as of December 18, 1995, by and between Jack H. Castle, D.D.S. (the "Seller")
and Castle Dental Centers, Inc., a Delaware corporation (the "Purchaser").
1. INTRODUCTION. Seller is the sole shareholder of JHCDDS, Inc. (formerly
Jack H. Castle, D.D.S., Inc.), a Texas professional corporation (the "Company"),
owning 1,000 shares of common stock, no par value per share (the "Common
Stock"), constituting all of the issued and outstanding shares of Common Stock
of the Company. The Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller such 1,000 shares of Common Stock for the
consideration and on the other terms and conditions contained in this Agreement.
2. SALE AND PURCHASE. In reliance on the representations and warranties
contained in this Agreement and on the terms and conditions contained herein,
the Seller hereby sells, assigns and delivers to the Purchaser 1,000 shares of
Common Stock of the Company. The Seller has delivered to the Purchaser
certificates representing 1,000 shares of Common Stock of the Company in proper
form for transfer, accompanied by a duly executed stock power executed by the
Seller.
* 3. CONSIDERATION. As consideration for the Common Stock, the Purchaser has
paid to the Seller the sum of $[REDACTED] by certified or cashier's check or by
wire transfer of immediately available funds, the receipt and sufficiency of
which is hereby acknowledged.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. Seller hereby represents
and warrants to the Purchaser as follows:
4.1. AUTHORITY. Seller has the full legal capacity to execute and
deliver this Agreement and perform its obligations hereunder.
4.2. OWNERSHIP OF STOCK. Immediately before executing and delivering
this Agreement, the Seller was the sole record and beneficial owner of 1,000
shares of Common Stock, constituting all of the issued and outstanding shares of
Common Stock of the Company, and owned such shares of Common Stock free and
clear of all assessments, charges, claims, liens, options, pledges, security
interests and other encumbrances whatsoever. By executing and performing the
obligations of this Agreement, Seller has transferred to Purchaser good and
valid title to the Common Stock, free and clear of all assessments, charges,
claims, liens, options, pledges, security interests and other encumbrances
whatsoever.
1
4.3. EXECUTION AND DELIVERY; ENFORCEABILITY. This Agreement as
executed and delivered by the Seller constitutes the legal, valid and binding
obligation of the Seller and is enforceable against the Seller in accordance
with its terms.
4.4. IMPEDIMENTS. Seller's execution and delivery of this Agreement
and performance of its obligations hereunder will not cause a breach or
violation of, or a default or event of default under, any provision of (1) any
agreement, contract or arrangement, oral or written, to which Seller or the
Company is a party or by which Seller or the Company or any shares of Common
Stock are bound; (2) any law, rule or regulation of any governmental authority
applicable to Seller or the Company; or (3) any decree, order, injunction or
other decision of any court, arbitrator, governmental authority or
administrative agency with jurisdiction over the Seller or the Company.
4.5. AUTHORIZED CAPITAL. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, of which 1,000 shares have been fully
authorized and validly issued, are fully paid and nonassessable, and are
outstanding and owned by Seller. There are no outstanding subscriptions,
options, warrants, calls or other agreements, arrangements, commitments or right
to purchase, convert into, or exchange or otherwise acquire any shares of Common
Stock or other securities of the Company. The Company is a corporation duly
organized, validly existing and in good standing as a professional corporation
under the laws of the State of Texas.
4.6. TAXES. The Company has filed with the proper taxing or other
governmental authority all tax returns and reports and has paid all taxes
required by law for all periods ended before the effective date of this
Agreement. No claim is pending or threatened against the Company based on its
failure to file any tax return or report or to pay any tax when due.
4.7. FINANCIAL STATEMENTS. Seller has delivered to the Purchaser a
financial statement of the Company for the most recent applicable period. The
financial statement is complete for the period indicated, fairly presents the
financial position and the results of operation of the Company and has been
prepared in accordance with generally accepted accounting principles
consistently applied.
4.8. PROPERTIES. The Company has good and valid title to all of its
assets, free and clear of all liens, pledges, security interests, charges,
claims, restrictions and other encumbrances of any nature whatsoever.
4.9. COMPLIANCE WITH THE LAW. The Company has complied in all
material respects with all laws, ordinances, and governmental rules or
regulations to which it or its business, operations, assets or properties is
subject and has not failed to obtain, or to adhere to the requirements of, any
license, permit or other governmental authorization necessary to the ownership
-2-
of its assets and properties or to the conduct of its business, which
noncompliance, violation or failure to obtain or adhere would have a material
adverse effect on its business, operations, assets, properties, prospects or
conditions (financial or otherwise).
4.10. SURVIVAL. The representation and warranties of Seller
hereunder (other than the representations and warranties contained in Sections
4.2 and 4.5) shall expire contemporaneously with the consummation of the
transaction contemplated hereby, and shall not survive the closing of such
transaction.
5. MISCELLANEOUS PROVISIONS.
5.1. ENTIRE AGREEMENT. This Agreement constitutes the full
understanding of the Seller and the Purchaser and a complete and exclusive
statement of the terms and conditions of their agreement relating to the subject
matter hereof and supersedes all prior negotiations, understandings and
agreements, whether written or oral, between the Seller and the Purchaser with
respect thereto.
5.2. AMENDMENTS. No alteration, modification, amendment or change in
this Agreement shall be effective or binding on any party unless the same is in
writing and is executed by the Seller and the Purchaser.
5.3. GOVERNING LAW. This Agreement shall be governed by, construed
under, and enforced in accordance with the laws of the State of Texas without
reference to the conflict-of-laws provisions thereof.
5.4. MULTIPLE COUNTERPARTS. This Agreement may be executed by the
parties hereto in multiple counterparts, each of which shall be deemed an
original for all purposes, and all of which together shall constitute one and
the same instrument.
This Agreement is executed and delivered by the Seller and the Purchaser
on the date first set forth above.
SELLER:
- --------------------
Jack H. Castle, D.D.S.
PURCHASER:
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Castle Dental Centers, Inc.
By:_________________
Jack H. Castle, Jr.
President
12/18/95--11:10 am
-4-
EXHIBIT 10.11
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment (the "Amendment") to the Stock Purchase Agreement (the
"Agreement"), dated as of December 18, 1995, by and between Jack H. Castle,
D.D.S. (the "Seller") and Castle Dental Centers, Inc., a Delaware corporation
(the "Purchaser"), is made and entered into as of the 15th day of August, 1996.
1. INTRODUCTION. This Amendment is entered into pursuant to and in
conformity with Section 5.2 of the Agreement. All capitalized terms not
otherwise defined in this Amendment shall have the meanings ascribed to
them in the Agreement.
2. AMENDMENTS. Purchaser and Seller hereby agree to amend the Agreement
as follows:
(a) The following Section 5.5 is hereby added to the Agreement:
"5.5. EFFECTIVE DATE. The effective date of this
Agreement for all purposes shall be December 31, 1995."
3. NO OTHER CHANGES. Except as set forth herein, provisions of the
Agreement shall remain in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument.
<PAGE>
IN WITNESS WHEREOF, Purchaser and Seller have caused this Amendment to
be executed as of the date first set forth above.
SELLER:
______________________________
Jack H. Castle, D.D.S.
PURCHASER:
Castle Dental Centers, Inc.
By: __________________________
Jack H. Castle, Jr.
Chairman and Chief Executive Officer
-2-
EXHIBIT 10.12
DEFERRED COMPENSATION AGREEMENT
This Deferred Compensation Agreement (the "Agreement") is by and between Castle
Dental Centers, Inc., a Delaware corporation (the "Company"),and Jack H. Castle,
D.D.S. ("Castle"), who agree as follows:
1. INTRODUCTION. Prior to the date of this Agreement, Castle was
employed by the Company and its predecessors in various capacities for a period
of over __ years prior to his retirement in 1995. In recognition of his profound
and continuing contributions to and for the benefit of the Company, the Company
has agreed to enter into this Agreement providing for the payment of the
deferred compensation contemplated hereby.
2. PAYMENT OF DEFERRED COMPENSATION.
(a) The Company hereby agrees to pay to Castle or his heirs,
executors, successors or assigns, the sum of $2,630,000, payable
as provided herein. Commencing on the last day of March 1996,
and continuing thereafter on the last day of each calendar
quarter until December 31, 2000, the Company agrees to pay to
Castle, or his heirs, executors, successors or assigns
(hereinafter called a "Castle Party") quarterly payments in the
amount of $131,500, without any deduction or withholding
whatsoever. Castle and the Company agree that the payments made
hereunder are by way of compensation to Castle, and that the
Company is entitled to record such payments to Castle in such
manner. Upon the failure of the Company to pay any amounts when
due to Castle hereunder, Castle shall have the right to
accelerate all of the obligations of the Company hereunder,
without notice, to the fullest extent permitted by applicable
law, including, without limitation, notice of intent to
accelerate and notice of acceleration.
(b) It is understood and agreed that payment and performance of
this Agreement and all indebtedness evidenced hereby is hereby
made expressly subordinate and junior in right of payment to the
prior payment and performance of all indebtedness, obligations
and liabilities of the Company now or hereafter existing under
or in connection with that certain Credit Agreement dated as of
December 18, 1995, by and between the Company, NationsBank of
Texas, N.A. ("NationsBank"), as Lender (as the same may
hereafter be amended, restated, renewed or extended hereinafter
call the "Credit Agreement"), including, without limitation,
such indebtedness obligations and liabilities out of, pursuant
to or evidenced by (i) the Revolving Credit Note being that
certain promissory note dated December 18, 1995, in the
principal
<PAGE>
amount of $3,000,000 made by Company under the Credit Agreement
payable to NationsBank, as therein provide, (ii) the Term Note
being that certain promissory note dated December ___, 1995, in
the principal amount of $6,000,000 made by the Company under the
Credit Agreement payable to NationsBank, as therein provided,
(iii) any and all renewals, extensions for any period,
rearrangements, increases and/or modifications of either of the
aforesaid notes (hereinafter called the "NB Notes"), and (iv)
any and all other loan documents or other documents executed in
connection with or as security for the Credit Agreement or the
NB Notes (hereinafter called the "Senior Debt") as follows:
(i) No payment or prepayment of any sum under this
Agreement shall be made, if at the time of such payment,
prepayment, or immediately after giving effect thereto (a) there
shall exist a default in the payment or prepayment, or
immediately after giving effect thereto (a) there shall exist a
default in the payment or prepayment of the principal or
interest with respect to any of the Senior Debt or (b) there
shall have occurred an Event of Default, as defined in the
Credit Agreement (other than an Event of Default in the payment
of prepayment of principal or interest with respect to any of
the Senior Debt) permitting the holder or holders of any of the
Senior Debt to accelerate the maturity thereof (with notice,
lapse of time, or both) and such Event of Default shall not have
been cured or waived;
(ii) In the event of any insolvency or bankruptcy
proceedings, and any receivership, liquidation, reorganization
or other similar proceedings in connection therewith, relative
to the Company or to its creditors, as such, or to its property,
and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy, then the holders of the
Senior Debt shall be entitled to receive payment in full of all
principal, interest and other sums owing in connection with the
Senior Debt (including interest thereon and costs and expenses
accruing after the commencement of any such proceedings) before
any Castle Party is entitled to receive any payment on account
of this Agreement, and to that end the holders of Senior Debt
shall be entitled to receive distributions of any kind or
character, whether in cash or property or securities, which may
be payable or deliverable in any such proceedings in respect of
this Agreement, except for distributions in form of securities
which are subordinated and junior in right of payment to the
payment of the Senior Debt then outstanding and which have no
shorter maturity or greater cost to the Company than this
Agreement;
-2-
(iii) In the event that sums owing under this Agreement
are declared due and payable before their expressed maturity
because of the occurrence of an event of default (under
circumstances when the provisions of the foregoing paragraphs
(i) or (ii) are not applicable), the holders of the Senior Debt
outstanding at the time this Agreement so becomes due and
payable because of such occurrence of such an event of default
shall be entitled to receive payment in full of all principal,
interest and other sums outstanding in connection with the
Senior Debt before any Castle Party is entitled to receive any
payment on account of this Agreement;
(iv) In the event that, notwithstanding the occurrence
of any of the events described in paragraphs (i), (ii), and
(iii), and such payment or distribution of assets of the Company
of any kind or character, whether in cash, property or
securities, shall be received by any Castle Party before the
Senior Debt is paid in full, or provision made for such payment
in accordance with the terms of the Senior Debt, such payment or
distribution shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holder of the Senior
Debt for the pro rata distribution and application to the
payment of the Senior Debt remaining unpaid to the extent
necessary to pay the Senior Debt in full, including principal
and interest thereon and other sums owing in connection
therewith, in accordance with its terms, after giving effect to
any concurrent payment or distribution to the holders of the
Senior Debt; and
(v) No holder of Senior Debt shall be prejudiced in its
right to enforce subordination of this Agreement by any act or
failure to act on the part of the Company; PROVIDED that the
foregoing provisions are solely for the purpose of defining the
relative rights of the holders of Senior Debt, on the one hand,
and a Castle Party, on the other hand, and that nothing herein
shall impair, as between the Company and such Castle Party, the
obligation of the Company, which is unconditional and absolute,
to pay to such Castle Party in accordance with the terms hereof,
provided, however, such Castle Party agrees that it will not
commence any action or proceeding against the Company to recover
all or any part of any sums due hereunder or join with any other
creditor, unless NationsBank shall also join, in bringing any
such proceedings against the Company including, without
limitation, under any bankruptcy, reorganization, readjustment
of debt, arrangement of debt, receivership, liquidation or
insolvency law or statute of the Federal or any state government
unless and until all Senior Debt shall have been paid in full.
(vi) In the event of any receivership, insolvency,
bankruptcy, assignment for the benefit of creditors,
reorganization or arrangement with creditors, adjustment
-3-
of debt, whether or not pursuant to bankruptcy laws, the sale of
all or substantially all of the assets, dissolution,
liquidation, or any other marshaling of the assets and
liabilities of the Company, any Castle Party will at the request
of any holder of the Senior Debt file any claim, proof of claim,
proof of interest or other instrument of similar character
necessary to enforce the obligation of the Company in respect of
this Agreement and will hold in trust for the holders of the
Senior Debt and payover to the holders of the Senior Debt, in
the form received (together with any necessary endorsement), to
be distributed and applied pro rata on the Senior Debt, any and
all monies, dividends or other assets received in any such
proceedings on account of this Agreement unless and until all
the Senior Debt shall be paid in full. In the event that any
Castle Party shall fail to take any such action requested by any
holder of the Senior Debt, any holder of the Senior Debt, may,
as attorney-in-fact for such Castle Party to take such action on
behalf of such Castle Party, and such Castle Party hereby
appoints each of the holders of the Senior Debt as
attorney-in-fact (act with power and authority to act alone) for
such Castle Party to demand, sue for, collect and receive any
and all such monies, dividends or other assets and give
acquittance therefore and to file any claim, proof of claim,
proof of interest or other instrument of similar character and
to take such other proceedings in the name of the holders of the
Senior Debt or in the name of such Castle Party as the holders
of the Senior Debt may deem necessary or advisable for the
enforcement thereof; and such Castle Party will execute and
deliver to the holders of the Senior Debt such other and further
powers of attorney or other instruments as any holder of the
Senior Debt may request in order to accomplish the foregoing.
(vii) The holders of the Senior Debt shall have no duty
or obligation to any Castle Party in any manner whatsoever and
may, at any time and from time to time in their sole discretion,
without the consent of or notice to such Castle Party and
without impairing or releasing any rights of the holders of the
Senior Debt or any of the obligations of such Castle Party
hereunder, take any or all of the following actions:
(a) change the amount, manner, place, terms of
payment or interest rate, change or extend the time of
payment of, or renew or alter, any of the Senior Debt,
or amend or supplement or waive any of the terms of any
instrument or agreement now or hereafter executed
pursuant to which any of the Senior Debt is issued or
incurred;
(b) sell, exchange, release, surrender, relend,
realize upon or otherwise deal with in any manner and in
any order any property (or the
-4-
income, revenues, profits or proceeds therefrom) by
whomsoever at any time pledged or mortgaged to secure,
or howsoever securing, any Senior Debt;
(c) release any person liable in any manner for
the payment or collection of the Senior Debt;
(d) exercise or refrain from exercising any
rights and remedies against the Company or others or
otherwise act or refrain from acting or, for any reason
fail to file, record or otherwise perfect any security
interest in or lien on any property of the Company or
any other person;
(e) apply any sums received by the holders of
the Senior Debt, by whomsoever paid and however
realized, to payment of the Senior Debt in such manner
as the holders of the Senior Debt, in their sole
discretion, may deem appropriate;
(f) sell, exchange, release, surrender, relend,
realize upon or otherwise deal with in any manner and in
any order any property (or the income, revenues, profits
or proceeds therefrom) by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, any
Senior Debt;
(viii) Each Castle Party agrees to execute any and all
other instruments, if any, deemed necessary by the holders of
the Senior Debt to subordinate this Agreement to the Senior Debt
as herein provided.
No supplement, amendment, modification or other instrument in any way
amending or modifying this Agreement shall directly or indirectly amend or
modify the provisions of this Agreement relating to the subordination of this
Agreement to the Senior Debt in any manner which might terminate or impair the
subordination as herein provided. Each Castle Party acknowledges that in
connection herewith the Company is entering into the Credit Agreement pursuant
to which NationsBank now or in the future may become a lender to the Company and
holder of Senior Debt. The provisions hereof are for the benefit of and may be
enforced (and waived, if expressly done so in writing) by NationsBank and other
holders of Senior Debt and their respective successors and assigns.
(c) It is understood and agreed that payment and performance of
this Agreement and all indebtedness evidenced hereby is hereby
made expressly subordinate and junior in right of payment to the
prior payment and performance of all indebtedness, obligations
and liabilities of the Company now or hereafter existing under
or in
-5-
connection with that certain Securities Purchase Agreement dated
as of December 18, 1995, by and among the Company, Jack H.
Castle, D.D.S., P.C., JHCDDS, Inc. and the Investors named
therein (the "Investors") (as the same may hereafter be amended,
restated, renewed or extended hereinafter call the "Securities
Purchase Agreement"), including, without limitation, such
indebtedness obligations and liabilities out of, pursuant to or
evidenced by (i) Senior Subordinated Notes issued pursuant to
the Security Purchase Agreement and described therein; (ii) any
and all renewals, extensions for any period, rearrangements,
increases and/or modifications of any of the aforesaid notes
(hereinafter called the "Investor Notes"), and (iii) any and all
other loan documents or other documents executed in connection
with or as security for the Securities Purchase Agreement or the
Investor Notes (hereinafter called the "Senior Subordinated
Debt") as follows:
(i) No payment or prepayment of any sum under this
Agreement shall be made, if at the time of such payment,
prepayment, or immediately after giving effect thereto (a) there
shall exist a default in the payment or prepayment, or
immediately after giving effect thereto (a) there shall exist a
default in the payment or prepayment of the principal or
interest with respect to any of the Senior Subordinated Debt or
(b) there shall have occurred an Event of Default, as defined in
the Securities Purchase Agreement (other than an Event of
Default in the payment of prepayment of principal or interest
with respect to any of the Senior Subordinated Debt) permitting
the holder or holders of any of the Senior Subordinated Debt to
accelerate the maturity thereof (with notice, lapse of time, or
both) and such Event of Default shall not have been cured or
waived;
(ii) In the event of any insolvency or bankruptcy
proceedings, and any receivership, liquidation, reorganization
or other similar proceedings in connection therewith, relative
to the Company or to its creditors, as such, or to its property,
and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy, then the holders of the
Senior Subordinated Debt shall be entitled to receive payment in
full of all principal, interest and other sums owing in
connection with the Senior Subordinated Debt (including interest
thereon and costs and expenses accruing after the commencement
of any such proceedings) before any Castle Party is entitled to
receive any payment on account of this Agreement, and to that
end the holders of Senior Subordinated Debt shall be entitled to
receive distributions of any kind or character, whether in cash
or property or securities, which may be payable or deliverable
in any such proceedings in respect of this Agreement, except for
distributions in form of securities which are subordinated and
junior in right of
-6-
payment to the payment of the Senior Subordinated Debt then
outstanding and which have no shorter maturity or greater cost
to the Company than this Agreement;
(iii) In the event that sums owing under this Agreement
are declared due and payable before their expressed maturity
because of the occurrence of an event of default (under
circumstances when the provisions of the foregoing paragraphs
(i) or (ii) are not applicable), the holders of the Senior
Subordinated Debt outstanding at the time this Agreement so
becomes due and payable because of such occurrence of such an
event of default shall be entitled to receive payment in full of
all principal, interest and other sums outstanding in connection
with the Senior Subordinated Debt before any Castle Party is
entitled to receive any payment on account of this Agreement;
(iv) In the event that, notwithstanding the occurrence
of any of the events described in paragraphs (i), (ii), and
(iii), and such payment or distribution of assets of the Company
of any kind or character, whether in cash, property or
securities, shall be received by any Castle Party before the
Senior Subordinated Debt is paid in full, or provision made for
such payment in accordance with the terms of the Senior
Subordinated Debt, such payment or distribution shall be held in
trust for the benefit of, and shall be paid over or delivered
to, the holder of the Senior Subordinated Debt for the pro rata
distribution and application to the payment of the Senior
Subordinated Debt remaining unpaid to the extent necessary to
pay the Senior Subordinated Debt in full, including principal
and interest thereon and other sums owing in connection
therewith, in accordance with its terms, after giving effect to
any concurrent payment or distribution to the holders of the
Senior Subordinated Debt; and
(v) No holder of Senior Subordinated Debt shall be
prejudiced in its right to enforce subordination of this
Agreement by any act or failure to act on the part of the
Company; PROVIDED that the foregoing provisions are solely for
the purpose of defining the relative rights of the holders of
Senior Subordinated Debt, on the one hand, and a Castle Party,
on the other hand, and that nothing herein shall impair, as
between the Company and such Castle Party, the obligation of the
Company, which is unconditional and absolute, to pay to such
Castle Party in accordance with the terms hereof, provided,
however, such Castle Party agrees that it will not commence any
action or proceeding against the Company to recover all or any
part of any sums due hereunder or join with any other creditor,
unless the Investors shall also join, in bringing any such
proceedings against the Company including, without limitation,
under any bankruptcy, reorganization, readjustment of debt,
arrangement of debt,
-7-
receivership, liquidation or insolvency law or statute of the
Federal or any state government unless and until all Senior
Subordinated Debt shall have been paid in full.
(vi) In the event of any receivership, insolvency,
bankruptcy, assignment for the benefit of creditors,
reorganization or arrangement with creditors, adjustment of
debt, whether or not pursuant to bankruptcy laws, the sale of
all or substantially all of the assets, dissolution,
liquidation, or any other marshalling of the assets and
liabilities of the Company, any Castle Party will at the request
of any holder of the Senior Subordinated Debt file any claim,
proof of claim, proof of interest or other instrument of similar
character necessary to enforce the obligation of the Company in
respect of this Agreement and will hold in trust for the holders
of the Senior Subordinated Debt and payover to the holders of
the Senior Subordinated Debt, in the form received (together
with any necessary endorsement), to be distributed and applied
pro rata on the Senior Subordinated Debt, any and all monies,
dividends or other assets received in any such proceedings on
account of this Agreement unless, and until all the Senior
Subordinated Debt shall be paid in full. In the event that any
Castle Party shall fail to take any such action requested by any
holder of the Senior Subordinated Debt, any holder of the Senior
Subordinated Debt, may, as attorney-in-fact for such Castle
Party to take such action on behalf of such Castle Party, and
such Castle Party hereby appoints each of the holders of the
Senior Subordinated Debt as attorney-in-fact (act with power and
authority to act alone) for such Castle Party to demand, sue
for, collect and receive any and all such monies, dividends or
other assets and give acquittance therefore and to file any
claim, proof of claim, proof of interest or other instrument of
similar character and to take such other proceedings in the name
of the holders of the Senior Subordinated Debt or in the name of
such Castle Party as the holders of the Senior Subordinated Debt
may deem necessary or advisable for the enforcement thereof; and
such Castle Party will execute and deliver to the holders of the
Senior Subordinated Debt such other and further powers of
attorney or other instruments as any holder of the Senior
Subordinated Debt may request in order to accomplish the
foregoing.
(vii) The holders of the Senior Subordinated Debt shall
have no duty or obligation to any Castle Party in any manner
whatsoever and may, at any time and from time to time in their
sole discretion, without the consent of or notice to such Castle
Party and without impairing or releasing any rights of the
holders of the Senior Subordinated Debt or any of the
obligations of such Castle Party hereunder, take any or all of
the following actions:
-8-
(a) change the amount, manner, place, terms of
payment or interest rate, change or extend the time of
payment of, or renew or alter, any of the Senior
Subordinated Debt, or amend or supplement or waive any
of the terms of any instrument or agreement now or
hereafter executed pursuant to which any of the Senior
Subordinated Debt is issued or incurred;
(b) sell, exchange, release, surrender, relend,
realize upon or otherwise deal with in any manner and in
any order any property (or the income, revenues, profits
or proceeds therefrom) by whomsoever at any time pledged
or mortgaged to secure, or howsoever securing, any
Senior Subordinated Debt;
(c) release any person liable in any manner for
the payment or collection of the Senior Subordinated
Debt;
(d) exercise or refrain from exercising any
rights and remedies against the Company or others or
otherwise act or refrain from acting or, for any reason
fail to file, record or otherwise perfect any security
interest in or lien on any property of the Company or
any other person;
(e) apply any sums received by the holders of
the Senior Subordinated Debt, by whomsoever paid and
however realized, to payment of the Senior Subordinated
Debt in such manner as the holders of the Senior
Subordinated Debt, in their sole discretion, may deem
appropriate;
(f) sell, exchange, release, surrender, relend,
realize upon or otherwise deal with in any manner and in
any order any property (or the income, revenues, profits
or proceeds therefrom) by whomsoever at any time pleged
or mortgaged to secure, or howsoever securing, any
Senior Subordinated Debt;
(viii) Each Castle Party agrees to execute any and all
other instruments, if any, deemed necessary by the holders of
the Senior Subordinated Debt to subordinate this Agreement to
the Senior Subordinated Debt as herein provided.
No supplement, amendment, modification or other instrument in any way
amending or modifying this Agreement shall directly or indirectly amend or
modify the provisions of this Agreement relating to the subordination of this
Agreement to the Senior Subordinated Debt in any manner which might terminate or
impair the subordination as herein provided. Each Castle Party
-9-
acknowledges that in connection herewith the Company is entering into the
Securities Purchase Agreement pursuant to which the Investors now or in the
future may become a lender to the Company and a holder of Senior Subordinated
Debt. The provisions hereof are for the benefit of and may be enforced (and
waived, if expressly done so in writing) by the Investors and other holders of
Senior Subordinated Debt and their respective successors and assigns.
3. BINDING EFFECT. The terms of this Agreement shall be binding on and
shall inure to the benefit of the Company, such Castle Party and their
respective successors, heirs, executors and assigns. The deferred compensation
provided for herein shall be payable irrespective of the death, disability or
incapacity of Castle or the loss of his dental license.
4. EFFECTIVE DATE. The Effective Date of this Agreement shall be
December 18, 1995.
CASTLE DENTAL CENTERS, INC.
By
Jack H. Castle, Jr., President
Jack H. Castle, D.D.S.
-10-
EXHIBIT 10.13
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of the 18th day of December 1995, by
and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "Company"),
and G. Kent Kahle ("Indemnitee"), a director of the Company.
W I T N E S S T H:
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available; and
WHEREAS, corporate directors and officers are subjected to expensive
litigation risks while the availability of directors' and officers' liability
insurance is limited; and
WHEREAS, it is now and has always been the express policy of the Company
to indemnify its directors and officers so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve as a director without
adequate protection; and
WHEREAS, the Company desires Indemnitee to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants herein contained, the Company and Indemnitee hereby agree as
follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of the
Company for so long as he is duly elected or appointed thereto or until such
time as Indemnitee shall resign in writing.
2. DEFINITIONS AS USED IN THIS AGREEMENT:
(a) The term "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not brought by or in the right of the corporation.
(b) The term "Expenses" means all expenses (including attorneys'
fees) actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of any Proceeding, including any expenses reasonably
incurred in successfully establishing a right to indemnification under Section 5
of this Agreement, but not including any judgments, fines, taxes, penalties or
amounts paid or to be paid in settlement of such Proceeding.
-1-
3. INDEMNITY.
(a) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding (other than a Proceeding by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director or officer
of the Company (which, for purposes hereof, includes any constituent corporation
absorbed by the Company in a consolidation or merger) or while serving as such a
director or officer, is or was serving at the request of the Company as a
director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, the Company shall
indemnify Indemnitee against all Expenses and all judgments, fines, taxes or
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding by or in the right of the Company by reason of the fact
that Indemnitee is or was a director or officer of the Company (which, for
purposes hereof, includes any constituent corporation absorbed by the Company in
a consolidation or merger) or while serving as such a director or officer, is or
was serving at the request of the Company as a director, officer, partner, joint
venturer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, the Company shall indemnify Indemnitee against all Expenses
incurred in connection with such Proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for Expenses which the Court of Chancery or
such other court shall deem proper.
4. ADVANCES OF EXPENSES. Except as provided in Section 5, any indemnity
for Expenses to which Indemnitee is entitled under the provisions of Section 3
shall be paid by the Company in advance within ninety (90) days after receipt of
the written request of Indemnitee provided
-2-
Indemnitee shall undertake in writing to repay such amount to the extent that it
is ultimately determined that Indemnitee is not entitled to indemnification.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification, or (in the case of a Proceeding by or in the
right of the Company) any advance to which Indemnitee is otherwise entitled
under the provisions of Sections 3 and 4, shall be made no later than ninety
(90) days after receipt of the written request of Indemnitee, unless a
determination is made within said ninety (90) day period (a) by the board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding, or (b) if such quorum is not obtainable (or even if
obtainable, a quorum of disinterested directors so directs), by independent
legal counsel in a written opinion, or (c) by a majority vote of the
stockholders, provided, however, that shares owned by or voted under the control
of directors who are at the time parties to the Proceeding may not be voted in
the determination (collectively, the "Authority"), that indemnification or
advances to the Indemnitee are not proper in the circumstances because there
exists clear and convincing evidence that such person has not met the applicable
standard of conduct set forth in Sections 3(a) or 3(b). Any such determination
with respect to advances may be re-examined at any time by the Authority.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction The
burden of proving that indemnification or advances are not permissible shall be
on the Company. Neither the failure of Company (including the Authority) to have
made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances, nor an actual
determination by the Company (including the Authority) that indemnification or
advances are not proper shall be a defense to the action or create a presumption
that indemnification or advances are not legally permissible. Indemnitee's
expenses incurred in connection with successfully establishing Indemnitee's
right to indemnification or advances, in whole or in part, in any Proceeding
shall also be indemnified by the Company but only in the proportion that the
amount awarded Indemnitee in such proceeding bears to the amount sought by
Indemnitee.
6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws,
any agreement, any vote of disinterested shareholders or disinterested
directors, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to Indemnitee even though
the Indemnitee may have ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
-3-
7. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, taxes, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fines, taxes, penalties
or amounts paid in settlement to which the Indemnitee is entitled.
8. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall (to the extent permitted thereby) be covered by such policy or
policies in accordance with the terms thereof to the maximum extent of the
coverage available.
9. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all documents and instruments
required and shall do everything that may be necessary to secure such right,
including the execution of such documents and instruments as shall be necessary
to enable the Company effectively to bring suit to enforce such rights.
10. SAVINGS CLAUSE. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, taxes, penalties or amounts paid in settlement with respect to any
Proceeding to penalties the full extent permitted by any applicable portion of
this Agreement that shall not have ben invalidated.
11. NOTICE. Indemnitee shall, as a condition precedent to the Indemnitee's
right to be indemnified under this Agreement, give the Company notice in writing
as soon as practicable of any claim made against the Indemnitee for which
indemnity will or could be sought under this Agreement. Notice to the Company
shall be directed to it at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas
77056. Attention: President (or such other address as the Company shall
designate in writing to Indemnitee). Notice shall be deemed received three (3)
days after the date postmarked if sent by prepaid mail, properly addressed. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with Delaware law applicable to contracts made and to be performed in
such state without giving effect to principles of conflicts of laws.
-4-
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
15. AMENDMENT. This Agreement may only be amended by a writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date hereof.
CASTLE DENTAL CENTERS
By:___________________________________
Jack H. Castle, Jr.
President
INDEMNITEE
___________________________________
G. Kent Kahle
-5-
EXHIBIT 10.14
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of the 18th day of December 1995,
by and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the
"Company"), and Jack H. Castle, D.D.S. ("Indemnitee"), a director of the
Company.
W I T N E S S T H:
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available; and
WHEREAS, corporate directors and officers are subjected to expensive
litigation risks while the availability of directors' and officers' liability
insurance is limited; and
WHEREAS, it is now and has always been the express policy of the
Company to indemnify its directors and officers so as to provide them with the
maximum possible protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve as a director without
adequate protection; and
WHEREAS, the Company desires Indemnitee to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants herein contained, the Company and Indemnitee hereby
agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of the
Company for so long as he is duly elected or appointed thereto or until such
time as Indemnitee shall resign in writing.
2. DEFINITIONS AS USED IN THIS AGREEMENT:
(a) The term "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not brought by or in the right of the corporation.
(b) The term "Expenses" means all expenses (including
attorneys' fees) actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of any Proceeding, including any expenses
reasonably incurred in successfully establishing a right to indemnification
under Section 5 of this Agreement, but not including any judgments, fines,
taxes, penalties or amounts paid or to be paid in settlement of such Proceeding.
-1-
3. INDEMNITY.
(a) If Indemnitee was or is a party to or threatened to be
made a party to any Proceeding (other than a Proceeding by or in the right of
the Company) by reason of the fact that Indemnitee is or was a director or
officer of the Company (which, for purposes hereof, includes any constituent
corporation absorbed by the Company in a consolidation or merger) or while
serving as such a director or officer, is or was serving at the request of the
Company as a director, officer, partner, joint venturer, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, the
Company shall indemnify Indemnitee against all Expenses and all judgments,
fines, taxes or amounts paid in settlement actually and reasonably incurred by
Indemnitee in connection with such Proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) If Indemnitee was or is a party to or threatened to be
made a party to any Proceeding by or in the right of the Company by reason of
the fact that Indemnitee is or was a director or officer of the Company (which,
for purposes hereof, includes any constituent corporation absorbed by the
Company in a consolidation or merger) or while serving as such a director or
officer, is or was serving at the request of the Company as a director, officer,
partner, joint venturer, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, the Company shall indemnify Indemnitee
against all Expenses incurred in connection with such Proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, except that no indemnification
shall be made in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable to the Company unless and only
to the extent that the Delaware Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for Expenses which the
Court of Chancery or such other court shall deem proper.
4. ADVANCES OF EXPENSES. Except as provided in Section 5, any indemnity
for Expenses to which Indemnitee is entitled under the provisions of Section 3
shall be paid by the Company in advance within ninety (90) days after receipt of
the written request of Indemnitee provided
-2-
Indemnitee shall undertake in writing to repay such amount to the extent that it
is ultimately determined that Indemnitee is not entitled to indemnification.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification, or (in the case of a Proceeding by or in
the right of the Company) any advance to which Indemnitee is otherwise entitled
under the provisions of Sections 3 and 4, shall be made no later than ninety
(90) days after receipt of the written request of Indemnitee, unless a
determination is made within said ninety (90) day period (a) by the board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding, or (b) if such quorum is not obtainable (or even if
obtainable, a quorum of disinterested directors so directs), by independent
legal counsel in a written opinion, or (c) by a majority vote of the
stockholders, provided, however, that shares owned by or voted under the control
of directors who are at the time parties to the Proceeding may not be voted in
the determination (collectively, the "Authority"), that indemnification or
advances to the Indemnitee are not proper in the circumstances because there
exists clear and convincing evidence that such person has not met the applicable
standard of conduct set forth in Sections 3(a) or 3(b). Any such determination
with respect to advances may be re-examined at any time by the Authority.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction The
burden of proving that indemnification or advances are not permissible shall be
on the Company. Neither the failure of Company (including the Authority) to have
made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances, nor an actual
determination by the Company (including the Authority) that indemnification or
advances are not proper shall be a defense to the action or create a presumption
that indemnification or advances are not legally permissible. Indemnitee's
expenses incurred in connection with successfully establishing Indemnitee's
right to indemnification or advances, in whole or in part, in any Proceeding
shall also be indemnified by the Company but only in the proportion that the
amount awarded Indemnitee in such proceeding bears to the amount sought by
Indemnitee.
6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under the Certificate of Incorporation, the
Bylaws, any agreement, any vote of disinterested shareholders or disinterested
directors, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to Indemnitee even though
the Indemnitee may have ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
-3-
7. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, taxes, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fines, taxes, penalties
or amounts paid in settlement to which the Indemnitee is entitled.
8. LIABILITY INSURANCE. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, the Indemnitee shall (to the extent permitted thereby) be covered by
such policy or policies in accordance with the terms thereof to the maximum
extent of the coverage available.
9. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents and instruments
required and shall do everything that may be necessary to secure such right,
including the execution of such documents and instruments as shall be necessary
to enable the Company effectively to bring suit to enforce such rights.
10. SAVINGS CLAUSE. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, taxes, penalties or amounts paid in settlement with respect to any
Proceeding to penalties the full extent permitted by any applicable portion of
this Agreement that shall not have ben invalidated.
11. NOTICE. Indemnitee shall, as a condition precedent to the
Indemnitee's right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against the
Indemnitee for which indemnity will or could be sought under this Agreement.
Notice to the Company shall be directed to it at 1360 Post Oak Boulevard, Suite
1300, Houston, Texas 77056. Attention: President (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three (3) days after the date postmarked if sent by prepaid mail,
properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with Delaware law applicable to contracts made and to be performed
in such state without giving effect to principles of conflicts of laws.
-4-
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
15. AMENDMENT. This Agreement may only be amended by a writing signed
by both parties hereto.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date hereof.
CASTLE DENTAL CENTERS
By: Jack H. Castle, Jr.
President
INDEMNITEE
Jack H. Castle, D.D.S.
-5-
EXHIBIT 10.15
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of the 18th day of December 1995, by
and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "Company"),
and Jack H. Castle, Jr. ("Indemnitee"), a director of the Company.
W I T N E S S T H:
WHEREAS, it is essential to the Company to retain and attract as director
and officers the most capable persons available; and
WHEREAS, corporate directors and officers are subjected to expensive
litigation risks while the availability of directors' and officers' liability
insurance is limited; and
WHEREAS, it is now and has always been the express policy of the Company
to indemnify its directors and officers so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve as a director without
adequate protection; and
WHEREAS, the Company desires Indemnitee to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants herein contained, the Company and Indemnitee hereby agree as
follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of th
Company for so long as he is duly elected or appointed thereto or until such
time as Indemnitee shall resign in writing.
2. DEFINITIONS AS USED IN THIS AGREEMENT:
(a) The term "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not brought by or in the right of the corporation.
(b) The term "Expenses" means all expenses (including attorneys'
fees) actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of any Proceeding, including any expenses reasonably
incurred in successfully establishing a right to indemnification under Section 5
of this Agreement, but not including any judgments, fines, taxes, penalties or
amounts paid or to be paid in settlement of such Proceeding.
-1-
3. INDEMNITY.
(a) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding (other than a Proceeding by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director or officer
of the Company (which, for purposes hereof, includes any constituent corporation
absorbed by the Company in a consolidation or merger) or while serving as such a
director or officer, is or was serving at the request of the Company as a
director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, the Company shall
indemnify Indemnitee against all Expenses and all judgments, fines, taxes or
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding by or in the right of the Company by reason of the fact
that Indemnitee is or was a director or officer of the Company (which, for
purposes hereof, includes any constituent corporation absorbed by the Company in
a consolidation or merger) or while serving as such a director or officer, is or
was serving at the request of the Company as a director, officer, partner, joint
venturer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, the Company shall indemnify Indemnitee against all Expenses
incurred in connection with such Proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for Expenses which the Court of Chancery or
such other court shall deem proper.
4. ADVANCES OF EXPENSES. Except as provided in Section 5, any indemnity
for Expenses to which Indemnitee is entitled under the provisions of Section 3
shall be paid by the Company in advance within ninety (90) days after receipt of
the written request of Indemnitee provided
-2-
Indemnitee shall undertake in writing to repay such amount to the extent that it
is ultimately determined that Indemnitee is not entitled to indemnification.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification, or (in the case of a Proceeding by or in the
right of the Company) any advance to which Indemnitee is otherwise entitled
under the provisions of Sections 3 and 4, shall be made no later than ninety
(90) days after receipt of the written request of Indemnitee, unless a
determination is made within said ninety (90) day period (a) by the board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding, or (b) if such quorum is not obtainable (or even if
obtainable, a quorum of disinterested directors so directs), by independent
legal counsel in a written opinion, or (c) by a majority vote of the
stockholders, provided, however, that shares owned by or voted under the control
of directors who are at the time parties to the Proceeding may not be voted in
the determination (collectively, the "Authority"), that indemnification or
advances to the Indemnitee are not proper in the circumstances because there
exists clear and convincing evidence that such person has not met the applicable
standard of conduct set forth in Sections 3(a) or 3(b). Any such determination
with respect to advances may be re-examined at any time by the Authority.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction The
burden of proving that indemnification or advances are not permissible shall be
on the Company. Neither the failure of Company (including the Authority) to have
made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances, nor an actual
determination by the Company (including the Authority) that indemnification or
advances are not proper shall be a defense to the action or create a presumption
that indemnification or advances are not legally permissible. Indemnitee's
expenses incurred in connection with successfully establishing Indemnitee's
right to indemnification or advances, in whole or in part, in any Proceeding
shall also be indemnified by the Company but only in the proportion that the
amount awarded Indemnitee in such proceeding bears to the amount sought by
Indemnitee.
6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws,
any agreement, any vote of disinterested shareholders or disinterested
directors, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to Indemnitee even though
the Indemnitee may have ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
-3-
7. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, taxes, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fines, taxes, penalties
or amounts paid in settlement to which the Indemnitee is entitled.
8. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall (to the extent permitted thereby) be covered by such policy or
policies in accordance with the terms thereof to the maximum extent of the
coverage available.
9. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all documents and instruments
required and shall do everything that may be necessary to secure such right,
including the execution of such documents and instruments as shall be necessary
to enable the Company effectively to bring suit to enforce such rights.
10. SAVINGS CLAUSE. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, taxes, penalties or amounts paid in settlement with respect to any
Proceeding to penalties the full extent permitted by any applicable portion of
this Agreement that shall not have ben invalidated.
11. NOTICE. Indemnitee shall, as a condition precedent to the Indemnitee's
right to be indemnified under this Agreement, give the Company notice in writing
as soon as practicable of any claim made against the Indemnitee for which
indemnity will or could be sought under this Agreement. Notice to the Company
shall be directed to it at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas
77056. Attention: President (or such other address as the Company shall
designate in writing to Indemnitee). Notice shall be deemed received three (3)
days after the date postmarked if sent by prepaid mail, properly addressed. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with Delaware law applicable to contracts made and to be performed in
such state without giving effect to principles of conflicts of laws.
-4-
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
15. AMENDMENT. This Agreement may only be amended by a writing signed
by both
parties hereto.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date hereof.
CASTLE DENTAL CENTERS
By:
Jack H. Castle, D.D.S.
Vice-President
INDEMNITEE
Jack H. Castle, Jr.
-5-
EXHIBIT 10.16
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of the 18th day of December 1995, by
and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "Company"),
and Robert J. Cresci ("Indemnitee"), a director of the Company.
W I T N E S S T H:
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available; and
WHEREAS, corporate directors and officers are subjected to expensive
litigation risks while the availability of directors' and officers' liability
insurance is limited; and
WHEREAS, it is now and has always been the express policy of the Company
to indemnify its directors and officers so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve as a director without
adequate protection; and
WHEREAS, the Company desires Indemnitee to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants herein contained, the Company and Indemnitee hereby agree as
follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of the
Company for so long as he is duly elected or appointed thereto or until such
time as Indemnitee shall resign in writing.
2. DEFINITIONS AS USED IN THIS AGREEMENT:
(a) The term "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not brought by or in the right of the corporation.
(b) The term "Expenses" means all expenses (including attorneys'
fees) actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of any Proceeding, including any expenses reasonably
incurred in successfully establishing a right to indemnification under Section 5
of this Agreement, but not including any judgments, fines, taxes, penalties or
amounts paid or to be paid in settlement of such Proceeding.
-1-
3. INDEMNITY.
(a) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding (other than a Proceeding by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director or officer
of the Company (which, for purposes hereof, includes any constituent corporation
absorbed by the Company in a consolidation or merger) or while serving as such a
director or officer, is or was serving at the request of the Company as a
director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, the Company shall
indemnify Indemnitee against all Expenses and all judgments, fines, taxes or
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding by or in the right of the Company by reason of the fact
that Indemnitee is or was a director or officer of the Company (which, for
purposes hereof, includes any constituent corporation absorbed by the Company in
a consolidation or merger) or while serving as such a director or officer, is or
was serving at the request of the Company as a director, officer, partner, joint
venturer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, the Company shall indemnify Indemnitee against all Expenses
incurred in connection with such Proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for Expenses which the Court of Chancery or
such other court shall deem proper.
4. ADVANCES OF EXPENSES. Except as provided in Section 5, any indemnity
for Expenses to which Indemnitee is entitled under the provisions of Section 3
shall be paid by the Company in advance within ninety (90) days after receipt of
the written request of Indemnitee provided
-2-
Indemnitee shall undertake in writing to repay such amount to the extent that it
is ultimately determined that Indemnitee is not entitled to indemnification.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION. Any indemnification, or (in the case of a Proceeding by or in the
right of the Company) any advance to which Indemnitee is otherwise entitled
under the provisions of Sections 3 and 4, shall be made no later than ninety
(90) days after receipt of the written request of Indemnitee, unless a
determination is made within said ninety (90) day period (a) by the board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding, or (b) if such quorum is not obtainable (or even if
obtainable, a quorum of disinterested directors so directs), by independent
legal counsel in a written opinion, or (c) by a majority vote of the
stockholders, provided, however, that shares owned by or voted under the control
of directors who are at the time parties to the Proceeding may not be voted in
the determination (collectively, the "Authority"), that indemnification or
advances to the Indemnitee are not proper in the circumstances because there
exists clear and convincing evidence that such person has not met the applicable
standard of conduct set forth in Sections 3(a) or 3(b). Any such determination
with respect to advances may be re-examined at any time by the Authority.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction The
burden of proving that indemnification or advances are not permissible shall be
on the Company. Neither the failure of Company (including the Authority) to have
made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances, nor an actual
determination by the Company (including the Authority) that indemnification or
advances are not proper shall be a defense to the action or create a presumption
that indemnification or advances are not legally permissible. Indemnitee's
expenses incurred in connection with successfully establishing Indemnitee's
right to indemnification or advances, in whole or in part, in any Proceeding
shall also be indemnified by the Company but only in the proportion that the
amount awarded Indemnitee in such proceeding bears to the amount sought by
Indemnitee.
6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws,
any agreement, any vote of disinterested shareholders or disinterested
directors, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to Indemnitee even though
the Indemnitee may have ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
-3-
7. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, taxes, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fines, taxes, penalties
or amounts paid in settlement to which the Indemnitee is entitled.
8. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall (to the extent permitted thereby) be covered by such policy or
policies in accordance with the terms thereof to the maximum extent of the
coverage available.
9. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all documents and instruments
required and shall do everything that may be necessary to secure such right,
including the execution of such documents and instruments as shall be necessary
to enable the Company effectively to bring suit to enforce such rights.
10. SAVINGS CLAUSE. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, taxes, penalties or amounts paid in settlement with respect to any
Proceeding to penalties the full extent permitted by any applicable portion of
this Agreement that shall not have ben invalidated.
11. NOTICE. Indemnitee shall, as a condition precedent to the Indemnitee's
right to be indemnified under this Agreement, give the Company notice in writing
as soon as practicable of any claim made against the Indemnitee for which
indemnity will or could be sought under this Agreement. Notice to the Company
shall be directed to it at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas
77056. Attention: President (or such other address as the Company shall
designate in writing to Indemnitee). Notice shall be deemed received three (3)
days after the date postmarked if sent by prepaid mail, properly addressed. In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with Delaware law applicable to contracts made and to be performed in
such state without giving effect to principles of conflicts of laws.
-4-
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
15. AMENDMENT. This Agreement may only be amended by a writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date hereof.
CASTLE DENTAL CENTERS
By: __________________________________
Jack H. Castle, Jr.
President
INDEMNITEE
__________________________________
Robert J. Cresci
-5-
EXHIBIT 10.17
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of the 16th day of August 1996, by
and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "Company"),
and Bannus B. Hudson ("Indemnitee"), a director of the Company.
WITNESSTH:
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available; and
WHEREAS, corporate directors and officers are subjected to expensive
litigation risks while the availability of directors' and officers' liability
insurance is limited; and
WHEREAS, it is now and has always been the express policy of the Company
to indemnify its directors and officers so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve as a director without
adequate protection; and
WHEREAS, the Company desires Indemnitee to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants herein contained, the Company and Indemnitee hereby
agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve as a director of the
Company for so long as he is duly elected or appointed thereto or until such
time as Indemnitee shall resign in writing.
2. DEFINITIONS AS USED IN THIS AGREEMENT:
(a) The term "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not brought by or in the right of the corporation.
(b) The term "Expenses" means all expenses (including attorneys'
fees) actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of any Proceeding, including any expenses reasonably
incurred in successfully establishing a right to indemnification under Section 5
of this Agreement, but not including any judgments, fines, taxes, penalties or
amounts paid or to be paid in settlement of such Proceeding.
-1-
3. INDEMNITY.
(a) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding (other than a Proceeding by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director or officer
of the Company (which, for purposes hereof, includes any constituent corporation
absorbed by the Company in a consolidation or merger) or while serving as such a
director or officer, is or was serving at the request of the Company as a
director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, the Company shall
indemnify Indemnitee against all Expenses and all judgments, fines, taxes or
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) If Indemnitee was or is a party to or threatened to be made a
party to any Proceeding by or in the right of the Company by reason of the fact
that Indemnitee is or was a director or officer of the Company (which, for
purposes hereof, includes any constituent corporation absorbed by the Company in
a consolidation or merger) or while serving as such a director or officer, is or
was serving at the request of the Company as a director, officer, partner, joint
venturer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, the Company shall indemnify Indemnitee against all Expenses
incurred in connection with such Proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for Expenses which the Court of Chancery or
such other court shall deem proper.
4. ADVANCES OF EXPENSES. Except as provided in Section 5, any indemnity
for Expenses to which Indemnitee is entitled under the provisions of Section 3
shall be paid by the Company in advance within ninety (90) days after receipt of
the written request of Indemnitee provided
-2-
Indemnitee shall undertake in writing to repay such amount to the extent that it
is ultimately determined that Indemnitee is not entitled to indemnification.
5. RIGHT OF INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE
UPON APPLICATION. Any indemnification, or (in the case of a Proceeding by or in
the right of the Company) any advance to which Indemnitee is otherwise entitled
under the provisions of Sections 3 and 4, shall be made no later than ninety
(90) days after receipt of the written request of Indemnitee, unless a
determination is made within said ninety (90) day period (a) by the board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding, or (b) if such quorum is not obtainable (or even if
obtainable, a quorum of disinterested directors so directs), by independent
legal counsel in a written opinion, or (c) by a majority vote of the
stockholders, provided, however, that shares owned by or voted under the control
of directors who are at the time parties to the Proceeding may not be voted in
the determination (collectively, the "Authority"), that indemnification or
advances to the Indemnitee are not proper in the circumstances because there
exists clear and convincing evidence that such person has not met the applicable
standard of conduct set forth in Sections 3(a) or 3(b). Any such determination
with respect to advances may be re-examined at any time by the Authority.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction The
burden of proving that indemnification or advances are not permissible shall be
on the Company. Neither the failure of Company (including the Authority) to have
made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances, nor an actual
determination by the Company (including the Authority) that indemnification or
advances are not proper shall be a defense to the action or create a presumption
that indemnification or advances are not legally permissible. Indemnitee's
expenses incurred in connection with successfully establishing Indemnitee's
right to indemnification or advances, in whole or in part, in any Proceeding
shall also be indemnified by the Company but only in the proportion that the
amount awarded Indemnitee in such proceeding bears to the amount sought by
Indemnitee.
6. INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws,
any agreement, any vote of disinterested shareholders or disinterested
directors, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to Indemnitee even though
the Indemnitee may have ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
-3-
7. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, taxes, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fines, taxes, penalties
or amounts paid in settlement to which the Indemnitee is entitled.
8. LIABILITY INSURANCE. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall (to the extent permitted thereby) be covered by such policy or
policies in accordance with the terms thereof to the maximum extent of the
coverage available.
9. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents and instruments
required and shall do everything that may be necessary to secure such right,
including the execution of such documents and instruments as shall be necessary
to enable the Company effectively to bring suit to enforce such rights.
10. SAVINGS CLAUSE. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, taxes, penalties or amounts paid in settlement with respect to any
Proceeding to penalties the full extent permitted by any applicable portion of
this Agreement that shall not have ben invalidated.
11. NOTICE. Indemnitee shall, as a condition precedent to the
Indemnitee's right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against the
Indemnitee for which indemnity will or could be sought under this Agreement.
Notice to the Company shall be directed to it at 1360 Post Oak Boulevard, Suite
1300, Houston, Texas 77056. Attention: President (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three (3) days after the date postmarked if sent by prepaid mail,
properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with Delaware law applicable to contracts made and to be performed in
such state without giving effect to principles of conflicts of laws.
-4-
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns.
15. AMENDMENT. This Agreement may only be amended by a writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date hereof.
CASTLE DENTAL CENTERS, INC.
By:
Jack H. Castle, Jr.
Chairman and Chief Executive Officer
INDEMNITEE
Bannus B. Hudson
-5-
EXHIBIT 10.18
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made as of the 16th day of August 1996, by
and between CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "Company"),
and Elizabeth A. Tilney ("Indemnitee"), a director of the Company.
W I T N E S S T H:
WHEREAS, it is essential to the Company to retain and attract as
directors and officers the most capable persons available; and
WHEREAS, corporate directors and officers are subjected to expensive
litigation risks while the availability of directors' and officers' liability
insurance is limited; and
WHEREAS, it is now and has always been the express policy of the Company
to indemnify its directors and officers so as to provide them with the maximum
possible protection permitted by law; and
WHEREAS, Indemnitee may not be willing to serve as a director without
adequate protection; and
WHEREAS, the Company desires Indemnitee to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants herein contained, the Company and Indemnitee hereby
agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve as a director of the
Company for so long as he is duly elected or appointed thereto or until such
time as Indemnitee shall resign in writing.
2. Definitions as Used in This Agreement:
(a) The term "Proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether or not brought by or in the right of the corporation.
(b) The term "Expenses" means all expenses (including attorneys' fees)
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of any Proceeding, including any expenses reasonably incurred in
successfully establishing a right to indemnification under Section 5 of this
Agreement, but not including any judgments, fines, taxes, penalties or amounts
paid or to be paid in settlement of such Proceeding.
-1-
3. Indemnity.
(a) If Indemnitee was or is a party to or threatened to be made
a party to any Proceeding (other than a Proceeding by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director or officer
of the Company (which, for purposes hereof, includes any constituent corporation
absorbed by the Company in a consolidation or merger) or while serving as such a
director or officer, is or was serving at the request of the Company as a
director, officer, partner, joint venturer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, the Company shall
indemnify Indemnitee against all Expenses and all judgments, fines, taxes or
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with such Proceeding if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) If Indemnitee was or is a party to or threatened to be made
a party to any Proceeding by or in the right of the Company by reason of the
fact that Indemnitee is or was a director or officer of the Company (which, for
purposes hereof, includes any constituent corporation absorbed by the Company in
a consolidation or merger) or while serving as such a director or officer, is or
was serving at the request of the Company as a director, officer, partner, joint
venturer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, the Company shall indemnify Indemnitee against all Expenses
incurred in connection with such Proceeding if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for Expenses which the Court of Chancery or
such other court shall deem proper.
4. Advances of Expenses. Except as provided in Section 5, any indemnity
for Expenses to which Indemnitee is entitled under the provisions of Section 3
shall be paid by the Company in advance within ninety (90) days after receipt of
the written request of Indemnitee provided
-2-
Indemnitee shall undertake in writing to repay such amount to the extent that it
is ultimately determined that Indemnitee is not entitled to indemnification.
5. Right of Indemnitee to Indemnification Upon Application; Procedure
Upon Application. Any indemnification, or (in the case of a Proceeding by or in
the right of the Company) any advance to which Indemnitee is otherwise entitled
under the provisions of Sections 3 and 4, shall be made no later than ninety
(90) days after receipt of the written request of Indemnitee, unless a
determination is made within said ninety (90) day period (a) by the board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding, or (b) if such quorum is not obtainable (or even if
obtainable, a quorum of disinterested directors so directs), by independent
legal counsel in a written opinion, or (c) by a majority vote of the
stockholders, provided, however, that shares owned by or voted under the control
of directors who are at the time parties to the Proceeding may not be voted in
the determination (collectively, the "Authority"), that indemnification or
advances to the Indemnitee are not proper in the circumstances because there
exists clear and convincing evidence that such person has not met the applicable
standard of conduct set forth in Sections 3(a) or 3(b). Any such determination
with respect to advances may be re-examined at any time by the Authority.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction The
burden of proving that indemnification or advances are not permissible shall be
on the Company. Neither the failure of Company (including the Authority) to have
made a determination prior to the commencement of such action that
indemnification or advances are proper in the circumstances, nor an actual
determination by the Company (including the Authority) that indemnification or
advances are not proper shall be a defense to the action or create a presumption
that indemnification or advances are not legally permissible. Indemnitee's
expenses incurred in connection with successfully establishing Indemnitee's
right to indemnification or advances, in whole or in part, in any Proceeding
shall also be indemnified by the Company but only in the proportion that the
amount awarded Indemnitee in such proceeding bears to the amount sought by
Indemnitee.
6. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws,
any agreement, any vote of disinterested shareholders or disinterested
directors, or otherwise, both as to action in the Indemnitee's official capacity
and as to action in another capacity while holding such office. The
indemnification under this Agreement shall continue as to Indemnitee even though
the Indemnitee may have ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of the Indemnitee.
-3-
7. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, taxes, penalties or amounts paid in
settlement actually and reasonably incurred by the Indemnitee in the
investigation, defense, appeal or settlement of any Proceeding but not, however,
for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses, judgments, fines, taxes, penalties
or amounts paid in settlement to which the Indemnitee is entitled.
8. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall (to the extent permitted thereby) be covered by such policy or
policies in accordance with the terms thereof to the maximum extent of the
coverage available.
9. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents and instruments
required and shall do everything that may be necessary to secure such right,
including the execution of such documents and instruments as shall be necessary
to enable the Company effectively to bring suit to enforce such rights.
10. Savings Clause. If this Agreement or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments,
fines, taxes, penalties or amounts paid in settlement with respect to any
Proceeding to penalties the full extent permitted by any applicable portion of
this Agreement that shall not have ben invalidated.
11. Notice. Indemnitee shall, as a condition precedent to the
Indemnitee's right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against the
Indemnitee for which indemnity will or could be sought under this Agreement.
Notice to the Company shall be directed to it at 1360 Post Oak Boulevard, Suite
1300, Houston, Texas 77056. Attention: President (or such other address as the
Company shall designate in writing to Indemnitee). Notice shall be deemed
received three (3) days after the date postmarked if sent by prepaid mail,
properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute the original.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with Delaware law applicable to contracts made and to be performed in
such state without giving effect to principles of conflicts of laws.
-4-
14. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns.
15. Amendment. This Agreement may only be amended by a writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
duly executed as of the date hereof.
CASTLE DENTAL CENTERS, INC.
By:____________________________________
Jack H. Castle, Jr.
Chairman and Chief Executive Officer
INDEMNITEE
Elizabeth A. Tilney
-5-
EXHIBIT 10.19
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
ASSET PURCHASE AGREEMENT
Dated as of May 19, 1996
By and Among
Castle Dental Centers of Florida, Inc.
as Purchaser,
1st Dental Care, Inc.,
Hernando Dental Center-Lester B. Greenberg, D.D.S., P.A.
and M&B Dental Lab, Inc.
as Seller
and
Lester B. Greenberg, D.D.S. and
Elisa Greenberg
-1-
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................1
1.1 Definitions......................................................1
ARTICLE II
THE TRANSACTION........................................................6
2.1 Purchase and Sale of Assets......................................6
2.2 Excluded Assets..................................................7
2.3 Assumption of Obligations........................................8
2.4 Nonassignable Contracts and Leases...............................8
2.5 Closing..........................................................8
ARTICLE III
PAYMENT OF PURCHASE PRICE..............................................9
3.1 Amount; Allocation; Delivery.....................................9
3.2 Purchase Price Adjustment.......................................10
3.3 Assumption of Accounts Payable..................................11
3.4 Apportionments..................................................12
3.5 Agency Relationship.............................................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDERS..................................................12
4.1 Representations and Warranties of Seller and the Shareholders. 12
4.2 Existence and Good Standing.....................................12
4.3 Authorization and Validity of Agreement.........................13
-ii-
4.4 Consents and Approvals; No Violations...........................13
4.5 Subsidiaries and Affiliates.....................................14
4.6 Financial Statements; No Material Adverse Change................14
4.7 Books and Records...............................................14
4.8 Title to Properties; Encumbrances; Condition....................14
4.9 Real Property...................................................15
4.10 Leases..........................................................15
4.11 Material Contracts..............................................15
4.12 Permits.........................................................16
4.13 Litigation......................................................16
4.14 Taxes...........................................................16
4.15 Insurance.......................................................17
4.16 Intellectual Properties.........................................17
4.17 Compliance with Laws............................................18
4.18 Employment Relations............................................18
4.19 Employee Benefit Plans..........................................18
4.20 Environmental Laws and Regulations..............................18
4.21 Interests in Customers, Suppliers, Etc..........................19
4.22 Compensation of Employees.......................................19
4.23 Payors. ......................................................19
4.24 Accounts Receivable; Accounts Payable...........................19
4.25 Solvency........................................................19
4.26 Disclosure......................................................20
4.27 Broker's or Finder's Fees.......................................20
4.28 Copies of Documents.............................................21
4.29 Investment Representations......................................21
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER..........................................................22
5.1 Representations and Warranties of Purchaser.....................22
5.2 Existence and Good Standing of Purchaser; Power and Authority...22
5.3 No Violations...................................................22
5.4 Capital Stock...................................................23
-iii-
5.5 Litigation......................................................23
5.6 Compliance with Laws............................................23
5.7 Financial Statements............................................23
5.8 Broker's or Finder's Fees.......................................24
ARTICLE VI
CONDITIONS TO SELLER'S OBLIGATIONS....................................24
6.1 Truth of Representations and Warranties.........................24
6.2 Performance of Agreements.......................................24
6.3 No Litigation Threatened........................................24
6.4 Governmental Approvals..........................................24
6.5 Proceedings.....................................................25
6.6 Employment Agreement............................................25
6.7 Registration Rights Agreement...................................25
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS.................................25
7.1 Truth of Representations and Warranties.........................25
7.2 Performance of Agreements.......................................25
7.3 Documents of Conveyance.........................................26
7.4 No Litigation Threatened........................................26
7.5 Governmental Approvals..........................................26
7.6 Consents........................................................26
7.7 Legal Opinion...................................................26
7.8 Proceedings.....................................................26
7.9 New PC..........................................................26
7.10 Execution of Management Services Agreement......................26
7.11 Stockholders Agreement..........................................27
7.12 Lease Agreement.................................................27
7.13 Accounts Payable Calculation....................................27
7.14 Subordination Agreement.........................................27
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ARTICLE VIII
COVENANTS OF SELLER AND THE SHAREHOLDERS..............................27
8.1 Cooperation by Seller...........................................27
8.2 Conduct of Business.............................................28
8.3 Exclusive Dealing...............................................28
8.4 Review of the Assets............................................28
8.5 Further Assurances..............................................28
ARTICLE IX
COVENANTS OF PURCHASER................................................29
9.1 Cooperation by Purchaser........................................29
9.2 Books and Records; Personnel....................................29
9.3 Further Assurances..............................................29
ARTICLE X
TERMINATION...........................................................30
10.1 Termination.....................................................30
10.2 Effect on Obligations...........................................30
ARTICLE XI
SURVIVAL AND INDEMNIFICATION..........................................31
11.1 Indemnification of the Seller...................................31
11.2 Indemnification of the Purchaser................................31
11.3 Demands.........................................................32
11.4 Right to Contest and Defend.....................................32
11.5 Cooperation.....................................................33
11.6 Right to Participate............................................33
11.7 Payment of Damages..............................................33
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ARTICLE XII
MISCELLANEOUS.........................................................34
12.1 Entire Agreement................................................34
12.2 Successors and Assigns..........................................34
12.3 Counterparts....................................................34
12.4 Headings........................................................34
12.5 Modification and Waiver.........................................34
12.6 No Third Party Beneficiary Rights...............................34
12.7 Sales and Transfer Taxes........................................35
12.8 Expenses........................................................35
12.9 Notice..........................................................35
12.10 Governing Law...................................................36
12.11 Confidentiality; Publicity......................................36
12.12 Consent to Jurisdiction.........................................36
12.13 Severability....................................................37
12.14 Enforcement.....................................................37
SCHEDULES
Schedule 2.2 Excluded Assets
Schedule 2.3 Assigned Contracts
Schedule 3.1 Allocation of Purchase Price
Schedule 4.4 Consents
Schedule 4.6 Material Adverse Change
Schedule 4.8 Encumbrances
Schedule 4.9 Real Property
Schedule 4.10 Leased Personal Property
Schedule 4.11 Material Contracts and Proposals
Schedule 4.12 Permits
Schedule 4.13 Litigation
Schedule 4.14 Taxes
Schedule 4.15 Insurance Policies
Schedule 4.16 Intellectual Property
Schedule 4.20 Environmental Matters
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Schedule 4.22 Employee Compensation
Schedule 4.23 Payors
Schedule 4.25 Solvency
Schedule 5.3 Required Notices
Schedule 5.7 Castle Dental Financial Statement
EXHIBITS
Exhibit A-1 Form of Promissory Note
Exhibit A-2 Form of Promissory Note
Exhibit A-3 Form of Promissory Note
Exhibit B Employment Agreement
Exhibit C Legal Opinion
Exhibit D Stockholders Agreement
Exhibit E Registration Rights Agreement
Exhibit F Management Services Agreement
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of May 19, 1996 by and among Castle
Dental Centers of Florida, Inc., a Florida corporation ("Purchaser"), 1st Dental
Care, Inc., a Florida corporation ("1st Dental"), Hernando Dental Center --
Lester B. Greenberg, D.D.S., P.A. a/k/a 1st Dental Care of Florida, a Florida
professional association ("Hernando Dental Center"), M&B Dental Lab, Inc., a
Florida corporation ("M&B Dental Lab") and Lester B. Greenberg, D.D.S. ("Dr.
Greenberg"), and Elisa Greenberg, the sole shareholders of Seller (the
"Shareholders"). 1st Dental, Hernando Dental Center and M&B Dental Lab are
referred to herein collectively as "Seller", and references herein to Seller
refer severally to each of 1st Dental, Hernando Dental Center and M&B Dental
Lab.
W I T N E S S E T H:
WHEREAS, Seller wishes to sell, and Purchaser wishes to purchase,
substantially all of the property, assets and business of Seller, all upon the
terms and subject to the conditions set forth below.
NOW, THEREFORE, for the mutual covenants and other consideration described
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings set
forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of Seller.
"ACCOUNTS PAYABLE": the payables of Seller to trade account and other
creditors as of the Closing Date as shown on Schedule 2.3.
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"ADJUSTED BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person.
"AGREEMENT": this Asset Purchase Agreement, as amended from time to time
as provided herein.
"ASSETS": as defined in Section 2.1 hereof.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 3.2 hereof.
"BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof
"BOOKS AND RECORDS": all books, records, books of account, files and data
(including customer and supplier lists), certificates and other documents
related to the conduct of the business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of Seller which relate exclusively to
organizational and corporate governance proceedings of Seller.
"BUSINESS": the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by Seller.
"CLOSING": as defined in Section 2.6 hereof.
"CLOSING DATE": as defined in Section 2.6 hereof.
"CLOSING DATE BALANCE SHEET": as defined in Section 3.2 hereof.
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"CLOSING DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"EMPLOYMENT AGREEMENT": the employment agreement executed pursuant hereto
substantially in the form of Exhibit B attached hereto.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto that would have a Material Adverse Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violations, investigations or proceedings relating in any way to any
Environmental Law (for purposes of this definition, "Claims") or any permit
issued under any such Environmental Law, including without limitation (i) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
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"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED ASSETS": as defined in Section 2.2 hereof.
"EXCLUDED CONTRACTS": as defined in Section 2.2(b) hereof.
"EXCLUDED LIABILITIES": as defined in Section 2.4 hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.6 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"HERNANDO DENTAL CENTER": Hernando Dental Center -- Lester B. Greenberg,
D.D.S., P.A. a/k/a 1st Dental Care of Florida, a professional association
wholly-owned by Lester B. Greenberg.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"M&B DENTAL LAB": M&B Dental Lab, Inc., a Florida corporation wholly-owned
by Benjamin and Melissa Greenberg.
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"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of the Seller, or its Affiliates.
"NEW PC": Castle 1st Dental Care, P.A., a Florida professional
association.
"PERMITS": as defined in Section 4.12 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.8 hereof.
"PERSON": any individual, partnership, joint venture, corporation, trust,
unincorporated organization, government or other department or agency thereof or
other entity.
"PLANS": as defined in Section 4.19 hereof.
"PRE-CLOSING PERIODS": as defined in Section 4.14(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.14(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying, seeping, placing and the like, into or
upon any land or water or air, or otherwise entering into the environment.
"SELLER" as defined in the preamble of this Agreement.
"SELLER PROPERTY": any real property and improvements thereon presently
owned, leased, operated or occupied by Seller.
"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding,
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payroll, employment, excise, stamp or occupation tax, governmental fee or other
like assessment or charge of any kind whatsoever, together with any interest or
any penalty imposed by any governmental authority with respect thereto, and any
liability for such amounts as a result either of being a member of an affiliated
group or of a contractual obligation to indemnify any other entity.
ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from the Seller, and Seller agrees
to sell, convey, transfer, assign and deliver, and cause to be sold, conveyed,
transferred, assigned and delivered, to Purchaser, on the Closing Date, against
the receipt by the Seller of the consideration specified in Section 3.1 hereof,
the Assets, free and clear of any Encumbrances except Permitted Encumbrances.
The term "Assets" shall mean all of the rights, title and interests of Seller in
and to the assets used in or relating to the conduct of the Business on the
Closing Date, tangible and intangible, real, personal and mixed, wheresoever
situated and whether or not specifically referred to herein or in any instrument
of conveyance delivered pursuant hereto. The Assets shall include but are not
limited to the following categories of assets:
(a) Seller's title to, interest in or rights under the leases of
real property described in Schedule 4.9 attached hereto together with all
buildings, facilities, fixtures and other leasehold improvements thereon
and all easements, rights-of-way, transferable licenses and permits and
other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and
other fixed assets owned or leased by Seller and used or held for use in
the conduct of the Business;
(c) contracts, documents, instruments and general intangibles of
Seller, including the name "1st Dental Care" and derivatives thereof, and
goodwill associated therewith, other than the Excluded Contracts;
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(d) Accounts Receivable as of the Closing Date;
(e) all licenses, permits, registrations and authorizations,
proprietary information, methods, know-how, designs, processes,
procedures, goodwill and all rights held by Seller to other Intellectual
Property;
(f) Books and Records;
(g) any rights of Seller pertaining to any counterclaims, set-offs
or defenses it may have with respect to any Assumed Obligations;
(h) all prepaid claims, prepaid taxes, prepaid insurance premiums
and other prepaid expense items; and
(i) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded
thereby relating to the Assets; and
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) the real property described on Schedule 2.2;
(b) cash, cash equivalents, deposits, advance payments, securities,
letters of credit naming Seller as account party, certificates of deposit,
notes, drafts, checks and similar instruments;
(c) each contract set forth on Schedule 2.2 (the "Excluded
Contracts");
(d) tax refunds related to the Business or the Assets received or
receivable by Seller or the Shareholders relating to taxes paid by Seller
or the Shareholders for all periods prior to the Closing Date;
(e) minute books and governance documents of the Seller; and
(f) the vehicles described on Schedule 2.2.
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2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Seller,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Seller in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder, (b) Accounts Payable set forth on Schedule 2.3
and (c) the long term debt (including automobile notes) set forth on Schedule
2.3 (collectively, "Assumed Obligations"). Notwithstanding anything contained
herein to the contrary, Purchaser does not assume, and hereby expressly
disclaims responsibility for, any obligation or liability of Seller or the
Shareholders not described on Schedule 2.3.
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date, Seller agrees to use
its best efforts to obtain, or cause to be obtained, prior to the Closing Date,
any written consents necessary to convey to Purchaser the benefit thereof.
Purchaser shall cooperate with Seller, in such manner as may be reasonably
requested, in connection therewith, including without limitation, active
participation in visits to and meetings, discussions and negotiations with all
Persons with the authority to grant or withhold consent. If Seller is unable to
obtain such necessary written consents for the remaining term of such Assigned
Contract, Purchaser shall act as such Seller's agent in the performance of all
obligations and liabilities under such Assigned Contract and such Seller shall
act as Purchaser's agent in the receipt of any benefits, rights or interests
which inure to such Seller under such Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing set
forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Macfarlane Ausley Ferguson & McMullen,
400 Cleveland Street, Clearwater, Florida, 43615, on or before May 22, 1996, or
such other place, date and time as may be mutually agreed upon by the parties
hereto; provided, however that for accounting purposes the Closing Date shall be
May 19, 1996. Such time and date are referred to herein as the "Closing Date."
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
ARTICLE III
PAYMENT OF PURCHASE PRICE
* 3.1 AMOUNT; ALLOCATION; DELIVERY. At the Closing, in addition to
Purchaser's assumption of the Assumed Obligations, Purchaser shall pay to Seller
the sum of $[REDACTED] in cash and notes, plus an aggregate of [REDACTED] shares
of Common Stock, $.001 par value ("Common Stock"), of Castle Dental Centers, Inc
("Castle Dental"), a Delaware corporation (the "Purchase Price"), subject to
adjustment as provided in Section 3.2 hereof, which Purchase Price shall be
remitted by Purchaser to Seller in the following manner:
* (a) $[REDACTED] less liabilities assumed on Schedule 2.3, in cash on
the Closing Date, which shall be paid by wire transfer of immediately
available funds to an account or accounts of Seller identified by Seller;
and
(b) a five year subordinated promissory note of Castle Dental
payable to 1st Dental Care, Inc. in the original principal amount of
* $[REDACTED], payable in equal quarterly installments of principal and
interest at the rate of 10% per annum, convertible in part into Common
Stock substantially in the form of Exhibit A-1 attached hereto;
(c) a four year subordinated convertible promissory note of Castle
Dental payable to 1st Dental Care, Inc. in the original principal amount
* of $[REDACTED] with interest accruing quarterly on the unpaid balance at
the rate of 6.36% per annum, convertible in whole or in part into Common
Stock, substantially in the form of Exhibit A-2 attached hereto;
(d) a four year subordinated promissory note of Castle Dental
payable to M&B Dental Lab, Inc. in the original principal amount of
* $[REDACTED], with interest accruing quarterly on the unpaid balance at the
rate of 6.36% per annum, substantially in the form of Exhibit A-3 attached
hereto; and
* (e) [REDACTED] shares of Common Stock, $.001 par value, of Castle
Dental, issued in the name of 1st Dental Care, Inc.
Purchaser and Seller hereby agree to allocate the Purchase Price in
accordance with Section 1060 of the Code among the Assets in accordance with
Schedule 3.1 attached hereto (the "Price
-9-
Allocation"). The parties hereby undertake and agree to file timely any
information that may be required to be filed pursuant to regulations promulgated
under Section 1060(b) of the Code. The parties further agree that they will
report the federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner consistent with the
Price Allocation, as so adjusted, and that they will not take any position
inconsistent therewith.
3.2 PURCHASE PRICE ADJUSTMENT.
(a) Seller previously has delivered to Purchaser a combined
unaudited balance sheet of the Seller as of December 31, 1995 (the "Balance
Sheet Date"), (the book value of the Assets included in such balance sheet less
the book value of the Assumed Obligations included in such balance sheet is
hereinafter referred to as the "Base Date Net Asset Value").
(b) Within 60 days following the Closing Date, Seller shall prepare
and deliver to Purchaser a combined balance sheet of the Seller as of the
Closing Date (the "Closing Date Balance Sheet"), together with a calculation of
the book value of the Assets and Assumed Obligations determined on the same
basis as the December 31, 1995 balance sheet (such book value of such Assets
less such book value of such Assumed Obligations is hereinafter referred to as
the "Closing Date Net Asset Value"). Purchaser and its representatives shall
have the right to review all work papers and procedures used to prepare the
Closing Date Balance Sheet and the calculation of the Closing Date Net Asset
Value, and shall have the right to perform any other reasonable procedures
necessary to verify the accuracy thereof. Unless Purchaser, within 20 days after
delivery to Purchaser of the Closing Date Balance Sheet, notifies Seller in
writing that it objects to the Closing Date Balance Sheet or the calculation of
the Closing Date Net Asset Value, and specifies the basis for such objection,
the Closing Date Balance Sheet and the calculation of the Closing Date Net Asset
Value shall become final and binding upon the parties for purposes of this
Agreement. If Purchaser and Seller are unable to resolve such objections within
10 days after any such notification has been given, the dispute shall be
submitted to Coopers & Lybrand, L.L.P. (or, if Coopers & Lybrand, L.L.P. is
unavailable, to another nationally recognized public accounting firm mutually
agreed upon by Purchaser and Seller). Such accounting firm shall make a final
and binding determination as to the matter or matters in dispute. Purchaser and
Seller agree to cooperate with each other and with each other's authorized
representatives in order to resolve any and all matters in dispute as soon as
practicable.
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(c) Seller has covenanted with Purchaser that Seller will generate
not less than $300,000 of pre-tax earnings for the period commencing January 1,
1996 to the Closing Date. The Base Date Net Asset Value, as adjusted to reflect
the additional $300,000 of pre-tax earnings, is hereinafter referred to as the
Adjusted Base Date Net Asset Value.
(d) Within 10 days after the Closing Date Net Asset Value has been
finally determined, the difference, if any, between the Adjusted Base Date Net
Asset Value and the Closing Date Net Asset Value shall be added to the principal
amount of the promissory note described in Section 3.1(b) (if the Closing Date
Net Asset Value exceeds the Adjusted Base Date Net Asset Value) or deducted from
the principal amount of the promissory note described in Section 3.1(b) (if the
Adjusted Base Date Net Asset Value exceeds the Closing Date Net Asset Value).
(e) Purchaser and Seller, in the aggregate, each shall bear one-half
of the fees, costs and expenses of the accounting firm retained under subsection
(c) to resolve any dispute.
3.3 ASSUMPTION OF ACCOUNTS PAYABLE. On the Closing Date, Purchaser, Seller
and the Shareholders will agree as to the projected amount of accounts payable
which are being assumed by Purchaser pursuant to Section 3.1(a). At the same
time as the Purchase Price Adjustment contemplated by Section 3.2 is made,
Purchaser will certify to Seller the actual amount of accounts payable
attributable to periods prior to the Closing Date which have been paid or
accrued by Purchaser. To the extent the actual amount of accounts payable
attributable to periods prior to the Closing Date which have been paid or
accrued by Purchaser exceeds the amount projected to have been assumed by the
Purchaser, the excess will be paid to Purchaser by Seller as a part of the
purchase price adjustment described in Section 3.2. To the extent the actual
amount of accounts payable attributable to periods prior to the Closing Date
which have been paid or accrued by Purchaser is less than the amount projected
to have been assumed by the Purchaser, the shortfall will be paid to Seller by
Purchaser as a part of the purchase price adjustment described in Section 3.2.
3.4 APPORTIONMENTS. The following items shall be apportioned as of 11:59
p.m., on the day preceding the Closing Date: (a) personal property taxes, sewer
rents and charges and other state, county, metropolitan and municipal taxes and
assessments and charges affecting the Assets; (b) rents and other payments under
any of the Assigned Contracts; (c) charges for water, electricity, gas, oil,
steam and all other utilities (except to the extent disposed of by final billing
to Seller); and (d) such other items as are customarily apportioned in
connection with the sale of similar property, all such items prior to such time
being for the account of Seller and all such times after such time being the
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account of Purchaser. At the Closing, Seller or Purchaser, as the case may be,
shall deliver to the other a check for the net amount owing under this Section
3.3. If any such item cannot accurately be apportioned at the Closing or
subsequent thereto, such item shall be apportioned or reapportioned, as the case
may be, as soon as practicable after the Closing Date or the date on which the
apportionment error is discovered, as applicable.
3.5 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
Seller receives any funds, documents or instruments which constitute or are
delivered in respect of Assets transferred to Purchaser pursuant to this
Agreement, Seller agrees to hold such funds, documents or instruments in trust
for Purchaser and as Purchaser's agent therefor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDERS
4.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS. Seller
and the Shareholders, jointly and severally, hereby represent and warrant to
Purchaser as follows:
4.2 EXISTENCE AND GOOD STANDING. Seller is a corporation duly organized
and validly existing under the laws of the State of Florida. Seller has the full
corporate power and authority to own, lease and operate its property and to
carry on the Business as now being conducted and to own or lease the Assets
owned or leased by it. Seller is duly qualified or licensed to do business in
each jurisdiction in which the character or location of the properties owned or
leased by Seller or the nature of the business conducted by Seller makes such
qualification necessary and the absence of which would have a Material Adverse
Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Seller has full corporate
power and authority, and the Shareholders have full power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Seller and the consummation by it
of the transactions contemplated hereby, have been duly authorized and approved
by the Board of Directors and the Shareholders of Seller, and no other action on
the part of Seller or its Shareholders is necessary to authorize the execution,
delivery and performance of this Agreement
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by Seller and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Seller and the Shareholders
and is a valid and binding obligation of Seller and the Shareholders enforceable
against each in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on Schedule
4.4, the execution, delivery and performance of this Agreement by Seller and the
Shareholders and the consummation by Seller and the Shareholders of the
transactions contemplated hereby will not, with or without the giving of notice
or the lapse of time or both: (a) violate, conflict with, or result in a breach
or default under any provision of the organizational documents of Seller; (b)
violate any statute, ordinance, rule, regulation, order, judgment or decree of
any court or of any governmental or regulatory body, agency or authority
applicable to Seller or the Shareholders or by which any of Seller's properties
or assets may be bound; (c) require any filing by Seller or the Shareholders
with, or require Seller or the Shareholders to obtain any permit, consent or
approval of, or require Seller or the Shareholders to give any notice to, any
governmental or regulatory body, agency or authority other than as set forth in
Schedule 4.4 attached hereto; or (d) result in a violation or breach by Seller
or the Shareholders of, conflict with, constitute (with or without due notice or
lapse of time or both) a default by Seller or the Shareholders (or give rise to
any right of termination, cancellation, payment or acceleration) under or result
in the creation of any Encumbrance upon any of the properties or assets of
Seller or the Shareholders under any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease franchise agreement or other instrument or obligation to which Seller or
the Shareholders is a party, or by which Seller or any of its properties or
assets may be bound.
4.5 SUBSIDIARIES AND AFFILIATES. Seller has no subsidiaries. Except as set
forth on Schedule 4.5, all of the Assets used in the Business are owned by
Seller, and on consummation of the transactions contemplated hereby Purchaser
will have acquired all of the Assets used in the Business. Purchaser is not
acquiring the assets of Florida Academy of Dental Assistants, Inc. or Bay Area
Dental Supply, Inc., none of which are used in the Business.
4.6 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Seller has
heretofore furnished Purchaser with the unaudited balance sheet of Seller as of
the Balance Sheet Date and the unaudited statements of operations and cash flows
for the year then ended (the "Financial Statements"). The
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Financial Statements fairly present in all material respects the financial
position of Seller at the date thereof and the results of operations of Seller
and its cash flows for the period indicated. Except as set forth in Schedule 4.6
attached hereto, since the Balance Sheet Date there has been no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of Seller.
4.7 BOOKS AND RECORDS. The minute books of Seller, as previously made
available to Purchaser and its representatives, contain accurate records in all
material respects of the meetings of, the shareholders and Board of Directors of
Seller, to the extent set forth therein.
4.8 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedule 4.8 or 4.9, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Seller has
good and valid title to the Assets, in each case subject to no Encumbrances
except for (i) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Seller in the operation of the Business,
(ii) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (iii) Encumbrances created by
Purchaser, and (iv) Encumbrances relating to Assumed Obligations (liens of the
type described in clauses (i), (ii), (iii) and (iv) above are hereinafter
sometimes referred to as "Permitted Encumbrances"). Seller has heretofore
furnished Purchaser with a fixed asset ledger which sets forth all fixed assets
owned by Seller as of the Balance Sheet Date. Seller and the Shareholders are
not aware of any defects in such assets that would have a Material Adverse
Effect on the ability of Purchaser to use such assets in the Business, ordinary
wear and tear excepted.
4.9 REAL PROPERTY. Schedule 4.9 identifies all leases relating to
properties used by the Seller and includes the name of the record title holder
thereof. All of the buildings, structures and appurtenances situated on the real
property leased by Seller are in good operating condition, and in a state of
good maintenance and repair, subject to ordinary wear and tear, except where
such condition or maintenance would not have a Material Adverse Effect. The real
property has adequate rights of ingress and egress for operation of the Business
in the ordinary course. No condemnation or similar proceeding is pending or, to
the best knowledge of Seller and the Shareholders, threatened, which would
preclude or impair the use of any such property, except where such proceeding
would not have a Material Adverse Effect.
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4.10 LEASES. Schedule 4.10 contains an accurate and complete list of all
personal property leases to which Seller is a party (as lessee or lessor) and a
description of all such leases to which Seller is a party as lessee. Each lease
set forth in Schedule 4.10 is in full force and effect, and no event has
occurred that with the giving of notice, the passage of time or both would
constitute a default thereunder.
4.11 MATERIAL CONTRACTS. Except as set forth in Schedule 4.11, the
Assigned Contracts do not include (a) any agreement, contract or commitment
relating to the employment of any person by Seller, (b) any agreement, indenture
or other instrument which contains restrictions with respect to payment of
profits, dividends or any other distributions, (c) any agreement, contract or
commitment relating to capital expenditures in excess of $5,000 (d) any loan or
advance to, or investment in, any Person or any agreement, contract or
commitment relating to the making of any such loan, advance or investment, (e)
any guarantee or other contingent liability in respect of any indebtedness or
obligation of any Person, (f) any management service, consulting or any other
similar type contract, (g) any agreement, contract or commitment limiting the
freedom of Seller to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment which involves $5,000 or more
and is not cancelable without penalty within 30 days, or (i) any other
agreement, contract or commitment which would have a Material Adverse Effect.
Also set forth in Schedule 4.12 is a list of all proposals submitted by Seller
to any third party that, if accepted by such third party, would require
disclosure on Schedule 4.11. Except where it would not have a Material Adverse
Effect, each contract or agreement set forth in Schedule 4.11 is in full force
and effect and there exists no default or event of default or event, occurrence,
condition or act (including the purchase of the Assets hereunder) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder.
4.12 PERMITS. Schedule 4.12 attached hereto lists all of the governmental
and other third party permits (including occupancy permits), licenses, consents
and authorizations ("Permits") required, to the knowledge of Seller and the
Shareholders, in connection with the use, operation or ownership of the Assets
and the conduct of the Business as currently conducted. Seller holds all of the
Permits listed on Schedule 4.12, and none is presently subject to revocation or
challenge.
4.13 LITIGATION. Except as set forth in Schedule 4.13, there is no action,
suit, proceeding at law or in equity, arbitration or administrative or other
proceeding by or before (or any investigation by) any governmental or other
instrumentality or agency, pending, or, to the knowledge of Seller and the
Shareholders, threatened, against or affecting the properties, rights or
goodwill of
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Seller, the Shareholders, or employees of Seller, and Seller and the
Shareholders do not know of any valid basis for any such action, proceeding or
investigation. There are no such suits, actions, claims, proceedings or
investigations pending or to the knowledge of Seller and the Shareholders
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement. Purchaser will assume no liability whatsoever with respect to
any matter described on Schedule 4.13.
4.14 TAXES. (a) All returns and reports for Taxes for all taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
year or period beginning before and ending after the Closing Date the portion of
such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
Seller (collectively, the "Returns") have been or will be filed when due in a
timely fashion and such Returns as filed are or will be accurate in all material
respects.
(b) Except as provided in Schedule 4.14 there is no material action,
suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Seller or the Shareholders, threatened by any authority regarding
any Taxes relating to Seller for any Pre-Closing Period.
(c) There are no liens or security interests on any of the assets of
Seller that arose in connection with any failure (or alleged failure) to pay any
Taxes.
(d) Except as provided in Schedule 4.14, there are no agreements for
the extension or waiver of the time for assessment of any Taxes relating to
Seller for any Pre-Closing Period and Seller has not been requested to enter
into any such agreement or waiver.
(e) All Taxes relating to Seller which Seller is required by law to
withhold or collect have been duly withheld or collected, and have been timely
paid over to the proper authorities to the extent due and payable.
(f) Seller is not now nor has ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.15 INSURANCE. Set forth in Schedule 4.15 is a complete list of insurance
policies that Seller maintains with respect to its Business and properties that
are included in the Assets, or on its employees. Such policies are in full force
and effect and are free from any right of termination on
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the part of the insurance carriers. In the judgment of Seller, such policies,
with respect to their amounts and types of coverage, are adequate to insure
against risks to which Seller and its property and assets are normally exposed
in the operation of the Business, subject to customary deductibles and policy
limits.
4.16 INTELLECTUAL PROPERTIES. Schedule 4.16 sets forth all material
Intellectual Property used in the Business and the name of the Seller which owns
such Intellectual Property. The operation of the business as conducted by Seller
as of the Closing Date requires no rights under Intellectual Property other than
rights under Intellectual Property listed on Schedule 4.16 and rights granted to
Seller pursuant to agreements listed on Schedule 4.16. Except as otherwise set
forth in Schedule 4.16, Seller owns all right, title and interest in the
Intellectual Property listed in Schedule 4.16. No litigation is pending or, to
the knowledge of Seller or the Shareholders, threatened wherein Seller is
accused of infringing or otherwise violating the Intellectual Property rights of
another, or of breaching a contract conveying rights under Intellectual
Property.
4.17 COMPLIANCE WITH LAWS. Seller is in compliance with all applicable
laws, regulations, orders, judgments and decrees applicable to the Business,
except where any noncompliance would not have a Material Adverse Effect.
4.18 EMPLOYMENT RELATIONS. (a) Seller is not and has not engaged in any
unfair labor practice; (b) to the knowledge of Seller and the Shareholders, no
representation question exists respecting the employees of Seller; (c) Seller
has not been notified of any grievance that might have a Material Adverse Effect
and no arbitration proceeding arising out of or under any collective bargaining
agreement is pending; and (f) no collective bargaining agreement is currently
being negotiated by Seller.
4.19 EMPLOYEE BENEFIT PLANS. Seller has delivered to Purchaser true and
complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Seller and the Shareholders, been maintained in compliance with its
terms and the requirements of all applicable laws. None of the Plans are subject
to Title IV of ERISA or the minimum funding obligations of Section 412 of the
Code, and Seller and any entity required to be aggregated therewith pursuant to
Section 414(b) or (c) of the Code have no liability under Title IV of ERISA or
under Section 412(f) or 412(n) of the Code.
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4.20 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.20, and except where it would not have a Material Adverse Effect (a) Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Seller Property by Seller, its authorized agents or its independent
contractors (including suppliers) or any property adjoining any Seller Property,
(b) Hazardous Materials have not been Released or disposed of by Seller, its
authorized agents or its independent contractors (including suppliers) on any
Seller Property or any property adjoining any Seller Property except such
Releases which do not violate any Environmental Laws, (c) Seller is, to its and
the Shareholders' knowledge, in compliance with all applicable Environmental
Laws and the requirements of any Permits issued under such Environmental Laws
with respect to any Seller Property, (d) there are no pending or, to the
knowledge of Seller and the Shareholders, threatened Environmental Claims
against Seller or any Seller Property, (e) there are no facts or circumstances,
conditions, pre-existing conditions or occurrences on any Seller Property known
to Seller or the Shareholders that could reasonably be anticipated (A) to form
the basis of an Environmental Claim against Seller or any Seller Property, or
(B) to cause such Seller Property to be subject to any restrictions on the
ownership, occupancy use or transferability of such Seller Property under any
Environmental Law, (f) there are not now and there never have been any
underground storage tanks located on any Seller Property, and (g) Seller has not
in the ordinary course of business transported or stored Hazardous Materials.
4.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships with
Affiliates, Seller does not possess, directly or indirectly, any financial
interest in, and neither Shareholder is a director, officer or employee of, any
corporation, firm, association or business organization which is a supplier,
customer, lessor, lessee, or competitor of Seller.
4.22 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.22 is an accurate
and complete list showing the names of all persons whose compensation from
Seller collectively for the fiscal year ended on the Balance Sheet Date exceeded
an annualized rate of $20,000, together with a statement of the full amount paid
or payable to each such person for services rendered during the current fiscal
year to date.
4.23 PAYORS. Schedule 4.23 sets forth the ten largest payors of Seller for
the most recently completed fiscal year. The relationship of Seller with each of
such payors as of the date of this Agreement is a good commercial working
relationship, and except as set forth in Schedule 4.23 no significant payor has
canceled or otherwise terminated or, to the knowledge of Seller or the
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Shareholders threatened to cancel or otherwise terminate its relationship with
Seller within the last three years.
4.24 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.24, the Accounts Receivable on the Closing Date Balance Sheet are
collectible in the ordinary course of business, net of the reserves established
with respect thereto. Except as set forth on Schedule 4.24, there has been no
change since the Balance Sheet Date (other than in the ordinary course of
business) in the amount of the Accounts Receivable or other fees or debts due to
Seller or the allowances with respect thereto, or Accounts Payable by Seller,
from that reflected in the Balance Sheet.
4.25 SOLVENCY. Seller is not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the Assets of Seller (on a
going concern basis) will exceed the liability of Seller on its debts
(including its contingent obligations);
(b) Seller has not incurred, nor does it intend to or believe that
it will incur, debts (including contingent obligations) beyond its ability
to pay such debts as such debts mature (taking into account the timing and
amounts of cash to be received from any source, and of amounts to be
payable on or in respect of debts); and the amount of cash available to
Seller after taking into account all other anticipated uses of funds is
anticipated to be sufficient to pay all such amounts on or in respect of
debts, when such amounts are required to be paid; and
(c) Seller will have sufficient capital with which to conduct its
business, and the property of Seller does not constitute unreasonably
small capital with which to conduct its business.
For purposes of this Section 4.25 "debt" means any liability or a (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
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4.26 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
4.27 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting on
behalf of Seller is, or will be, entitled to any fee, commission or broker's or
finder's fees in connection with this Agreement or any of the transactions
contemplated hereby.
4.28 COPIES OF DOCUMENTS. Seller has caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
4.29 INVESTMENT REPRESENTATIONS.
(a) 1st Dental understands that the Common Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"). 1st Dental also understands that the Common Stock is being offered
and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon its representations contained in this
Agreement.
(b) 1st Dental, in consultation with its accountants, attorneys and
financial advisors has, the requisite experience in evaluating and
investing in private placement transactions of securities so that it is
capable of evaluating the merits and risks of its investment in Castle
Dental and has the capacity to protect its own interests. 1st Dental
understands that it must bear the economic risk of this investment
indefinitely unless the Common Stock is registered pursuant to the
Securities Act, or an exemption from registration is available. 1st Dental
also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow it to transfer all or any portion
of the Common Stock under the circumstances, in the amounts or at the
times it might propose.
(c) 1st Dental is acquiring the Common Stock for its own account for
investment only, and not with a view towards distribution.
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(d) 1st Dental represents that by reason of its business or
financial experience, it has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement.
(e) 1st Dental represents that it is an accredited investor within
the meaning of Regulation D under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
5.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller and the Shareholders as follows:
5.2 EXISTENCE AND GOOD STANDING OF PURCHASER; POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida. Purchaser has full corporate power and
authority to make, execute, deliver and perform this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and approved by all required corporate
action of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and is a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
5.3 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both; (a) violate, conflict with, or result in a breach or default
under any provision of the certificate of incorporation or by-laws of Purchaser;
(b) to the knowledge of Purchaser, violate any statute, ordinance, rule,
regulation, order, judgment or decree of any court or of any governmental or
regulatory body, agency or authority applicable to Purchaser or by which any of
its properties or assets may be bound; (c) to the knowledge of Purchaser,
require any filing by Purchaser with, or require Purchaser to obtain any permit,
consent
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or approval of, or require Purchaser to give any notice to, any governmental or
regulatory body, agency or authority or any third party other than as set forth
in Schedule 5.3; or (d) result in a violation or breach by Purchaser of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default by Purchaser (or give rise to any right of termination, cancellation,
payment or acceleration) under, or result in the creation of any Encumbrance
upon any of the properties or assets of Purchaser pursuant to, any of the terms,
conditions or provision of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or other instrument or
obligation to which Purchaser is a party, or by which it or any of its
properties or assets may be bound, except in the case of Subsections 5.3(b),
(c), and (d), for such violations, consents, breaches, defaults, terminations
and accelerations which in the aggregate would not have a Material Adverse
Effect.
5.4 CAPITAL STOCK. The authorized capital stock of Castle Dental consists
solely of 18,755,263 shares of Common Stock of which 4,000,000 shares have been
issued, and 1,244,737 shares of Preferred Stock, $.001 par value per share
("Preferred Stock"), all of which shares have been issued. All of the shares of
Common Stock of Castle Dental delivered pursuant to Section 3.1 hereof shall be
duly and validly authorized, and, following the Closing, will be validly issued,
fully paid, nonassessable and free of any liens or encumbrances.
5.5 LITIGATION. Except as set forth in Schedule 5.5 hereto, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Purchaser,
threatened, against or affecting the properties, rights or goodwill of Castle
Dental, Purchaser or their employees, except where such Proceeding would not
have a material adverse effect on the assets, liabilities, business, condition
(financial or otherwise), results of operations or prospects of Castle Dental or
Purchaser, and Purchaser does not know of any valid basis for any such action,
proceeding or investigation. There are no such Proceedings pending or, to the
knowledge of Purchaser, threatened, seeking to prevent or challenge the
transactions contemplated by this Agreement.
5.6 COMPLIANCE WITH LAWS. To the knowledge of Purchaser, Castle Dental and
Purchaser are in compliance with all applicable laws, regulations, orders,
judgments and decrees applicable to their respective business, except where any
noncompliance would not have a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), results of operations
or prospects of Castle Dental or Purchaser.
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5.7 FINANCIAL STATEMENTS. The audited financial statements of Castle as of
December 31, 1995, attached hereto as Schedule 5.7 (to be attached prior to the
Closing Date), are complete and correct in all material respects and present
fairly in accordance with generally accepted accounting principles consistently
applied, the financial condition of Castle Dental and the results of operations
of Castle Dental as of the dates thereof and for the periods indicated.
5.8 BROKER'S OR FINDER'S FEES. Except for The GulfStar Group, no agent,
broker, Person or firm acting on behalf of Purchaser is, or will be, entitled to
any fee, commission or broker's or finder's fee in connection with this
Agreement or any of the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement to sell, or cause to be
sold, the Assets and to consummate the other transactions contemplated hereby
shall be subject to the satisfaction (or waiver by Seller) on or prior to the
Closing Date of all of the following conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, and Purchaser shall have delivered to Seller on the Closing Date a
certificate of an authorized officer of Purchaser, dated the Closing Date, to
such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Purchaser shall have delivered to Seller a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect.
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser shall have delivered to Seller a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect to the best knowledge of
such officer.
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6.4 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.5 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Seller and the
Shareholders and their counsel, and Seller and the Shareholders shall have
received copies of all such documents and other evidence as its or its counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.6 EMPLOYMENT AGREEMENT. Dr. Greenberg shall have received an Employment
Agreement, substantially in the form of Exhibit B, executed by the Purchaser.
6.7 REGISTRATION RIGHTS AGREEMENT. 1st Dental Care, Inc. shall have
received a Registration Rights Agreement, substantially in the form of Exhibit E
hereto, executed by Castle Dental.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser under this Agreement to purchase the Assets
and to consummate the other transactions contemplated hereby shall be subject to
the satisfaction (or waiver by Purchaser) on or prior to the Closing Date of all
of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and the Shareholders contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and Seller and the Shareholders shall have delivered to
Purchaser on the Closing Date a certificate of an authorized representative of
Seller and the Shareholders, dated the Closing Date, to such effect.
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7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Seller to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Seller shall have delivered to Purchaser a certificate of an authorized
representative of Seller, dated the Closing Date, to such effect.
7.3 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Seller
fully executed documents of conveyance vesting in Purchaser good and valid title
to the Assets, free and clear of any Encumbrances except Permitted Encumbrances.
7.4 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Seller
shall have delivered to Purchaser a certificate of an authorized representative
of Seller, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.6 CONSENTS. Each of the consents referred to in Schedule 4.4 attached
hereto shall have been obtained.
7.7 LEGAL OPINION. Seller shall have delivered to Purchaser the opinion of
Macfarlane Ausley Ferguson & McMullen, their counsel, substantially in the form
of Exhibit C attached hereto.
7.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel, and Purchaser shall have received copies of all such documents and
other evidence as it or its counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
7.9 NEW PC. The Shareholders shall have organized New PC and New PC shall
have entered into Employment Agreements with the dentists presently employed by
Seller and Seller shall have duly and validly assigned to New PC all
reimbursement contracts with third party insurance companies, managed care
companies and other reimbursement sources referred to in Section 2.2(f).
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7.10 EXECUTION OF MANAGEMENT SERVICES AGREEMENT. Purchaser and New PC
shall have entered into a Management Services Agreement substantially in the
form of Exhibit F attached hereto.
7.11 STOCKHOLDERS AGREEMENT. 1st Dental Care, Inc. shall have entered into
a Stockholders Agreement with Castle Dental and certain of its other
shareholders, substantially in the form of Exhibit D attached hereto.
7.12 LEASE AGREEMENT. Purchaser and Dr. Greenberg shall have entered into
a Lease Agreement with respect to certain real property owned by Dr. Greenberg
and used in the Business, in form and substance satisfactory to Purchaser and
Dr. Greenberg.
7.13 ACCOUNTS PAYABLE CALCULATION. Purchaser, Seller and the Shareholder
shall have agreed in writing as to the amount of the Assumed Accounts Payable
assumed by Purchaser.
7.14 SUBORDINATION AGREEMENT. Seller shall have executed and delivered a
Subordination Agreement with respect to the promissory notes described in
Sections 3.1(b) and (c) in form and substance satisfactory to the senior and
senior subordinated lenders of Castle Dental.
ARTICLE VIII
COVENANTS OF SELLER AND THE SHAREHOLDERS
Seller and the Shareholders hereby covenant and agree with Purchaser as
follows:
8.1 COOPERATION BY SELLER. Seller and the Shareholders shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Seller and the Shareholders to effect
the transactions contemplated on its or his part hereby, and Seller and the
Shareholders shall otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied. Seller and the Shareholders further agree to deliver to
Purchaser prompt written notice of any event or condition which if it existed on
the date
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of this Agreement, would result in any of the representations and warranties of
Seller or the Shareholders contained herein being untrue in any material
respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Seller shall, (a) conduct
the Business only in the ordinary course, (b) use its reasonable efforts to keep
available the services of its employees and maintain satisfactory relationships
with licensors, suppliers, lessors, distributors, customers, clients and others,
(c) maintain, consistent with past practice and good business judgment, all the
Assets in customary repair, order and condition, ordinary wear and tear
excepted, and insurance upon all the Assets used in the conduct of the Business
in such amounts and of such kinds comparable to that in effect on the date
hereof, to the extent available at current premiums, and (d) maintain the Books
and Records in the usual, regular and ordinary manner, on a basis consistent
with past practice.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Seller nor the Shareholders shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Seller or
the Shareholders.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Seller's certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records of Seller and to
otherwise review the financial and legal condition of Seller as Purchaser deems
necessary or advisable to familiarize itself with the Business and related
matters; such review shall not, however, affect the representations and
warranties made by Seller and the Shareholders hereunder or the remedies of
Purchaser for breaches of those representations and warranties. Such review
shall occur only during normal business hours upon reasonable notice by
Purchaser. Seller and the Shareholders shall permit Purchaser and its
representatives to have, after the execution of this Agreement, full access to
employees of any Seller who can furnish Purchaser with financial and operating
data and other information with respect to the Business as Purchaser shall from
time to time reasonably request.
8.5 FURTHER ASSURANCES. At any time or from time to time after the Closing
Date, Seller and the Shareholders shall, at the reasonable request of Purchaser
and at Purchaser's expense, execute and deliver any further instruments or
documents and take all such further action as Purchaser may
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reasonably request in order to consummate and make effective the sale of the
Assets and the assumption of the Assumed Obligations pursuant to this Agreement.
ARTICLE IX
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller and the Shareholders as
follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Seller and the Shareholders, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable Purchaser to effect the
transactions contemplated on its part hereby, and Purchaser will otherwise use
its reasonable best efforts to cause the consummation of such transactions in
accordance with the terms and conditions hereof and to cause all conditions
contained in this Agreement over which it has control to be satisfied. Purchaser
further agrees to deliver to Seller and the Shareholders prompt written notice
of any event or condition, which if it existed on the date of this Agreement,
would result in any of the representations and warranties of Purchaser contained
herein being untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Seller and any agents of any Seller, upon reasonable
advance notice to Purchaser, access to all Books and Records of Seller which are
transferred to Purchaser in connection herewith, to the extent necessary or
desirable in anticipation of, or preparation for, existing or future litigation,
employment matters, tax returns or audits, or reports to or filings with
governmental agencies, during normal working hours at Purchaser's principal
places of business or at any location where such Books and Records are stored,
and Seller shall have the right, at Seller's sole cost, to make copies of any
such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the Closing
Date, Purchaser shall, at the request of Seller or the Shareholders and at such
Seller's expense, execute and deliver any further instruments or documents and
take all such further action as Seller may reasonably request in order to
consummate and make effective the sale of the Assets and the assumption of the
Assumed Obligations pursuant to this Agreement.
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ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, the Shareholders and
Seller; or
(b) by Purchaser, the Shareholders, or Seller in writing without
liability on the part of the terminating party on account of such
termination (provided the terminating party is not otherwise in default or
in breach of this Agreement), if the Closing Date shall not have occurred
on or before May 22, 1996; or
(c) by either Purchaser, on the one hand, or the Shareholders and
Seller, on the other hand, in writing, without liability on the part of
the terminating party on account of such termination (provided the
terminating party is not otherwise in default or breach of this
Agreement), if the other party shall (i) fail to perform its or their
covenants or agreements contained herein required to be performed prior to
the Closing Date, or (ii) breach or have breached any of its
representations or warranties contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to this
Article shall terminate all obligations of the parties hereunder, except for the
obligations under Sections 12.8 and 12.11 hereof and the obligations set forth
in the next succeeding sentence of this Section 10.2. Upon any termination of
this Agreement each party hereto will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
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ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF THE SELLER. The Purchaser, from and after the
Closing Date, shall indemnify and hold Seller and the Shareholders and their
respective Affiliates (the "Seller Indemnitees") harmless from and against any
and all damages (including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation (collectively, the
"Damages"), suffered by any Seller Indemnitee as a result of, caused by, arising
out of, or in any way relating to (a) any misrepresentation, breach of warranty,
or nonfulfillment of any agreement or covenant on the part of the Purchaser
under this Agreement or any misrepresentation in or omission from any list,
schedule, certificate, or other instrument furnished or to be furnished to the
Seller by the Purchaser pursuant to the terms of this Agreement or (b) any
liability or obligation (other than those for which Purchaser are being
indemnified by Seller and the Shareholders hereunder) which pertains to the
ownership, operation or conduct of the Business or Assets arising from any acts,
omissions, events, conditions or circumstances occurring on or after the Closing
Date.
11.2 INDEMNIFICATION OF THE PURCHASER. Seller and the Shareholders,
jointly and severally, shall indemnify and hold Purchaser and its Affiliates
(the "Purchaser Indemnitees") harmless from and against any and all Damages
suffered by any Purchaser Indemnitee as a result of, caused by, arising out of,
or in any way relating to (a) any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of the Seller or the
Shareholders under this Agreement or any misrepresentation in or omission from
any list, schedule, certificate, or other instrument furnished or to be
furnished to the Purchaser by the Seller pursuant to the terms of this
Agreement, or any misrepresentation, breach of warranty or nonfulfillment of any
agreement or covenant contained in the Hernando Agreement or the M&B Agreement
(b) any liability or obligation (other than those for which Seller and the
Shareholders are being indemnified by Purchaser hereunder and other than those
relating to or arising from the Assumed Obligations) which pertains to the
ownership, operation or conduct of the Business or Assets (including assets
acquired pursuant to the Hernando Agreement or the M&B Agreement) arising from
any acts, omissions, events, conditions or circumstances occurring before the
Closing Date, or (c) the uncollectibility of any Account Receivable, including
accounts receivable acquired pursuant to the Hernando Agreement or the M&B
Agreement (net of applicable reserve), after six months.
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11.3 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party knowingly failed to notify the indemnifying party
thereof in accordance with the provisions of this Agreement in sufficient time
to permit the indemnifying party or its counsel to defend against such matter
and to make a timely response thereto including, without limitation, any
responsive motion or answer to a complaint, petition, notice or other legal,
equitable or administrative process relating to the Claim, only insofar as such
knowing failure to notify the indemnifying party has actually resulted in
prejudice or damage to the indemnifying party.
11.4 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be entitled
at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnified party of the asserted Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest should be
continued, and so notifies
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the indemnifying party in writing within 15 days of such request from the
indemnifying party. If the indemnified party determines that the contest should
be continued, the indemnifying party shall be liable hereunder only to the
extent of the amount that the other party to the contested Claim had agreed
unconditionally to accept in payment or compromise as of the time the
indemnifying party made its request therefor to the indemnified party.
11.5 COOPERATION. If requested by the indemnifying party, the indemnified
party agrees to cooperate with the indemnifying party and its counsel in
contesting any Claim that the indemnifying party elects to contest or, if
appropriate, in making any counterclaim against the person asserting the Claim,
or any cross-complaint against any person, and the indemnifying party will
reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.6 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
11.7 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
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12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Seller or the Shareholders without
the prior written consent of Purchaser or by Purchaser to any Person without the
prior written consent of Seller.
12.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration of
the terms or provisions of this Agreement shall be binding unless the same shall
be in writing and duly executed by the parties hereto, except that any of the
terms or provisions of this Agreement may be waived in writing at any time by
the party which is entitled to the benefits of such waived terms or provisions.
No waiver of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar). No
delay on the part of either party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof.
12.6 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is not intended to
and shall not be construed to give any Person (other than the parties signatory
hereto any interest or rights (including, without limitation, any third party
beneficiary rights) with respect to or in connection with any agreement or
provision contained herein or contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and pay
all applicable sales, stamp, transfer, documentary, use, registration, filing
and other taxes and fees (including any penalties and interest) that may become
due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Seller, the
Shareholders and Purchaser shall each pay all costs and expenses incurred by
them or on their behalf in connection with this Agreement and the transactions
contemplated hereby.
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12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
if to Purchaser, to:
Castle Dental Centers of Florida, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
with a copy to:
Mr. William D. Gutermuth
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2856
if to Seller or the Shareholders to:
Lester B. Greenberg, D.D.S.
Elisa Greenberg
1st Dental Care, Inc.
29605 U.S. Highway 19N., Suite 180
Clearwater, Florida 34621
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with a copy to:
Mr. Paul Raymond
Macfarlane Ausley Ferguson & McMullen
400 Cleveland Street
Eighth Floor
Clearwater, Florida 34615
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regards to conflict of
law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the requirements of its lenders
and investors and to comply with applicable securities laws. No party hereto
shall issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the other party hereto
to the contents and the manner of presentation and publication thereof.
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against any
of the parties to this Agreement on any dispute arising out of this Agreement or
any matter related hereto shall be brought in any federal or state court located
in Tampa, Florida, and, by execution and delivery of this Agreement, each of the
parties to this Agreement accepts for itself the exclusive jurisdiction of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party.
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Upon such determination that any provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for any
breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS OF FLORIDA, INC.
By:_____________________________
Name: Jack H. Castle, Jr.
Title: President
1ST DENTAL CARE, INC.
By:_____________________________
Name: Lester B. Greenberg, D.D.S.
Title: President
HERNANDO DENTAL CENTER -- LESTER B.
GREENBERG, D.D.S., P.A.
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By:______________________________
Lester B. Greenberg, D.D.S.
Title: President
M&B DENTAL LAB, INC.
By:______________________________
Elisa Greenberg
President
________________________________
LESTER B. GREENBERG, D.D.S.
________________________________
ELISA GREENBERG
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EXHIBIT 10.20
CASTLE DENTAL CENTERS, INC.
10% Note
due May 19, 2001
$1,787,938 May 19, 1996
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "COMPANY"), promises to pay to 1ST DENTAL CARE, INC., a
Florida corporation ("Payee"), or the holder hereof, the principal sum of
$1,787,938 on May 19, 2001, with equal installments of principal plus accrued
interest (computed on the basis of a 360-day year of twelve 30-day months) at
the rate of 10% per annum from the date hereof, payable quarterly in arrears in
cash on the last day of January, April, July and October in each year,
commencing on July 31, 1996, until the principal of this Note shall have become
due and payable (whether at maturity, upon acceleration or otherwise) or shall
have been paid. In the event the Company fails to make a scheduled payment of
principal or interest hereunder, and such failure is not cured within five
business days after the Company receives written notice thereof from Payee, all
unpaid principal hereunder shall become immediately due and payable. Upon the
occurrence and during the continuation of any payment default, the rate of
interest under this Note shall be increased to a rate per annum from time to
time equal to the lower of (a) 16% and (b) the maximum rate, if any, permitted
by applicable law, compounded quarterly.
Subject to the limitations contained herein, at the option of the Payee,
payments of up to $286,775 of the principal amount of this Note and interest on
such amount computed at the rate of 6.36%, may be made either in cash or in
Company Stock. In the event Payee elects to accept payments of principal and
interest as provided herein in Company Stock, the value per share of Company
Stock shall initially be $6.75 per share, and shall be increased annually on the
anniversary of the issuance of this Note by $0.42, as adjusted for stock splits,
stock dividends, stock combinations or stock reclassifications. Payee may
exercise this conversion right at any time following the earlier of (i) the
first anniversary of the date of issuance of this Note; or (ii) the consummation
of a Designated Offering (as defined herein).
The Company may not prepay this Note. All unpaid principal of the Note and
accrued interest thereon shall be immediately due and payable ten days following
the consummation of an underwritten public offering of the Company's common
stock, $.001 par value, in which the gross
-1-
proceeds (before underwriters' discounts and selling commissions) are greater
than or equal to $25,000,000.00 (a "Designated Offering").
Payments of both principal and interest of this Note are to be made at
29605 U.S. Highway 19N., Suite 180, Clearwater, Florida, 34621 or at such other
place as the holder hereof shall designate to the Company in writing, in lawful
money of the United States of America. In the event Payee is required to bring
suit to effect collection of this Note, all costs of collection including
attorneys fees shall be paid by the Company.
This Note is intended to be performed in the State of Florida and shall be
construed and enforced in accordance with the law of such State, without giving
effect to the conflicts or choice of law principles of such State. This Note is
subject to the terms of that certain Subordination Agreement of even date
herewith by and among the Company, Payee and NationsBank of Texas, N.A., and
that certain Subordination Agreement by and among the Company, Payee and the
holders of the Senior Subordinated Notes (as defined therein).
CASTLE DENTAL CENTERS, INC.
By:_________________________
Name: Jack H. Castle, Jr.
Title: President
ATTEST:
By:_________________________
Name: John M. Slack
Title: Secretary
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EXHIBIT 10.21
CASTLE DENTAL CENTERS, INC.
6.36% Note
due May 19, 2000
$656,588 May 19, 1996
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "COMPANY"), promises to pay to 1st Dental Care, Inc., a
Florida corporation, or the holder hereof ("Payee"), the principal sum of
$656,588 on May 19, 2000. Interest on the unpaid balance shall accrue and be
compounded annually (but not be paid until maturity or on prepayment of
principal) at the rate of 6.36% per annum from the date hereof. Upon the
occurrence and during the continuation of any payment default, the rate of
interest under this Note shall be increased to a rate per annum from time to
time equal to the lower of (a) 16% and (b) the maximum rate, if any, permitted
by applicable law, compounded quarterly.
The Company may not prepay this Note. All unpaid principal of this Note
and accrued interest thereon shall be immediately due and payable ten days
following the consummation of an underwritten public offering of the Company's
common stock, $.001 par value ("Company Stock"), in which the gross proceeds
(before underwriters' discounts and selling commissions) are greater than or
equal to $25,000,000.00 (a "Designated Offering").
At the option of the Payee, amounts due under this Note in respect of
principal and interest may be made either in cash or in Company Stock. In the
event Payee elects to accept payments of principal and interest in Company
Stock, the value per share of Company Stock shall initially be $6.75 per share,
and shall be increased annually on the anniversary of the issuance of this Note
by $0.42, as adjusted for stock splits, stock dividends, stock combinations or
stock reclassifications. At the earlier to occur of (i) the first anniversary of
the date of issuance of this Note, or (ii) a Designated Offering, Payee may
convert all or part of the outstanding principal amount hereof and accrued and
unpaid interest hereon into Common Stock of the Company at the then value per
share of Company Stock.
Payments of both principal and interest of this Note are to be made at
29605 U.S. Highway 19N., Suite 180, Clearwater, Florida, 34621 or at such other
place as the holder hereof shall
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designate to the Company in writing, in lawful money of the United States of
America. In the event Payee is required to bring suit to effect collection of
this Note, all costs of collection including attorneys fees shall be paid by the
Company.
This Note is intended to be performed in the State of Florida and shall be
construed and enforced in accordance with the law of such State, without giving
effect to the conflicts or choice of law principles of such State. This Note is
subject to the terms of that certain Subordination Agreement of even date
herewith by and among the Company, Payee and NationsBank of Texas, N.A., and
that certain Subordination Agreement by and among the Company, Payee and the
holders of the Senior Subordinated Notes (as defined therein).
CASTLE DENTAL CENTERS, INC.
By:___________________________
Name: Jack H. Castle, Jr.
Title: President
ATTEST:
By:_________________________
Name: John M. Slack
Title: Secretary
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EXHIBIT 10.22
CASTLE DENTAL CENTERS, INC.
6.36% Note
due May 19, 2000
$286,775 May 19, 1996
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "COMPANY"), promises to pay to M&B Dental Lab, Inc., a
Florida corporation, or the holder hereof ("Payee"), the principal sum of
$286,775 on May 19, 2000. Interest on the unpaid balance shall accrue and be
compounded annually (but not be paid until maturity or on prepayment of
principal) at the rate of 6.36% per annum from the date hereof. Upon the
occurrence and during the continuation of any payment default, the rate of
interest under this Note shall be increased to a rate per annum from time to
time equal to the lower of (a) 16% and (b) the maximum rate, if any, permitted
by applicable law, compounded quarterly.
The Company may not prepay this Note. All unpaid principal of the Note
and accrued interest on this Note shall be immediately due and payable ten days
following the consummation of an underwritten public offering of the Company's
common stock, $.001 par value ("Company Stock"), in which the gross proceeds
(before underwriters' discounts and selling commissions) are greater than or
equal to $25,000,000.00.
Payments of both principal and interest of this Note are to be made at
29605 U.S. Highway 19N., Suite 180, Clearwater, Florida, 34621 or at such other
place as the holder hereof shall designate to the Company in writing, in lawful
money of the United States of America. In the event Payee is required to bring
suit to effect collection of this Note, all costs of collection including
attorneys fees shall be paid by the Company.
-1-
This Note is intended to be performed in the State of Florida and shall
be construed and enforced in accordance with the law of such State, without
giving effect to the conflicts or choice of law principles of such State. This
Note is subject to the terms of that certain Subordination Agreement of even
date herewith by and among the Company, Payee and NationsBank of Texas, N.A.,
and that certain Subordination Agreement by and among the Company, Payee and the
holders of the Senior Subordinated Notes (as defined therein).
CASTLE DENTAL CENTERS, INC.
By:_________________________________
Name: Jack H. Castle, Jr.
Title: President
ATTEST:
By:_________________________
Name: John M. Slack
Title: Secretary
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Exhibit 10.23
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
CASTLE DENTAL CENTERS OF FLORIDA, INC.,
A FLORIDA CORPORATION
AND
CASTLE 1ST DENTAL CARE, P.A.
A FLORIDA PROFESSIONAL ASSOCIATION
EFFECTIVE MAY 19, 1996
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TABLE OF CONTENTS
PAGE NO.
ARTICLE I. DEFINITIONS........................................................2
Section 1.1 Act......................................................2
Section 1.2 Adjusted Gross Revenue...................................2
Section 1.3 Adjustments..............................................2
Section 1.4 Ancillary Revenue........................................2
Section 1.5 Base Management Fee......................................2
Section 1.6 Budget...................................................2
Section 1.7 Business Manager.........................................2
Section 1.8 Business Manager Consent.................................2
Section 1.9 Business Manager Expense.................................3
Section 1.10 Confidential Information.................................3
Section 1.11 Center...................................................3
Section 1.12 Dental Services..........................................3
Section 1.13 Dentist..................................................3
Section 1.14 GAAP.....................................................4
Section 1.15 Management Fee...........................................4
Section 1.16 Management Services......................................4
Section 1.17 Management Services Agreement............................4
Section 1.18 Office Expense...........................................4
Section 1.19 PC.......................................................5
Section 1.20 PC Account...............................................5
Section 1.21 PC Consent...............................................5
Section 1.22 PC Expense...............................................6
Section 1.23 Performance Fee..........................................6
Section 1.24 Policy Board.............................................6
Section 1.25 Practice Territory.......................................6
Section 1.26 Professional Services Revenues...........................6
Section 1.27 Representatives..........................................6
Section 1.28 State....................................................6
Section 1.29 Term.....................................................6
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER.....................7
Section 2.1 Appointment..............................................7
Section 2.2 Authority................................................7
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Section 2.3 Patient Referrals and Payments...........................7
Section 2.4 Internal Management of PC................................8
Section 2.5 Practice of Dentistry....................................8
ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD.............................8
Section 3.1 Formation and Operation of the Policy Board..............8
Section 3.2 Duties and Responsibilities of the Policy Board..........8
(a) Capital Improvements and Expansion.......................8
(b) Marketing and Advertising................................9
(c) Patient Fees; Collection Policies........................9
(d) Provider and Payor Relationships.........................9
(e) Strategic Planning.......................................9
(f) Capital Expenditures.....................................9
Section 3.3 Dental Treatment Decisions...............................9
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER...............10
Section 4.1 Centers and Equipment...................................10
Section 4.2 Dental Supplies.........................................11
Section 4.3 Support Services........................................11
Section 4.4 Quality Assurance, Risk Management,
and Utilization Review..................................11
Section 4.5 Licenses and Permits....................................12
Section 4.6 Personnel...............................................12
Section 4.7 Contract ...............................................12
Section 4.8 Billing and Collection..................................12
Section 4.9 PC Account..............................................14
Section 4.10 Fiscal Matters..........................................14
Section 4.11 Reports and Records.....................................16
Section 4.12 Recruitment of PC Dentists..............................17
Section 4.13 Business Manager's Insurance............................17
Section 4.14 No Warranty.............................................17
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PC..............................17
Section 5.1 Organization and Operation..............................17
Section 5.2 PC Personnel and Shareholders...........................18
Section 5.3 Professional Standards..................................18
Section 5.4 Dental Services.........................................19
Section 5.5 Peer Review/Quality Assurance...........................19
Section 5.6 PC's Insurance..........................................19
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Section 5.7 Confidential and Proprietary Information................20
Section 5.8 Noncompetition..........................................20
Section 5.9 Name, Trademark.........................................22
Section 5.10 Peer Review.............................................22
Section 5.11 Indemnification.........................................22
ARTICLE VI. FINANCIAL ARRANGEMENT............................................23
Section 6.1 Definitions.............................................23
Section 6.2 Management Fee..........................................23
Section 6.3 Adjustments.............................................23
Section 6.4 Reasonable Value........................................24
Section 6.5 Payment of Management Fee...............................24
Section 6.6 Accounts Receivable.....................................24
Section 6.7 Disputes Regarding Fees.................................25
ARTICLE VII. TERM AND TERMINATION............................................25
Section 7.1 Initial and Renewal Term................................25
Section 7.2 Termination.............................................25
Section 7.3 Effects of Termination..................................26
Section 7.4 Purchase Obligation.....................................27
Section 7.5 Purchase Option.........................................28
Section 7.6 Closing of Purchase.....................................29
ARTICLE VIII. MISCELLANEOUS..................................................29
Section 8.1 Administrative Services Only............................29
Section 8.2 Status of Contractor; Agency............................29
Section 8.3 Notices.................................................30
Section 8.4 Governing Law...........................................30
Section 8.5 Assignment..............................................31
Section 8.6 Arbitration.............................................31
Section 8.7 Waiver of Breach........................................33
Section 8.8 Enforcement.............................................33
Section 8.9 Gender and Number.......................................33
Section 8.10 Additional Assurances...................................33
Section 8.11 Consents, Approvals, and Exercise of Discretion.........33
Section 8.12 Force Majeure...........................................34
Section 8.13 Severability............................................34
Section 8.14 Divisions and Headings..................................34
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Section 8.15 Amendments and Management Services
Agreement Execution.....................................34
Section 8.16 Entire Management Services Agreement....................35
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective as
of May 19, 1996, by and between CASTLE DENTAL CENTERS OF FLORIDA, INC., a
Florida corporation ("Business Manager"), and Castle 1st Dental Care, P.A., a
Florida professional association ("PC").
RECITALS
This Management Services Agreement is made with reference to the
following facts:
A. PC is a validly existing Florida professional association, formed for
and engaged in the practice of dentistry and the provision of dental services to
the general public in the State of Florida through individual dentists who are
licensed to practice dentistry in the State of Florida and who are employed or
otherwise retained by PC.
B. Business Manager is a validly existing Florida corporation, which has
been duly formed to manage the business aspects of the dental practice of PC.
C. PC desires to focus its energies, expertise and time on the practice
of dentistry and on the delivery of dental services to patients, and to
accomplish this goal it desires to delegate the increasingly more complex
business functions of its dental practice to persons with business expertise.
D. PC wishes to engage Business Manager to provide such management,
administrative and business services as are necessary and appropriate for the
day-to-day administration of the nondental aspects of PC's dental practice in
the Practice Territory (as defined below), and Business Manager desires to
provide such services all upon the terms and conditions hereinafter set forth.
E. PC and Business Manager have determined a fair market value for the
services to be rendered by Business Manager, and based on this fair market
value, have developed a formula for compensation for Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
<PAGE>
ARTICLE I. DEFINITIONS
For the purposes of this Management Services Agreement, the following
terms shall have the following meanings ascribed thereto, unless otherwise
clearly required by the context in which such term is used.
Section 1.1 ACT. The term "Act" shall mean Chapter 466, Florida
statutes, as amended, and administrative regulations promulgated thereunder.
Section 1.2 ADJUSTED GROSS REVENUE. The term "Adjusted Gross Revenue"
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
Section 1.3 ADJUSTMENTS. The term "Adjustments" shall mean any
adjustments on an accrual basis for uncollectible accounts, third party payor
contractual adjustments, discounts, workers' compensation adjustments,
professional courtesies, and other reductions in collectible revenue that result
from activities that do not result in collectible charges.
Section 1.4 ANCILLARY REVENUE. The term "Ancillary Revenue" shall mean
all other revenue actually recorded each month (net of Adjustments) that is not
Professional Services Revenues consisting only of prepaid amounts for services
previously billed and collected, and shall include (a) any amounts received by
PC as liquidated damages under Section 4.2 or Section 4.3 of any Dentist's
employment agreement, and (b) the proceeds of key person life and disability
insurance as provided for in Section 4.14 below.
Section 1.5 BASE MANAGEMENT FEE. The term "Base Management Fee" shall
mean the amount set forth in Section 6.1.
Section 1.6 BUDGET. The term "Budget" shall mean an operating budget and
capital expenditure budget for each fiscal year as prepared by Business Manager
and adopted by PC.
Section 1.7 BUSINESS MANAGER. The term "Business Manager" shall mean
Castle Dental Centers of Florida, Inc., a Florida corporation, or any entity
that succeeds to the interests of Castle Dental Centers of Florida, Inc., a
Florida corporation, and to whom the obligations of Business Manager are
assigned and transferred.
Section 1.8 BUSINESS MANAGER CONSENT. The term "Business Manager
Consent" shall mean the consent granted by Business Manager's representatives to
the Policy Board created pursuant to Article III herein.
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Section 1.9 BUSINESS MANAGER EXPENSE. The term "Business Manager
Expense" shall mean an expense or cost incurred by the Business Manager and for
which the Business Manager, and not PC, is financially liable other than
expenses incurred by Business Manager that directly benefit PC which may be
allocated to Office Expense consistent with the Budget.
Section 1.10 CONFIDENTIAL INFORMATION. The term "Confidential
Information" shall mean any information of Business Manager or PC, as
appropriate (whether written or oral), including all notes, studies, patient
lists, information, forms, business or management methods, marketing data, fee
schedules, or trade secrets of the Business Manager or of PC, as applicable,
whether or not such Confidential Information is disclosed or otherwise made
available to one party by the other party pursuant to this Management Services
Agreement. Confidential Information shall also include the terms and provisions
of this Management Services Agreement and any transaction or document executed
by the parties pursuant to this Management Services Agreement. Confidential
Information does not include any information that (i) is or becomes generally
available to and known by the public (other than as a result of an unpermitted
disclosure directly or indirectly by the receiving party or its affiliates,
advisors, or Representatives); (ii) is or becomes available to the receiving
party on a nonconfidential basis from a source other than the furnishing party
or its affiliates, advisors, or Representatives, provided that such source is
not and was not bound by a confidentiality agreement with or other obligation of
secrecy to the furnishing party of which the receiving party has knowledge at
the time of such disclosure; or (iii) has already been or is hereafter
independently acquired or developed by the receiving party without violating any
confidentiality agreement with or other obligation of secrecy to the furnishing
party.
Section 1.11 CENTER. The term "Center" (collectively referred to as
"Centers") shall mean any office space, clinic, facility, including satellite
facilities, that Business Manager shall own or lease or otherwise procure for
the use of PC, as allowed by law, in the provision of Dental Services pursuant
to this Management Services Agreement.
Section 1.12 DENTAL SERVICES. The term "Dental Services" shall mean
dental care and services, including but not limited to the practice of general
dentistry, orthodontics and all related dental care services provided by PC
through PC's Dentists and other dental care providers that are retained by or
professionally affiliated with PC.
Section 1.13 DENTIST. The term "Dentist" shall mean each individually
licensed professional who is employed or otherwise retained by or associated
with PC, each of whom shall meet at all times the qualifications described in
Section 5.2 and Section 5.3.
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Section 1.14 GAAP. The term "GAAP" shall mean generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of the determination. For purposes of this Management Services Agreement, GAAP
shall be applied on an accrual basis in a manner consistent with the historic
practices of the person to which the term applies.
Section 1.15 MANAGEMENT FEE. The term "Management Fee" shall mean
Business Manager's compensation established as described in Article VI hereof.
Section 1.16 MANAGEMENT SERVICES. The term "Management Services" shall
mean the business, administrative, and management services to be provided for
PC, including without limitation the provision of equipment, supplies, support
services, nondental personnel, office space, management, administration,
financial recordkeeping and reporting, and other business office services;
provided, however, that PC shall maintain complete care, custody and control of
the equipment and supplies.
Section 1.17 MANAGEMENT SERVICES AGREEMENT. The term "Management
Services Agreement" shall mean this Management Services Agreement by and between
PC and Business Manager and any amendments hereto as may be adopted as provided
in this Management Services Agreement.
Section 1.18 OFFICE EXPENSE. The term "Office Expense" shall mean all
operating and nonoperating expenses incurred by the Business Manager or PC in
the provision of services to or by PC. Office Expense shall not include any
State or federal income tax, or any other expense that is a PC Expense or a
Business Manager Expense. Without limitation, Office Expense shall include:
(a) the salaries and benefits of all employees of Business Manager at
the Centers and the salaries and benefits of the nondental employees of PC, but
not the salaries or benefits of the Dentists;
(b) the direct cost of any employee or consultant that provides services
at or in connection with the Centers for improved clinic performance, such as
management, billing and collections, business office consultation, accounting
and legal services, but only when such services are consistent with the Budget
or otherwise with the consent of the Policy Board;
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(c) reasonable recruitment costs and out-of-pocket expenses of Business
Manager or PC directly related to the recruitment of additional dental employees
of PC;
(d) professional liability insurance expenses for Dentists and
comprehensive, general liability and workers' compensation insurance covering
the Centers and employees of PC and Business Manager at each Center;
(e) the expense of using, leasing, purchasing or otherwise procuring
each Center and related equipment, including depreciation;
(f) the cost of capital (whether as actual interest on indebtedness
incurred on behalf of PC or as reasonable imputed interest on capital advanced
by Business Manager, which shall be equal to the average cost of borrowing by
Business Manager from its primary commercial lender as reflected on its most
recent published financial statements) to finance or refinance obligations of
PC, purchase dental or nondental equipment, or finance new ventures of PC;
(g) the Base Management Fee;
(h) the reasonable out-of-pocket travel expenses associated with
attending meetings, conferences, or seminars to benefit PC;
(i) the reasonable costs and expenses associated with marketing,
advertising and promotional activities to benefit PC; and
(j) the cost of dental supplies (including but not limited to drugs,
pharmaceuticals, products, substances, items, or dental devices), office
supplies, inventory, and utilities other than those dental supplies or dental
inventory owned by PC on the date of this Management Services Agreement.
Section 1.19 PC. The term "PC" shall mean Castle 1st Dental Care, P.A.,
a Florida professional association.
Section 1.20 PC ACCOUNT. The term "PC Account" shall mean the bank
account of PC established as described in Sections 4.8 and 4.9.
Section 1.21 PC CONSENT. The term "PC Consent" shall mean the consent
granted by PC's representative to the Policy Board created pursuant to Article
III herein.
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Section 1.22 PC EXPENSE. The term "PC Expense" shall mean an expense
incurred by the Business Manager or PC that is consistent with the Budget or
otherwise with the consent of the Policy Board and for which PC, and not the
Business Manager, is financially liable. PC Expense shall include such items as
Dentist salaries, benefits, and other direct costs (including professional dues,
subscriptions, continuing dental education expenses, and travel costs for
continuing dental education or other business travel but excluding business
travel requested by Business Manager, which shall be an Office Expense).
Section 1.23 PERFORMANCE FEE. The term "Performance Fee" shall mean the
amount payable to the Business Manager, if any, determined under Section 6.2, as
a Management Fee based upon the Business Manager achieving certain
pre-determined performance criteria.
Section 1.24 POLICY BOARD. The term "Policy Board" shall refer to the
body responsible for developing management and administrative policies for the
overall operation of PC's facilities, excluding any policies or decisions that
relate directly or indirectly to the practice of dentistry; provided, however
that the Policy Board can make recommendations to the PC that relate directly or
indirectly to the practice of dentistry.
Section 1.25 PRACTICE TERRITORY. The term "Practice Territory" shall
mean the geographic area within a radius of ten (10) miles of any current or
future facility from which PC provides Dental Services in Florida representing
the specific geographic boundaries of the dental practice conducted by PC within
its particular urban metropolitan area.
Section 1.26 PROFESSIONAL SERVICES REVENUES. The term "Professional
Services Revenues" shall mean the sum of all professional fees actually recorded
each month on an accrual basis under GAAP (net of Adjustments) as a result of
Dental Services and related services rendered by the shareholders and dental
employees of PC.
Section 1.27 REPRESENTATIVES. The term "Representatives" shall mean a
party's officers, directors, employees, or other agents or representatives.
Section 1.28 STATE. The term "State" shall mean the State of Florida.
Section 1.29 TERM. The term "Term" shall mean the initial and any
renewal periods of duration of this Management Services Agreement as described
in Section 7.1.
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ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
Section 2.1 APPOINTMENT. PC hereby appoints Business Manager as its sole
and exclusive agent for the management and administration of the business
functions and business affairs of PC, and Business Manager hereby accepts such
appointment, subject at all times to the provisions of this Management Services
Agreement.
Section 2.2 AUTHORITY. Consistent with the provisions of this Management
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services for PC. Subject to the
terms and conditions of this Management Services Agreement, Business Manager is
hereby expressly authorized to provide the Management Services in any reasonable
manner Business Manager deems appropriate to meet the day-to-day requirements of
the business functions of PC. Business Manager is also expressly and exclusively
authorized to negotiate contracts that do not relate to the provision of Dental
Services; provided, however, that Business Manager shall not have authority to
execute any contract pertaining to pricing of dental services, credit, refunds,
warranties, advertising and employees of PC or other personnel of PC providing
services to PC and/or other agreements for the provision of dental services. PC
shall give Business Manager thirty (30) days prior notice of PC's intent to
execute any agreement obligating PC to perform Dental Services or otherwise
creating a binding legal obligation on PC. Unless an expense is expressly
designated as a Business Manager Expense in this Management Services Agreement,
all expenses incurred by Business Manager in providing services hereunder shall
be an Office Expense. The parties acknowledge and agree that PC, through its
Dentists, shall be responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Dental
Services and other professional health care services performed for patients, and
that all diagnoses, treatments, procedures, and other professional health care
services shall be provided and performed exclusively by or under the supervision
of Dentists as such Dentists, in their sole discretion, deem appropriate.
Business Manager shall have and exercise absolutely no control or supervision
over the provision of Dental Services.
Section 2.3 PATIENT REFERRALS AND PAYMENTS. Business Manager and PC
agree that the benefits to PC hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission, or any other
arrangement for the provision of any item or service offered by Business Manager
to patients of PC in any facility, laboratory or health care operation
controlled, managed, or operated by Business Manager. Further, Business Manager
and PC agree that the payment of monies hereunder in no way represents the
division, sharing, splitting or other allocation of fees for Dental Services
between PC and Business Manager.
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Section 2.4 INTERNAL MANAGEMENT OF PC. Matters involving the internal
management, control, or finances of PC, including specifically the allocation of
professional income among the shareholders and Dentist employees of PC, tax
planning, office personnel and investment planning, shall remain the
responsibility of PC and the shareholders of PC.
Section 2.5 PRACTICE OF DENTISTRY. The parties acknowledge that Business
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of dentistry nor shall Business
Manager now or in the future be regarded as practicing dentistry within the
meaning of Florida Statutes ss. 466.003(3). To the extent any act or service
herein required by Business Manager should be construed by a court of competent
jurisdiction or by the State Board of Dental Examiners to constitute the
practice of dentistry, the requirement to perform that act or service by
Business Manager shall be deemed waived and unenforceable and shall not
constitute a breach or default by Business Manager under this Agreement, and the
parties shall take the actions contemplated by Section 7.2(d) hereof.
ARTICLE III. RESPONSIBILITIES OF THE POLICY BOARD
Section 3.1 FORMATION AND OPERATION OF THE POLICY BOARD. The parties
hereby establish a Policy Board which shall be responsible for developing
management and administrative policies for the overall operation of PC's
facilities within the terms of this Management Services Agreement. The Policy
Board shall consist of four (4) members. Business Manager shall designate, in
its sole discretion, three (3) members of the Policy Board. PC shall designate,
in its sole discretion, one (1) member of the Policy Board. The Policy Board
member selected by PC shall be a Dentist who holds and maintains a valid and
unrestricted license to practice dentistry in the State. A majority of each
party's representative or representatives to the Policy Board shall have the
authority to make decisions within the terms of this Management Services
Agreement on behalf of the respective party. Except as may otherwise be
provided, the act of a majority of the members of the Policy Board shall be the
act of the Policy Board.
Section 3.2 DUTIES AND RESPONSIBILITIES OF THE POLICY BOARD. The Policy
Board shall have the following duties, obligations, and authority:
(a) CAPITAL IMPROVEMENTS AND EXPANSION. Any renovation and expansion
plans with respect to PC's facilities shall be reviewed and approved by the
Policy Board and shall be based upon economic feasibility, dentist support,
productivity, technological innovations, competitive alternatives and then
current market conditions. The Policy Board shall make recommendations to PC
regarding capital equipment, but PC shall have final authority concerning
equipment.
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(b) MARKETING AND ADVERTISING. To make recommendations to PC concerning
all marketing and other advertising of the services performed at PC's
facilities.
(c) PATIENT FEES; COLLECTION POLICIES. As a part of the Budget process,
in consultation with PC and Business Manager, the Policy Board shall be advised
of the fee schedule determined by the PC representative to the Policy Board and
shall review the related collection policies for all Dental Services rendered by
PC. The Policy Board may make recommendations concerning fee schedules and
collection policies.
(d) PROVIDER AND PAYOR RELATIONSHIPS. To make recommendations regarding
the establishment or maintenance of relationships with institutional health care
providers and third party payors. The Policy Board shall review all proposed
reimbursement arrangements with third party payors. The Policy Board may make
recommendations concerning reimbursement arrangements.
(e) STRATEGIC PLANNING. The Policy Board shall develop long-term
strategic planning objectives, including but not limited to the acquisition of
or merger with any other dental practices in the Practice Territory.
(f) CAPITAL EXPENDITURES. The Policy Board shall determine the priority
of major capital expenditures.
Section 3.3 DENTAL TREATMENT DECISIONS. Despite the above listing of
activities and areas of interest, all decisions relating directly or indirectly
to the practice of dentistry will be made solely by PC's representatives to the
Policy Board, but Business Manager's representatives to the Policy Board may
participate in the discussion process. PC's representative to the Policy Board
shall review and shall have exclusive jurisdiction over the resolution of issues
relating to:
(a) Types and levels of Dental Services to be provided;
(b) Recruitment of dentists to PC, including the specific qualifications
and specialties of recruited dentists;
(c) Fee schedules; and
(d) Any other function or decision relating to the practice of
dentistry, including but not limited to (i) the selection of a course of
treatment for a patient, the procedures or materials to be used as part of such
course of treatment and the manner in which such course of treatment
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is carried out; (ii) the patient records of PC; (iii) policies and decisions
relating to pricing, credit, refunds, warranties and advertising; and (iv)
decisions relating to office personnel and hours of practice.
The Policy Board meetings shall be held as mutually agreed, but at least
quarterly, in Florida. Meetings shall be open to any shareholder of PC.
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
as are necessary and appropriate for the day-to-day administration of the
business aspects of PC's operations, including without limitation those set
forth in this Article IV in accordance with all law, rules, regulations and
guidelines applicable to the provision of Management Services.
Section 4.1 CENTERS AND EQUIPMENT.
(a) Subject to Section 4.1(b), as necessary and appropriate, taking into
consideration the professional concerns of PC, Business Manager shall in its
reasonable discretion lease, acquire or otherwise procure Centers in a location
or locations reasonably acceptable to PC and shall permit PC to use each such
Center pursuant to this Management Services Agreement, by sublease or otherwise
as required by law.
(b) PC shall not enter into any lease or sublease with respect to a
Center without Business Manager's prior consent. In the event PC is the lessee
of any Center under a lease with an unrelated and nonaffiliated lessor, Business
Manager may require PC to assign such lease to Business Manager upon receipt of
consent from the lessor and Business Manager shall permit PC to use such Center
pursuant to this Management Services Agreement, by sublease or otherwise as
required by law. PC shall use its best efforts to assist in obtaining the
lessor's consent to the assignment. Upon request, PC shall execute any
instruments and shall take any acts that Business Manager may deem necessary to
accomplish the assignment of the lease. Any expenses incurred in the assignment
shall be Office Expenses.
(c) Business Manager shall provide all nondental equipment, fixtures,
office supplies, furniture and furnishings deemed reasonably necessary by
Business Manager for the operation of each Center and reasonably necessary for
the provision of Dental Services pursuant to this Management Services Agreement,
by lease, sublease or otherwise as required by law.
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(d) Business Manager shall provide, finance, or cause to be provided or
financed dental related equipment as required by PC. PC shall have final
authority in all dental equipment selections, and Business Manager shall have no
authority in regard to dental equipment selection issues. Business Manager may,
however, advise PC on the relationship between its dental equipment decisions
and the overall administrative and financial operations of the practice. All
dental and nondental equipment acquired for the use of PC shall be owned by
Business Manager; provided, however, that PC shall maintain complete care,
custody and control of all dental equipment.
(e) Business Manager shall be responsible for the repair and maintenance
of each Center, consistent with Business Manager's responsibilities under the
terms of any lease or other use arrangement.
Section 4.2 DENTAL SUPPLIES. After consultation with PC and with PC's
approval, Business Manager shall order, procure, purchase and provide on behalf
of and as agent for PC all dental supplies necessary and appropriate for the
practice of PC in the reasonable discretion of PC unless otherwise prohibited by
federal and/or State law. Furthermore, Business Manager shall ensure that each
Center is at all times adequately stocked with the dental supplies that are
necessary and appropriate for the operation of PC and required for the provision
of Dental Services. The ultimate oversight, supervision and ownership for all
dental supplies is and shall remain the sole responsibility of PC. As used in
this provision the term "dental supplies" shall mean all drugs, pharmaceuticals,
products, substances, items or devices whose purchase, possession, maintenance,
administration, prescription or security requires the authorization or order of
a licensed health care provider or requires a permit, registration,
certification or other governmental authorization held by a licensed health care
provider as specified under any federal and/or State law.
Section 4.3 SUPPORT SERVICES. Business Manager shall provide or arrange
for all printing, stationery, forms, postage, duplication or photocopying
services, and other support services as are reasonably necessary and appropriate
for the operation of each Center and the provision of Dental Services therein.
Section 4.4 QUALITY ASSURANCE, RISK MANAGEMENT, AND UTILIZATION REVIEW.
Business Manager shall, upon the request of PC, assist PC in PC's establishment
of procedures to ensure the consistency, quality, appropriateness and necessity
of Dental Services provided by PC, and shall provide administrative support for
PC's overall quality assurance, risk management, and utilization review
programs; provided, however, that PC shall have complete authority concerning
the provision of professional or Dental Services. Business Manager shall perform
these tasks in
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a manner to ensure the confidentiality and nondiscoverability of these program
actions to the fullest extent allowable under State and federal law.
Section 4.5 LICENSES AND PERMITS. Business Manager shall, on behalf of
and in the name of PC, coordinate all development and planning processes, and
apply for and use reasonable efforts to obtain and maintain all federal, State,
and local licenses and regulatory permits required for or in connection with the
operation of PC and equipment (existing and future) located at each Center,
other than those relating to the practice of dentistry or the administration of
drugs by Dentists retained by or associated with PC.
Section 4.6 PERSONNEL. Business Manager shall be entitled to make
recommendations to PC relating to selecting, hiring, training, supervising, and
terminating, all management, administrative, clerical, secretarial, bookkeeping,
accounting, payroll, billing and collection and other nonprofessional personnel
as Business Manager deems appropriate to enable Business Manager to perform its
duties and obligations under this Management Services Agreement.
Section 4.7 CONTRACT NEGOTIATIONS. Business Manager shall advise PC with
respect to and negotiate, either directly or on PC's behalf, as appropriate and
allowed by law, and the Policy Board shall make recommendations regarding
arrangements between PC and third parties as are appropriate for PC's provision
of Dental Services, including, without limitation, negotiated price agreements
with third party payors, alternative delivery systems, or other purchasers of
group health care services; provided, however, that PC shall have sole
responsibility for decisions relating to entering into such arrangements.
Section 4.8 BILLING AND COLLECTION. On behalf of and for the account of
PC, Business Manager shall establish and maintain credit and billing and
collection policies and procedures approved by PC, and shall timely bill and
collect all professional and other fees for all Dental Services provided by PC,
or Dentists employed or otherwise retained by PC. Business Manager shall advise
and consult with PC regarding the fees for Dental Services provided by PC; it
being understood, however, that PC shall establish the fees to be charged for
Dental Services and that Business Manager shall have no authority whatsoever
with respect to the establishment of such fees. In connection with the billing
and collection services to be provided hereunder, and throughout the Term (and
thereafter as provided in Section 7.3), PC hereby grants to Business Manager a
special power of attorney and appoints Business Manager as PC's exclusive true
and lawful agent and attorney-in-fact, and Business Manager hereby accepts such
special power of attorney and appointment, for the following purposes:
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(a) To bill PC's patients, in PC's name and on PC's behalf, for all
Dental Services provided by PC to patients.
(b) To bill, in PC's name and on PC's behalf, all claims for
reimbursement or indem nification from Blue Shield/Blue Cross, insurance
companies and all other third party payors or fiscal intermediaries for all
covered billable Dental Services provided by PC to patients.
(c) To collect and receive in Business Manager's name and for Business
Manager's account all accounts receivable of PC purchased by Business Manager,
and to deposit such collections in an account selected by Business Manager and
maintained in Business Manager's name.
(d) To collect and receive, in PC's name and on PC's behalf, all
accounts receivable generated by such billings and claims for reimbursement that
have not been purchased by Business Manager, to administer such accounts
including, but not limited to, (i) extending the time of payment of any such
accounts for cash, credit or otherwise; (ii) discharging or releasing the
obligors of any such accounts; (iii) suing, assigning or selling at a discount
such accounts to collection agencies; or (iv) taking other measures to require
the payment of any such accounts.
(e) To deposit all amounts collected under clause (d) above into PC
Account which shall be and at all times remain in PC's name. PC covenants to
transfer and deliver to Business Manager for deposit into PC Account (or, with
respect to accounts receivable purchased by Business Manager, Business Manager's
account) all funds received by PC from patients or third party payors for Dental
Services. Upon receipt by Business Manager of any funds from patients or third
party payors or from PC pursuant hereto for Dental Services, Business Manager
shall immediately deposit those that relate to accounts receivable covered by
clause (d) above into the PC Account. Business Manager shall disburse such
deposited funds to creditors and other persons on behalf of PC, maintaining
records of such receipt and disbursement of funds in accordance with Section
4.9(b).
(f) To take possession of, endorse in the name of PC, and deposit into
the PC Account any notes, checks, money orders, insurance payments, and any
other instruments received in payment for Dental Services that relate to
accounts receivable covered by clause (d) above.
(g) To sign checks, drafts, bank notes or other instruments on behalf of
PC, and to make withdrawals from the PC Account for payments specified in this
Management Services Agreement.
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Upon request of Business Manager, PC shall execute and deliver to the financial
institution wherein the PC Account is maintained, such additional documents or
instruments as may be neces sary to evidence or effect the special and limited
power of attorney granted to Business Manager by PC pursuant to this Section 4.8
or pursuant to Section 4.9 of this Management Services Agreement. The special
and limited power of attorney granted herein shall be coupled with an interest
and shall be irrevocable except with Business Manager's written consent. The
irrevocable power of attorney shall expire on the later of when this Management
Services Agreement has been terminated, when all accounts receivable purchased
by Business Manager have been collected, or when all Management Fees due to
Business Manager have been paid. If Business Manager assigns this Management
Services Agreement in accordance with its terms, then PC shall execute a power
of attorney in favor of the assignee including substantially the same terms set
forth in this Section 4.8.
Section 4.9 PC ACCOUNT.
(a) ACCESS. Business Manager shall have access to the PC Account solely
for the purposes contemplated hereby. PC shall neither draw checks on the PC
Account nor request Business Manager to do so.
(b) PRIORITY OF PAYMENTS. Business Manager shall apply on a monthly
basis, except as otherwise stated hereunder, funds that are in the PC Account in
the following order of priority: (i) PC Expenses; (ii) Office Expenses (other
than the Base Management Fee); (iii) Management Fees (both Base Management Fee
and Performance Fee); and (iv) any other expenditures.
Section 4.10 FISCAL MATTERS.
(a) ANNUAL BUDGET.
(1) INITIAL BUDGET. The initial Budget shall be agreed upon and
approved in writing by the parties before the execution of this
Management Services Agreement. The initial Budget shall include an
exhibit setting forth the criteria under which Business Manager shall be
entitled to receive the Performance Fee.
(2) PROCESS FOR SUCCEEDING BUDGETS. Annually and at least thirty
(30) days prior to the commencement of each fiscal year of PC, Business
Manager, in consultation with PC's representative to the Policy Board,
shall prepare and deliver to PC for PC's approval a proposed Budget,
setting forth an estimate of PC's revenues and expenses for the upcoming
fiscal year (including, without limitation, the Management Fee and
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Performance Fee associated with the services provided by Business
Manager hereunder). PC shall review the proposed Budget and either
approve the proposed Budget or request any changes within fifteen (15)
days after receiving the proposed Budget. The Budget shall be adopted by
PC after its approval thereof and may be revised or modified only in
consultation with the Business Manager.
(3) SUCCEEDING BUDGETS; SPECIAL RATES. In each succeeding Budget,
unless the parties otherwise mutually agree or are otherwise precluded
by law or regulation, the criteria for the Performance Fee and Business
Manager's right to receive the Performance Fee shall be continued on the
same basis.
(4) DEADLOCK. In the event the parties are unable to agree on a
Budget by the beginning of the fiscal year, until an agreement is
reached, the Budget for the prior year shall be deemed to be adopted as
the Budget for the current year, with each line item in the Budget (with
the exception of the Base Management Fee and any one-time or
non-recurring expenses included in such prior Budget) increased or
decreased by (i) the percentage by which the Adjusted Gross Revenue in
the current year has increased or decreased compared to the
corresponding period of the prior year; (ii) the increase or decrease
from the prior year in the Consumer Price Index - Health/Medical
Services, Clearwater, Florida area; and (iii) the proportionate increase
or decrease in mutually agreed upon personnel costs as measured by the
increase or decrease in full-time- equivalent personnel.
(5) OBLIGATION OF BUSINESS MANAGER. Business Manager shall use
commercially reasonable efforts to manage and administer the operations
of PC as herein provided so that the actual revenues, costs and expenses
of the operation and maintenance of PC during any applicable period of
PC's fiscal year shall be consistent with the Budget.
(b) ACCOUNTING AND FINANCIAL RECORDS. Business Manager shall establish
and administer accounting procedures, controls, and systems for the development,
preparation, and safekeeping of administrative or financial records and books of
account relating to the business and financial affairs of PC and the provision
of Dental Services, all of which shall be prepared and maintained in accordance
with GAAP and applicable laws and regulations. Business Manager shall prepare
and deliver to PC, within one hundred twenty (120) days of the end of each
calendar year, a balance sheet and a profit and loss statement reflecting the
financial status of PC in regard to the provision of Dental Services as of the
end of such calendar year, all of which shall be prepared in accordance with
GAAP consistently applied. In addition, Business Manager shall
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prepare or assist in the preparation of any other financial statements or
records as PC may reasonably request.
(c) REVIEW OF EXPENDITURES. PC's representative to the Policy Board
shall review all expenditures related to the operation of PC, but such PC
representative shall not have the power to prohibit or invalidate any
expenditure that is consistent with the Budget. Business Manager shall not have
any authority to make any expenditures not consistent with the Budget without PC
Consent.
(d) TAX MATTERS.
(1) IN GENERAL. Business Manager shall prepare or arrange for
the preparation by an accountant approved in advance by PC
(which approval shall not be unreasonably withheld) of all
appropriate tax returns and reports required of PC.
(2) SALES AND USE TAXES. Business Manager and PC acknowledge
and agree that to the extent that any of the services to
be provided by Business Manager hereunder may be subject
to any State sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from PC and
to remit same to the appropriate tax collection
authorities. PC agrees to pay in addition to the payment
of the Management Fee, the applicable State sales and use
taxes in respect of the portion of the Management Fees
attributable to such services.
Section 4.11 REPORTS AND RECORDS. Subject to PC's prior consent, and
subject to the confidentiality requirements of Florida law, Business Manager
shall establish, monitor, and maintain procedures and policies for the timely
creation, preparation, filing and retrieval of all dental records generated by
PC in connection with PC's provision of Dental Services; and, subject to
applicable law, shall use its best efforts to ensure that dental records are
promptly available to Dentists and any other appropriate persons. All such
dental records shall be retained and maintained in accordance with all
applicable State and federal laws relating to the confidentiality and retention
thereof. All dental records shall be and remain the property and under the sole
control of PC and shall be located at the applicable Center so that they are
readily available for patient care, and PC shall remain the custodian thereof
and responsible for their maintenance. Business Manager shall use its reasonable
efforts to preserve the confidentiality of dental records and, subject to the
confidentiality requirements of Florida law, use information contained in such
records only for the limited purpose necessary to perform the services set forth
herein; provided,
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however, in no event shall a breach of said confidentiality be deemed a default
under this Agreement.
Section 4.12 RECRUITMENT OF PC DENTISTS. Upon PC's request, Business
Manager shall perform all administrative services reasonably necessary and
appropriate to recruit potential Dentist personnel to become employees of PC.
Business Manager shall provide PC with model agreements to document PC's
employment, retention or other service arrangements with such indi viduals. It
will be and remain the sole and complete responsibility of PC to interview,
select, contract with, supervise, control and terminate all Dentists performing
Dental Services or other professional services, and Business Manager shall have
no authority whatsoever with respect to such activities.
Section 4.13 BUSINESS MANAGER'S INSURANCE. Throughout the Term, Business
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
worker's compensation coverage for Business Manager's employed personnel
provided pursuant to this Management Services Agreement, and professional,
casualty and comprehensive general liability insurance covering Business
Manager, Business Manager's personnel, and all of Business Manager's equipment
in such amounts, on such basis and upon such terms and conditions as Business
Manager deems appropriate. Upon the request of PC, Business Manager shall
provide PC with a certificate evidencing such insurance coverage. Business
Manager may also carry, as an Office Expense, key person life and disability
insurance on any shareholder or Dentist employee of PC in amounts determined
reasonable and sufficient by Business Manager. Business Manager shall be the
owner and beneficiary of any such insurance.
Section 4.14 NO WARRANTY. PC acknowledges that Business Manager has not
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of dental practice or income to PC.
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PC
Section 5.1 ORGANIZATION AND OPERATION. PC, as a continuing condition of
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Dental Services in a manner consistent with all State and federal laws.
PC shall operate and maintain within the Practice Territory a full time practice
of dentistry specializing in the provision of Dental Services.
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Section 5.2 PC PERSONNEL AND SHAREHOLDERS.
(a) DENTAL PERSONNEL. PC shall retain, as a PC Expense and not as an
Office Expense, that number of Dentists as are reasonably necessary and
appropriate in the sole discretion of PC for the provision of Dental Services.
Each Dentist retained by PC shall hold and maintain a valid and unrestricted
license to practice dentistry in the State, and shall be competent in the
practice of dentistry, including any subspecialties that the retained Dentist
will practice on behalf of PC. PC shall enter into, maintain and enforce with
each such retained Dentist a written employment agreement in a form reasonably
satisfactory to PC and will not commit and permit to remain outstanding any
breach of such employment agreement that would allow the Dentist to terminate
for cause. PC shall be responsible for paying the compensation and benefits, as
applicable, for all Dentists and any other dental personnel or other contracted
or affiliated dentists, and for withholding, as required by law, any sums for
income tax, unemployment insurance, social security, or any other withholding
required by applicable law. Business Manager may, on behalf of PC, establish and
administer the compensation with respect to such individuals in accordance with
the written agreement between PC and each Dentist. Business Manager shall
neither control nor direct any Dentist in the performance of Dental Services for
patients.
(b) EMPLOYMENT OF NON-DENTIST DENTAL CARE PERSONNEL. PC shall employ or
retain, as an Office Expense, all non-dentist personnel, including non-dental
care personnel and including dental assistants, dental hygienists and dental
technicians, required under the Act or otherwise required by law to work under
the direct supervision of a Dentist. Such non-dentist personnel shall be under
PC's control, supervision and direction in the performance of Dental Services
for patients.
(c) OPTION AGREEMENT. Each shareholder of PC shall enter into and comply
with the terms and provisions of an Option Agreement with respect to his or her
ownership interest in PC, in form and substance acceptable to Business Manager.
Section 5.3 PROFESSIONAL STANDARDS. As a continuing condition of
Business Manager's obligations hereunder, each Dentist and any other dental
personnel retained by PC to provide Dental Services must (i) comply with, be
controlled and governed by and otherwise provide Dental Services in accordance
with the code of professional conduct and applicable federal, State and
municipal laws, rules, regulations, ordinances and orders, and the ethics and
standard of care of the dental community wherein any Center is located, and (ii)
obtain and retain appropriate dental staff membership with appropriate clinical
privileges at any hospital or health care facility at which Dental Services are
to be provided. Procurement of temporary staff privileges pending the completion
of the dental staff approval process shall satisfy this provision, provided the
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Dentist actively pursues full appointment and actually receives full appointment
within a reasonable time.
Section 5.4 DENTAL SERVICES. PC shall ensure that Dentists and
non-dentist dental care personnel are available to provide Dental Services to
patients. In the event that Dentists are not available to provide Dental
Services coverage, PC shall engage and retain LOCUM TENENS coverage as it deems
reasonable and appropriate based on patient care requirements. Dentists retained
on a LOCUM TENENS basis shall meet all of the requirements of Section 5.3, and
the cost of providing LOCUM TENENS coverage shall be a PC Expense. PC and the
Dentists shall be responsible for scheduling Dentist and non-dentist dental care
personnel coverage of all dental procedures. PC shall cause all Dentists to
develop and promote PC.
Section 5.5 PEER REVIEW/QUALITY ASSURANCE. PC shall adopt a peer
review/quality assessment program to monitor and evaluate the quality and
cost-effectiveness of Dental Services provided by dental personnel of PC. Upon
request of PC, Business Manager shall provide administrative assistance to PC in
performing its peer review/quality assurance activities, but only if such
assistance can be provided consistent with maintaining the confidentiality and
nondiscoverability of the processes and actions of the Peer Review/Quality
Assurance process of PC and not be regarded as practicing dentistry under the
Act.
Section 5.6 PC'S INSURANCE. PC shall, as an Office Expense, obtain and
maintain with commercial carriers acceptable to Business Manager appropriate
worker's compensation coverage for PC's employed personnel, if any, and
professional and comprehensive general liability insurance covering PC and each
of the Dentists PC retains or employs to provide Dental Services. The
comprehensive general liability coverage shall be in the minimum amount of One
Million Dollars ($1,000,000) for each occurrence and Two Million Dollars
($2,000,000) annual aggregate; and professional liability coverage shall be in
the minimum amount of Five Hundred Thousand Dollars ($500,000) for each
occurrence and One Million Five Hundred Thousand Dollars ($1,500,000) annual
aggregate. The insurance policy or policies shall provide for at least thirty
(30) days advance written notice to PC from the insurer as to any alteration of
coverage, cancellation, or proposed cancellation for any cause, and provide that
a copy of such notice be sent to Business Manager. PC shall cause to be issued
to Business Manager by such insurer or insurers a certificate reflecting such
coverage and shall provide written notice to Business Manager promptly upon
receipt of notice given to Dentist of the cancellation or proposed cancellation
of such insurance for any cause. Upon the termination of this Management
Services Agreement for any reason, PC shall obtain and maintain as a PC Expense
"tail" professional liability coverage, in the amounts specified in this section
for an extended reporting period of 15 years, and PC shall be responsible for
paying all premiums for "tail" insurance coverage. In no
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event shall the professional liability insurance carrier be replaced or changed
without PC Consent and Business Manager Consent. PC and Business Manager agree
to use their best efforts to have each other named as additional insureds on the
other's respective professional liability insurance at Business Manager's
expense.
Section 5.7 CONFIDENTIAL AND PROPRIETARY INFORMATION. PC will not
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization, such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
PC will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations; provided, however, that PC may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by PC that such Representatives will be
informed of the confidential nature of the Confidential Information, will agree
to be bound by this Section, and will be directed by PC not to disclose to any
other person any Confidential Information. PC agrees to be responsible for any
breach of this Section by its Representatives. If PC is requested or required
(by oral questions, interrogatories, requests for information or documents,
subpoenas, civil investigative demands, or similar processes) to disclose or
produce any Confidential Information furnished in the course of its dealings
with Business Manager or its affiliates, advisors, or Representatives, PC will
(i) provide Business Manager with prompt notice thereof and copies, if possible,
and, if not, a description, of the Confidential Information requested or
required to be produced so that Business Manager may seek an appropriate
protective order or waive compliance with the provisions of this Section and
(ii) consult with Business Manager as to the advisability of Business Manager's
taking of legally available steps to resist or narrow such request. PC further
agrees that, if in the absence of a protective order or the receipt of a waiver
hereunder PC is nonetheless, in the written opinion of its legal counsel,
compelled to disclose or produce Confidential Information concerning Business
Manager to any tribunal or to stand liable for contempt or suffer other censure
or penalty, PC may disclose or produce such Confidential Information to such
tribunal legally authorized to request and entitled to receive such Confidential
Information without liability hereunder; provided, however, that PC shall give
Business Manager written notice of the Confidential Information to be so
disclosed or produced as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such Confidential Information so required to be disclosed or
produced.
Section 5.8 NONCOMPETITION. PC hereby recognizes and acknowledges that
Business Manager will incur substantial costs in providing the equipment,
support services, personnel,
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management, administration, and other items and services that are the subject
matter of this Management Services Agreement and that in the process of
providing services under this Management Services Agreement, PC will be privy to
financial and Confidential Information, to which PC would not otherwise be
exposed. The parties also recognize that the services to be provided by Business
Manager will be feasible only if PC operates an active practice to which the
Dentists associated with PC devote their full professional time and attention.
PC agrees and acknowledges that the noncompetition covenants described hereunder
are necessary for the protection of Business Manager, and that Business Manager
would not have entered into this Management Services Agreement without the
following covenants.
(a) During the Term of this Management Services Agreement and except for
its obligations pursuant to this Management Services Agreement, PC shall not
establish, operate, or provide Dental Services at a dental office, clinic or
other health care facility anywhere within the Practice Territory.
(b) Except as specifically agreed to by Business Manager in writing, PC
covenants and agrees that during the Term of this Management Services Agreement
and for a period of three (3) years from the date this Management Services
Agreement is terminated, PC shall not directly or indirectly own (excluding
passive ownership of less than five percent (5%) of the equity of any publicly
traded entity), manage, operate, control, or be otherwise associated with, lend
funds to, lend its name to, or maintain any interest whatsoever in any
enterprise (i) having to do with the provision, distribution, promotion, or
advertising of any type of management or administrative services or products to
third parties in competition with Business Manager, in the Practice Territory;
and/or (ii) offering any type of service(s) or product(s) to third parties
substantially similar to those offered by Business Manager to PC in the Practice
Territory. Notwithstanding the above restriction, nothing herein shall prohibit
PC or any of its shareholders from providing management and administrative
services to its or their own dental practices after the termination of this
Management Services Agreement.
(c) The written employment agreements described in Section 5.2 shall
contain covenants of the shareholder employees pursuant to which the
shareholders agree not to compete with PC within the Practice Territory for one
(1) year after termination of the employment agreement in accordance with the
terms, conditions and limitations contained therein.
(d) PC shall obtain formal written agreements from its dentist employees
in the form of Exhibit 5.2(a), pursuant to which the employees agree not to
compete with PC within the Noncompetition Territory (as defined in such
employment agreements) for one (1) year after
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termination of the employment agreement in accordance with the terms, conditions
and limitations contained therein.
(e) PC understands and acknowledges that the foregoing provisions in
Section 5.7 and Section 5.8 are designed to preserve the goodwill of Business
Manager and the goodwill of the individual Dentists of PC. Accordingly, if PC
breaches any obligation of Section 5.7 or Section 5.8, in addition to any other
remedies available under this Management Services Agreement, at law or in
equity, Business Manager shall be entitled to enforce this Management Services
Agreement by injunctive relief and by specific performance of the Management
Services Agreement. Additionally, nothing in this paragraph shall limit Business
Manager's right to recover any other damages to which it is entitled as result
of PC's breach. If any provision of the covenants is held by a court of
competent jurisdiction to be unenforceable due to an excessive time period,
geographic area, or restricted activity, the covenant shall be reformed to
comply with such time period, geographic area, or restricted activity that would
be held enforceable.
Section 5.9 NAME, TRADEMARK. PC represents and warrants that, as of the
date hereof, PC conducts its professional practice under the name of, and only
under the name of "Castle 1st Dental Care, P.A." and that such name has been
licensed to PC by Business Manager. PC covenants and promises that, without the
prior written consent of the Business Manager, PC will not:
(a) take any action or omit to take any action that is reasonably likely
to result in the change or loss of the name;
(b) license, sell, give, or otherwise transfer the name or the right to
use the name to any dental practice, dentist, professional corporation, or any
other entity; or
(c) cease conducting the professional practice of PC under the name.
Section 5.10 PEER REVIEW. PC shall designate a committee of Dentists to
function as a dental peer review committee to review credentials of potential
recruits, perform quality assurance functions, and otherwise resolve dental
competence issues. The dental peer review committee shall function pursuant to
formal written policies and procedures.
Section 5.11 INDEMNIFICATION. PC shall indemnify, hold harmless and
defend Business Manager, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), whether or not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
a result of the performance of Dental Services or any other acts or omissions by
PC and/or its shareholders, agents, employees and/or subcontractors (other than
Business Manager) during the term hereof. Business Manager shall indemnify, hold
harmless and defend PC, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), caused or asserted to have been caused,
directly or indirectly, by or as a result of the performance of any intentional
acts, negligent acts, or omissions by Business Manager and/or its shareholders,
agents, employees and/or subcontractors (other than PC) during the term of this
Agreement.
ARTICLE VI. FINANCIAL ARRANGEMENT
Section 6.1 DEFINITIONS. For purposes of this Article VI, capitalized
terms used herein shall have the meanings ascribed as follows:
* (a) BASE MANAGEMENT FEE. The Base Management Fee shall be the amount,
calculated on a monthly basis, that is equal to [REDACTED] ([REDACTED]) of the
Adjusted Gross Revenue attributable to the applicable monthly period.
(b) PERFORMANCE FEE. The Performance Fee shall be the amount, calculated
on a monthly basis, that is calculated in accordance with the Applicable Exhibit
to the Budget.
Section 6.2 MANAGEMENT FEE. PC and Business Manager agree to the
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by Section
4.9 (b), Business Manager shall be paid the following:
(i) the amount of all Office Expenses (other than the Base
Management Fee) paid by the Business Manager on behalf of PC.
(ii) the Base Management Fee.
(iii) the Performance Fee.
Section 6.3 ADJUSTMENTS. If there are not sufficient funds to pay either
or both of the Base Management Fee or the Performance Fee, all unpaid amounts
shall accumulate and carry over from month to month until paid or until the
termination of this Management Services Agreement, in which case such unpaid
amounts shall be immediately due and payable as of the date of termination.
Amounts carried over shall earn interest at the rate of ten percent (10%) per
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annum. Furthermore, the amount of the Performance Fee paid will be monitored and
reconciled on an annual basis and any overpayments of the Performance Fee shall
be promptly refunded by the Business Manager.
Section 6.4 REASONABLE VALUE. Payment of the Base Management Fee or
Performance Fee is not intended to be and shall not be interpreted or applied as
permitting Business Manager to share in PC's fees for Dental Services or any
other services, but is acknowledged as the parties' negotiated agreement as to
the reasonable fair market value of the contract analysis and support, other
support services, purchasing, personnel, office space, management,
administration, strategic management and other items and services furnished by
Business Manager pursuant to this Management Services Agreement, considering the
nature and volume of the services required and the risks assumed by Business
Manager.
Section 6.5 PAYMENT OF MANAGEMENT FEE. To facilitate the payment of the
Management Fee as provided in Section 6.1 hereof, PC hereby expressly authorizes
Business Manager to make withdrawals of the Management Fee from the PC Account
as such fee becomes due and payable during the Term and thereafter as provided
in Section 7.3.
Section 6.6 ACCOUNTS RECEIVABLE. To assure that PC receives the entire
amount of professional fees for its services and to assist PC in maintaining
reasonable cash flow for the payment of Office Expenses, Business Manager may,
during the Term, purchase, without recourse to PC for the amount of the
purchase, the accounts receivable of PC arising during the previous month by
transferring the amount set forth below into the PC Account. The consideration
for the purchase shall be an amount equal to the Adjusted Gross Revenue recorded
each month (according to GAAP reflecting adjustments related to the bad debt
reserve). Business Manager shall be entitled to offset Office Expenses
reimbursement due to Business Manager under Section 6.2 above against the amount
payable for the accounts receivable. Although it is the intention of the parties
that Business Manager purchase and thereby become the owner of the accounts
receivable of PC, in the event such purchase shall be ineffective for any
reason, PC is concurrently herewith granting to Business Manager a security
interest in the accounts so purchased, and PC shall cooperate with Business
Manager and execute all documents in connection with the pledge of such
purchased accounts receivable to Business Manager. All collections in respect to
such accounts receivable purchased by Business Manager shall be received by
Business Manager as the agent of PC and shall be endorsed to Business Manager
and deposited in a bank account at a bank designated by Business Manager. To the
extent PC comes into possession of any payments in respect of such accounts
receivable, PC shall direct such payments to Business Manager for deposit in
bank accounts designated by Business Manager; provided, however, that nothing
contained herein shall be construed as PC relinquishing control over credit
extended by PC.
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Section 6.7 DISPUTES REGARDING FEES. PC shall not be entitled to a
set-off or reduction in its Management Fees by reason of its belief that
Business Manager has failed to perform its obligations hereunder or otherwise.
ARTICLE VII. TERM AND TERMINATION
Section 7.1 INITIAL AND RENEWAL TERM. The Term of this Management
Services Agreement will be for an initial period of twenty-five (25) years after
the effective date, and shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business Manager nor PC shall
have given notice of termination of this Management Services Agreement at least
ninety (90) days before the end of the initial term or any renewal term, or un
less otherwise terminated as provided in Section 7.2 of this Management Services
Agreement.
Section 7.2 TERMINATION.
(a) TERMINATION BY BUSINESS MANAGER. Subject to Section 7.2(c), Business
Manager may only terminate this Management Services Agreement either without
cause upon ninety (90) days' written notice to PC, or upon the occurrence of any
one of the following events which shall be deemed to be "for cause":
(i) The dissolution of PC or the filing of a petition in
voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily or
involuntarily under any State or federal statute for the
protection of debtors;
(ii) PC materially defaults in the performance of any of its
material duties or obligations hereunder, and such default
continues for thirty (30) days after PC receives notice of
the default.
(b) TERMINATION BY PC. Subject to Section 7.2(c) PC may only terminate
this Management Services Agreement upon any of the following occurrences which
shall be deemed to be "for cause":
(i) The dissolution of Business Manager or the filing of a
petition in voluntary bankruptcy, an assignment for the
benefit of creditors, or other action taken voluntarily or
involuntarily under any State or federal statute for the
protection of debtors;
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(ii) In the event that Business Manager materially defaults in
the performance of any of its material obligations
hereunder and such default continues for sixty (60) days
after Business Manager receives notice of the default.
Termination by PC hereunder shall require the affirmative vote of three-fourths
of the outstanding voting shares of the common shareholders of PC entitled to
vote.
(c) TERMINATION BY AGREEMENT. In the event PC and Business Manager shall
mutually agree in writing, this Management Services Agreement may be terminated
on the date specified in such written agreement.
(d) LEGISLATIVE, REGULATORY OR ADMINISTRATIVE CHANGE. In the event there
shall be a change in the Act, any federal or State statutes, case laws,
regulations or general instructions, the interpretation of any of the foregoing,
the adoption of new federal or State legislation, or a change in any third party
reimbursement system, any of which are reasonably likely to adversely affect the
manner in which either party may perform or be compensated for its services
under this Management Services Agreement or which shall make this Management
Services Agreement unlawful, the parties shall immediately enter into good faith
negotiations regarding a new service arrangement or basis for compensation for
the services furnished pursuant to this Management Services Agreement that
complies with the law, regulation, or policy and that approximates as closely as
possible the economic position of the parties prior to the change. If good faith
negotiations cannot resolve the matter, it shall be submitted to arbitration as
referenced in Section 8.6; provided however that in the event that the Florida
Board of Dentistry or other authorized regulatory body issues a final and
non-appealable order revoking the license of any Dentist on the grounds that
PC's entering into and performing its obligations under this Management Services
Agreement is unlawful, PC may terminate this Management Services Agreement upon
thirty (30) days prior written notice.
Section 7.3 EFFECTS OF TERMINATION. Upon termination of this Management
Services Agreement, as hereinabove provided, neither party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fees and PC Expenses relating to services provided prior to the termination of
this Management Services Agreement, (ii) obligations, promises, or covenants set
forth herein that are expressly made to extend beyond the Term, including,
without limitation, indemnities, which provisions shall survive the expiration
or termination of this Management Services Agreement for any reason, and
noncompetition provisions, which provisions shall survive the expiration or
termination of this Management Services Agreement by Business Manager for cause
or by PC in breach of this Agreement, and (iii) the obligations of PC and
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Business Manager described in Section 7.4. In effectuating the provisions of
this Section 7.3, PC specifically acknowledges and agrees that Business Manager
shall continue to collect and receive on behalf of PC all cash collections from
accounts receivable in existence at the time this Management Services Agreement
is terminated, it being understood that such cash collections will represent, in
part, compensation to Business Manager for management services already rendered
and compensation on accounts receivable purchased by Business Manager. Upon the
expiration or termination of this Management Services Agreement for any reason
or cause whatsoever, Business Manager shall surrender to PC all books and
records pertaining to PC's dental practice.
Section 7.4 PURCHASE OBLIGATION. Upon termination of this Management
Services Agreement by Business Manager for cause or by PC in breach of this
Agreement or pursuant to Section 7.2(d) hereof, Business Manager shall have the
option, exercisable at any time within thirty (30) days of such termination, to
require PC to:
(a) Purchase from Business Manager at book value the intangible assets,
deferred charges, and all other amounts on the books of the Business Manager
relating to the Management Services Agreement as adjusted through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges, or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as a Center at the greater of the appraised fair market value
thereof or the then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined by Business Manager and PC,
each selecting a duly qualified appraiser, who in turn will agree on a third
appraiser. This agreed-upon appraiser shall perform the appraisal which shall be
binding on both parties. In the event either party fails to select an appraiser
within fifteen (15) days of the selection of an appraiser by the other party,
the appraiser selected by the other party shall make the selection of the third
party appraiser;
(c) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Business Manager at any Center and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Business Manager and that relate directly to the performance of
Business Manager's obligations under this Management Services Agreement or the
properties leased or subleased hereunder by Business Manager; and
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(e) Purchase from Business Manager at the greater of appraised fair
market value or book value all of the equipment listed as set forth in the
Purchase Agreement or an exhibit thereto, including all replacements and
additions thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other assets,
including inventory and supplies, tangibles and intangibles, set forth on the
books of the Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with GAAP to
reflect operations of each Center, depreciation, amortization, and other
adjustments of assets shown on the books of the Business Manager.
Section 7.5 PURCHASE OPTION. Upon termination of this Management
Services Agreement by Business Manager in breach of this Agreement or by PC for
cause, PC shall have the option but not the obligation to do all or none of the
following:
(a) Purchase from Business Manager any real estate owned by Business
Manager and used as a Center at book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by Business
Manager and PC, each selecting a duly qualified appraiser, who in turn will
agree on a third appraiser. This agreed-upon appraiser shall perform the
appraisal which shall be binding on both parties. In the event either party
fails to select an appraiser within fifteen (15) days of the selection of an
appraiser by the other party, the appraiser selected by the other party shall
make the selection of the third party appraiser;
(b) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Business Manager at any Center and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(c) Assume all debt, and all contracts, payables, and leases that are
obligations of Business Manager and that relate directly to the performance of
Business Manager's obligations under this Management Services Agreement or the
properties leased or subleased by Business Manager; and
(d) Purchase from Business Manager at book value all of the equipment
listed as set forth in the Purchase Agreement or an exhibit thereto, including
all replacements and additions thereto made by Business Manager pursuant to the
performance of its obligations under this Management Services Agreement, and all
other tangible assets, including inventory and supplies, set forth on the books
of the Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with GAAP to
reflect operations of each Center, depreciation, amortization, and other
adjustments of assets shown on the books of the Business Manager.
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Section 7.6 CLOSING OF PURCHASE. PC shall pay cash for the purchased
assets. The amount of the purchase price shall be reduced by the amount of debt
and liabilities of Business Manager, if any, assumed by PC. PC and any Dentist
who is a shareholder of PC shall execute such documents as may be required to
cause or permit PC to assume the liabilities set forth in Section 7.4(d) or
Section 7.5(c) and to remove or, if PC can establish in good faith that such
removal is not possible, to cause or permit PC to indemnify Business Manager
from any liability with respect to such repurchased asset and with respect to
any property leased or subleased by Business Manager. The closing date for the
repurchase shall be determined by Business Manager but shall in no event occur
later than one hundred eighty (180) days from the date of the notice of
termination. The termination of this Management Services Agreement shall become
effective upon the closing of the sale of the assets under Section 7.4 or
Section 7.5 (or, if PC does not exercise its option under Section 7.5, on the
date it notifies Business Manager of such decision). PC shall be released from
the restrictive covenants provided for in Section 5.8 on the closing date. From
and after any termination, each party shall provide the other party with
reasonable access to the books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations that may be
required of it.
ARTICLE VIII. MISCELLANEOUS
Section 8.1 ADMINISTRATIVE SERVICES ONLY. Nothing in this Management
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which PC and its
Dentists perform Dental Services or other professional health care services. The
rendition of all Dental Services, including, but not limited to, the
prescription or administration of drugs shall be the sole responsibility of PC
and its Dentists, and Business Manager shall not interfere in any manner or to
any extent therewith. Nothing contained in this Management Services Agreement
shall be construed to permit Business Manager to engage in the practice of
dentistry, it being the sole intention of the parties hereto that the services
to be rendered to PC by Business Manager are solely for the purpose of providing
nondental management and administrative services to PC so as to enable PC to
devote its full time and energies to the professional conduct of its dental
practice and provision of Dental Services to its patients and not to
administration, or practice management.
Section 8.2 STATUS OF CONTRACTOR; AGENCY. It is expressly acknowledged
that the parties hereto are independent contractors and that this Management
Services Agreement is intended to constitute Business Manager as PC's agent.
Nothing herein shall be construed to create an employer/employee, partnership,
or joint venture relationship, or to allow either to exercise control or
direction over the manner or method by which the other performs the services
that are the subject matter of this Management Services Agreement or to permit
Business Manager to take
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any action that would constitute the practice of dentistry; provided always that
the services to be provided hereunder shall be furnished in a manner consistent
with the standards governing such services and the provisions of this Management
Services Agreement. Each party understands and agrees that (i) the other will
not be treated as an employee for federal tax purposes, (ii) neither will
withhold on behalf of the other any sums for income tax, unemployment insurance,
social security, or any other withholding pursuant to any law or requirement of
any governmental body or make available any of the benefits afforded to its
employees, (iii) all of such payments, withholdings, and benefits, if any, are
the sole responsibility of the party incurring the liability, and (iv) each will
indemnify and hold the other harmless from any and all loss or liability arising
with respect to such payments, withholdings, and benefits, if any.
Section 8.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be in writing and shall be
served on the parties at the following respective addresses:
PC: Castle 1st Dental Care, P.A.
29605 U.S. Highway 19N., Suite 180
Clearwater, Florida 34621
Business Manager: CASTLE DENTAL CENTERS OF FLORIDA, INC.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted, or desired to be given hereunder shall be
sent either (a) by hand delivery, in which case notice shall be deemed received
when actually delivered, (b) by prepaid certified or registered mail, return
receipt requested, in which case notice shall be deemed received five calendar
days after deposit, postage prepaid in the United States Mail, or (c) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after deposit with such courier.
Section 8.4 GOVERNING LAW. This Management Services Agreement shall be
governed by the laws of the State of Florida applicable to agreements to be
performed wholly within the State. Florida law was chosen by the parties after
negotiation to govern interpretation of this Management Services Agreement
because Pinellas County, Florida is the seat of management for Business Manager.
The federal and State courts of Pinellas County, Florida shall be the exclusive
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venue for any litigation, special proceeding, or other proceeding between the
parties that may arise out of, or be brought in connection with or by reason of,
this Management Services Agreement.
Section 8.5 ASSIGNMENT. Except as may be herein specifically provided to
the contrary, this Management Services Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that PC may not
assign this Management Services Agreement without the prior written consent of
Business Manager, which consent may be withheld. The sale, transfer, pledge, or
assignment of any of the common shares held by any shareholder of PC or the
issuance by PC of common or other voting shares to any other person, or any
combination of such transactions within a period of one (1) year, such that the
existing shareholder in PC fails to maintain a majority of the voting interests
in PC shall be deemed an attempted assignment by PC, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours notice to PC.
Section 8.6 ARBITRATION.
(a) GENERAL. The parties shall use good faith negotiation to resolve any
controversy, dispute or disagreement arising out of or relating to this
Management Services Agreement or the breach of this Management Services
Agreement. Any matter not resolved by negotiation shall be submitted to binding
arbitration and such arbitration shall be governed by the terms of this Section
8.6.
(b) SCOPE. Unless otherwise specifically provided herein, the parties
hereto agree that any claim, controversy, dispute or disagreement between or
among any of the parties hereto arising out of or relating to this Management
Services Agreement (other than claims involving any noncompetition or
confidentiality covenant) shall be governed exclusively by the terms and
provisions of this Section 8.6; provided, however, that the terms and provisions
of this Section 8.6 shall not preclude any party hereto from seeking, or a court
of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant herein or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
(c) ARBITRATORS. In the event of any claim, controversy, dispute or
disagreement between the parties hereto arising out of or relating to this
Management Services Agreement, and in the
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further event the parties are unable to resolve such claim, controversy, dispute
or disagreement within thirty (30) days after notice is first delivered pursuant
to Section 8.3, the parties agree to select arbitrators to hear and decide all
such claims under this Section 8.6. Each party shall select one arbitrator, The
two arbitrators so chosen shall then select a third arbitrator who is
experienced in the matter or action that is subject to such arbitration. If such
matter or action involves health-care issues, then the third arbitrator shall
have such qualifications as would satisfy the requirements of the National
Health Lawyers Association Alternative Dispute Resolution Service. Each of the
arbitrators chosen shall be impartial and independent of all parties hereto. If
either of the parties fails to select an arbitrator within twenty days after the
end of such thirty-day period, or if the arbitrators chosen fail to select a
third arbitrator within twenty days, then any party may in writing request the
judge of the United States District Court for the Middle District of Florida,
Tampa Division, senior in term of service to appoint the arbitrator or
arbitrators and, subject to this Section 8.6, such arbitrators shall hear all
arbitration matters arising under this Section 8.6, and, in default of such
selection, may ask the American Arbitration Association.
(d) APPLICABLE RULES.
(i) Each arbitration hearing shall be held at a place in Clearwater,
Florida acceptable to a majority of the arbitrators. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association to the
extent such rules do not conflict with the terms hereof. The
decision of a majority of the arbitrators shall be reduced to
writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be
entered and execution had in any court of competent jurisdiction
or application may be made to such court for a judicial
acceptance of the award and an order of enforcement. The charges
and expenses of the arbitrators shall be shared equally by the
parties to the hearing.
(ii) The arbitration shall commence within thirty (30) days after the
arbitrators are selected in accordance with the provisions of
this Section 8.6. In fulfilling their duties with respect to the
matter in arbitration, the arbitrators may consider such matters
as, in the opinion of the arbitrators, are necessary or helpful
to make a proper valuation. The arbitrators may consult with and
engage disinterested third parties to advise the arbitrators.
The arbitrators shall not add any interest factor reflecting the
time value of money to the amount of any award granted under any
arbitration hereunder and shall not award any punitive damages.
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(iii) If any of the arbitrators selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the
remaining arbitrators or such senior judge (or such judge's
successor) shall select a replacement arbitrator. The procedure
set forth in this Section 8.6 for selecting the arbitrators shall
be followed from time to time as necessary.
(iv) As to the resolution of any claim, controversy, dispute or
disagreement that under the terms hereof is made subject to
arbitration, no lawsuit based on such resolution shall be
instituted by either of the parties hereto, other than to compel
arbitration proceedings or enforce the award of a majority of the
arbitrators.
(v) All privileges under Florida and federal law, including
attorney-client and work- product privileges, shall be preserved
and protected to the same extent that such privileges would be
protected in a federal court proceeding applying Florida law.
Section 8.7 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
Section 8.8 ENFORCEMENT. In the event either party resorts to legal
action to enforce or interpret any provision of this Management Services
Agreement, the prevailing party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
Section 8.9 GENDER AND NUMBER. Whenever the context of this Management
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
Section 8.10 ADDITIONAL ASSURANCES. Except as may be herein specifically
provided to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either par ty, the other party shall
execute such additional instruments and take such additional acts as are
reasonable and as the requesting party may deem necessary to effectuate this
Management Services Agreement.
Section 8.11 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Whenever
this Management Services Agreement requires any consent or approval to be given
by either party, or either party must or may exercise discretion, and except
where specifically set forth to the
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contrary, the parties agree that such consent or approval shall not be
unreasonably withheld or delayed, and that such discretion shall be reasonably
exercised.
Section 8.12 FORCE MAJEURE. Neither party shall be liable or deemed to
be in default for any delay or failure in performance under this Management
Services Agreement or other interruption of service deemed to result, directly
or indirectly, from acts of God, civil or military authority, acts of public
enemy, war, accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either party's employees,
or any other sim ilar cause beyond the reasonable control of either party unless
such delay or failure in performance is expressly addressed elsewhere in this
Management Services Agreement.
Section 8.13 SEVERABILITY. The parties hereto have negotiated and
prepared the terms of this Management Services Agreement in good faith with the
intent that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective parties. Accordingly, if
any one or more of the terms, provisions, promises, covenants or conditions of
this Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law. To the extent this
Management Services Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Management Services
Agreement, to the extent possible consistent with its purposes, to conform to
law.
Section 8.14 DIVISIONS AND HEADINGS. The divisions of this Management
Services Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
Section 8.15 AMENDMENTS AND MANAGEMENT SERVICES AGREEMENT EXECUTION.
This Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of PC by its President, and on behalf of
Business Manager by any duly authorized officer thereof. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument.
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Section 8.16 ENTIRE MANAGEMENT SERVICES AGREEMENT. With respect to the
subject matter of this Management Services Agreement, this Management Services
Agreement supersedes all previous contracts and constitutes the entire agreement
between the parties. Neither party shall be entitled to benefits other than
those specified herein. No prior oral statements or contemporaneous negotiations
or understandings, except for the Budget, or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Management Services Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated in such amendment(s).
The parties specifically acknowledge that, in entering into and executing this
Management Services Agreement, except for the Budget, the parties rely solely
upon the representations and agreements contained in this Management Services
Agreement and no others.
IN WITNESS WHEREOF, PC and Business Manager have caused this Management
Services Agreement to be executed by their duly authorized representatives, all
as of the day and year first above written.
PC: CASTLE 1ST DENTAL CARE, P.A.
By: _______________________________
Lester B. Greenberg, D.D.S., President
BUSINESS MANAGER: CASTLE DENTAL CENTERS OF FLORIDA,
INC.
By:
Name:
Title:
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EXHIBIT 10.24
AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
This Amendment (the "Amendment") to the Management Services Agreement
(the "Agreement"), dated as of May 19, 1996, between Castle Dental Centers of
Florida, Inc., a Florida corporation ("Business Manager"), and Castle 1st Dental
Care, P.A., a Florida professional association ("PC"), is made and entered into
as of the __ day of July, 1996.
1. INTRODUCTION. This Amendment is entered into pursuant to and in
conformity with Section 8.15 of the Agreement. All capitalized terms not
otherwise defined in this Amendment shall have the meanings ascribed to them in
the Agreement.
2. AMENDMENTS. Business Manager and PC hereby agree to amend the
Agreement as follows:
(a) Section 7.1 is hereby amended to read in its entirety as
follows:
"Section 7.1 INITIAL AND RENEWAL TERM. The Term of this
Management Services Agreement will be for an initial
period of forty (40) years after the effective date, and
shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business
Manager nor PC shall have given notice of termination of
this Management Services Agreement at least ninety (90)
days before the end of the initial term or any renewal
term, or unless otherwise terminated as provided in
Section 7.2 of this Management Services Agreement."
3. NO OTHER CHANGES. Except as set forth herein, provisions of the
Agreement shall remain in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument.
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IN WITNESS WHEREOF, Business Manager and PC have caused this Amendment
to be executed as of the date first set forth above.
BUSINESS MANAGER:
CASTLE DENTAL CENTERS OF FLORIDA, INC.
By:
Jack H. Castle, Jr.
Chairman and Chief Executive Officer
PC:
CASTLE FIRST DENTAL CARE, P.A.
By:
Lester B. Greenberg, D.D.S.
President
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EXHIBIT 10.25
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT (the "Agreement") dated as of
May 19, 1996, between Castle 1st Dental Care, P.A., a Florida professional
association ("Seller"), and Castle Dental Centers, Inc., a Delaware corporation
("Buyer").
In connection with the Management Services Agreement of even date
herewith, by and between Buyer and Seller (the "Management Agreement") and for
other good and valuable consideration, Seller has agreed to sell and Buyer has
agreed to purchase the Receivables (as defined below) pursuant to the terms of
this Agreement. Any initially capitalized terms not otherwise defined herein
shall have the meanings assigned to such terms in the Management Agreement.
ARTICLE I
SALE OF RECEIVABLES
SECTION 1.1 PURCHASE AND SALE. Seller will sell to Buyer and Buyer will
purchase all of Seller's present and future accounts receivable, chattel paper,
instruments, general intangibles, and other rights to payment generated by
Seller for billable dental services performed or to be provided in the future
and claims for reimbursement or indemnification from Blue Cross/Blue Shield,
managed care organizations, insurance companies and other third-party payors or
fiscal intermediaries (the "Receivables"). The conveyance and general assignment
of such Receivables by Seller to Buyer, which shall be without recourse to
Seller, shall be made monthly by Seller as of the first day of each month as to
all such Receivables arising during the course of the previous month. Such
conveyance and general assignment shall be effected by virtue of the provisions
of this Section 1.1, without further instrument of conveyance; and Seller hereby
sells, transfers, assigns and conveys all such Receivables and proceeds with
respect to he Receivables to Buyer as of the dates they arise or come into
being.
SECTION 1.2 PURCHASE PRICE . The price to be paid by Buyer to Seller
for any Receivable purchased by Buyer pursuant to this Agreement shall be
determined by Section 6.6 of the Management Services Agreement.
SECTION 1.3 DOCUMENTS. Seller shall present to Buyer the best
documentation or evidence available as to the existence of such Receivables
(which, if requested, shall be endorsed, assigned or otherwise transferred to
Buyer without recourse), together with any supporting records and any security
or collateral therefor which is readily susceptible of delivery.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce Buyer to make purchases of Receivables, Seller
represents and warrants to Buyer as set forth in this Article II.
SECTION 2.1 ORGANIZATION, ETC. Seller is a professional association
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business, and is
in good standing, in every jurisdiction where the nature of its business
requires it to be so qualified and where failure to be so qualified will not
have a material adverse effect on its business, financial position or results of
operations or impair the enforceability of the Receivables.
SECTION 2.2 CORPORATE POWER, AUTHORITY, ETC. The execution, delivery
and performance by Seller of this Agreement and the other documents to be
delivered by it hereunder, and the transactions contemplated hereby, are within
Seller's corporate powers, have been duly authorized by all necessary corporate
action and
(a) do not contravene or constitute (with or without notice or lapse of
time) a default under:
(i) Seller's charter or by-laws;
(ii) any law, rule or regulation applicable to Seller in any material
respect;
(iii) any contractual restriction contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or other
agreement or instrument binding on Seller or affecting its property in any
material respect; or
(iv) any order, rule writ, judgment, award, injunction, decree or
regulation binding on Seller or affecting its property in any material
respect; and
(b) do not result in or require the creation of any material lien,
security interest or other charge or encumbrance upon or with respect to any of
its properties except as otherwise provided for in this Agreement.
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No transaction contemplated hereby requires compliance with any bulk
sales act or similar law. This Agreement and each of the other documents to be
delivered by Seller hereunder have been duly executed and delivered on behalf of
Seller.
SECTION 2.3 DUE AUTHORIZATION, ETC. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Seller of this Agreement or the other documents to be delivered b it hereunder,
EXCEPT for the filing of the UCC Financing Statements referred to in Section 3.1
which filings have been duly made and are in full force and effect.
SECTION 2.4 VALIDITY, ENFORCEABILITY, ETC. Assuming due execution and
delivery of this Agreement by Buyer, this Agreement is a legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except as the enforceability thereof may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of equity.
SECTION 2.5 LITIGATION ETC. There are no actions, suits or proceedings
pending or, to the knowledge of Seller, threatened against or directly affecting
Seller or this property before any court, governmental body, administrative
agency or arbitrator in which there is a reasonable possibility of an adverse
decision which would materially adversely affect the ability of Seller to
perform its obligations under this Agreement.
SECTION 2.6 OFFICES, ETC. The chief place of business and chief
executive office of Seller is 29605 U.S. Highway 19N., Suite 180, Clearwater,
Florida 34621 and the offices where Seller keeps all of its books, record and
documents concerning the Receivables are located at 29605 U.S. Highway 19N.,
Suite 180, Clearwater, Florida 34621 or (or as notified to Buyer in accordance
with Section 7.3) at such other locations in jurisdictions where all action
required to perfect, protect or more fully evidence the ownership interests
purchased hereunder or to enable Buyer to exercise or enforce any of its rights
hereunder has been taken and completed.
SECTION 2.7 OWNERSHIP. Seller owns the Receivables purchased hereunder
free and clear of any lien, security interest, charge or encumbrance other than
as contemplated herein or the Management Services Agreement. No effective
financing statement or other instrument similar in effect covering all or any
part of such Receivables is on file in any recording office, except such as may
have been filed in favor of Buyer relating to this Agreement. As of the date
hereof, there are no instruments or chattel paper representing Receivables.
Seller has no trade names.
-3-
SECTION 2.8 TITLE, PERFECTION ETC. This Agreement creates a valid and
perfected first priority ownership interest in the Receivables, and all filings
and other actions necessary or desirable to perfect and protect such ownership
interest have been duly taken.
ARTICLE III
SECTION 3.1 FINANCING STATEMENTS. Seller will, at its expense, file,
and maintain the filing of, such financing statements or other documents as may
be necessary or appropriate, under the Uniform Commercial Code as adopted in
Florida and any other applicable laws, to perfect and preserve the rights of
Buyer hereunder, and, if requested by Buyer, will furnish to Buyer from time to
time opinions of its counsel that such filings have been made and operate to
establish, preserve and protect Buyer's rights hereunder and in all Receivables
sold pursuant hereto and to create and preserve an ownership interest in such
Receivables, pursuant to the Uniform Commercial Code as adopted in Florida.
SECTION 3.2 ADDITIONAL SPECIFIC ASSIGNMENT DOCUMENTATION.
(a) Seller agrees that, when and if it is a party to any
insurance, managed care or similar contract pursuant to which Seller may have
rights to payment for dental services performed or to be performed in the future
and/or claims for reimbursement or indemnification, it will execute a specific
assignment of the revenues under such contract in favor of Buyer substantially
in the form attached hereto as Exhibit A or such other form as may be agreeable
to Buyer and make reasonable effort to cause such assignment to be acknowledged
and agreed to by the account party or other obligor on such contract.
(b) With respect to Receivables which are claims assigned to
Seller by its patients against Blue Cross/Blue Shield, insurance companies,
managed care organizations and other third-party payors or financial
intermediaries (each an "account party"), Seller agrees to execute and deliver
to Buyer the instruction notice letters addressed to substantially all the known
account parties substantially in form attached hereto as Exhibit B ("Assignment
Notice Letters"). Upon request of Buyer or Buyer's lender (NationsBank of Texas,
N.A.), Seller, from time to time, will execute and deliver additional Assignment
Notice letters as reasonably necessary to give all account parties notice of the
assignments described therein.
SECTION 3.3 FURTHER ASSURANCES.
(a) Seller agrees that from time to time, at the expense of
Seller, Seller will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Buyer may reasonably request, in order to perfect and protect
-4-
the ownership interest conveyed or purported to be conveyed hereby or to enable
Buyer to exercise and enforce its rights and remedies hereunder with respect to
any Receivables purchased hereunder. Without limiting the generality of the
foregoing, Seller will: (i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or desirable, or as Buyer may
request, in order to protect and preserve the ownership interest conveyed
hereby; and (ii) if any such Receivable shall be evidenced by a promissory note
or other instrument or chattel paper, deliver and pledge to Buyer hereunder such
note, instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment all in form and substance satisfactory to
Buyer.
(b) Seller hereby authorizes Buyer to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Receivables purchased hereunder without the signature of Seller
where permitted by law. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering such Receivable or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Seller will furnish to Buyer from time to time statements
and schedules further identifying and describing the Receivables purchased
hereunder and such other reports in connection with such Receivables as Buyer
may reasonably request, all in reasonable detail.
ARTICLE IV
ADMINISTRATION AND COLLECTION
SECTION 4.1 SETTLEMENT PROCEDURES, REPORTING, ETC. With respect to all
billing collection matters, Seller and Buyer agree to comply with the terms and
procedures set forth in Section 4.8 of the Management Agreement.
SECTION 4.2 ACTIONS WITH RESPECT TO RECEIVABLES.
(a) Seller shall instruct all account debtors and obligors on
Receivables to make all payments on Receivables directly to Buyer. All proceeds
of Receivables which may from time to time come into the possession of Seller
shall be held in trust for Buyer, segregated from the other funds of Seller, and
delivered to Buyer immediately in the form received with any necessary
endorsement, such delivery in no event to be later than one Business Day after
receipt thereof by Seller.
(b) In connection with the foregoing, Buyer shall have the
right at any time to take any of the following actions, in its own name or in
the name of Seller: Notify any persons or entities
-5-
which Buyer believes are account debtors and obligors on Receivables to make
payments directly to Buyer; compromise or extend time of payment upon such terms
as Buyer may determine; endorse the name of Seller on checks, instruments, or
other evidences of payment on Receivables; make written or verbal requests for
verification of amounts owing on Receivables from any persons or entities which
Buyer believes are account debtors and obligors on Receivables; open mail
addressed to Seller and, to the extent of checks or other proceeds of
Receivables, dispose of same in accordance with this Agreement; take action in
Buyer's name or Seller's name to enforce collection; and take all other action
necessary to carry out this Agreement and give effect to Buyer's rights
hereunder.
ARTICLE V
COVENANTS
From the date of this Agreement until the six months after the date the
Management Agreement ceases to be in full force and effect for any reason,
Seller will perform the obligations set forth in this Article V.
SECTION 5.1 COMPLIANCE WITH LAWS, ETC. Seller will comply in all
material respects with all material laws, rules, regulations and orders
applicable to it, its business and properties and all Receivables; such
compliance shall include without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon Seller
or upon its property except to the extent contested in good faith.
SECTION 5.2 PRESERVATION OF CORPORATE EXISTENCE. Seller will preserve
and maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect the interests of Buyer hereunder
or the ability of Seller to perform its obligations under this Agreement.
SECTION 5.3 COMPLIANCE WITH LAWS. Seller will comply with all laws,
rules and regulations and comply with all material contractual requirements of
Blue Cross/Blue Shield, insurance companies, managed care organizations and
other third-party payors or fiscal intermediaries who now or in the future are
account parties of the Receivables, and take all such other action as is
reasonably necessary to ensure that Receivables are payable without offset,
defense or counterclaim.
SECTION 5.4 KEEPING OF RECORDS AND BOOKS OF ACCOUNTS. Seller will
maintain and implement, or cause to be maintained and implemented,
administrative and operating procedures
-6-
(including a reasonable ability to recreate substantially all material records
evidencing Receivables in the event of the destruction of the originals
thereof), and keep and maintain, or cause to be kept and maintained all books,
records, documents and other information reasonably necessary or advisable for
the collection of all Receivables (including records adequate to permit the
daily identification of each Receivable and all collection of and reductions or
adjustments to each Receivable).
SECTION 5.5 LOCATION OF RECORDS. Seller will keep its chief place of
business and chief executive office, and the offices where it keeps its books,
records and documents concerning the Receivables and all Contracts related
thereto (including all original documents relating thereto), at the address of
Seller specified in Section 2.6 or, upon 30 days' prior written notice to Buyer,
at such other locations in a jurisdiction where all action required to perfect,
protect or more fully evidence the ownership interests purchased hereunder or to
enable Buyer to exercise or enforce any of its rights hereunder will have been
taken and completed.
SECTION 5.6 CREDIT AND COLLECTION POLICY. Seller will comply in all
material respects with its Credit and Collection Policy in effect from time to
time with regard to each Receivable.
SECTION 5.7 SALE TREATMENT. Seller will account for the sale of the
Receivables hereunder as a sale (consistent with generally accepted accounting
principles then in effect) in its financial statements and other information and
reports, including, without, limitation, filings with any governmental authority
or regulatory body.
SECTION 5.8 SALES, LIENS, OR ASSIGNMENTS OF PURCHASED RECEIVABLES.
Seller will not, except as otherwise provided herein, sell, assign (by operation
of law or otherwise)or otherwise dispose of, or create or suffer to exist any
adverse claim or lien upon or with respect to, in any Receivable or assign any
right to receive income or proceeds in respect thereof.
SECTION 5.9 CHANGE IN BUSINESS: CREDIT COLLECTION POLICY, ETC. Seller
will not make any material change in the character of its business or make any
material change in its Credit and Collection Policy, as adopted form time to
time, which would impair the collectibility of any Receivable.
SECTION 5.10 OTHER AGREEMENTS. Seller will not enter into any agreement
containing any provision which would be violated or breached by the performance
of Seller's obligations hereunder or in connection herewith or under any
instrument or document delivered or to be delivered by it hereunder or in
connection herewith, or any other instrument or document contemplated hereby.
-7-
ARTICLE VI
ATTORNEY-IN-FACT
SECTION 6.1 BUYER APPOINTED ATTORNEY-IN-FACT. Seller hereby irrevocably
appoints Buyer as Seller's attorney-in-fact, with full authority in the place
and stead of Seller and in the name of Seller or otherwise, from time to time in
Buyer's discretion, to take any action and to execute any instrument which Buyer
may deem necessary or advisable to accomplish the purposes of this Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO WAIVER. No failure or delay on the part of either party
in exercising any power, right or remedy under this Agreement shall operate as a
waiver thereof, nor shall nay single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or the exercise
of any other power, right or remedy preclude any other or further exercise
thereof or the exercise of any other power, right or remedy.
SECTION 7.2 AMENDMENTS. This Agreement may be modified, amended,
supplemented, or waived, only upon written agreement of the parties.
SECTION 7.3 NOTICES. All communications and notices pursuant to this
Agreement to any party shall be in writing and addressed or delivered or mailed
to it at such address as a party may designate by notice to the other party, and
shall be effective when received.
SECTION 7.4 LIMITATION OF PERSONAL LIABILITY. Buyer shall have no
recourse against any shareholder of Seller or against any liquidator of Buyer or
any of their respective assets as a result of or relating to any representation,
warranty, covenant, indemnity, or agreement of Seller under this Agreement and
such shareholders and liquidators shall have no liability to Buyer in respect of
the transactions contemplated herein; provided that (a) this provision shall not
limit any liability or recourse resulting from gross negligence ow willful
misconduct on the part of any of such shareholder or liquidators and (b) nothing
herein shall limit the obligations and liabilities of Seller to Buyer or any of
Buyer's recourses or rights against Seller.
SECTION 7.5 HEADINGS. The headings herein are for purposes of reference
only and shall not otherwise affect the meaning or interpretation of any
provision hereof.
-8-
SECTION 7.6 GOVERNING LAW. The Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas.
SECTION 7.7 COUNTERPARTS. The Agreement may be executed in two or more
counterparts and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
1ST DENTAL CARE, P.A.
By:________________________
Name:______________________
Title:_____________________
CASTLE DENTAL CENTERS, INC.
By:________________________
Name:______________________
Title:_____________________
-9-
Exhibit 10.26
TRADE NAME LICENSE AGREEMENT
THIS TRADE NAME LICENSE AGREEMENT (the "Agreement") is effective as of
May 19, 1996 (hereinafter the "Effective Date") by and between Castle Dental
Centers of Florida, Inc., a corporation organized and existing under the laws of
the State of Florida(hereinafter referred to as "Licensor"), and Castle 1st
Dental Care, Inc., a professional association organized and existing under the
laws of the State of Florida (hereinafter referred to as "Licensee").
WHEREAS, Licensor is the owner of the trade name "1st Dental Care" (the
"Name");
WHEREAS, Licensee desires to obtain a license from Licensor to use the
Name solely in connection with the practice of dentistry and advertising related
thereto; and
NOW, THEREFORE, in consideration of the foregoing and that certain
Management Services Agreement by and between Licensor and Licensee dated as of
May 19, 1996 (the "Management Services Agreement") and of the mutual promises
hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following terms shall have the meanings set forth
below:
"Territory" shall mean the State of Florida.
2. TERM
2.1 Subject to the provision of Article 7 herein, this Agreement shall
have the same term as the Management Services Agreement. Any termination of the
Management Services Agreement will automatically terminate this Agreement.
3. GRANT OF LICENSE
3.1 Subject to the provisions of this Agreement, Licensor grants to
Licensee, and Licensee accepts, a nonexclusive, nontransferable, personal
license to use the Name in the Territory solely in connection with the practice
of dentistry and advertising related thereto.
3.2 Licensee shall not use the Name other than as provided in Section
3.1 hereof.
<PAGE>
4. QUALITY STANDARDS
4.1 Licensee agrees that the nature and quality of: (1) all dental
services rendered by and related facilities of Licensee in connection with the
Name; and (2) all related advertising, promotional, and other related uses of
the Name by Licensee shall conform to standards set by, and be under the control
of, Licensor.
5. THE NAME
5.1 Licensee acknowledges the ownership of the Name by Licensor, agrees
that it will do nothing inconsistent with such ownership, and that all use of
the Name by Licensee and all good will developed therefrom shall inure to the
benefit of and be on behalf of Licensor. Licensee agrees that nothing in this
Agreement shall give Licensee any right, title, or interest in the Name other
than the right to use the Name in accordance with this Agreement and Licensee
agrees that it will not attack the title of Licensor to the Name or attack the
validity of this Agreement.
6. INFRINGEMENT
6.1 Licensee shall notify Licensor promptly of any actual or threatened
infringements, imitations, or unauthorized use of the Name by third parties of
which Licensee becomes aware. Licensor shall have the sole right, at its
expense, to bring any action or account of any such infringements, imitations,
or unauthorized use, and Licensee shall cooperate with Licensor, as Licensor may
reasonably request, in connection with any such action brought by Licensor.
Licensor shall retain any and all damages, settlement and/or compensation paid
in connection with any such action brought by Licensor.
7. INDEMNIFICATION
7.1 Licensee agrees to indemnify and hold harmless Licensor from and
against any and all loss, cost, claim, liability or damage occasioned by a
related to any breach by Licensee of this Agreement. This right of
indemnification shall be in addition to any and other remedies to which Licensor
may be entitled at law or equity.
8. TERMINATION
8.1 Licensor shall have the right to terminate this Agreement effective
immediately upon Licensee's receipt of written notice from Licensor in the event
of any affirmative act of insolvency by Licensee, or upon the appointment of any
receiver or trustee to take possession of the properties of Licensee or upon the
winding-up, sale, consolidation, merger, or any sequestration by
-2-
governmental authority of Licensee, or upon any breach of any of the duties and
obligations of Licensee under this Agreement.
8.2 The exercise of any right to terminate under this Article 8 shall
not affect any rights which have accrued prior to termination and shall be
without prejudice to any other legal or equitable remedies to which Licensor may
be entitled by reason of such rights. The obligations and provisions of Article
5 shall survive any expiration or termination of this Agreement.
9. EFFECTS OF AND PROCEDURE ON TERMINATION
9.1 Upon the expiration or termination of this Agreement, Licensee
agrees immediately to discontinue all use of the Name and any term confusingly
similar thereto, to destroy all printed materials bearing the Name, and that all
rights in the Name and the good will connected therewith shall remain the
property of Licensor.
10. ASSIGNMENT
10.1 This Agreement may be assigned by Licensor but shall not be
assignable or transferable by Licensee without the prior written consent of
Licensor, and any attempted assignment by Licensee without such prior written
consent shall be void and shall constitute a breach of the obligations of
Licensee hereunder.
11. NOTICES
11.1 Any notice, demand, waiver, consent, approval, or disapproval
(collectively referred to as "notice") required or permitted herein shall be in
writing and shall be given personally, by messenger, by air courier, by
telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective addresses set forth
above or at such other address as a party may hereafter designate in writing to
the other party.
11.2 A notice shall be deemed received on the date of receipt.
12. APPLICABLE LAW
12.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, without regard to principles of conflicts
of laws. Any case, controversy, suit, action, or proceeding arising out of, in
connection with, or related to, this Agreement shall be brought in any federal
or state court located in the State of Florida.
-3-
13. MODIFICATION, AMENDMENT, SUPPLEMENT, OR WAIVER
13.1 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all previous
agreements, promises, representations, understandings, and negotiations, whether
written or oral.
13.2 No modification, amendment, supplement to or waiver of this
Agreement or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by both of the parties to this Agreement.
A waiver by either party of any of the terms or conditions of this Agreement in
any one instance shall not be deemed a waiver of such terms or conditions in the
future.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the Effective Date.
CASTLE DENTAL CENTERS OF
FLORIDA, INC. (Licensor)
By:
Jack H. Castle, Jr.
President
CASTLE 1ST DENTAL CARE, P.A.
(Licensee)
By:
Lester B. Greenberg, D.D.S.
President
-4-
EXHIBIT 10.27
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK AGREEMENT (the "Agreement") is effective as of May 19,
1996 (hereinafter the "Effective Date") by and between Castle Dental Centers of
Florida, Inc., a corporation organized and existing under the laws of the State
of Florida(hereinafter referred to as "Licensor"), and Castle 1st Dental Care,
P.A., a professional association organized and existing under the laws of the
State of Florida (hereinafter referred to as "Licensee").
WHEREAS, Licensor is the owner of the trademark and registration thereof
attached as Exhibit A hereto (the "Mark");
WHEREAS, Licensee desires to obtain a license from Licensor to use the
Mark solely in connection with the practice of dentistry and advertising related
thereto; and
NOW, THEREFORE, in consideration of the foregoing and that certain
Management Services Agreement by and between Licensor and Licensee dated as of
May 19, 1996 (the "Management Services Agreement), and of the mutual promises
hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following terms shall have the meanings set forth
below:
"Territory" shall mean the State of Florida.
2. TERM
2.1 Subject to the provision of Article 7 herein, this Agreement shall
have the same term as the Management Services Agreement. Any termination of the
Management Services Agreement will automatically terminate this Agreement.
3. GRANT OF LICENSE
3.1 Subject to the provisions of this Agreement, Licensor grants to
Licensee, and Licensee accepts, a nonexclusive, nontransferable, personal
license to use the Mark in the Territory solely in connection with the practice
of dentistry and advertising related thereto.
3.2 Licensee shall not use the Mark other than as provided in Section
3.1 hereof.
4. QUALITY STANDARDS
4.1 Licensee agrees that the nature and quality of: (1) all dental
services rendered by and related facilities of Licensee in connection with the
Mark; and (2) all related advertising,
<PAGE>
promotional, and other related uses of the Mark by Licensee shall conform to
standards set by, and be under the control of, Licensor.
5. THE MARK
5.1 Licensee acknowledges the ownership of the Mark by Licensor, agrees
that it will do nothing inconsistent with such ownership, and that all use of
the Mark by Licensee and all good will developed therefrom shall inure to the
benefit of and be on behalf of Licensor. Licensee agrees that nothing in this
Agreement shall give Licensee any right, title, or interest in the Mark other
than the right to use the Mark in accordance with this Agreement and Licensee
agrees that it will not attack the title of Licensor to the Mark or attack the
validity of this Agreement.
5.2 Licensee shall include all notices and legends with respect to the
Mark as is or may be required by applicable federal, state, and local laws or
which may be reasonably requested by Licensor.
6. INFRINGEMENT
6.1 Licensee shall promptly notify Licensor of any actual or threatened
infringements, imitations, or unauthorized use of the Mark by third parties of
which Licensee becomes aware. Licensor shall have the sole right, at its
expense, to bring any action or account of any such infringements, imitations,
or unauthorized use, and Licensee shall cooperate with Licensor, as Licensor may
reasonably request, in connection with any such action brought by Licensor.
Licensor shall retain any and all damages, settlement and/or compensation paid
in connection with any such action brought by Licensor.
7. INDEMNIFICATION
7.1 Licensee agrees to indemnify and hold harmless Licensor from and
against any and all loss, cost, claim, liability or damage occasioned by a
related to any breach by Licensee of this Agreement. This right of
indemnification shall be in addition to any and other remedies to which Licensor
may be entitled at law or equity.
8. TERMINATION
8.1 Licensor shall have the right to terminate this Agreement effective
immediately upon Licensee's receipt of written notice from Licensor in the event
of any affirmative act of insolvency by Licensee, or upon the appointment of any
receiver or trustee to take possession of the properties of Licensee or upon the
winding-up, sale, consolidation, merger, or any sequestration by
-2-
governmental authority of Licensee, or upon any breach of any of the duties and
obligations of Licensee under this Agreement.
8.2 The exercise of any right to terminate under this Article 8 shall
not affect any rights which have accrued prior to termination and shall be
without prejudice to any other legal or equitable remedies to which Licensor may
be entitled by reason of such rights. The obligations and provisions of Article
5 shall survive any expiration or termination of this Agreement.
9. EFFECTS OF AND PROCEDURE ON TERMINATION
9.1 Upon the expiration or termination of this Agreement, Licensee
agrees immediately to discontinue all use of the Mark and any term confusingly
similar thereto, to destroy all printed materials bearing the Mark, and that all
rights in the Mark and the good will connected therewith shall remain the
property of Licensor.
10. ASSIGNMENT
10.1 This Agreement may be assigned by Licensor but shall not be
assignable or transferable by Licensee without the prior written consent of
Licensor, and any attempted assignment by Licensee without such prior written
consent shall be void and shall constitute a breach of the obligations of
Licensee hereunder.
11. NOTICES
11.1 Any notice, demand, waiver, consent, approval, or disapproval
(collectively referred to as "notice") required or permitted herein shall be in
writing and shall be given personally, by messenger, by air courier, by
telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective addresses set forth
above or at such other address as a party may hereafter designate in writing to
the other party.
11.2 A notice shall be deemed received on the date of receipt.
12. APPLICABLE LAW
12.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida, without regard to principles of conflicts
of laws. Any case, controversy, suit, action, or proceeding arising out of, in
connection with, or related to, this Agreement shall be brought in any federal
or state court located in the State of Florida.
-3-
13. MODIFICATION, AMENDMENT, SUPPLEMENT, OR WAIVER
13.1 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all previous
agreements, promises, representations, understandings, and negotiations, whether
written or oral.
13.2 No modification, amendment, supplement to or waiver of this
Agreement or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by both of the parties to this Agreement.
A waiver by either party of any of the terms or conditions of this Agreement in
any one instance shall not be deemed a waiver of such terms or conditions in the
future.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the Effective Date.
CASTLE DENTAL CENTERS OF
FLORIDA, INC. (Licensor)
By:
Jack H. Castle, Jr.
President
CASTLE 1ST DENTAL CARE, P.A.
(Licensee)
By:
Lester B. Greenberg, D.D.S.
President
-4-
Exhibit A
U.S. TRADEMARK:
NUMBER TRADEMARK REGISTRATION DATE
T93000001372 "1st Dental Care" a while November 17, 1993
numerical "1st" outlined in
black and circled in green,
with a white line running
through the "1" and under
the "st" with the line
continuing on
-5-
EXHIBIT 10.28
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of May
19, 1996 (the "Effective Date"), by and between Castle Dental Centers of
Florida, Inc., a Florida corporation (the "Company"), and Lester B. Greenberg,
D.D.S. ("Employee").
RECITALS:
Prior to the date hereof, Employee was the owner of 1st Dental Care,
Inc., which along with the Company and the Employee is a party to that certain
Asset Purchase Agreement dated as of May 19, 1996 (the "Asset Purchase
Agreement"). As a condition to the consummation of the transactions contemplated
by the Asset Purchase Agreement and as an inducement for the Company and
Employee to perform their respective obligations under the Asset Purchase
Agreement, the Company and Employee have entered into this Agreement.
The parties agree as follows:
ARTICLE I
1.1 EMPLOYMENT.
(a) The Company agrees to, and hereby does, employ Employee, on the
terms and conditions set forth herein, to hold such offices, have such titles
and perform such duties as are contemplated hereby.
(b) Employee shall perform substantially those services for the Company
that Employee previously performed for 1st Dental Care, Inc. To the extent not
inconsistent therewith, Employee shall participate in the development and
implementation of the strategic plan of the Company for specified markets in
Florida, including, but not be limited to, analyzing markets selected by the
Company and identifying acquisition candidates. The performance of Employee's
role as described herein shall be subject to the supervision of the Company's
senior management.
(c) Employee shall devote such amount of his full business time, efforts
and abilities to the business of the Company as he did for 1st Dental Care, Inc.
Employee shall use his reasonable best efforts to promote the interests of the
Company. To the extent such activities do not interfere
-1-
CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
with his responsibilities to the Company or conflict with the provisions of
Article VI hereof, Employee may engage in other business activities.
ARTICLE II
* 2.1 SALARY. As compensation for his service during the term of this
Agreement (or until terminated pursuant to the provisions hereof), the Company
shall pay Employee a salary at the rate of $[REDACTED] per annum (the "Base
Salary"), through and until the Expiration Date, as herein defined, payable in
accordance with the regular payroll practices of the Company as in effect from
time to time. Such Base Salary shall be subject to withholding for the
prescribed federal and state income tax, social security and other items as
required by law, and for other items consistent with the Company's policy with
respect to health insurance and other benefit plans for similarly situated
employees.
* 2.2 INCENTIVE BONUS COMPENSATION. The Company hereby establishes the
Castle Dental Centers of Florida, Inc. Incentive Bonus Plan (the "Plan") which
provides for the Company to set aside for grant to certain management employees
selected by a committee consisting of Employee and the chief executive officer
of Castle Dental Centers, Inc., a Delaware corporation ("Castle") with the
approval of the Compensation Committee of the Board of Directors of Castle an
aggregate of [REDACTED] percent ([REDACTED]) of the pretax income of the Company
in excess of $[REDACTED] per year, attributable to the operations of the Company
under the direct management of Employee in Florida, computed without general
overhead allocation or charge with respect to the general and administrative
expenses of Castle, but taking into account direct costs incurred by Castle on
behalf of the Company and including a deduction equal to the cost of capital
invested (exclusive of initial acquisition costs) in the Company by Castle. For
the purposes of this Agreement, Castle's cost of capital shall be deemed to be
the prime rate established from time to time by NationsBank of Texas, N.A. plus
four percent, but in no event to be less than 10%. The Employee is hereby
granted the right to participate in the Plan for each year prior to the
Expiration Date. The annual amount which the Employee shall be entitled to
receive from the Plan shall be determined by a committee consisting of Employee
and the chief executive officer of Castle with the approval of the Compensation
Committee of the Board of Directors of Castle.
2.3 BENEFITS. During the terms of this Agreement, Employee shall be
entitled to receive such benefits as are made available to other personnel of
the Company in comparable positions, with comparable service credit and with
comparable duties and responsibilities, which shall include, in the case of
Employee, up to four weeks paid vacation each year during the terms of this
Agreement, plus one week paid leave to the extent such week is devoted to
required continuing dental education. Such benefits shall be subject to the
terms of the applicable plan documents, summary plan descriptions and/or
employment policies and shall be subject to
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modification, amendment or revocation in accordance with the terms of such
documents, policies and procedures.
2.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse all
reasonable travel and entertainment expenses incurred by Employee in connection
with the performance of his duties pursuant to this Agreement, consistent with
the Company's policies then in effect. Employee shall provide the Company with
written expense reports of his expenses in accordance with the usual customary
practice of the Company.
ARTICLE III
3.1 TERM. Upon the terms and subject to the conditions of this
Agreement, the Company hereby employs Employee and Employee accepts employment
with the Company for a term commencing on the date hereof and ending on May 18,
1999 (the "Expiration Date"), subject to the right of either party to terminate
this agreement as provided below.
3.2 DEATH; DISABILITY. Subject to the provisions of Section 3.5(a), this
Agreement shall be automatically terminated on the death of Employee or on the
permanent disability of Employee if he is no longer able, with reasonable
accommodation, to perform the essential functions of his position with the
Company. In the event of Employee's disability, this Agreement shall not
terminate unless and until Employee has been unable to perform the essential
functions of his position hereunder for a period of three (3) consecutive months
as a result of the Employee's disability.
3.3 TERMINATION WITHOUT CAUSE. Either the Company or Employee may
terminate this Agreement at any time, without cause, by giving the other thirty
(30) days' written notice of termination.
3.4 TERMINATION WITH CAUSE. In addition to the Company's right to
terminate this Agreement without cause as provided in Section 3.3 hereof, the
Company may terminate this Agreement for "Cause." "Cause" means the termination
by the Company of Employee's employment for any of the following grounds:
(a) the commission of any act of fraud on the part of Employee
resulting or intending to result in personal gain or enrichment at the expense
of the Company;
(b) misappropriation, embezzlement, theft or willful and material
damage of or to any asset of the Company or the use of the Company funds or
assets for any illegal purpose;
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(c) a good faith determination by the Board of Directors of the
Company that Employee has violated this Agreement or committed an act of gross
negligence or willful misconduct (in the case of a breach, following notice
thereof to Employee by the Company and a thirty day period thereafter within
which Employee shall have the opportunity to cure such breach) that has or is
reasonably expected to have a material adverse effect on the business or affairs
of the Company;
(d) the commission of any felony on the part of Employee which,
in the sole discretion of the Board of Directors of the Company, materially and
adversely, directly or indirectly, affects the name or goodwill of the Company;
or
(e) for so long as Employee is a majority shareholder of New PC,
the termination of the Management Services Agreement by and between the Company
and Castle 1st Dental Care, P.A. pursuant to Section 7.2(d) thereof.
A notice of termination pursuant to this Section 3.4 shall be in writing
and shall state the alleged reason for termination. Within not less than five
(5) nor more than twenty (20) days after such notice, Employee shall be given
the opportunity to appear before the Board of Directors of the Company, or a
committee thereof, to rebut or dispute the alleged violation. If the Board of
Directors or committee determines, by vote of a majority of the directors other
than Employee (if Employee is then a director), that one or more grounds exist
for termination of Employee for Cause, the Company may immediately terminate
Employee's employment under this Section 3.4. The Company may elect, during the
pendency of such inquiry, to relieve Employee of his regular duties.
3.5 SEVERANCE PAY. In the event of termination, Employee shall be
entitled to compensation (the "Severance Pay") in accordance with the following:
(a) If Employee's employment is terminated by reason of his death
or disability, the Company agrees to offer employment on substantially the same
terms and conditions as are contained herein to Elisa Greenberg for the
employment period remaining in the initial three year term. Elisa Greenberg
shall be under no obligation to accept such offer of employment. In the event
Elisa Greenberg desires to accept the Company's offer of employment, she shall
so advise the Company within 30 days of the Company's offer of employment, and
the Company and Elisa Greenberg shall enter into an Employment Agreement
containing substantially the same terms and conditions as this Agreement as soon
as reasonably practical.
(b) If Employee's employment is terminated by reason of his
disability, and Elisa Greenberg declines to accept the Company's offer of
employment described in Section 3.5(a), the Company shall continue to pay
Employee's monthly Base Salary, (at his then current Base Salary rate excluding
any increases that would have taken effect beyond the date of termination and
any
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bonus and noncash benefits) the Employee would have earned for the three month
period subsequent to the effective date of termination, payable at such time or
times as would have been paid to Employee had he remained employed by the
Company.
(c) If (i) Employee voluntarily terminates his employment, or
(ii) the Company terminates this Agreement for Cause, or (iii) if Employee's
employment is terminated by reason of his death and Elisa Greenberg declines to
accept the Company's offer of employment described in Section 3.5(a), Employee
shall not be entitled to receive any additional salary, bonus or benefits beyond
those earned or accrued as of the effective date of the termination of his
employment.
(d) If Employee's employment hereunder is terminated prior to the
Expiration Date of this Agreement, and such termination is either (i) due to a
breach of this Agreement by the Company, or (ii) by the Company and not for
Cause, Employee shall be entitled to Severance Pay in an amount equal to the
amount of Base Salary that the Employee would have earned between the effective
date of termination through the Expiration Date, less applicable payroll
deductions (and any other deductions authorized in writing by the Employee),
payable at such time or times as would have been paid to Employee had he
remained employed by the Company through the Expiration Date; provided, however,
prior to the termination of this Agreement as the result of a breach hereof by
the Company, Employee shall give written notice of such breach and a thirty day
period within which to even such breach.
3.6 EFFECT OF TERMINATION ON AGREEMENT. Any termination of Employee's
employment shall not release either the Company or Employee from their
respective obligations under this Agreement that are required to be performed
subsequent to the date of such termination, including but not limited to those
obligations set forth under Articles III, IV, V and VI.
3.7 PAYMENTS TO ESTATE. If Employee should die before all amounts
payable to him pursuant to Section 3.5 have been paid, such unpaid amounts shall
be paid to the personal representative of Employee's estate.
ARTICLE IV
4.1 ADDITIONAL ACTS BY EMPLOYEE. Employee further agrees at the request
of the Company (but without additional compensation from the Company during his
employment by the Company) to execute any and all papers and (at the expense of
the Company) perform all lawful acts that the Company deems necessary to realize
the benefits of the transaction contemplated by the Asset Purchase Agreement and
related documents.
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ARTICLE V
5.1 NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION. Employee
understands and agrees that his employment by the Company creates a relationship
of confidence and trust between himself and the Company with respect to
Confidential Information (as defined below). Employee recognizes that he will
have access to and knowledge of Confidential Information. Employee will not,
during or after the term of his employment by the Company, in whole or in part,
disclose such Confidential Information to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever, nor shall he
make use of any such Confidential Information for his own purposes or for the
purposes of others; provided, however, that nothing in this Article shall be
construed to prohibit the disclosure of such Confidential Information by the
Employee (i) to another officer, director employee or agent of the Company; (ii)
as is reasonably necessary for the performance of his duties and
responsibilities under this Agreement; or (iii) as otherwise required by law. If
Employee is required by law to disclose "Confidential Information," Employee
shall notify the Company's Board of Directors, in writing, of the nature of such
disclosure and the Confidential Information to be disclosed, as soon as is
possible and/or practical, and permit the Company the opportunity to contest or
limit such disclosure.
5.2 CONFIDENTIAL INFORMATION DEFINED. The term "Confidential
Information" shall mean and include any and all records, computer programs,
data, patent applications, trade secrets, customer lists, customer databases,
video programs and programming, proprietary information, technology, pricing
policies, financial information, methods of doing business, policy and/or
procedure manuals, training and recruiting procedures, accounting procedures,
the status and content of the Company's contracts with its customers, the
Company's business philosophy, and servicing methods and techniques at any time
used, developed, or investigated by the Company, before or during Employee's
tenure of employment, or other information of any kind expressed or recorded on
any medium arising out of, concerning, or acquired in connection with the
research, development, commercialization and other activities of the Company;
but "Confidential Information" does not include information (i) generally known
or available in the industry, through no fault of Employee; or (ii) available
from a third party without violation of any duty of confidentiality by Employee
or others.
5.3 DELIVERY OF MATERIALS. Employee further agrees to deliver to the
Company at the termination of his employment, or at any other time upon request
by the Company, all correspondence, memoranda, notes, records (including
computer records and data), drawings, sketches, plans, customer lists, and other
documents, which are made, composed, or received by Employee, solely or jointly
with others, during the term of his employment and which are in Employee's
possession, custody, or control at such date and which are related in any manner
to the past, present or anticipated business of the Company.
-6-
ARTICLE VI
6.1 NONINTERFERENCE WITH EMPLOYMENT RELATIONSHIPS. During the term of
Employee's employment and during the twenty-four months following the
termination of the Employee's employment, Employee agrees not to solicit or
induce any employee of the Company or 1st Dental Care, Inc. to terminate his or
her employment, accept employment with anyone else, or to interfere in a similar
manner with the business of the Company or 1st Dental Care, Inc.
6.2 NONSOLICITATION OF CUSTOMERS AND SUPPLIERS During the employment of
the Employee pursuant to this Agreement and during the twenty-four months
following the termination of the Employee's employment, Employee agrees not to
contact, communicate with or solicit any customer, supplier, vendor,
distributor, promoter, contractor or prospective customer of the Company or 1st
Dental Care, Inc. for the purpose of engaging in the Same or Similar Business
(as defined below) as the Company.
6.3 NONCOMPETITION. Employee recognizes that in connection with the
performance of the Employee's duties and obligations under this Agreement, the
Company will provide Employee with confidential, proprietary and trade secret
information, which is necessary to Employee's employment with the Company, and
which Employee has agreed to protect and maintain as confidential, proprietary
and trade secret information for the Company's benefit. To protect and maintain
the confidentiality of the information, Employee agrees that, during the
employment of the Employee pursuant to this Agreement, including the period
during which Employee is receiving Severance Pay hereunder, and during the
twenty-four months following such period, Employee shall not directly or
indirectly engage in, manage, operate, join, control, or participate in the
ownership, management, operation, or control of, or be employed or engaged or
act as a consultant to in any manner by, any business competing in the Same or
Similar Business as the Company or 1st Dental Care, Inc. within a ten mile
radius around the city limits of any city in the State of Florida in which the
Company is operating or managing a location providing dental service as of the
date of Employee's employment hereunder.
6.4 SAME OR SIMILAR BUSINESS DEFINED. For purposes of this Article VI,
the "Same or Similar Business" as the Company or 1st Dental Care, Inc. shall be
defined as any business that is engaged to a significant extent in the provision
of dental care and services, including but not limited to the practice of
general dentistry, orthodontics and all related dental care services, the
management of such services or practices, or the management of or consulting
with dental practice management companies or insurance companies.
6.5 REASONABLENESS OF RESTRICTIONS. Employee has carefully read and
considered the provisions of this Article VI and, having done so, agrees that
the restrictions set forth in such Article contain reasonable limitations as to
time, geographical area, scope of activity to be restrained, and
-7-
do not impose a greater restraint than is necessary to protect the goodwill or
other legitimate business interests of the Company. The Employee further
understands and agrees that, if at some later date, a court of competent
jurisdiction determines that the scope, duration or geographic area of any
covenant set forth in this Article is overbroad or unenforceable for any reason,
these covenants shall be reformed by the court and enforced to the maximum
extent permissible under Florida law.
ARTICLE VII
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties and their heirs, legal representatives, successors and assigns. The
Company may assign its interest in this Agreement, and all covenants, conditions
and provisions hereunder shall inure to the benefit of and be enforceable by its
assignee or successor in interest. The rights and obligations of Employee under
this Agreement are personal to him, and no such rights, benefits or obligations
shall be assignable, except that his personal representatives and heirs may
enforce the obligations of the Company hereunder.
7.2 WAIVER OF BREACH. The waiver by any party to this Agreement of a
breach or violation of any provisions hereof shall not operate or be construed
to be a waiver of any subsequent breach hereof.
7.3 NOTICES. Any and all notices required or permitted to be given under
this Agreement shall be sufficient if furnished in writing and given in person,
or shall be deemed given five (5) days after sent by certified mail, return
receipt requested, to the address as set forth below on the signature pages of
this Agreement. If any party hereto desires to amend its address hereunder, that
party shall send written notice of the new address to all other parties hereto.
7.4 GOVERNING LAW. This Agreement shall be interpreted, construed and
governed in accordance with the laws of the State of Florida without regard to
conflict of laws provision. This Agreement is performable in Pinellas County,
Florida.
7.5 HEADINGS. The paragraph headings contained in this Agreement are for
convenience only, and shall in no manner be construed to be part of this
Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement. A fully executed copy of
this Agreement shall be delivered to each party hereto.
7.7 LEGAL CONSTRUCTION. In case anyone or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not effect any other provision hereof, and this
-8-
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. In addition, such invalid, illegal or
unenforceable provision shall be modified to the minimum extent necessary to
permit it to be valid, legal and enforceable. For all purposes hereof "day"
shall mean calendar day and shall include weekends and holidays; provided,
however, that if any notice period terminates on a weekend or holiday, the
person who is required to deliver the notice shall have until the next business
day to complete the notice requirement.
7.8 AMENDMENT. No modification, amendment, addition to, or termination
of this Agreement, nor waiver of any of its provisions, shall be valid or
enforceable unless it is in writing and signed by all of the parties hereto.
7.9 PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and
only Agreement of the parties hereto and supersedes any prior understanding or
written or oral agreements, correspondence or communications between the parties
respecting the subject matter hereof.
7.10 ARBITRATION. EXCEPT FOR THE REMEDY PROVIDED UNDER SECTION 7.11
BELOW, ANY CLAIM OR DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE
EMPLOYMENT OF EMPLOYEE BY THE COMPANY SHALL BE SUBMITTED TO FINAL AND BINDING
ARBITRATION IN CLEARWATER, FLORIDA PURSUANT TO THE EMPLOYMENT DISPUTE RESOLUTION
RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE PARTIES AGREE THAT ANY PARTY
REQUESTING ARBITRATION OF ANY DISPUTE UNDER THIS SECTION MUST GIVE FORMAL
WRITTEN NOTICE OF THE PARTY'S DEMAND FOR ARBITRATION ("ARBITRATION NOTICE")
WITHIN ONE HUNDRED TWENTY (120) DAYS AFTER SUCH DISPUTE FIRST ARISES AND FAILURE
TO TIMELY COMMUNICATE ARBITRATION NOTICE SHALL CONSTITUTE A WAIVER OF SUCH
DISPUTE. THE PARTIES FURTHER AGREE THAT EACH PARTY MAY BE REPRESENTED BY COUNSEL
IN ANY PROCEEDING UNDER THIS SECTION, AND THAT ALL EXPENSES AND FEES INCURRED IN
CONNECTION WITH ANY PROCEEDING UNDER THIS SECTION SHALL BE PAID BY THE
NON-PREVAILING PARTY (AS DETERMINED BY THE ARBITRATORS). BOTH PARTIES AGREE THAT
NOTHING IN THIS SECTION SHALL BE CONSTRUED TO REQUIRE THE ARBITRATION OF ANY
DISPUTE OR CLAIM (i) ARISING UNDER ARTICLES IV, V OR VI OF THIS AGREEMENT; (ii)
FOR UNEMPLOYMENT COMPENSATION BENEFITS; OR (iii) FOR WORKERS' COMPENSATION
BENEFITS. BY THEIR EXECUTION OF THIS AGREEMENT, EACH PARTY TO THIS AGREEMENT
CONSENTS, ON BEHALF OF HIMSELF OR ITSELF AND THEIR RESPECTIVE SUCCESSORS, HEIRS
AND ASSIGNS, TO SUCH BINDING ARBITRATION IN ACCORDANCE WITH THE TERMS OF THIS
SECTION.
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7.11 REMEDIES. Employee agrees that the remedy at law for any breach of
any provision of Articles IV, V and VI will be inadequate and that the Company
will be entitled to injunctive and equitable relief for any such breach, in
addition to all other remedies permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement in Clearwater, Florida as of the date first set forth above.
THE COMPANY:
CASTLE DENTAL CENTERS OF FLORIDA, INC.
By:
Name: Jack H. Castle, Jr.
Title: President
Address:
ATTENTION: President
EMPLOYEE:
Lester B. Greenberg, D.D.S.
Address:
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EXHIBIT 10.29
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
ASSET PURCHASE AGREEMENT
Dated as of April 29, 1996
By and Among
Castle Dental Centers of Tennessee, Inc.
as Purchaser,
Mid-South Dental Center, P.C.
as Seller
and
G. Powell Bilyeu, D.D.S.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................1
1.1 Definitions......................................................1
ARTICLE II
THE TRANSACTION........................................................6
2.1 Purchase and Sale of Assets......................................6
2.2 Excluded Assets..................................................7
2.3 Assumption of Obligations........................................8
2.4 Nonassignable Contracts and Leases...............................8
2.5 Closing..........................................................8
ARTICLE III
PAYMENT OF PURCHASE PRICE..............................................9
3.1 Amount; Allocation; Delivery.....................................9
3.2 Purchase Price Adjustment.......................................10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND DR. BILYEU........................................................11
4.1 Representations and Warranties of Seller and Dr. Bilyeu.........11
4.2 Existence and Good Standing.....................................11
4.3 Authorization and Validity of Agreement.........................11
4.4 Consents and Approvals; No Violations...........................12
4.5 No Subsidiaries.................................................12
4.6 Financial Statements; No Material Adverse Change................12
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4.7 Books and Records...............................................13
4.8 Title to Properties; Encumbrances; Condition....................13
4.9 Real Property...................................................13
4.10 Leases..........................................................14
4.11 Material Contracts..............................................14
4.12 Permits.........................................................14
4.13 Litigation......................................................15
4.14 Taxes...........................................................15
4.15 Insurance.......................................................16
4.16 Intellectual Properties.........................................16
4.17 Compliance with Laws............................................16
4.18 Employment Relations............................................16
4.19 Employee Benefit Plans..........................................17
4.20 Environmental Laws and Regulations..............................17
4.21 Interests in Customers, Suppliers, Etc..........................18
4.22 Compensation of Employees.......................................18
4.23 Payors. ......................................................18
4.24 Accounts Receivable; Accounts Payable...........................18
4.25 Solvency........................................................18
4.26 Disclosure......................................................18
4.27 Broker's or Finder's Fees.......................................19
4.28 Copies of Documents.............................................19
4.29 Investment Representations......................................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER..........................................................20
5.1 Representations and Warranties of Purchaser.....................20
5.2 Existence and Good Standing of Purchaser; Power and Authority...20
5.3 Consents and Approvals; No Violations...........................20
5.4 Capital Stock...................................................21
5.5 Litigation......................................................21
5.6 Compliance with Laws............................................21
5.7 Financial Statements............................................22
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5.8 Broker's or Finder's Fees.......................................22
ARTICLE VI
CONDITIONS TO SELLER'S OBLIGATIONS....................................22
6.1 Truth of Representations and Warranties.........................22
6.2 Performance of Agreements.......................................22
6.3 No Litigation Threatened........................................22
6.4 Governmental Approvals..........................................23
6.5 Proceedings.....................................................23
6.6 Employment Agreements...........................................23
6.7 Registration Rights Agreement...................................23
6.8 Consents........................................................23
6.9 Due Diligence...................................................23
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS.................................24
7.1 Truth of Representations and Warranties.........................24
7.2 Performance of Agreements.......................................24
7.3 Documents of Conveyance.........................................24
7.4 No Litigation Threatened........................................24
7.5 Governmental Approvals..........................................24
7.6 Consents........................................................25
7.7 Legal Opinion...................................................25
7.8 Proceedings.....................................................25
7.9 New PC..........................................................25
7.10 Execution of Management Services Agreement......................25
7.11 Stockholders Agreement..........................................25
7.12 Subordination Agreement. ......................................25
ARTICLE VIII
COVENANTS OF SELLER AND DR. BILYEU....................................25
8.1 Cooperation by Seller...........................................26
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8.2 Conduct of Business.............................................26
8.3 Exclusive Dealing...............................................26
8.4 Review of the Assets............................................26
8.5 Further Assurances..............................................27
ARTICLE IX
COVENANTS OF PURCHASER................................................27
9.1 Cooperation by Purchaser........................................27
9.2 Books and Records; Personnel....................................27
9.3 Further Assurances..............................................28
9.4 Due Diligence Investigation.....................................28
ARTICLE X
TERMINATION...........................................................29
10.1 Termination.....................................................29
10.2 Effect on Obligations...........................................29
ARTICLE XI
SURVIVAL AND INDEMNIFICATION..........................................30
11.1 Indemnification of the Seller...................................30
11.2 Indemnification of the Purchaser................................30
11.3 Demands.........................................................31
11.4 Right to Contest and Defend.....................................31
11.5 Cooperation.....................................................32
11.6 Right to Participate............................................32
11.7 Payment of Damages..............................................32
11.8 Limitation on Indemnification...................................32
ARTICLE XII
MISCELLANEOUS.........................................................33
12.1 Entire Agreement................................................33
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12.2 Successors and Assigns..........................................33
12.3 Counterparts....................................................33
12.4 Headings........................................................33
12.5 Modification and Waiver.........................................33
12.6 No Third Party Beneficiary Rights...............................34
12.7 Sales and Transfer Taxes........................................34
12.8 Expenses........................................................34
12.9 Notice..........................................................34
12.10 Governing Law...................................................35
12.11 Confidentiality; Publicity......................................35
12.12 Severability....................................................36
12.13 Enforcement.....................................................36
SCHEDULES
Schedule 2.2 Excluded Contracts
Schedule 2.3 Assigned Contracts
Schedule 3.1 Allocation of Purchase Price
Schedule 3.2 Unaudited Balance Sheet
Schedule 4.4 Consents
Schedule 4.6 Material Adverse Change
Schedule 4.8 Encumbrances
Schedule 4.9 Real Property
Schedule 4.10 Leased Personal Property
Schedule 4.11 Material Contracts and Proposals
Schedule 4.12 Permits
Schedule 4.13 Litigation
Schedule 4.14 Taxes
Schedule 4.15 Insurance Policies
Schedule 4.16 Intellectual Property
Schedule 4.20 Environmental Matters
Schedule 4.22 Employee Compensation
Schedule 4.23 Payors
Schedule 4.25 Solvency
Schedule 5.3 Required Notices
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Schedule 5.7 Castle Financial Statements
EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B-1 Bilyeu Employment Agreement
Exhibit B-2 Hamner Employment Agreement
Exhibit B-3 North Employment Agreement
Exhibit C Legal Opinion
Exhibit D Stockholders Agreement
Exhibit E Registration Rights Agreement
Exhibit F Management Services Agreement
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of April 29, 1996 by and among Castle
Dental Centers of Tennessee, Inc., a Tennessee corporation ("Purchaser"),
Mid-South Dental Center, P.C., a Tennessee professional corporation ("Seller"),
and G. Powell Bilyeu, D.D.S., the sole shareholder of Seller ("Dr. Bilyeu").
W I T N E S S E T H:
WHEREAS, Seller wishes to sell, and Purchaser wishes to purchase,
substantially all of the property and assets of Seller, all upon the terms and
subject to the conditions set forth below.
NOW, THEREFORE, for the mutual covenants and other consideration described
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings set
forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of Seller.
"ACCOUNTS PAYABLE": the payables of Seller to trade account and other
creditors as of the Closing Date as shown on Schedule 2.3.
"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person.
"AGREEMENT": this Asset Purchase Agreement, as amended from time to time
as provided herein.
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"ASSETS": as defined in Section 2.1 hereof.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 3.2 hereof.
"BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof
"BOOKS AND RECORDS": all books, records, books of account, files and data
(including customer and supplier lists), certificates and other documents
related to the conduct of the business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of any Seller which relate exclusively
to organizational and corporate governance proceedings of Seller, or patient
records which Seller may not lawfully transfer.
"BUSINESS": the practice of dentistry, including orthodontics and
periodontics and all other activities currently conducted by Seller.
"CLOSING": as defined in Section 2.6 hereof.
"CLOSING DATE": as defined in Section 2.6 hereof.
"CLOSING DATE BALANCE SHEET": as defined in Section 3.2 hereof.
"CLOSING DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
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"EMPLOYMENT AGREEMENT": each agreement executed pursuant hereto
substantially in the form of Exhibit B attached hereto.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto that would have a Material Adverse Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violations, investigations or proceedings relating in any way to any
Environmental Law (for purposes of this definition, "Claims") or any permit
issued under any such Environmental Law, including without limitation (i) any
and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA
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are to ERISA as in effect at the date of this Agreement and any subsequent
provisions of ERISA amendatory thereof, supplemental thereto or substituted
therefor.
"EXCLUDED ASSETS": as defined in Section 2.2 hereof.
"EXCLUDED CONTRACTS": as defined in Section 2.2(b) hereof.
"EXCLUDED LIABILITIES": as defined in Section 2.4 hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.6 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of the Seller.
"NEW PC": Castle Mid-South Dental Center, P.C., a newly organized
Tennessee professional corporation organized for the purpose of entering into a
Management Services Agreement with Purchaser.
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"PERMITS": as defined in Section 4.12 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.8 hereof.
"PERSON": any individual, partnership, joint venture, corporation, trust,
unincorporated organization, government or other department or agency thereof or
other entity.
"PLANS": as defined in Section 4.19 hereof.
"PRE-CLOSING PERIODS": as defined in Section 4.14(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.14(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking, leaching,
dumping, emitting, escaping, emptying, seeping, placing and the like, into or
upon any land or water or air, or otherwise entering into the environment.
"SELLER" as defined in the preamble of this Agreement.
"SELLER PROPERTY": any real property and improvements thereon leased,
operated or occupied by Seller.
"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
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ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from the Seller, and Seller agrees
to sell, convey, transfer, assign and deliver, and cause to be sold, conveyed,
transferred, assigned and delivered, to Purchaser, on the Closing Date, against
the receipt by the Seller of the consideration specified in Section 3.1 hereof,
the Assets, free and clear of any Encumbrances except Permitted Encumbrances.
The term "Assets" shall mean all of the rights, title and interests of Seller in
and to the assets used in or relating to the conduct of the Business, tangible
and intangible, real, personal and mixed, wheresoever situated and whether or
not specifically referred to herein or in any instrument of conveyance delivered
pursuant hereto. The Assets shall include but are not limited to the following
categories of assets:
(a) Seller's title to, interest in or rights under the leases of
real property described in Schedule 4.9 attached hereto together with all
buildings, facilities, fixtures and other improvements thereon and all
easements, rights-of-way, transferable licenses and permits and other
appurtenances thereof;
(b) plant, machinery, equipment, tools, supplies, inventories,
furniture, fixtures, furnishings, vehicles and other fixed assets owned or
leased by Seller and used or held for use in the conduct of the Business;
(c) cash, cash equivalents, deposits, advance payments, securities,
letters of credit naming Seller as account party, certificates of deposit,
notes, drafts, checks and similar instruments;
(d) contracts, documents, instruments and general intangibles of
Seller, including the name "Mid-South Dental Centers, Inc.", other than
the Excluded Contracts;
(e) Accounts Receivable as of the Closing Date;
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(f) all licenses, permits, registrations and authorizations,
proprietary information, methods, designs, processes, procedures, and all
rights held by Seller to other Intellectual Property;
(g) Books and Records;
(h) any rights of Seller pertaining to any counterclaims, set-offs
or defenses it may have with respect to any Assumed Obligations;
(i) all prepaid claims, prepaid taxes, prepaid insurance premiums
and other prepaid expense items; and
(j) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded
thereby relating to the Assets.
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) each contract set forth on Schedule 2.2(a) (the "Excluded
Contracts");
(b) tax refunds related to the Business or the Assets received or
receivable by Seller or Dr. Bilyeu relating to taxes paid by Seller or Dr.
Bilyeu for all periods prior to the Closing Date;
(c) minute books and governance documents of the Seller;
(d) dentist employment contracts;
(e) reimbursement contracts with third party insurance companies,
managed care contracts and other reimbursement contracts;
(f) office furnishings, described on Schedule 2.2(f); and
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(g) key man life insurance policies currently maintained on the
lives of Philip T. Hamner and David North.
2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Seller,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Seller in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder, (b) the obligations of Seller with respect to
the deposits, advance payments and similar prepayments transferred to Purchaser
pursuant to Section 2.1 hereof, and (c) Accounts Payable set forth prior to the
Closing on Schedule 2.3 (collectively, "Assumed Obligations"). Without limiting
the generality of the foregoing, Purchaser expressly shall not assume or be
deemed to have assumed, without limitation, any liability or obligation relating
to or arising out of any employee benefit plan or arrangement of Seller or any
liabilities or obligations thereunder, including but not limited to accrued
401(k) withholdings with the exception of the self insured portion of health
insurance claims to the maximum extent of the insurance fund maintained by
Seller and acquired by Purchaser (collectively, the "Excluded Liabilities").
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable, Seller agrees to use its best
efforts to obtain, or cause to be obtained, prior to the Closing Date, any
written consents necessary to convey to Purchaser the benefit thereof. Purchaser
shall cooperate with Seller, in such manner as may be reasonably requested, in
connection therewith, including without limitation, active participation in
visits to and meetings, discussions and negotiations with all Persons with the
authority to grant or withhold consent. If Seller is unable to obtain such
necessary written consents for the remaining term of such Assigned Contract,
Purchaser shall act as such Seller's agent in the performance of all obligations
and liabilities under such Assigned Contract and such Seller shall act as
Purchaser's agent in the receipt of any benefits, rights or interests which
inure to such Seller under such Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing set
forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Waller Lansden Dortch & Davis, 511 Union
Street, Suite 2100, Nashville, Tennessee 37219, on or before May 31, 1996, or
such other place, date and time as may be mutually agreed upon by the parties
hereto. Such time and date are referred to herein as the "Closing Date."
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
ARTICLE III
PAYMENT OF PURCHASE PRICE
* 3.1 AMOUNT; ALLOCATION; DELIVERY. At the Closing, in addition to
Purchaser's assumption of the Assumed Obligations, Purchaser shall pay to Seller
the sum of $[REDACTED] (the "Purchase Price"), subject to adjustment as provided
in Section 3.2 hereof, which Purchase Price shall be remitted by Purchaser to
Seller in the following manner:
* (a) $[REDACTED] in cash on the Closing Date, which shall be paid by
wire transfer of immediately available funds to an account or accounts of
Seller; and
* (b) a five year subordinated promissory note payable in equal
quarterly installments of principal and interest to Seller in the original
principal amount of $[REDACTED], with interest on the unpaid balance at
the rate of 10% per annum, substantially in the form of Exhibit A attached
hereto; and
* (c) [REDACTED] shares of common stock, $.001 par value ("Common
Stock"), of Castle Dental Centers, Inc., a Delaware corporation
("Castle"), issued in the name of MidSouth Dental Center, P.C.
Purchaser and Seller hereby agree to allocate the Purchase Price in
accordance with Section 1060 of the Code among the Assets in accordance with
Schedule 3.1 to be attached hereto prior to the Closing Date (the "Price
Allocation"). The parties hereby undertake and agree to file timely any
information that may be required to be filed pursuant to regulations promulgated
under Section 1060(b) of the Code. The parties further agree that they will
report the federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner consistent with the
Price Allocation, as so adjusted, and that they will not take any position
inconsistent therewith.
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3.2 PURCHASE PRICE ADJUSTMENT.
(a) Seller previously has delivered to Purchaser unaudited balance
sheet of the Seller as of December 31, 1995 (the "Balance Sheet Date"), which is
attached hereto as Schedule 3.2(a) (the book value of the Assets included in
such balance sheet less the book value of the Assumed Obligations included in
such balance sheet is hereinafter referred to as the "Base Date Net Asset
Value").
(b) Within 45 days following the Closing Date, Seller shall prepare
and deliver to Purchaser a balance sheet of the Seller as of the Closing Date
(the "Closing Date Balance Sheet"), together with a calculation of the book
value of the Assets and Assumed Obligations determined on the same basis as the
December 31, 1995 balance sheet (such book value of such Assets less such book
value of such Assumed Obligations is hereinafter referred to as the "Closing
Date Net Asset Value"). Purchaser and its representatives shall have the right
to review all work papers and procedures used to prepare the December 31, 1995,
balance sheet and the Closing Date Balance Sheet and the calculation of the Base
Date Net Asset Value and Closing Date Net Asset Value and shall have the right
to perform any other reasonable procedures necessary to verify the accuracy
thereof. Unless Purchaser, within 20 days after delivery to Purchaser of the
Closing Date Balance Sheet, notifies Seller in writing that it objects to either
the December 31, 1995, balance sheet or the Closing Date Balance Sheet or the
calculation of Base Date Net Asset Value or the Closing Date Net Asset Value,
and specifies the basis for such objection, the December 31, 1995, balance sheet
and Closing Date Balance Sheet and calculation of the Base Date Net Asset Value
and Closing Date Net Asset Value shall become final and binding upon the parties
for purposes of this Agreement. If Purchaser and Seller are unable to resolve
such objections within 10 days after any such notification has been given, the
dispute shall be submitted to a nationally recognized public accounting firm
mutually agreed upon by Purchaser and Seller). Such accounting firm shall make a
final and binding determination as to the matter or matters in dispute.
Purchaser and Seller agree to cooperate with each other and with each other's
authorized representatives in order to resolve any and all matters in dispute as
soon as practicable.
(c) For the purposes of the comparison of the Base Date Net Asset
Value to the Closing Date Net Asset Value, no effect shall be given to changes
during such period to amounts of depreciation or amortization.
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(d) Within 10 days after the Closing Date Net Asset Value has been
finally determined, to the extent the difference, if any, between the Base Date
Net Asset Value and the Closing Date Net Asset Value exceeds $10,000, such
difference shall be paid by Purchaser to Seller (if the Closing Date Net Asset
Value exceeds the Base Date Net Asset Value) or by Seller to Purchaser (if the
Base Date Net Asset Value exceeds the Closing Date Net Asset Value). Such
payment shall be by certified or bank check, and shall include simple interest
on such amount at a rate per annum equal to 10% commencing on the Closing Date
and continuing until the date of full payment hereunder.
(e) Purchaser and Seller, in the aggregate, each shall bear one-half
of the fees, costs and expenses of the accounting firm retained under subsection
(d) to resolve any dispute.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND DR. BILYEU
4.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND DR. BILYEU. Seller and
Dr. Bilyeu, jointly and severally, hereby represent and warrant to Purchaser as
follows:
4.2 EXISTENCE AND GOOD STANDING. Seller is a professional corporation duly
organized and validly existing under the laws of the State of Tennessee. Seller
has the full corporate power and authority to own, lease and operate its
property and to carry on the Business as now being conducted and to own or lease
the Assets owned or leased by it. Seller is duly qualified or licensed to do
business in each jurisdiction in which the character or location of the
properties owned or leased by Seller or the nature of the business conducted by
Seller makes such qualification necessary and the absence of which would have a
Material Adverse Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Seller has full corporate
power and authority, and Dr. Bilyeu has full power and authority, to execute and
deliver this Agreement, to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Seller and the consummation by it of the
transactions contemplated hereby, have been or as of the Closing Date will be
duly authorized and approved by the Board of Directors and Dr. Bilyeu as the
sole shareholder of Seller,
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and no other action on the part of Seller or its shareholder is necessary to
authorize the execution, delivery and performance of this Agreement by Seller
and the consummation of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Seller and Dr. Bilyeu and is a valid and
binding obligation of Seller and Dr. Bilyeu enforceable against each in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
4.4 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on Schedule
4.4 hereto, the execution, delivery and performance of this Agreement by Seller
and Dr. Bilyeu and the consummation by Seller and Dr. Bilyeu of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both: (a) violate, conflict with, or result in a breach or default
under, any provision of the organizational documents of Seller; (b) violate any
statute, ordinance, rule, regulation, order, judgment or decree of any court or
of any governmental or regulatory body, agency or authority applicable to Seller
or Dr. Bilyeu or by which any of Seller's properties or assets may be bound; (c)
require any filing by Seller or Dr. Bilyeu with, or require Seller or Dr. Bilyeu
to obtain any permit, consent or approval of, or require Seller or Dr. Bilyeu to
give any notice to, any governmental or regulatory body, agency or authority
other than as set forth in Schedule 4.4 attached hereto; except where the
failure to do so would not have a Material Adverse Effect, or (d) result in a
violation or breach by Seller of, conflict with, constitute (with or without due
notice or lapse of time or both) a default by Seller (or give rise to any right
of termination, cancellation, payment or acceleration) under, or result in the
creation of any Encumbrance upon any of the properties or assets of Seller under
any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, agreement, lease franchise agreement or
other instrument or obligation to which Seller is a party, or by which Seller or
any of its properties or assets may be bound.
4.5 NO SUBSIDIARIES. Seller has no subsidiaries.
4.6 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Seller has
heretofore furnished Purchaser with the unaudited balance sheet of Seller as of
December 31, 1995 (the "Balance Sheet Date"), and the unaudited statements of
operations and cash flows for the year then ended (the "Financial Statements").
The Financial Statements except as indicated therein, have been prepared in
accordance with the books and records of Seller and in a manner consistent with
prior periods.
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The Financial Statements fairly present in all material respects the financial
position of Seller at the date thereof and the results of operations of Seller
and its cash flows for the period indicated. Except as set forth in Schedule 4.6
attached hereto, since the Balance Sheet Date there has been no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of Seller.
4.7 BOOKS AND RECORDS. The minute books of Seller, as previously made
available to Purchaser and its representatives, contain accurate records in all
material respects of all meetings of, and corporate action taken by (including
action taken by written consent) Seller and by the respective shareholders and
Board of Directors of Seller.
4.8 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedule 4.8 or 4.9, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Seller has
good and valid title to the Assets, in each case subject to no Encumbrances
except for (i) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Seller in the operation of the Business,
(ii) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (iii) Encumbrances created by
Purchaser, and (iv) Encumbrances relating to Assumed Obligations (liens of the
type described in clauses (i), (ii), (iii) and (iv) above are hereinafter
sometimes referred to as "Permitted Encumbrances"). Seller has heretofore
furnished Purchaser with a schedule which sets forth all fixed assets owned or
held under a capitalized lease by Seller as of the Balance Sheet Date. Each such
asset used in the ordinary course of the Business is in good operating condition
and repair, subject to ordinary wear and tear, except where such condition or
repair would not have a Material Adverse Effect.
4.9 REAL PROPERTY. Seller owns no real property, in whole or in part.
Schedule 4.9 identifies all leasehold interests of Seller and includes the name
of the lessor thereof and a list of all indebtedness of Seller secured by a
lien, mortgage or deed of trust thereon. Except as set forth on Schedule 4.9,
the premises leased by Seller are in good operating condition, and in a state of
good maintenance and repair, subject to ordinary wear and tear, except where
such condition or maintenance would not have a Material Adverse Effect. To the
knowledge of Seller and Dr. Bilyeu, the real property has adequate rights of
ingress and egress for operation of the Business in the
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ordinary course. To the knowledge of Seller and Dr. Bilyeu, no condemnation or
similar proceeding is pending or threatened, which would preclude or impair the
use of any such property, except where such proceeding would not have a Material
Adverse Effect.
4.10 LEASES. Schedule 4.10 contains an accurate and complete list of all
personal property leases to which Seller is a party (as lessee or lessor).
Except where it would not have a Material Adverse Effect, each lease set forth
in Schedule 4.10 is in full force and effect, and to the knowledge of Seller and
Dr. Bilyeu, no event has occurred that with the giving of notice, the passage of
time or both would constitute a default thereunder.
4.11 MATERIAL CONTRACTS. Except as set forth in Schedule 4.11, the
Assigned Contracts do not include (a) any agreement, contract or binding
commitment relating to the employment of any person by Seller, (b) any
agreement, indenture or other instrument which contains restrictions with
respect to payment of profits, dividends or any other distributions, (c) any
agreement, contract or binding commitment relating to capital expenditures in
excess of $5,000 (d) any loan or advance to, or investment in, any Person or any
agreement, contract or binding commitment relating to the making of any such
loan, advance or investment, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any Person, (f) any management
service, consulting or any other similar type contract, (g) any agreement,
contract or binding commitment limiting the freedom of Seller to engage in any
line of business or to compete with any Person, (h) any agreement, contract or
binding commitment which involves $5,000 or more and is not cancelable without
penalty within 30 days, or (i) any other agreement, contract or binding
commitment which is material to the operations of the Business. There are no
proposals which have been submitted by Seller to any third party that, if
accepted by such third party, would require disclosure on Schedule 4.11. Except
where it would not have a Material Adverse Effect, each contract or agreement
set forth in Schedule 4.11 is in full force and effect and to the knowledge of
Seller and Dr. Bilyeu, there exists no default or event of default or event,
occurrence, condition or act (including the purchase of the Assets hereunder)
which, with the giving of notice, the lapse of time or the happening of any
other event or condition, would become a default or event of default thereunder.
4.12 PERMITS. Schedule 4.12 attached hereto lists all of the governmental
and other third party permits (including occupancy permits), licenses, consents
and authorizations ("Permits") required, to the knowledge of Seller and Dr.
Bilyeu, in connection with the use, operation or ownership of the Assets and the
conduct of the Business as currently conducted. Seller holds all of
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the Permits listed on Schedule 4.12 (other than the dental licenses of dentists
practicing in the Business), and, to the knowledge of Seller and Dr. Bilyeu,
none is presently subject to revocation or challenge.
4.13 LITIGATION. Except as set forth in Schedule 4.13, there is no action,
suit, proceeding at law or in equity, arbitration or administrative or other
proceeding by or before (or any investigation by) any governmental or other
instrumentality or agency (each, a "Proceeding"), pending, or, to the knowledge
of Seller and Dr. Bilyeu, threatened, against or affecting the properties,
rights or goodwill of Seller, Dr. Bilyeu or employees of Seller, except where
such Proceeding would not have a Material Adverse Effect, and Seller and Dr.
Bilyeu do not know of any valid basis for any such Proceeding. There are no
Proceedings pending or to the knowledge of Seller and Dr. Bilyeu threatened,
seeking to prevent or challenge the transactions contemplated by this Agreement.
4.14 TAXES. (a) All returns and reports for Taxes for all taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
year or period beginning before and ending after the Closing Date the portion of
such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
Seller (collectively, the "Returns") have been or will be filed when due in a
timely fashion and such Returns as filed are or will be accurate in all material
respects.
(b) Except as provided in Schedule 4.14, there is no material
action, suit, proceeding, investigation, audit or claim now pending or, to the
knowledge of Seller or Dr. Bilyeu, threatened by any authority regarding any
Taxes relating to Seller for any Pre-Closing Period.
(c) There are no liens or security interests on any of the Assets
that arose in connection with any failure (or alleged failure) to pay any Taxes.
(d) Except as provided in Schedule 4.14, there are no agreements for
the extension or waiver of the time for assessment of any Taxes relating to
Seller for any Pre-Closing Period and Seller has not been requested to enter
into any such agreement or waiver.
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(e) All Taxes relating to Seller which Seller is required by law to
withhold or collect have been duly withheld or collected, and have been timely
paid over to the proper authorities to the extent due and payable.
(f) Seller is not now nor has ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.15 INSURANCE. Set forth in Schedule 4.15 is a complete list of insurance
policies that Seller maintains with respect to its Business, properties or
employees that are included in the Assets. Such policies are in full force and
effect and, to the knowledge of Seller and Dr. Bilyeu, there exists no grounds
on the part of the insurance carriers to cancel or reduce any coverage
thereunder. In the judgment of Seller, such policies, with respect to their
amounts and types of coverage, are adequate to insure against risks to which
Seller and its property and assets are normally exposed in the operation of the
Business, subject to customary deductibles and policy limits.
4.16 INTELLECTUAL PROPERTIES. Schedule 4.16 sets forth all material
Intellectual Property used in the Business. The operation of the Business as
conducted by Seller as of the Closing Date requires no material rights under
Intellectual Property other than rights under Intellectual Property listed on
Schedule 4.16 and rights granted to Seller pursuant to agreements listed on
Schedule 4.16. Except as otherwise set forth in Schedule 4.16, Seller owns all
right, title and interest in the Intellectual Property listed in Schedule 4.16.
No litigation is pending or, to the knowledge of Seller or Dr. Bilyeu,
threatened wherein Seller is accused of infringing or otherwise violating the
Intellectual Property rights of another, or of breaching a contract conveying
rights under Intellectual Property.
4.17 COMPLIANCE WITH LAWS. Seller is in compliance with all applicable
laws, regulations, orders, judgments and decrees applicable to the Business,
except where any noncompliance would not have a Material Adverse Effect.
4.18 EMPLOYMENT RELATIONS. (a) To the knowledge of Seller and Dr. Bilyeu,
Seller is not and has not engaged in any unfair labor practice; (b) to the
knowledge of Seller and Dr. Bilyeu, no representation question exists respecting
the employees of Seller; (c) Seller has not been notified of any grievance that
might have a Material Adverse Effect and no arbitration proceeding arising out
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of or under any collective bargaining agreement is pending; and (f) no
collective bargaining agreement is currently being negotiated by Seller.
4.19 EMPLOYEE BENEFIT PLANS. Seller has delivered to Purchaser true and
complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Seller and Dr. Bilyeu, been maintained in compliance with its terms
and the requirements of all applicable laws. None of the Plans are subject to
Title IV of ERISA or the minimum funding obligations of Section 412 of the Code,
and Seller and any entity required to be aggregated therewith pursuant to
Section 414(b) or (c) of the Code have no liability under Title IV of ERISA or
under Section 412(f) or 412(n) of the Code.
4.20 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.20, and except where it would not have a Material Adverse Effect (a) Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Seller Property by Seller, its authorized agents or its independent
contractors (including suppliers) or any property adjoining any Seller Property,
(b) Hazardous Materials have not been Released or disposed of by Seller, its
authorized agents or its independent contractors (including suppliers) on any
Seller Property or, to the knowledge of Seller or Dr. Bilyeu, any property
adjoining any Seller Property, except such Releases which do not violate any
Environmental Laws, (c) to the knowledge of Seller and Dr. Bilyeu, Seller is in
compliance with all applicable Environmental Laws and the requirements of any
Permits issued under such Environmental Laws with respect to any Seller
Property, (d) to the knowledge of Seller and Dr. Bilyeu, there are no pending or
threatened Environmental Claims against Seller or any Seller Property, (e) to
the knowledge of Seller and Dr. Bilyeu, there are no facts or circumstances,
conditions, pre-existing conditions or occurrences on any Seller Property that
could reasonably be anticipated (A) to form the basis of an Environmental Claim
against Seller or any Seller Property, or (B) to cause such Seller Property to
be subject to any restrictions on the ownership, occupancy use or
transferability of such Seller Property under any Environmental Law, (f) there
are not now and there never have been any underground storage tanks located on
any Seller Property, and (g) Seller has not in the ordinary course of business
transported or stored Hazardous Materials.
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4.21 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships with
Affiliates and as set forth on Schedule 4.21 hereto, Seller does not possess,
directly or indirectly, any financial interest in, and Dr. Bilyeu is not a
director, officer or employee of, any corporation, firm, association or business
organization which is a supplier, customer, lessor, lessee or competitor of
Seller.
4.22 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.22 is an accurate
and complete list showing the names of all persons whose compensation from
Seller collectively for the fiscal year ended on the Balance Sheet Date exceeded
an annualized rate of $25,000 together with a statement of the full amount paid
or payable to each such person for services rendered during the current fiscal
year to date.
4.23 PAYORS. Schedule 4.23 sets forth the five largest payors of Seller
for the most recently completed fiscal year. The relationship of Seller with
each of such payors as of the date of this Agreement is a good commercial
working relationship, and except as set forth in Schedule 4.23 no significant
payor has canceled or otherwise terminated or, to the knowledge of Seller or Dr.
Bilyeu threatened to cancel or otherwise terminate, its relationship with Seller
within the last three years.
4.24 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.24, the Accounts Receivable on the Closing Date Balance Sheet are
collectible in the ordinary course of business, net of the reserves set up with
respect thereto. Except as set forth on Schedule 4.24, there has been no change
since the Balance Sheet Date (other than in the ordinary course of business) in
the amount of the Accounts Receivable or other fees or debts due to Seller or
the allowances with respect thereto, or Accounts Payable by Seller, from that
reflected in the Balance Sheet.
4.25 SOLVENCY. Seller is not entering into this Agreement with actual
intent to hinder, delay or defraud creditors.
4.26 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
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4.27 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting on
behalf of Seller is, or will be, entitled to any commission or broker's or
finder's or similar fees in connection with this Agreement or any of the
transactions contemplated hereby.
4.28 COPIES OF DOCUMENTS. Seller has caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
4.29 INVESTMENT REPRESENTATIONS.
(a) Seller and Dr. Bilyeu understand that the Common Stock has not
been registered under the Securities Act of 1933, as amended (the
"Securities Act"). Seller and Dr. Bilyeu also understand that the Common
Stock is being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon their respective
representations contained in this Agreement.
(b) Seller has, and Dr. Bilyeu, in consultation with his
accountants, attorneys and financial advisors has, substantial experience
in evaluating and investing in private placement transactions of
securities in companies similar to Castle so that he is capable of
evaluating the merits and risks of its investment in Castle and has the
capacity to protect his own interests. Seller and Dr. Bilyeu each
understand that it or he must bear the economic risk of this investment
indefinitely unless the Common Stock is registered pursuant to the
Securities Act, or an exemption from registration is available. Seller and
Dr. Bilyeu understand that Castle has no present intention of registering
the Common Stock. Seller and Dr. Bilyeu also understand that there is no
assurance that any exemption from registration under the Securities Act
will be available and that, even if available, such exemption may not
allow either of them to transfer all or any portion of the Common Stock
under the circumstances, in the amounts or at the times he might propose.
(c) Each of Seller and Dr. Bilyeu is acquiring the Common Stock for
his or its own account for investment only, and not with a view towards
distribution.
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(d) Each of Seller and Dr. Bilyeu represents that by reason of his
or its business or financial experience, he or it has the capacity to
protect his or its own interests in connection with the transactions
contemplated in this Agreement.
(e) Each of Seller and Dr. Bilyeu represents that he or it is an
accredited investor within the meaning of Regulation D under the
Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
5.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller and Dr. Bilyeu as follows:
5.2 EXISTENCE AND GOOD STANDING OF PURCHASER; POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee. Purchaser has full corporate power and
authority to make, execute, deliver and perform this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and approved by all required corporate
action of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and is a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
5.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by Purchaser of
the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time or both; (a) violate, conflict with, or result in a
breach or default under any provision of the certificate of incorporation or
by-laws of Purchaser; (b) violate any statute, ordinance, rule, regulation,
order, judgment or decree of any court or of any governmental or regulatory
body, agency or authority applicable to Purchaser or Castle or by which any of
their respective properties or assets may be bound; (c) require any filing by
Purchaser with, or require Purchaser to obtain any permit, consent
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or approval of, or require Purchaser to give any notice to, any governmental or
regulatory body, agency or authority or any third party other than as set forth
in Schedule 5.3; or (d) result in a violation or breach by Purchaser of,
conflict with, constitute (with or without due notice or lapse of time or both)
a default by Purchaser (or give rise to any right of termination, cancellation,
payment or acceleration) under, or result in the creation of any Encumbrance
upon any of the properties or assets of Purchaser pursuant to, any of the terms,
conditions or provision of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or other instrument or
obligation to which Purchaser is a party, or by which it or any of its
properties or assets may be bound, except in the case of Subsections 5.3(b),
(c), and (d), for such violations, consents, breaches, defaults, terminations
and accelerations which in the aggregate would not have a Material Adverse
Effect.
5.4 CAPITAL STOCK. The authorized capital stock of Castle consists solely
of 18,755,263 shares of Common Stock of which 4,000,000 shares have been issued
as of the date of this Agreement, and 1,244,737 shares of Preferred Stock, $.001
par value per share ("Preferred Stock"), all of which shares have been issued.
All of the shares of Common Stock of Castle delivered pursuant to Section 3.1
hereof shall be duly and validly authorized, and, following the Closing, will be
validly issued, fully paid, nonassessable and free of any liens or encumbrances.
5.5 LITIGATION. Except as set forth in Schedule 5.5 hereto, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Purchaser,
threatened, against or affecting the properties, rights or goodwill of Castle,
Purchaser or their employees, except where such Proceeding would not have a
material adverse effect on the assets, liabilities, business, condition
(financial or otherwise), results of operations or prospects of Castle or
Purchaser, and Purchaser does not know of any valid basis for any such action,
proceeding or investigation. There are no such Proceedings pending or, to the
knowledge of Purchaser, threatened, seeking to prevent or challenge the
transactions contemplated by this Agreement.
5.6 COMPLIANCE WITH LAWS. To the knowledge of Purchaser, Castle and
Purchaser are in compliance with all applicable laws, regulations, orders,
judgments and decrees applicable to their respective business, except where any
noncompliance would not have a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), results of operations
or prospects of Castle or Purchaser.
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5.7 FINANCIAL STATEMENTS. The audited financial statements of Castle as of
December 31, 1995, attached hereto as Schedule 5.7 (to be attached prior to the
Closing Date), are complete and correct in all material respects and present
fairly in accordance with generally accepted accounting principles consistently
applied, the financial condition of Castle and the results of operations of
Castle as of the dates thereof and for the periods indicated.
5.8 BROKER'S OR FINDER'S FEES. Except for a fee payable by Purchaser to
the GulfStar Group, no agent, broker, Person or firm acting on behalf of
Purchaser is, or will be, entitled to any fee, commission or broker's or
finder's fee in connection with this Agreement or any of the transactions
contemplated hereby.
ARTICLE VI
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller under this Agreement to sell, or cause to be
sold, the Assets and to consummate the other transactions contemplated hereby
shall be subject to the satisfaction (or waiver by Seller) on or prior to the
Closing Date of all of the following conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, and Purchaser shall have delivered to Seller on the Closing Date a
certificate of an authorized officer of Purchaser, dated the Closing Date, to
such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Purchaser shall have delivered to Seller a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect.
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser shall have delivered to Seller a certificate of an
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authorized officer of Purchaser, dated the Closing Date, to such effect to the
best knowledge of such officer.
6.4 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.5 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Seller and Dr. Bilyeu
and their counsel, and Seller and Dr. Bilyeu shall have received copies of all
such documents and other evidence as its or its counsel may reasonably request
in order to establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
6.6 EMPLOYMENT AGREEMENTS. Dr. Bilyeu, Philip Hammer and David North shall
have received Employment Agreements, substantially in the form of Exhibits B-1.
B-2 and B-3, respectively, attached hereto, executed by the Purchaser and
Castle.
6.7 REGISTRATION RIGHTS AGREEMENT. Dr. Bilyeu shall have received a
Registration Rights Agreement, substantially in the form of Exhibit E hereto,
executed by Castle Dental Centers, Inc.
6.8 CONSENTS. Each of the consents referred to in Schedule 5.3 hereto
shall have been obtained.
6.9 DUE DILIGENCE. Dr. Bilyeu and Seller shall have satisfactorily
completed their due diligence review of Castle and Buyer, and shall not have
determined, in the exercise of their reasonable discretion, that the information
obtained from such review materially and adversely affects their appraisal of
the business, prospects and financial condition of Castle.
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ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser under this Agreement to purchase the Assets
and to consummate the other transactions contemplated hereby shall be subject to
the satisfaction (or waiver by Purchaser) on or prior to the Closing Date of all
of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and Dr. Bilyeu contained herein shall be true and correct
in all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date; and Seller and Dr. Bilyeu shall have delivered to Purchaser on the
Closing Date a certificate of an authorized representative of Seller and Dr.
Bilyeu, dated the Closing Date, to such effect.
7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Seller to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Seller shall have delivered to Purchaser a certificate of an authorized
representative of Seller, dated the Closing Date, to such effect.
7.3 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Seller
fully executed documents of conveyance vesting in Purchaser good and valid title
to the Assets, free and clear of any Encumbrances except Permitted Encumbrances.
7.4 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Seller
shall have delivered to Purchaser a certificate of an authorized representative
of Seller, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
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7.6 CONSENTS. Each of the consents referred to in Schedule 4.4 attached
hereto shall have been obtained.
7.7 LEGAL OPINION. Seller shall have delivered to Purchaser the opinion of
Waller Lansden Dortch & Davis, their counsel, substantially in the form of
Exhibit C attached hereto.
7.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel, and Purchaser shall have received copies of all such documents and
other evidence as it or its counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
7.9 NEW PC. Dr. Bilyeu shall have organized New PC and New PC shall have
entered into Employment Agreements with the dentists employed as of the Closing
by Seller and Seller shall have duly and validly assigned to New PC all
reimbursement contracts with third party insurance companies, managed care
companies and other reimbursement sources referred to in Section 2.2(e). Seller
shall have changed its corporate name to a name reasonably acceptable to
Purchaser and New PC shall have changed its corporate name to Castle Mid-South
Dental Center, P.C.
7.10 EXECUTION OF MANAGEMENT SERVICES AGREEMENT. Purchaser and New PC
shall have entered into a Management Services Agreement substantially in the
form of Exhibit F hereto.
7.11 STOCKHOLDERS AGREEMENT. Dr. Bilyeu shall have entered into a
Stockholders Agreement with Castle and certain of its other Stockholders,
substantially in the form of Exhibit D.
7.12 SUBORDINATION AGREEMENT. Seller shall have executed and delivered a
Subordination Agreement with respect to the promissory note described in Section
3.1(b) in form and substance satisfactory to the senior and senior subordinated
lenders of Castle.
ARTICLE VIII
COVENANTS OF SELLER AND DR. BILYEU
Seller and Dr. Bilyeu hereby covenant and agree with Purchaser as follows:
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8.1 COOPERATION BY SELLER. Seller and Dr. Bilyeu shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Seller and Dr. Bilyeu to effect the
transactions contemplated on its or his part hereby, and Seller and Dr. Bilyeu
shall otherwise use their reasonable best efforts to cause the consummation of
such transactions in accordance with the terms and conditions hereof and to
cause all conditions contained in this Agreement over which it has control to be
satisfied. Seller and Dr. Bilyeu further agree to deliver to Purchaser prompt
written notice of any event or condition which if it existed on the date of this
Agreement, would result in any of the representations and warranties of Seller
or Dr. Bilyeu contained herein being untrue in any material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Seller shall, (a) conduct
the Business only in the ordinary course, (b) use its reasonable efforts to keep
available the services of its employees and maintain satisfactory relationships
with licensors, suppliers, lessors, distributors, customers, clients and others,
(c) maintain, consistent with past practice and good business judgment, all the
Assets in customary repair, order and condition, ordinary wear and tear
excepted, and insurance upon all the Assets used in the conduct of the Business
in such amounts and of such kinds comparable to that in effect on the date
hereof, to the extent available at current premiums, and (d) maintain the Books
and Records in the usual, regular and ordinary manner, on a basis consistent
with past practice.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Seller nor Dr. Bilyeu shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser (other than to accountants,
attorneys, employees and other representatives of Seller and Dr. Bilyeu engaged
by them in connection with the transactions contemplated by this Agreement),
concerning any sale of the Assets or any material part thereof or a similar
transaction involving Seller or Dr. Bilyeu.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Seller's certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records of Seller and to
otherwise review the financial and legal condition of Seller as Purchaser deems
necessary or advisable to familiarize itself with the Business and related
matters; such review shall
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not, however, affect the representations and warranties made by Seller and Dr.
Bilyeu hereunder or the remedies of Purchaser for breaches of those
representations and warranties. Such review shall occur only during normal
business hours upon reasonable notice by Purchaser. Seller and Dr. Bilyeu shall
permit Purchaser and its representatives to have, after the execution of this
Agreement, full access to employees of Seller who can furnish Purchaser with
financial and operating data and other information with respect to the Business
as Purchaser shall from time to time reasonably request.
8.5 FURTHER ASSURANCES. At any time or from time to time after the Closing
Date, Seller and Dr. Bilyeu shall, at the reasonable request of Purchaser and at
Purchaser's expense, execute and deliver any further instruments or documents
and take all such further action as Purchaser may reasonably request in order to
consummate and make effective the sale of the Assets and the assumption of the
Assumed Obligations pursuant to this Agreement.
ARTICLE IX
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller and Dr. Bilyeu as
follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Seller and Dr. Bilyeu, to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Purchaser to effect the transactions
contemplated on its part hereby, and Purchaser will otherwise use its reasonable
best efforts to cause the consummation of such transactions in accordance with
the terms and conditions hereof and to cause all conditions contained in this
Agreement over which it has control to be satisfied. Purchaser further agrees to
deliver to Seller and Dr. Bilyeu prompt written notice of any event or
condition, which if it existed on the date of this Agreement, would result in
any of the representations and warranties of Purchaser contained herein being
untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Seller and any agents of any Seller, upon reasonable
advance notice to Purchaser, access to all Books and Records of Seller which are
transferred to Purchaser in connection herewith, to the extent necessary or
desirable in anticipation of, or preparation for, existing or future litigation,
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employment matters, tax returns or audits, or reports to or filings with
governmental agencies, during normal working hours at Purchaser's principal
places of business or at any location where such Books and Records are stored,
and Seller shall have the right, at Seller's sole cost, to make copies of any
such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the Closing
Date, Purchaser shall, at the request of Seller or Dr. Bilyeu and at such
Seller's expense, execute and deliver any further instruments or documents and
take all such further action as Seller may reasonably request in order to
consummate and make effective the sale of the Assets and the assumption of the
Assumed Obligations pursuant to this Agreement.
9.4 DUE DILIGENCE INVESTIGATION. Prior to the Closing Date, Purchaser and
Castle will make available to Seller and Dr. Bilyeu and their respective
attorneys, accountants, consultants and agents, any and all information
regarding Purchaser and Castle and their respective businesses, operations,
financial affairs and management, including but not limited to the information
contained on Schedule 9.4 attached hereto, to the extent such information is in
the possession of Purchaser or Castle or can be obtained without unreasonable
burden or expense, to permit Seller and Dr. Bilyeu to familiarize themselves
with the business of the Purchaser and Castle and to make an informed investment
judgment with respect to the Common Stock of Castle referred to in Section
3.1(c). The Purchaser and Castle agree to make available to Seller and Dr.
Bilyeu and their respective attorneys, accountants, consultants and agents
management members and representatives of Purchaser and Castle to respond to any
questions or inquiries from such parties regarding the Purchaser, Castle and
their respective businesses, operations, financial affairs and management.
The due diligence investigation shall be conducted at the principal offices of
Castle in Houston, Texas, at such time or times during normal business hours as
are reasonably requested by Seller and Dr. Bilyeu, or information will be
delivered, on reasonable request, to the offices of Seller or Dr. Bilyeu or
their representatives. Seller and Dr. Bilyeu agree to complete such
investigation on or before May 17, 1996, or such date not later than May 31,
1996 which is 14 days after the date on which all information reasonably
requested by Seller or Dr. Bilyeu or their representatives within five business
days of the start of the due diligence period is made available to them.
All parties participating in the due diligence review shall be bound by
confidentiality agreements in form and substance satisfactory to the Purchaser
and Castle.
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ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, Dr, Bilyeu and
Seller; or
(b) by Purchaser, Dr. Bilyeu, or Seller in writing without liability
on the part of the terminating party on account of such termination
(provided the terminating party is not otherwise in default or in breach
of this Agreement), if the Closing Date shall not have occurred on or
before May 31, 1996; or
(c) by either Purchaser, on the one hand, or Dr. Bilyeu and Seller,
on the other hand, in writing, without liability on the part of the
terminating party on account of such termination (provided the terminating
party is not otherwise in default or breach of this Agreement), if the
other party shall (i) fail to perform its or their covenants or agreements
contained herein required to be performed prior to the Closing Date, or
(ii) breach or have breached any of its representations or warranties
contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to this
Article shall terminate all obligations of the parties hereunder, except for the
obligations under Sections 12.8 and 12.11 hereof and the obligations set forth
in the next succeeding sentence of this Section 10.2. Upon any termination of
this Agreement each party hereto will redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
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ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF THE SELLER. The Purchaser, from and after the
Closing Date, shall indemnify and hold Seller and Dr. Bilyeu and their
respective Affiliates (the "Seller Indemnitees") harmless from and against any
and all damages (including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation (collectively, the
"Damages"), suffered by any Seller Indemnitee prior to the first anniversary of
the Closing Date as a result of, caused by, arising out of, or in any way
relating to (a) any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of the Purchaser under this Agreement or
any misrepresentation in or omission from any list, schedule, certificate, or
other instrument furnished or to be furnished to the Seller by the Purchaser
pursuant to the terms of this Agreement or (b) any liability or obligation
(other than those for which Purchaser are being indemnified by Seller and Dr.
Bilyeu hereunder) which pertains to the ownership, operation or conduct of the
Business or Assets arising from any acts, omissions, events, conditions or
circumstances occurring on or after the Closing Date.
11.2 INDEMNIFICATION OF THE PURCHASER. Seller and Dr. Bilyeu, jointly and
severally, shall indemnify and hold Purchaser and its Affiliates (the "Purchaser
Indemnitees") harmless from and against any and all Damages suffered by any
Purchaser Indemnitee as a result of, caused by, arising out of, or in any way
relating to (a) any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of the Seller or Dr. Bilyeu under this
Agreement or any misrepresentation in or omission from any list, schedule,
certificate, or other instrument furnished or to be furnished to the Purchaser
by the Seller pursuant to the terms of this Agreement, (b) any liability or
obligation (other than those for which Seller and Dr. Bilyeu are being
indemnified by Purchaser hereunder and other than those relating to or arising
from the Assumed Obligations) which pertains to the ownership, operation or
conduct of the Business or Assets arising from any acts, omissions, events,
conditions or circumstances occurring before the Closing Date, or (c) the
uncollectibility of more than $10,000 of Accounts Receivable (net of applicable
reserve) after nine months. The aggregate amount of indemnification which may be
recovered under this Section 11.2 by Purchaser from Dr. Bilyeu and Seller, or
either of them, shall not exceed the amount of the Purchase Price.
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11.3 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party knowingly failed to notify the indemnifying party
thereof in accordance with the provisions of this Agreement in sufficient time
to permit the indemnifying party or its counsel to defend against such matter
and to make a timely response thereto including, without limitation, any
responsive motion or answer to a complaint, petition, notice or other legal,
equitable or administrative process relating to the Claim, only insofar as such
knowing failure to notify the indemnifying party has actually resulted in
prejudice or damage to the indemnifying party.
11.4 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be entitled
at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnified party of the asserted Claim, whereupon such action shall
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be taken unless the indemnified party determines that the contest should be
continued, and so notifies the indemnifying party in writing within 15 days of
such request from the indemnifying party. If the indemnified party determines
that the contest should be continued, the indemnifying party shall be liable
hereunder only to the extent of the amount that the other party to the contested
Claim had agreed unconditionally to accept in payment or compromise as of the
time the indemnifying party made its request therefor to the indemnified party.
11.5 COOPERATION. If requested by the indemnifying party, the indemnified
party agrees to cooperate with the indemnifying party and its counsel in
contesting any Claim that the indemnifying party elects to contest or, if
appropriate, in making any counterclaim against the person asserting the Claim,
or any cross-complaint against any person, and the indemnifying party will
reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.6 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
11.7 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
11.8 LIMITATION ON INDEMNIFICATION.No claim for indemnification under this
Article XI may be made unless and until the party seeking indemnification has
suffered, incurred, sustained or become subject to Damages in excess of $10,000
in the aggregate (except with respect to the Accounts Receivable referred to in
Section 11.2(c) with respect to which no additional threshold in excess of the
$10,000 threshold described in Section 11.2(c) is intended); provided, however,
that (whether or not Damages in excess of $10,000 have been incurred)
indemnification under this Article XI may be claimed for, and full recovery may
be had with respect to, all Damages resulting from any indemnifying party's
intentional, willful or reckless nonfulfillment or breach of any
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covenant or agreement made by such indemnifying party as a part of or contained
in this Agreement. Except as specifically provided in this Section 11.8, all
claims for indemnification under this Article XI for Damages (without regard to
the Accounts Receivable described in Section 11.2(c)) will accumulate until such
time as such claims for indemnification exceed $10,000 in the aggregate, at
which time, all amounts may be recovered as provided herein.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Seller or Dr. Bilyeu without the
prior written consent of Purchaser or by Purchaser to any Person without the
prior written consent of Seller and Dr. Bilyeu.
12.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration of
the terms or provisions of this Agreement shall be binding unless the same shall
be in writing and duly executed by the parties hereto, except that any of the
terms or provisions of this Agreement may be waived in writing at any time by
the party which is entitled to the benefits of such waived terms or
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provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
12.6 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is not intended to
and shall not be construed to give any Person (other than the parties signatory
hereto any interest or rights (including, without limitation, any third party
beneficiary rights) with respect to or in connection with any agreement or
provision contained herein or contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and pay
all applicable sales, stamp, transfer, documentary, use, registration, filing
and other taxes and fees (including any penalties and interest) that may become
due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Seller, Dr.
Bilyeu and Purchaser shall each pay all costs and expenses incurred by them or
on their behalf in connection with this Agreement and the transactions
contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
if to Purchaser, to:
Castle Dental Centers of Tennessee, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
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with a copy to:
William D. Gutermuth
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2856
if to Seller or Dr. Bilyeu, to:
G. Powell Bilyeu, D.D.S.
MidSouth Dental Centers, Inc.
1010 Murfreesboro Road
Suite 196
Franklin, Tennessee 37064
with a copy to:
William F. Carpenter III
Waller Lansden Dortch & Davis
511 Union Street
Suite 2100
Nashville, Tennessee 37219-8966
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee without regards to conflict
of law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the
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requirements of its lenders and investors and to comply with applicable
securities laws. No party hereto shall issue any press release or make any other
public statement, in each case relating to or connected with or arising out of
this Agreement or the matters contained herein, without obtaining the prior
approval of the other party hereto to the contents and the manner of
presentation and publication thereof.
12.12 SEVERABILITY. If any provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
determination that any provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
12.13 ENFORCEMENT. The parties hereto agree that the remedy at law for any
breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
By:_____________________________
Name: Jack H. Castle, Jr.
Title: President
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MID-SOUTH DENTAL CENTER, P.C.
By:_____________________________
Name: G. Powell Bilyeu, D.D.S.
Title: President
G. POWELL BILYEU, D.D.S.
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Exhibit 10.30
Doc. No. 6
CASTLE DENTAL CENTERS, INC.
10% Note
due May 30, 2001
$750,000 May 31, 1996
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "COMPANY"), promises to pay to MID-SOUTH DENTAL CENTERS, P.C.
or the holder hereof, the principal sum of $750,000 on May 30, 2001, with equal
installments of principal and interest (computed on the basis of a 360-day year
of twelve 30-day months) on the unpaid balance thereof at the rate of 10% per
annum from the date hereof, payable quarterly in arrears in cash on the last day
of January, April, July and October in each year, commencing on July 31, 1996,
until the principal of this Note shall have become due and payable (whether at
maturity, upon acceleration, upon notice of prepayment or otherwise) or shall
have been paid. Upon the occurrence and during the continuation of any payment
default, the rate of interest under this Note shall be increased to a rate per
annum from time to time equal to the lower of (a) 16% and (b) the maximum rate,
if any, permitted by applicable law, compounded quarterly.
All unpaid principal of the Note and accrued interest thereon shall be
immediately due and payable ten days following the consummation of a firmly
underwritten public offering of the Company's common stock, $.001 par value, in
which the gross proceeds (before underwriters' discounts and selling
commissions) are greater than or equal to $25,000,000.00.
Payments of both principal and interest of this Note are to be made at
1010 Murphreesboro Road, Suite 196, Franklin, Tennessee 37064, or at such other
place as the holder hereof shall designate to the Company in writing, in lawful
money of the United States of America.
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This Note is intended to be performed in the State of Tennessee, and
shall be construed and enforced in accordance with the law of such State,
without giving effect to the conflicts or choice of law principles of such
State.
CASTLE DENTAL CENTERS, INC.
By:________________________________
Name:
Title:
ATTEST:
By:_________________________
Name:
Title:
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Exhibit 10.31
Doc. No. 31
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT (the "Agreement") dated as of
May 31, 1996, between Castle Mid-South Dental Centers, P.C., a Tennessee
professional corporation ("Seller"), and Castle Dental Centers of Tennessee,
Inc., a Tennessee corporation ("Buyer").
In connection with the Management Services Agreement of even date
herewith, by and between Buyer and Seller (the "Management Agreement") and for
other good and valuable consideration, Seller has agreed to sell and Buyer has
agreed to purchase the Receivables (as defined below) pursuant to the terms of
this Agreement. Any initially capitalized terms not otherwise defined herein
shall have the meanings assigned to such terms in the Management Agreement.
ARTICLE I
SALE OF RECEIVABLES
SECTION 1.1 PURCHASE AND SALE. Seller will sell to Buyer and Buyer
will purchase all of Seller's present and future accounts receivable, chattel
paper, instruments, general intangibles, and other rights to payment generated
by Seller for billable dental services performed or to be provided in the future
and claims for reimbursement or indemnification from Blue Cross/Blue Shield,
managed care organizations, insurance companies and other third-party payors or
fiscal intermediaries (the "Receivables"). The conveyance and general assignment
of such Receivables by Seller to Buyer, which shall be without recourse to
Seller, shall be made monthly by Seller as of the first day of each month as to
all such Receivables arising during the course of the previous month. Such
conveyance and general assignment shall be effected by virtue of the provisions
of this Section 1.1, without further instrument of conveyance; and Seller hereby
sells, transfers, assigns and conveys all such Receivables and proceeds with
respect to he Receivables to Buyer as of the dates they arise or come into
being.
SECTION 1.2 PURCHASE PRICE . The price to be paid by Buyer to Seller
for any Receivable purchased by Buyer pursuant to this Agreement shall be
determined by Section 6.6 of the Management Services Agreement.
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SECTION 1.3 DOCUMENTS. Seller shall present to Buyer the best
documentation or evidence available as to the existence of such Receivables
(which, if requested, shall be endorsed, assigned or otherwise transferred to
Buyer without recourse), together with any supporting records and any security
or collateral therefor which is readily susceptible of delivery.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce Buyer to make purchases of Receivables, Seller
represents and warrants to Buyer as set forth in this Article II.
SECTION 2.1 ORGANIZATION, ETC. Seller is a professional association
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified to do business, and is
in good standing, in every jurisdiction where the nature of its business
requires it to be so qualified and where failure to be so qualified will not
have a material adverse effect on its business, financial position or results of
operations or impair the enforceability of the Receivables.
SECTION 2.2 CORPORATE POWER, AUTHORITY, ETC. The execution, delivery
and performance by Seller of this Agreement and the other documents to be
delivered by it hereunder, and the transactions contemplated hereby, are within
Seller's corporate powers, have been duly authorized by all necessary corporate
action and
(a) do not contravene or constitute (with or without notice
or lapse of time) a default under:
(i) Seller's charter or by-laws;
(ii) any law, rule or regulation applicable to
Seller in any material respect;
(iii) any contractual restriction contained in
any indenture, loan or credit agreement, lease, mortgage, security
agreement, bond, note, or other agreement or instrument binding on
Seller or affecting its property in any material respect; or
(iv) any order, rule writ, judgment, award,
injunction, decree or regulation binding on Seller or affecting its
property in any material respect; and
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(b) do not result in or require the creation of any
material lien, security interest or other charge or encumbrance upon or with
respect to any of its properties except as otherwise provided for in this
Agreement.
No transaction contemplated hereby requires compliance with any bulk
sales act or similar law. This Agreement and each of the other documents to be
delivered by Seller hereunder have been duly executed and delivered on behalf of
Seller.
SECTION 2.3 DUE AUTHORIZATION, ETC. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Seller of this Agreement or the other documents to be delivered b it hereunder,
EXCEPT for the filing of the UCC Financing Statements referred to in Section 3.1
which filings have been duly made and are in full force and effect.
SECTION 2.4 VALIDITY, ENFORCEABILITY, ETC. Assuming due execution and
delivery of this Agreement by Buyer, this Agreement is a legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms, except as the enforceability thereof may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by general principles of equity.
SECTION 2.5 LITIGATION ETC. There are no actions, suits or
proceedings pending or, to the knowledge of Seller, threatened against or
directly affecting Seller or this property before any court, governmental body,
administrative agency or arbitrator in which there is a reasonable possibility
of an adverse decision which would materially adversely affect the ability of
Seller to perform its obligations under this Agreement.
SECTION 2.6 OFFICES, ETC. The chief place of business and chief
executive office of Seller is 1010 Murphreesboro Road, Suite 196, Franklin,
Tennessee 37064, and the offices where Seller keeps all of its books, record and
documents concerning the Receivables are located at 1010 Murphreesboro Road,
Suite 196, Franklin, Tennessee 37064, or (or as notified to Buyer in accordance
with Section 7.3) at such other locations in jurisdictions where all action
required to perfect, protect or more fully evidence the ownership interests
purchased hereunder or to enable Buyer to exercise or enforce any of its rights
hereunder has been taken and completed.
SECTION 2.7 OWNERSHIP. Seller owns the Receivables purchased
hereunder free and clear of any lien, security interest, charge or encumbrance
other than as contemplated herein or the Management Services Agreement. No
effective financing statement or other instrument similar in effect covering all
or any part of such Receivables is on file in any recording office, except such
as
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may have been filed in favor of Buyer relating to this Agreement. As of the date
hereof, there are no instruments or chattel paper representing Receivables.
Seller has no trade names.
SECTION 2.8 TITLE, PERFECTION ETC. This Agreement creates a valid and
perfected first priority ownership interest in the Receivables, and all filings
and other actions necessary or desirable to perfect and protect such ownership
interest have been duly taken.
ARTICLE III
SECTION 3.1 FINANCING STATEMENTS. Seller will, at its expense, file,
and maintain the filing of, such financing statements or other documents as may
be necessary or appropriate, under the Uniform Commercial Code as adopted in
Tennessee and any other applicable laws, to perfect and preserve the rights of
Buyer hereunder, and, if requested by Buyer, will furnish to Buyer from time to
time opinions of its counsel that such filings have been made and operate to
establish, preserve and protect Buyer's rights hereunder and in all Receivables
sold pursuant hereto and to create and preserve an ownership interest in such
Receivables, pursuant to the Uniform Commercial Code as adopted in Tennessee.
SECTION 3.2 ADDITIONAL SPECIFIC ASSIGNMENT DOCUMENTATION.
(a) Seller agrees that, when and if it is a party to any
insurance, managed care or similar contract pursuant to which Seller may have
rights to payment for dental services performed or to be performed in the future
and/or claims for reimbursement or indemnification, it will execute a specific
assignment of the revenues under such contract in favor of Buyer substantially
in the form attached hereto as Exhibit A or such other form as may be agreeable
to Buyer and make reasonable effort to cause such assignment to be acknowledged
and agreed to by the account party or other obligor on such contract.
(b) With respect to Receivables which are claims assigned
to Seller by its patients against Blue Cross/Blue Shield, insurance companies,
managed care organizations and other third-party payors or financial
intermediaries (each an "account party"), Seller agrees to execute and deliver
to Buyer the instruction notice letters addressed to substantially all the known
account parties substantially in form attached hereto as Exhibit B ("Assignment
Notice Letters"). Upon request of Buyer or Buyer's lender (NationsBank of Texas,
N.A.), Seller, from time to time, will execute and deliver additional Assignment
Notice letters as reasonably necessary to give all account parties notice of the
assignments described therein.
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SECTION 3.3 FURTHER ASSURANCES.
(a) Seller agrees that from time to time, at the expense of
Seller, Seller will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Buyer may reasonably request, in order to perfect and protect the ownership
interest conveyed or purported to be conveyed hereby or to enable Buyer to
exercise and enforce its rights and remedies hereunder with respect to any
Receivables purchased hereunder. Without limiting the generality of the
foregoing, Seller will: (i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or desirable, or as Buyer may
request, in order to protect and preserve the ownership interest conveyed
hereby; and (ii) if any such Receivable shall be evidenced by a promissory note
or other instrument or chattel paper, deliver and pledge to Buyer hereunder such
note, instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment all in form and substance satisfactory to
Buyer.
(b) Seller hereby authorizes Buyer to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Receivables purchased hereunder without the signature of Seller
where permitted by law. A carbon, photographic or other reproduction of this
Agreement or any financing statement covering such Receivable or any part
thereof shall be sufficient as a financing statement where permitted by law.
(c) Seller will furnish to Buyer from time to time
statements and schedules further identifying and describing the Receivables
purchased hereunder and such other reports in connection with such Receivables
as Buyer may reasonably request, all in reasonable detail.
ARTICLE IV
ADMINISTRATION AND COLLECTION
SECTION 4.1 SETTLEMENT PROCEDURES, REPORTING, ETC. With respect to
all billing collection matters, Seller and Buyer agree to comply with the terms
and procedures set forth in Section 4.8 of the Management Agreement.
SECTION 4.2 ACTIONS WITH RESPECT TO RECEIVABLES.
(a) Seller shall instruct all account debtors and obligors
on Receivables to make all payments on Receivables directly to Buyer. All
proceeds of Receivables which may from time to time come into the possession of
Seller shall be held in trust for Buyer, segregated from the other
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funds of Seller, and delivered to Buyer immediately in the form received with
any necessary endorsement, such delivery in no event to be later than one
Business Day after receipt thereof by Seller.
(b) In connection with the foregoing, Buyer shall have the
right at any time to take any of the following actions, in its own name or in
the name of Seller: Notify any persons or entities which Buyer believes are
account debtors and obligors on Receivables to make payments directly to Buyer;
compromise or extend time of payment upon such terms as Buyer may determine;
endorse the name of Seller on checks, instruments, or other evidences of payment
on Receivables; make written or verbal requests for verification of amounts
owing on Receivables from any persons or entities which Buyer believes are
account debtors and obligors on Receivables; open mail addressed to Seller and,
to the extent of checks or other proceeds of Receivables, dispose of same in
accordance with this Agreement; take action in Buyer's name or Seller's name to
enforce collection; and take all other action necessary to carry out this
Agreement and give effect to Buyer's rights hereunder.
ARTICLE V
COVENANTS
From the date of this Agreement until the six months after the date
the Management Agreement ceases to be in full force and effect for any reason,
Seller will perform the obligations set forth in this Article V.
SECTION 5.1 COMPLIANCE WITH LAWS, ETC. Seller will comply in all
material respects with all material laws, rules, regulations and orders
applicable to it, its business and properties and all Receivables; such
compliance shall include without limitation, paying before the same become
delinquent all taxes, assessments and governmental charges imposed upon Seller
or upon its property except to the extent contested in good faith.
SECTION 5.2 PRESERVATION OF CORPORATE EXISTENCE. Seller will preserve
and maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified in good
standing as a foreign corporation in each jurisdiction where the failure to
preserve and maintain such existence, rights, franchises, privileges and
qualification would materially adversely affect the interests of Buyer hereunder
or the ability of Seller to perform its obligations under this Agreement.
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SECTION 5.3 COMPLIANCE WITH LAWS. Seller will comply with all laws,
rules and regulations and comply with all material contractual requirements of
Blue Cross/Blue Shield, insurance companies, managed care organizations and
other third-party payors or fiscal intermediaries who now or in the future are
account parties of the Receivables, and take all such other action as is
reasonably necessary to ensure that Receivables are payable without offset,
defense or counterclaim.
SECTION 5.4 KEEPING OF RECORDS AND BOOKS OF ACCOUNTS. Seller will
maintain and implement, or cause to be maintained and implemented,
administrative and operating procedures (including a reasonable ability to
recreate substantially all material records evidencing Receivables in the event
of the destruction of the originals thereof), and keep and maintain, or cause to
be kept and maintained all books, records, documents and other information
reasonably necessary or advisable for the collection of all Receivables
(including records adequate to permit the daily identification of each
Receivable and all collection of and reductions or adjustments to each
Receivable).
SECTION 5.5 LOCATION OF RECORDS. Seller will keep its chief place of
business and chief executive office, and the offices where it keeps its books,
records and documents concerning the Receivables and all Contracts related
thereto (including all original documents relating thereto), at the address of
Seller specified in Section 2.6 or, upon 30 days' prior written notice to Buyer,
at such other locations in a jurisdiction where all action required to perfect,
protect or more fully evidence the ownership interests purchased hereunder or to
enable Buyer to exercise or enforce any of its rights hereunder will have been
taken and completed.
SECTION 5.6 CREDIT AND COLLECTION POLICY. Seller will comply in all
material respects with its Credit and Collection Policy in effect from time to
time with regard to each Receivable.
SECTION 5.7 SALE TREATMENT. Seller will account for the sale of the
Receivables hereunder as a sale (consistent with generally accepted accounting
principles then in effect) in its financial statements and other information and
reports, including, without, limitation, filings with any governmental authority
or regulatory body.
SECTION 5.8 SALES, LIENS, OR ASSIGNMENTS OF PURCHASED RECEIVABLES.
Seller will not, except as otherwise provided herein, sell, assign (by operation
of law or otherwise)or otherwise dispose of, or create or suffer to exist any
adverse claim or lien upon or with respect to, in any Receivable or assign any
right to receive income or proceeds in respect thereof.
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SECTION 5.9 CHANGE IN BUSINESS: CREDIT COLLECTION POLICY, ETC. Seller
will not make any material change in the character of its business or make any
material change in its Credit and Collection Policy, as adopted form time to
time, which would impair the collectibility of any Receivable.
SECTION 5.10 OTHER AGREEMENTS. Seller will not enter into any
agreement containing any provision which would be violated or breached by the
performance of Seller's obligations hereunder or in connection herewith or under
any instrument or document delivered or to be delivered by it hereunder or in
connection herewith, or any other instrument or document contemplated hereby.
ARTICLE VI
ATTORNEY-IN-FACT
SECTION 6.1 BUYER APPOINTED ATTORNEY-IN-FACT. Seller hereby
irrevocably appoints Buyer as Seller's attorney-in-fact, with full authority in
the place and stead of Seller and in the name of Seller or otherwise, from time
to time in Buyer's discretion, to take any action and to execute any instrument
which Buyer may deem necessary or advisable to accomplish the purposes of this
Agreement.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 NO WAIVER. No failure or delay on the part of either
party in exercising any power, right or remedy under this Agreement shall
operate as a waiver thereof, nor shall nay single or partial exercise of any
such power, right or remedy preclude any other or further exercise thereof or
the exercise of any other power, right or remedy preclude any other or further
exercise thereof or the exercise of any other power, right or remedy.
SECTION 7.2 AMENDMENTS. This Agreement may be modified, amended,
supplemented, or waived, only upon written agreement of the parties.
SECTION 7.3 NOTICES. All communications and notices pursuant to this
Agreement to any party shall be in writing and addressed or delivered or mailed
to it at such address as a party may designate by notice to the other party, and
shall be effective when received.
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SECTION 7.4 LIMITATION OF PERSONAL LIABILITY. Buyer shall have no
recourse against any shareholder of Seller or against any liquidator of Buyer or
any of their respective assets as a result of or relating to any representation,
warranty, covenant, indemnity, or agreement of Seller under this Agreement and
such shareholders and liquidators shall have no liability to Buyer in respect of
the transactions contemplated herein; provided that (a) this provision shall not
limit any liability or recourse resulting from gross negligence ow willful
misconduct on the part of any of such shareholder or liquidators and (b) nothing
herein shall limit the obligations and liabilities of Seller to Buyer or any of
Buyer's recourses or rights against Seller.
SECTION 7.5 HEADINGS. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
SECTION 7.6 GOVERNING LAW. The Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Texas.
SECTION 7.7 COUNTERPARTS. The Agreement may be executed in two or
more counterparts and by different parties on separate counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CASTLE MID-SOUTH DENTAL CENTERS, P.C.
By:________________________________________
Name:______________________________________
Title:_____________________________________
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
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EXHIBIT 10.32
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
Doc. No. 20
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
CASTLE DENTAL CENTERS OF TENNESSEE, INC.,
A TENNESSEE CORPORATION
AND
CASTLE MID-SOUTH DENTAL CENTER, P.C.,
A TENNESSEE PROFESSIONAL CORPORATION
EFFECTIVE MAY 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE NO.
ARTICLE I. DEFINITIONS........................................................2
Section 1.1 Act......................................................2
Section 1.2 Adjusted Gross Revenue...................................2
Section 1.3 Adjustments..............................................2
Section 1.4 Ancillary Revenue........................................2
Section 1.5 Base Management Fee......................................2
Section 1.6 Budget...................................................2
Section 1.7 Business Manager.........................................2
Section 1.8 Business Manager Expense.................................2
Section 1.9 Confidential Information.................................3
Section 1.10 Center...................................................3
Section 1.11 Dental Services..........................................3
Section 1.12 Dentist..................................................3
Section 1.13 GAAP.....................................................3
Section 1.14 Management Fee...........................................4
Section 1.15 Management Services......................................4
Section 1.16 Management Services Agreement............................4
Section 1.17 Office Expense...........................................4
Section 1.18 PC.......................................................5
Section 1.19 PC Account...............................................5
Section 1.20 PC Consent...............................................5
Section 1.21 PC Expense...............................................5
Section 1.22 Performance Fee..........................................6
Section 1.23 Practice Territory.......................................6
Section 1.24 Professional Services Revenues...........................6
Section 1.25 Representatives..........................................6
Section 1.26 State....................................................6
Section 1.27 Term.....................................................6
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER.....................6
Section 2.1 Appointment..............................................6
Section 2.2 Authority................................................6
Section 2.3 Patient Referrals and Payments...........................7
Section 2.4 Internal Management of PC................................7
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Section 2.5 Practice of Dentistry....................................7
ARTICLE III. RESPONSIBILITIES OF THE PC.......................................8
Section 3.1 Duties and Responsibilities of the PC....................8
(a) Capital Improvements and Expansion.......................8
(b) Marketing and Advertising................................8
(c) Patient Fees; Collection Policies........................8
(d) Ancillary Services.......................................8
(e) Provider and Payor Relationships.........................8
(f) Strategic Planning.......................................8
(g) Capital Expenditures.....................................8
(h) Dentist Hiring...........................................8
Section 3.2 Dental Treatment Decisions...............................9
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER................9
Section 4.1 Centers and Equipment....................................9
Section 4.2 Dental Supplies.........................................10
Section 4.3 Support Services........................................10
Section 4.4 Quality Assurance, Risk Management,
and Utilization Review.................................11
Section 4.5 Licenses and Permits....................................11
Section 4.6 Personnel...............................................11
Section 4.7 Contract ...............................................11
Section 4.8 Billing and Collection..................................11
Section 4.9 PC Account..............................................13
Section 4.10 Fiscal Matters..........................................13
Section 4.11 Reports and Records.....................................15
Section 4.12 Recruitment of PC Dentists..............................16
Section 4.13 Business Manager's Insurance............................16
Section 4.14 No Warranty.............................................16
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PC..............................16
Section 5.1 Organization and Operation..............................16
Section 5.2 PC Personnel and Shareholders...........................17
Section 5.3 Professional Standards..................................17
Section 5.4 Dental Services.........................................18
Section 5.5 Peer Review/Quality Assurance...........................18
Section 5.6 PC's Insurance..........................................18
Section 5.7 Confidential and Proprietary Information................19
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Section 5.8 Noncompetition..........................................20
Section 5.9 Name, Trademark.........................................21
Section 5.10 Peer Review.............................................21
Section 5.11 Indemnification.........................................21
ARTICLE VI. FINANCIAL ARRANGEMENT............................................22
Section 6.1 Definitions.............................................22
Section 6.2 Management Fee..........................................22
Section 6.3 Adjustments.............................................22
Section 6.4 Reasonable Value........................................23
Section 6.5 Payment of Management Fee...............................23
Section 6.6 Accounts Receivable.....................................23
Section 6.7 Disputes Regarding Fees.................................24
ARTICLE VII. TERM AND TERMINATION............................................24
Section 7.1 Initial and Renewal Term................................24
Section 7.2 Termination.............................................24
Section 7.3 Effects of Termination..................................25
Section 7.4 Repurchase Obligation...................................26
Section 7.5 Repurchase Option.......................................27
Section 7.6 Closing of Repurchase...................................28
ARTICLE VIII. MISCELLANEOUS..................................................28
Section 8.1 Administrative Services Only............................28
Section 8.2 Status of Contractor; Agency............................28
Section 8.3 Notices.................................................29
Section 8.4 Governing Law...........................................29
Section 8.5 Assignment..............................................30
Section 8.6 Arbitration.............................................30
Section 8.7 Waiver of Breach........................................32
Section 8.8 Enforcement.............................................32
Section 8.9 Gender and Number.......................................32
Section 8.10 Additional Assurances...................................32
Section 8.11 Consents, Approvals, and Exercise of Discretion.........32
Section 8.12 Force Majeure...........................................33
Section 8.13 Severability............................................33
Section 8.14 Divisions and Headings..................................33
Section 8.15 Amendments and Management Services Agreement Execution..33
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Section 8.16 Entire Management Services Agreement....................34
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective as
of May 31, 1996, by and between CASTLE DENTAL CENTERS OF TENNESSEE, INC., a
Tennessee corporation ("Business Manager"), and CASTLE MID-SOUTH DENTAL CENTER,
P.C., a Tennessee professional corporation ("PC").
RECITALS
This Management Services Agreement is made with reference to the
following facts:
A. PC is a validly existing Tennessee professional corporation, formed
for and engaged in the practice of dentistry and the provision of dental
services to the general public in the State of Tennessee through individual
dentists who are licensed to practice dentistry in the State of Tennessee and
who are employed or otherwise retained by PC.
B. Business Manager is a validly existing Tennessee corporation, which
has been duly formed to manage the non-dental business aspects of the dental
practice of PC.
C. PC desires to focus its energies, expertise and time on the practice
of dentistry and on the delivery of dental services to patients, and to
accomplish this goal it desires to delegate the increasingly more complex
business functions of its dental practice to persons with business expertise.
D. PC wishes to engage Business Manager to provide such management,
administrative and business services as are necessary and appropriate for the
day-to-day administration of the non-dental aspects of PC's dental practice in
the Practice Territory (as defined below), and Business Manager desires to
provide such services all upon the terms and conditions hereinafter set forth.
E. PC and Business Manager have determined a fair market value for the
services to be rendered by Business Manager, and based on this fair market
value, have developed a formula for compensation for Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions hereinabove and hereinafter set forth, the parties agree as follows:
<PAGE>
ARTICLE I. DEFINITIONS
For the purposes of this Management Services Agreement, the following
terms shall have the following meanings ascribed thereto, unless otherwise
clearly required by the context in which such term is used.
Section 1.1 ACT. The term "Act" shall mean TCA 63-5-101 et. seq., as
amended.
Section 1.2 ADJUSTED GROSS REVENUE. The term "Adjusted Gross Revenue"
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
Section 1.3 ADJUSTMENTS. The term "Adjustments" shall mean any
adjustments on an accrual basis for uncollectible accounts, third party payor
contractual adjustments, discounts, workers' compensation adjustments,
professional courtesies, and other reductions in collectible revenue that result
from activities that do not result in collectible charges.
Section 1.4 ANCILLARY REVENUE. The term "Ancillary Revenue" shall mean
all other revenue actually recorded each month (net of Adjustments) that is not
Professional Services Revenues consisting only of prepaid amounts for services
previously billed and collected, and shall include (a) any amounts received by
PC as liquidated damages under Section 4.2 or Section 4.3 of any Dentist's
employment agreement, and (b) the proceeds of key person life and disability
insurance as provided for in Section 4.14 below.
Section 1.5 BASE MANAGEMENT FEE. The term "Base Management Fee" shall
mean the amount set forth in Section 6.1.
Section 1.6 BUDGET. The term "Budget" shall mean an operating budget and
capital expenditure budget for each fiscal year as prepared by Business Manager
and adopted by PC.
Section 1.7 BUSINESS MANAGER. The term "Business Manager" shall mean
Castle Dental Centers of Tennessee, Inc., a Tennessee corporation, or any entity
that succeeds to the interests of Castle Dental Centers of Tennessee, Inc., a
Tennessee corporation, and to whom the obligations of Business Manager are
assigned and transferred.
Section 1.8 BUSINESS MANAGER EXPENSE. The term "Business Manager
Expense" shall mean an expense or cost incurred by the Business Manager and for
which the Business Manager, and not PC, is financially liable, other than
expenses incurred by Business Manager that directly benefit PC which may be
allocated to Office Expense consistent with the Budget.
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Section 1.9 CONFIDENTIAL INFORMATION. The term "Confidential
Information" shall mean any information of Business Manager or PC, as
appropriate (whether written or oral), including all notes, studies, patient
lists, information, forms, business or management methods, marketing data, fee
schedules, or trade secrets of the Business Manager or of PC, as applicable,
whether or not such Confidential Information is disclosed or otherwise made
available to one party by the other party pursuant to this Management Services
Agreement. Confidential Information shall also include the terms and provisions
of this Management Services Agreement and any transaction or document executed
by the parties pursuant to this Management Services Agreement. Confidential
Information does not include any information that (i) is or becomes generally
available to and known by the public (other than as a result of an unpermitted
disclosure directly or indirectly by the receiving party or its affiliates,
advisors, or Representatives); (ii) is or becomes available to the receiving
party on a nonconfidential basis from a source other than the furnishing party
or its affiliates, advisors, or Representatives, provided that such source is
not and was not bound by a confidentiality agreement with or other obligation of
secrecy to the furnishing party of which the receiving party has knowledge at
the time of such disclosure; or (iii) has already been or is hereafter
independently acquired or developed by the receiving party without violating any
confidentiality agreement with or other obligation of secrecy to the furnishing
party.
Section 1.10 CENTER. The term "Center" (collectively referred to as
"Centers") shall mean any office space, clinic, facility, including satellite
facilities, that Business Manager shall own or lease or otherwise procure for
the use of PC, as allowed by law, in the provision of Dental Services pursuant
to this Management Services Agreement.
Section 1.11 DENTAL SERVICES. The term "Dental Services" shall mean
dental care and services, including but not limited to the practice of general
dentistry, orthodontics and all related dental care services provided by PC
through PC's Dentists and other dental care providers that are retained by or
professionally affiliated with PC.
Section 1.12 DENTIST. The term "Dentist" shall mean each individually
licensed professional who is employed or otherwise retained by or associated
with PC, each of whom shall meet the qualifications described in Section 5.2 and
Section 5.3.
Section 1.13 GAAP. The term "GAAP" shall mean generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of the determination. For
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purposes of this Management Services Agreement, GAAP shall be applied in a
manner consistent with the historic practices of the person to which the term
applies.
Section 1.14 MANAGEMENT FEE. The term "Management Fee" shall mean
Business Manager's compensation established as described in Article VI hereof.
Section 1.15 MANAGEMENT SERVICES. The term "Management Services" shall
mean the business, administrative, and management services to be provided for PC
as contemplated herein.
Section 1.16 MANAGEMENT SERVICES AGREEMENT. The term "Management
Services Agreement" shall mean this Management Services Agreement by and between
PC and Business Manager and any amendments hereto as may be adopted as provided
in this Management Services Agreement.
Section 1.17 OFFICE EXPENSE. The term "Office Expense" shall mean all
operating and nonoperating expenses incurred by the Business Manager or PC in
the provision of services to or by PC. Office Expense shall not include any
other expense that is a PC Expense or a Business Manager Expense. Without
limitation, Office Expense shall include:
(a) the salaries and benefits of all employees of Business Manager at
the Centers and the salaries and benefits of the non-dental employees of PC, but
not the salaries or benefits of the Dentists;
(b) the direct cost of any employee or consultant that provides services
at or in connection with the Centers for improved clinic performance, such as
management, billing and collections, business office consultation, accounting
and legal services, but only when such services are consistent with the Budget
or otherwise with the consent of the PC;
(c) reasonable recruitment costs and out-of-pocket expenses of Business
Manager or PC directly related to the recruitment of additional dental employees
of PC;
(d) professional liability insurance expenses for Dentists and
comprehensive, general liability and workers' compensation insurance covering
the Centers and employees of PC and Business Manager at each Center;
(e) the expense of using, leasing, purchasing or otherwise procuring
each Center and related equipment, including depreciation;
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(f) the cost of capital (whether as actual interest on indebtedness
incurred on behalf of PC or as reasonable imputed interest on capital advanced
by Business Manager, which shall be deemed to be the prime rate established from
time to time by NationsBank of Texas, N.A. plus four percent, but in no event to
be less than 10%.
(g) the Base Management Fee;
(h) the reasonable out-of-pocket travel expenses associated with
attending meetings, conferences, or seminars to benefit PC;
(i) the reasonable costs and expenses associated with marketing,
advertising and promotional activities to benefit PC;
(j) the cost of dental supplies (including but not limited to drugs,
pharmaceuticals, products, substances, items, or dental devices), office
supplies, inventory, and utilities other than those dental supplies or dental
inventory owned by PC on the date of this Management Services Agreement; and
(k) federal, state or local taxes of PC, including without limitation,
income, payroll, sales and use, property, franchise and business taxes
Section 1.18 PC. The term "PC" shall mean Mid-South Dental Centers,
P.C., a Tennessee professional corporation.
Section 1.19 PC ACCOUNT. The term "PC Account" shall mean the bank
account of PC established as described in Sections 4.8 and 4.9.
Section 1.20 PC CONSENT. The term "PC Consent" shall mean the consent
granted by the PC when requested by Business Manager. When any provision of this
Management Services Agreement requires PC Consent, PC Consent shall not be
unreasonably or arbitrarily withheld.
Section 1.21 PC EXPENSE. The term "PC Expense" shall mean an expense
incurred by the Business Manager or PC that is consistent with the Budget or
otherwise with the consent of PC and for which PC, and not the Business Manager,
is financially liable. PC Expense shall include such items as Dentist salaries,
benefits, and other direct costs (including professional dues, subscriptions,
continuing dental education expenses, and travel costs for continuing dental
education or other business travel but excluding business travel requested by
Business Manager, which shall be an Office Expense).
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Section 1.22 PERFORMANCE FEE. The term "Performance Fee" shall mean the
amount payable to the Business Manager, if any, determined under Section 6.2, as
a Management Fee based upon the Business Manager achieving certain
pre-determined performance criteria.
Section 1.23 PRACTICE TERRITORY. The term "Practice Territory" shall
mean the geographic area within a radius of ten (10) miles of any current or
future facility from which PC provides Dental Services in Tennessee representing
the specific geographic boundaries of the dental practice conducted by PC within
its particular urban metropolitan area.
Section 1.24 PROFESSIONAL SERVICES REVENUES. The term "Professional
Services Revenues" shall mean the sum of all professional fees actually recorded
each month on an accrual basis under GAAP (net of Adjustments) as a result of
Dental Services and related services rendered by the shareholders and dental
employees of PC.
Section 1.25 REPRESENTATIVES. The term "Representatives" shall mean a
party's officers, directors, employees, or other agents or representatives.
Section 1.26 STATE. The term "State" shall mean the State of Tennessee.
Section 1.27 TERM. The term "Term" shall mean the initial and any
renewal periods of duration of this Management Services Agreement as described
in Section 7.1.
ARTICLE II. APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
Section 2.1 APPOINTMENT. PC hereby appoints Business Manager as its sole
and exclusive agent for the management and administration of the non-dental
business functions and business affairs of PC, and Business Manager hereby
accepts such appointment, subject at all times to the provisions of this
Management Services Agreement.
Section 2.2 AUTHORITY. Consistent with the provisions of this Management
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services for PC. Subject to the
terms and conditions of this Management Services Agreement, Business Manager is
hereby expressly authorized to provide in good faith the Management Services in
any reasonable manner Business Manager deems appropriate to meet the day-to-day
requirements of the business functions of PC. Business Manager is also expressly
and exclusively authorized to negotiate and execute on behalf of PC contracts
that do not relate to the provision of Dental Services. PC shall give Business
Manager thirty (30) days prior notice of PC's intent to execute any agreement
obligating PC to perform Dental Services or otherwise
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creating a binding legal obligation on PC. Unless an expense is expressly
designated as a Business Manager Expense in this Management Services Agreement,
all expenses incurred by Business Manager in providing services hereunder shall
be an Office Expense. The parties acknowledge and agree that PC, through its
Dentists, shall be responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Dental
Services and other professional health care services performed for patients, and
that all diagnoses, treatments, procedures, and other professional health care
services shall be provided and performed exclusively by or under the supervision
of Dentists as such Dentists, in their sole discretion, deem appropriate.
Business Manager shall have and exercise absolutely no control or supervision
over the provision of Dental Services.
Section 2.3 PATIENT REFERRALS AND PAYMENTS. Business Manager and PC
agree that the benefits to PC hereunder do not require, are not payment for, and
are not in any way contingent upon the referral, admission, or any other
arrangement for the provision of any item or service offered by Business Manager
to patients of PC in any facility, laboratory or health care operation
controlled, managed, or operated by Business Manager. Further, Business Manager
and PC agree that the payment of monies hereunder in no way represents the
division, sharing, splitting or other allocation of fees for Dental Services
between PC and Business Manager.
Section 2.4 INTERNAL MANAGEMENT OF PC. Matters involving the internal
management, control, or finances of PC, including specifically the allocation of
professional income among the shareholders and Dentist employees of PC, tax
planning, and investment planning, shall remain the responsibility of PC and the
shareholders of PC.
Section 2.5 PRACTICE OF DENTISTRY. The parties acknowledge that Business
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of dentistry nor shall Business
Manager now or in the future be regarded as practicing dentistry within the
meaning of Section 63-5-108 of the Act. To the extent any act or service herein
required by Business Manager should be construed by a court of competent
jurisdiction or by the State Board of Dental Examiners to constitute the
practice of dentistry, the requirement to perform that act or service by
Business Manager shall be deemed waived and unenforceable and shall not
constitute a breach or default by Business Manager under this Agreement, and the
parties shall take the actions contemplated by Section 7.2(d) hereof.
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ARTICLE III. RESPONSIBILITIES OF THE PC
Section 3.1 DUTIES AND RESPONSIBILITIES OF THE PC. The PC shall have the
following duties, obligations, and authority:
(a) CAPITAL IMPROVEMENTS AND EXPANSION. Any renovation and expansion
plans and capital equipment expenditures with respect to PC's facilities shall
be reviewed and approved by the PC and shall be based upon economic feasibility,
dentist support, productivity, technological innovations, competitive
alternatives, age of existing capital equipment, and then current market
conditions.
(b) MARKETING AND ADVERTISING. All marketing and other advertising of
the services performed at PC's facilities shall be under the control of the PC.
(c) PATIENT FEES; COLLECTION POLICIES. As a part of the Budget process,
in consultation with Business Manager, the PC shall establish the fee schedule
for Dental Services and shall establish the related collection policies for all
Dental Services and ancillary services rendered by PC.
(d) ANCILLARY SERVICES. The PC shall approve PC-provided ancillary
services based upon the pricing, access to and quality of such services.
(e) PROVIDER AND PAYOR RELATIONSHIPS. Decisions regarding the
establishment or maintenance of relationships with institutional health care
providers and third party payors shall be approved by the PC. The PC shall
review and approve all proposed reimbursement arrangements with third party
payors.
(f) STRATEGIC PLANNING. The PC, in consultation with the Business
Manager, shall develop long-term strategic planning objectives, including but
not limited to the acquisition of or merger with any other dental practices in
the Practice Territory.
(g) CAPITAL EXPENDITURES. The PC shall determine the priority of major
capital expenditures.
(h) DENTIST HIRING. The PC shall determine the number and type of
Dentists required for the efficient operation of PC's facilities. The PC shall
review and approve any variations to the restrictive covenants in any dentist
employment contract.
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Section 3.2 DENTAL TREATMENT DECISIONS. All decisions relating directly
or indirectly to the practice of dentistry will be made solely by the PC. The PC
shall have exclusive jurisdiction over the resolution of issues relating to:
(a) Types and levels of Dental Services to be provided;
(b) Recruitment of dentists to PC, including the specific qualifications
and specialties of recruited dentists;
(c) Fee schedules; and
(d) Any other function or decision relating to the practice of
dentistry.
ARTICLE IV. COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
as are necessary and appropriate for the day-to-day administration of the
non-dental business aspects of PC's operations, including without limitation
those set forth in this Article IV in accordance with all law, rules,
regulations and guidelines applicable to the provision of Management Services.
Section 4.1 CENTERS AND EQUIPMENT.
(a) Subject to Section 4.1(b), as necessary and appropriate, taking into
consideration the professional concerns of and in consultation with PC, Business
Manager shall in its reasonable discretion lease, acquire or otherwise procure
Centers in a location or locations reasonably acceptable to PC and shall permit
PC to use each such Center pursuant to this Management Services Agreement, by
sublease or otherwise as required by law.
(b) PC shall not enter into any lease or sublease with respect to a
Center without Business Manager's prior written consent. In the event PC is the
lessee of any Center under a lease with an unrelated and nonaffiliated lessor,
Business Manager may require PC to assign such lease to Business Manager upon
receipt of consent from the lessor and Business Manager shall permit PC to use
such Center pursuant to this Management Services Agreement, by sublease or
otherwise as required by law. PC shall use its best efforts to assist in
obtaining the lessor's consent to the assignment. Upon request, PC shall execute
any instruments and shall take any acts that Business Manager may deem necessary
to accomplish the assignment of the lease. Any expenses incurred in the
assignment shall be Office Expenses.
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(c) Business Manager shall provide all non-dental equipment, fixtures,
office supplies, furniture and furnishings deemed reasonably necessary by
Business Manager for the operation of each Center and reasonably necessary for
the provision of Dental Services pursuant to this Management Services Agreement,
by lease, sublease or otherwise as required by law.
(d) Business Manager shall provide, finance, or cause to be provided or
financed dental related equipment as required by PC. PC shall have final
authority in all dental equipment selections, and Business Manager shall have no
authority in regard to dental equipment selection issues. Business Manager may,
however, advise PC on the relationship between its dental equipment decisions
and the overall administrative and financial operations of the practice. All
dental and non-dental equipment acquired for the use of PC shall be owned by
Business Manager.
(e) Business Manager shall be responsible for the repair and maintenance
of each Center, consistent with Business Manager's responsibilities under the
terms of any lease or other use arrangement, and for the repair, maintenance,
and replacement of all equipment other than such repairs, maintenance and
replacement necessitated by the negligence or willful misconduct of PC, its
Dentists or other personnel employed by PC, the repair or replacement of which
shall be a PC Expense and not an Office Expense.
Section 4.2 DENTAL SUPPLIES. Business Manager shall order, procure,
purchase and provide on behalf of and as agent for PC all dental supplies
necessary and appropriate for the practice of PC in the reasonable discretion of
PC unless otherwise prohibited by federal and/or State law. Furthermore,
Business Manager, in consultation with PC, shall ensure that each Center is at
all times adequately stocked with the dental supplies that are necessary and
appropriate for the operation of PC and required for the provision of Dental
Services. The ultimate oversight, supervision and ownership for all dental
supplies is and shall remain the sole responsibility of PC. As used in this
provision the term "dental supplies" shall mean all drugs, pharmaceuticals,
products, substances, items or devices whose purchase, possession, maintenance,
administration, prescription or security requires the authorization or order of
a licensed health care provider or requires a permit, registration,
certification or other governmental authorization held by a licensed health care
provider as specified under any federal and/or State law.
Section 4.3 SUPPORT SERVICES. Business Manager shall provide or arrange
for all printing, stationery, forms, postage, duplication or photocopying
services, and other support services as are reasonably necessary and appropriate
for the operation of each Center and the provision of Dental Services therein.
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Section 4.4 QUALITY ASSURANCE, RISK MANAGEMENT, AND UTILIZATION REVIEW.
Business Manager shall, upon the request of PC, assist PC in PC's establishment
of procedures to ensure the consistency, quality, appropriateness and necessity
of Dental Services provided by PC, and shall provide administrative support for
PC's overall quality assurance, risk management, and utilization review
programs. Business Manager shall perform these tasks in a manner to ensure the
confidentiality and nondiscoverability of these program actions to the fullest
extent allowable under State and federal law.
Section 4.5 LICENSES AND PERMITS. Business Manager shall, on behalf of
and in the name of PC, coordinate all development and planning processes, and
apply for and use reasonable efforts to obtain and maintain all federal, State,
and local licenses and regulatory permits required for or in connection with the
operation of PC and equipment (existing and future) located at each Center,
other than those relating to the practice of dentistry or the administration of
drugs by Dentists retained by or associated with PC.
Section 4.6 PERSONNEL. Except as specifically provided in Section 5.2(b)
of this Management Services Agreement, Business Manager shall, consistent with
the Budget, employ or otherwise retain and shall be responsible for selecting,
hiring, training, supervising, and terminating, all management, administrative,
clerical, secretarial, bookkeeping, accounting, payroll, billing and collection
and other nonprofessional personnel as Business Manager deems reasonably
necessary and appropriate to enable Business Manager to perform its duties and
obligations under this Management Services Agreement. Business Manager shall,
consistent with the Budget, have sole responsibility for determining the
salaries and providing such fringe benefits, and for withholding, as required by
law, any sums for income tax, unemployment insurance, social security, or any
other withholding required by applicable law or governmental requirement.
Section 4.7 CONTRACT NEGOTIATIONS. Business Manager, in consultation
with PC, shall negotiate, either directly or on PC's behalf, as appropriate and
allowed by law, all contractual arrangements between PC and third parties as are
reasonably necessary and appropriate for PC's provision of Dental Services,
including, without limitation, negotiated price agreements with third party
payors, alternative delivery systems, or other purchasers of group health care
services.
Section 4.8 BILLING AND COLLECTION. On behalf of and for the account of
PC, Business Manager shall establish and maintain credit and billing and
collection policies and procedures, and shall timely bill and collect all
professional and other fees for all Dental Services provided by PC, or Dentists
employed or otherwise retained by PC. Business Manager shall advise and consult
with PC regarding the fees for Dental Services provided by PC; it being
understood, however,
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that PC shall establish the fees to be charged for Dental Services and that
Business Manager shall have no authority whatsoever with respect to the
establishment of such fees. In connection with the billing and collection
services to be provided hereunder, and throughout the Term (and thereafter as
provided in Section 7.3), PC hereby grants to Business Manager a special power
of attorney and appoints Business Manager as PC's exclusive true and lawful
agent and attorney-in-fact, and Business Manager hereby accepts such special
power of attorney and appointment, for the following purposes:
(a) To bill PC's patients, in PC's name and on PC's behalf, for all
Dental Services provided by PC to patients.
(b) To bill, in PC's name and on PC's behalf, all claims for
reimbursement or indem nification from Blue Shield/Blue Cross, insurance
companies and all other third party payors or fiscal intermediaries for all
covered billable Dental Services provided by PC to patients.
(c) To collect and receive in Business Manager's name and for Business
Manager's account all accounts receivable of PC purchased by Business Manager,
and to deposit such collections in an account selected by Business Manager and
maintained in Business Manager's name.
(d) To collect and receive, in PC's name and on PC's behalf, all
accounts receivable generated by such billings and claims for reimbursement that
have not been purchased by Business Manager, to administer such accounts
including, but not limited to, (i) extending the time of payment of any such
accounts for cash, credit or otherwise; (ii) discharging or releasing the
obligors of any such accounts; (iii) suing, assigning or selling at a discount
such accounts to collection agencies; or (iv) taking other measures to require
the payment of any such accounts.
(e) To deposit all amounts collected under clause (d) above into PC
Account which shall be and at all times remain in PC's name. PC covenants to
transfer and deliver to Business Manager for deposit into PC Account (or, with
respect to accounts receivable purchased by Business Manager, Business Manager's
account) all funds received by PC from patients or third party payors for Dental
Services. Upon receipt by Business Manager of any funds from patients or third
party payors or from PC pursuant hereto for Dental Services, Business Manager
shall immediately deposit those that relate to accounts receivable covered by
clause (d) above into the PC Account. Business Manager shall disburse such
deposited funds to creditors and other persons on behalf of PC, maintaining
records of such receipt and disbursement of funds in accordance with Section
4.9(b).
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(f) To take possession of, endorse in the name of PC, and deposit into
the PC Account any notes, checks, money orders, insurance payments, and any
other instruments received in payment for Dental Services that relate to
accounts receivable covered by clause (d) above.
(g) To sign checks, drafts, bank notes or other instruments on behalf of
PC, and to make withdrawals from the PC Account for payments specified in this
Management Services Agreement.
Upon request of Business Manager, PC shall execute and deliver to the financial
institution wherein the PC Account is maintained, such additional documents or
instruments as may be neces sary to evidence or effect the special and limited
power of attorney granted to Business Manager by PC pursuant to this Section 4.8
or pursuant to Section 4.9 of this Management Services Agreement. The special
and limited power of attorney granted herein shall be coupled with an interest
and shall be irrevocable except with Business Manager's written consent. The
irrevocable power of attorney shall expire on the later of when this Management
Services Agreement has been terminated, when all accounts receivable purchased
by Business Manager have been collected, or when all Management Fees due to
Business Manager have been paid. If Business Manager assigns this Management
Services Agreement in accordance with its terms, then PC shall execute a power
of attorney in favor of the assignee including substantially the same terms set
forth in this Section 4.8.
Section 4.9 PC ACCOUNT.
(a) ACCESS. Business Manager shall have access to the PC Account solely
for the purposes contemplated hereby. PC shall not draw checks on the PC
Account.
(b) PRIORITY OF PAYMENTS. Business Manager shall apply on a monthly
basis, except as otherwise stated hereunder, funds that are in the PC Account in
the following order of priority: (i) PC Expenses; (ii) Office Expenses (other
than the Base Management Fee); (iii) Management Fees (both Base Management Fee
and Performance Fee); and (iv) any other expenditures.
Section 4.10 FISCAL MATTERS.
(a) ANNUAL BUDGET.
(1) INITIAL BUDGET. The initial Budget shall be agreed upon and
approved in writing by the parties before the execution of this
Management Services Agreement. The
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initial Budget shall include an exhibit setting forth the criteria under
which Business Manager shall be entitled to receive the Performance Fee.
(2) PROCESS FOR SUCCEEDING BUDGETS. Annually and at least thirty
(30) days prior to the commencement of each fiscal year of PC, Business
Manager, in consultation with PC, shall prepare and deliver to PC for
PC's approval a proposed Budget, setting forth an estimate of PC's
revenues and expenses for the upcoming fiscal year (including, without
limitation, the Management Fee and Performance Fee associated with the
services provided by Business Manager hereunder). PC shall review the
proposed Budget and either approve the proposed Budget or request any
changes within fifteen (15) days after receiving the proposed Budget.
The Budget shall be adopted by PC after its approval thereof and may be
revised or modified only in consultation with the Business Manager.
(3) SUCCEEDING BUDGETS; SPECIAL RATES. In each succeeding Budget,
unless the parties otherwise mutually agree or are otherwise precluded
by law or regulation, the criteria for the Performance Fee and Business
Manager's right to receive the Performance Fee shall be continued on the
same basis.
(4) DEADLOCK. In the event the parties are unable to agree on a
Budget by the beginning of the fiscal year, until an agreement is
reached, the Budget for the prior year shall be deemed to be adopted as
the Budget for the current year, with each line item in the Budget (with
the exception of the Base Management Fee and any one-time or
non-recurring expenses included in such prior Budget) increased or
decreased by (i) the percentage by which the Adjusted Gross Revenue in
the current year has increased or decreased compared to the
corresponding period of the prior year; (ii) the increase or decrease
from the prior year in the Consumer Price Index - Health/Medical
Services, Nashville, Tennessee area; and (iii) the proportionate
increase or decrease in mutually agreed upon personnel costs as measured
by the increase or decrease in full-time- equivalent personnel.
(5) OBLIGATION OF BUSINESS MANAGER. Business Manager shall use
commercially reasonable efforts to manage and administer the operations
of PC as herein provided so that the actual revenues, costs and expenses
of the operation and maintenance of PC during any applicable period of
PC's fiscal year shall be consistent with the Budget.
(b) ACCOUNTING AND FINANCIAL RECORDS. Business Manager shall establish
and administer accounting procedures, controls, and systems for the development,
preparation, and safekeeping of administrative or financial records and books of
account relating to the business
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and financial affairs of PC and the provision of Dental Services, all of which
shall be prepared and maintained in accordance with GAAP and applicable laws and
regulations. Business Manager shall prepare and deliver to PC, within one
hundred twenty (120) days of the end of each calendar year, a balance sheet and
a profit and loss statement reflecting the financial status of PC in regard to
the provision of Dental Services as of the end of such calendar year, all of
which shall be prepared in accordance with GAAP consistently applied. In
addition, Business Manager shall prepare or assist in the preparation of any
other financial statements or records as PC may reasonably request.
(c) REVIEW OF EXPENDITURES. PC shall review all expenditures related to
the operation of PC, but the PC shall not have the power to prohibit or
invalidate any expenditure that is consistent with the Budget. Business Manager
shall not have any authority to make any expenditures not consistent with the
Budget without PC Consent.
(d) TAX MATTERS.
(1) IN GENERAL. Business Manager shall prepare or arrange for
the preparation by an accountant approved in advance by PC
(which approval shall not be unreasonably withheld) of all
appropriate tax returns and reports required of PC.
(2) SALES AND USE TAXES. Business Manager and PC acknowledge
and agree that to the extent that any of the services to
be provided by Business Manager hereunder may be subject
to any State sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from PC and
to remit same to the appropriate tax collection
authorities. PC agrees to pay in addition to the payment
of the Management Fee, the applicable State sales and use
taxes in respect of the portion of the Management Fees
attributable to such services.
Section 4.11 REPORTS AND RECORDS. Business Manager shall establish,
monitor, and maintain procedures and policies for the timely creation,
preparation, filing and retrieval of all dental records generated by PC in
connection with PC's provision of Dental Services; and, subject to applicable
law, shall use its best efforts to ensure that dental records are promptly
available to Dentists and any other appropriate persons. All such dental records
shall be retained and maintained in accordance with all applicable State and
federal laws relating to the confidentiality and retention thereof. All dental
records shall be and remain the property and under the control of PC and shall
be located at the applicable Center so that they are readily available for
patient
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care, and PC shall remain the custodian thereof and responsible for their
maintenance. Business Manager shall use its reasonable efforts to preserve the
confidentiality of dental records and use information contained in such records
only for the limited purpose necessary to perform the services set forth herein;
provided, however, in no event shall a breach of said confidentiality be deemed
a default under this Agreement.
Section 4.12 RECRUITMENT OF PC DENTISTS. Upon PC's request, Business
Manager shall perform all administrative services reasonably necessary and
appropriate to recruit potential Dentist personnel to become employees of PC.
Business Manager shall provide PC with model agreements to document PC's
employment, retention or other service arrangements with such indi viduals. It
will be and remain the sole and complete responsibility of PC to interview,
select, contract with, supervise, control and terminate all Dentists performing
Dental Services or other professional services, and Business Manager shall have
no authority whatsoever with respect to such activities.
Section 4.13 BUSINESS MANAGER'S INSURANCE. Throughout the Term, Business
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
worker's compensation coverage for Business Manager's employed personnel
provided pursuant to this Management Services Agreement, and professional,
casualty and comprehensive general liability insurance covering Business
Manager, Business Manager's personnel, and all of Business Manager's equipment
in such amounts, on such basis and upon such terms and conditions as Business
Manager deems appropriate. Upon the request of PC, Business Manager shall
provide PC with a certificate evidencing such insurance coverage. Business
Manager may also carry, as an Office Expense, key person life and disability
insurance on any shareholder or Dentist employee of PC in amounts determined
reasonable and sufficient by Business Manager. Business Manager shall be the
owner and beneficiary of any such insurance.
Section 4.14 NO WARRANTY. PC acknowledges that Business Manager has not
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of dental practice or income to PC.
ARTICLE V. COVENANTS AND RESPONSIBILITIES OF PC
Section 5.1 ORGANIZATION AND OPERATION. PC, as a continuing condition of
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Dental Services in a manner
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consistent with all State and federal laws. PC shall operate and maintain within
the Practice Territory a full time practice of dentistry specializing in the
provision of Dental Services.
Section 5.2 PC PERSONNEL AND SHAREHOLDERS.
(a) DENTAL PERSONNEL. PC shall retain, as a PC Expense and not as an
Office Expense, that number of Dentists as are reasonably necessary and
appropriate in the sole discretion of PC for the provision of Dental Services.
Each Dentist retained by PC shall hold and maintain a valid and unrestricted
license to practice dentistry in the State, and shall be competent in the
practice of dentistry, including any subspecialties that the retained Dentist
will practice on behalf of PC. PC shall enter into, maintain and enforce with
each such retained Dentist a written employment agreement in a form reasonably
satisfactory to PC and Business Manager and will not commit and permit to remain
outstanding any breach of such employment agreement that would allow the Dentist
to terminate for cause. No such employment contract may be amended if the effect
of such amendment would be the waiver of rights held by PC. PC shall be
responsible for paying the compensation and benefits, as applicable, for all
Dentists and any other dental personnel or other contracted or affiliated
dentists, and for withholding, as required by law, any sums for income tax,
unemployment insurance, social security, or any other withholding required by
applicable law. Business Manager may, on behalf of PC, establish and administer
the compensation with respect to such individuals in accordance with the written
agreement between PC and each Dentist. Business Manager shall neither control
nor direct any Dentist in the performance of Dental Services for patients.
(b) EMPLOYMENT OF NON-DENTIST DENTAL CARE PERSONNEL. PC shall employ or
retain, as an Office Expense, all non-dentist dental care personnel, such as
dental assistants, dental hygienists and dental technicians, required under the
Act or otherwise required by law to work under the direct supervision of a
Dentist or who Business Manager and PC determine should work under the direct
supervision of a Dentist. Such non-dentist dental care personnel shall be under
PC's control, supervision and direction in the performance of Dental Services
for patients.
(c) OPTION AGREEMENT. Each shareholder of PC shall enter into and comply
with the terms and provisions of an Option Agreement with respect to his or her
ownership interest in PC, substantially in the form of Exhibit A hereto.
Section 5.3 PROFESSIONAL STANDARDS. As a continuing condition of
Business Manager's obligations hereunder, each Dentist and any other dental
personnel retained by PC to provide Dental Services must (i) comply with, be
controlled and governed by and otherwise provide Dental Services in accordance
with in all material respects the code of professional conduct and
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applicable federal, State and municipal laws, rules, regulations, ordinances and
orders, and the ethics and standard of care of the dental community wherein any
Center is located in the provision of Dental Services on behalf of PC.
Section 5.4 DENTAL SERVICES. PC shall ensure that Dentists and
non-dentist dental care personnel are available to provide Dental Services to
patients during the normal operating hours of each Center. In the event that
Dentists are not available to provide Dental Services coverage, PC shall engage
and retain LOCUM TENENS coverage as it deems reasonable and appropriate based on
patient care requirements. Dentists retained on a LOCUM TENENS basis shall meet
all of the requirements of Section 5.3, and the cost of providing LOCUM TENENS
coverage shall be a PC Expense. With the assistance of the Business Manager, PC
and the Dentists shall be responsible for scheduling Dentist and non-dentist
dental care personnel coverage of all dental procedures.
PC shall cause all Dentists to develop and promote PC.
Section 5.5 PEER REVIEW/QUALITY ASSURANCE. PC shall adopt a peer
review/quality assessment program to monitor and evaluate the quality and
cost-effectiveness of Dental Services provided by dental personnel of PC. Upon
request of PC, Business Manager shall provide administrative assistance to PC in
performing its peer review/quality assurance activities, but only if such
assistance can be provided consistent with maintaining the confidentiality and
nondiscoverability of the processes and actions of the Peer Review/Quality
Assurance process of PC and not be regarded as practicing dentistry under the
Act.
Section 5.6 PC'S INSURANCE. PC shall, as an Office Expense, obtain and
maintain with commercial carriers acceptable to Business Manager appropriate
worker's compensation coverage for PC's employed personnel, if any, and
professional and comprehensive general liability insurance covering PC and each
of the Dentists PC retains or employs to provide Dental Services. The
comprehensive general liability coverage shall be in the minimum amount of One
Million Dollars ($1,000,000) for each occurrence and Two Million Dollars
($2,000,000) annual aggregate; and professional liability coverage shall be in
the minimum amount of Five Hundred Thousand Dollars ($500,000) for each
occurrence and One Million Five Hundred Thousand Dollars ($1,500,000) annual
aggregate. The insurance policy or policies shall provide for at least thirty
(30) days advance written notice to PC from the insurer as to any alteration of
coverage, cancellation, or proposed cancellation for any cause, and provide that
a copy of such notice be sent to Business Manager. PC shall cause to be issued
to Business Manager by such insurer or insurers a certificate reflecting such
coverage and shall provide written notice to Business Manager promptly upon
receipt of notice given to Dentist of the cancellation or proposed cancellation
of such insurance for any cause. Upon the termination of this Management
Services Agreement for any reason, PC shall obtain and maintain as a PC Expense
"tail" professional
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liability coverage, in the amounts specified in this section for an extended
reporting period of 15 years, and PC shall be responsible for paying all
premiums for "tail" insurance coverage. In no event shall the professional
liability insurance carrier be replaced or changed without PC Consent and
Business Manager Consent. PC and Business Manager agree to use their best
efforts to have each other named as additional insureds on the other's
respective professional liability insurance at Business Manager's expense.
Section 5.7 CONFIDENTIAL AND PROPRIETARY INFORMATION. PC will not
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization, such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
PC will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations; provided, however, that PC may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by PC that such Representatives will be
informed of the confidential nature of the Confidential Information, will agree
to be bound by this Section, and will be directed by PC not to disclose to any
other person any Confidential Information. PC agrees to be responsible for any
breach of this Section by its Representatives. If PC is requested or required
(by oral questions, interrogatories, requests for information or documents,
subpoenas, civil investigative demands, or similar processes) to disclose or
produce any Confidential Information furnished in the course of its dealings
with Business Manager or its affiliates, advisors, or Representatives, PC will
(i) provide Business Manager with prompt notice thereof and copies, if possible,
and, if not, a description, of the Confidential Information requested or
required to be produced so that Business Manager may seek an appropriate
protective order or waive compliance with the provisions of this Section and
(ii) consult with Business Manager as to the advisability of Business Manager's
taking of legally available steps to resist or narrow such request. PC further
agrees that, if in the absence of a protective order or the receipt of a waiver
hereunder PC is nonetheless, in the written opinion of its legal counsel,
compelled to disclose or produce Confidential Information concerning Business
Manager to any tribunal or to stand liable for contempt or suffer other censure
or penalty, PC may disclose or produce such Confidential Information to such
tribunal legally authorized to request and entitled to receive such Confidential
Information without liability hereunder; provided, however, that PC shall give
Business Manager written notice of the Confidential Information to be so
disclosed or produced as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such Confidential Information so required to be disclosed or
produced.
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Section 5.8 NONCOMPETITION. PC hereby recognizes and acknowledges that
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, PC will be privy to financial and Confidential Information, to which
PC would not otherwise be exposed. The parties also recognize that the services
to be provided by Business Manager will be feasible only if PC operates an
active practice to which the Dentists associated with PC devote their full
professional time and attention. PC agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants.
(a) During the Term of this Management Services Agreement and except for
its obligations pursuant to this Management Services Agreement, PC shall not
establish, operate, or provide Dental Services at a dental office, clinic or
other health care facility anywhere within the Practice Territory.
(b) Except as specifically agreed to by Business Manager in writing, PC
covenants and agrees that during the Term of this Management Services Agreement
and for a period of five (5) years from the date this Management Services
Agreement is terminated, PC shall not directly or indirectly own (excluding
passive ownership of less than five percent (5%) of the equity of any publicly
traded entity), manage, operate, control, or be otherwise associated with, lend
funds to, lend its name to, or maintain any interest whatsoever in any
enterprise (i) having to do with the provision, distribution, promotion, or
advertising of any type of management or administrative services or products to
third parties in competition with Business Manager, in the Practice Territory;
and/or (ii) offering any type of service(s) or product(s) to third parties
substantially similar to those offered by Business Manager to PC in the Practice
Territory. Notwithstanding the above restriction, nothing herein shall prohibit
PC or any of its shareholders from providing management and administrative
services to its or their own dental practices after the termination of this
Management Services Agreement.
(c) The written employment agreements described in Section 5.2 shall
contain covenants of the shareholder employees pursuant to which the
shareholders agree not to compete with PC within the Practice Territory for one
(1) year after termination of the employment agreement in accordance with the
terms, conditions and limitations contained therein.
(d) PC shall obtain formal written agreements from its dentist employees
in the form of Exhibit 5.2(a), pursuant to which the employees agree not to
compete with PC within the
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Noncompetition Territory (as defined in such employment agreements) for one (1)
year after termination of the employment agreement in accordance with the terms,
conditions and limitations contained therein.
(e) PC understands and acknowledges that the foregoing provisions in
Section 5.7 and Section 5.8 are designed to preserve the goodwill of Business
Manager and the goodwill of the individual Dentists of PC. Accordingly, if PC
breaches any obligation of Section 5.7 or Section 5.8, in addition to any other
remedies available under this Management Services Agreement, at law or in
equity, Business Manager shall be entitled to enforce this Management Services
Agreement by injunctive relief and by specific performance of the Management
Services Agreement. Additionally, nothing in this paragraph shall limit Business
Manager's right to recover any other damages to which it is entitled as result
of PC's breach. If any provision of the covenants is held by a court of
competent jurisdiction to be unenforceable due to an excessive time period,
geographic area, or restricted activity, the covenant shall be reformed to
comply with such time period, geographic area, or restricted activity that would
be held enforceable.
Section 5.9 NAME, TRADEMARK. PC represents and warrants that, as of the
date hereof, PC conducts its professional practice under the name of, and only
under the name of "Mid-South Dental Centers, P.C." and that such name has been
licensed to PC by Business Manager. PC covenants and promises that, without the
prior written consent of the Business Manager, PC will not:
(a) take any action or omit to take any action that is reasonably likely
to result in the change or loss of the name;
(b) license, sell, give, or otherwise transfer the name or the right to
use the name to any dental practice, dentist, professional corporation, or any
other entity; or
(c) cease conducting the professional practice of PC under the name.
Section 5.10 PEER REVIEW. PC shall designate a committee of Dentists to
function as a dental peer review committee to review credentials of potential
recruits, perform quality assurance functions, and otherwise resolve dental
competence issues. The dental peer review committee shall function pursuant to
formal written policies and procedures.
Section 5.11 INDEMNIFICATION. PC shall indemnify, hold harmless and
defend Business Manager, its officers, directors and employees, from and against
any and all liability, loss, damage, claim, causes of action and expenses
(including reasonable attorneys' fees), whether or
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
not covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of Dental Services or any other
acts or omissions by PC and/or its shareholders, agents, employees and/or
subcontractors (other than Business Manager) during the term hereof. Business
Manager shall indemnify, hold harmless and defend PC, its officers, directors
and employees, from and against any and all liability, loss, damage, claim,
causes of action and expenses (including reasonable attorneys' fees), caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of any intentional acts, negligent acts, or omissions by Business
Manager and/or its shareholders, agents, employees and/or subcontractors (other
than PC) during the term of this Agreement.
ARTICLE VI. FINANCIAL ARRANGEMENT
Section 6.1 DEFINITIONS. For purposes of this Article VI, capitalized
terms used herein shall have the meanings ascribed as follows:
* (a) BASE MANAGEMENT FEE. The Base Management Fee shall be the amount,
calculated on a monthly basis, that is equal to [REDACTED]([REDACTED]) of the
Adjusted Gross Revenue attributable to the applicable monthly period.
(b) PERFORMANCE FEE. The Performance Fee shall be the amount, calculated
on a monthly basis, that is calculated in accordance with the Applicable Exhibit
to the Budget.
Section 6.2 MANAGEMENT FEE. PC and Business Manager agree to the
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by Section
4.9 (b), Business Manager shall be paid the following:
(i) the amount of all Office Expenses (other than the Base
Management Fee) paid by the Business Manager on behalf
of PC.
(ii) the Base Management Fee.
(iii) the Performance Fee.
Section 6.3 ADJUSTMENTS. If there are not sufficient funds to pay either
or both of the Base Management Fee or the Performance Fee, all unpaid amounts
shall accumulate and carry over from month to month until paid or until the
termination of this Management Services Agreement, in which case such unpaid
amounts shall be immediately due and payable as of the
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date of termination. Amounts carried over shall earn interest at the rate of ten
percent (10%) per annum. Furthermore, the amount of the Performance Fee paid
will be monitored and reconciled on an annual basis and any overpayments of the
Performance Fee shall be promptly refunded by the Business Manager.
Section 6.4 REASONABLE VALUE. Payment of the Base Management Fee or
Performance Fee is not intended to be and shall not be interpreted or applied as
permitting Business Manager to share in PC's fees for Dental Services or any
other services, but is acknowledged as the parties' negotiated agreement as to
the reasonable fair market value of the equipment, contract analysis and
support, other support services, purchasing, personnel, office space,
management, administration, strategic management and other items and services
furnished by Business Manager pursuant to this Management Services Agreement,
considering the nature and volume of the services required and the risks assumed
by Business Manager.
Section 6.5 PAYMENT OF MANAGEMENT FEE. To facilitate the payment of the
Management Fee as provided in Section 6.1 hereof, PC hereby expressly authorizes
Business Manager to make withdrawals of the Management Fee from the PC Account
as such fee becomes due and payable during the Term and thereafter as provided
in Section 7.3.
Section 6.6 ACCOUNTS RECEIVABLE. To assure that PC receives the entire
amount of professional fees for its services and to assist PC in maintaining
reasonable cash flow for the payment of Office Expenses, Business Manager may,
during the Term, purchase, without recourse to PC for the amount of the
purchase, the accounts receivable of PC arising during the previous month by
transferring the amount set forth below into the PC Account. The consideration
for the purchase shall be an amount equal to the Adjusted Gross Revenue recorded
each month (according to GAAP reflecting adjustments related to the bad debt
reserve). Business Manager shall be entitled to offset Office Expenses
reimbursement due to Business Manager under Section 6.2 above against the amount
payable for the accounts receivable. Although it is the intention of the parties
that Business Manager purchase and thereby become the owner of the accounts
receivable of PC, in the event such purchase shall be ineffective for any
reason, PC is concurrently herewith granting to Business Manager a security
interest in the accounts so purchased, and PC shall cooperate with Business
Manager and execute all documents in connection with the pledge of such
purchased accounts receivable to Business Manager. All collections in respect to
such accounts receivable purchased by Business Manager shall be received by
Business Manager as the agent of PC and shall be endorsed to Business Manager
and deposited in a bank account at a bank designated by Business Manager. To the
extent PC comes into possession of any payments in respect of such accounts
receivable, PC shall direct such payments to Business Manager for deposit in
bank accounts designated by Business Manager.
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Section 6.7 DISPUTES REGARDING FEES. PC shall not be entitled to a
set-off or reduction in its Management Fees by reason of its belief that
Business Manager has failed to perform its obligations hereunder or otherwise.
ARTICLE VII. TERM AND TERMINATION
Section 7.1 INITIAL AND RENEWAL TERM. The Term of this Management
Services Agreement will be for an initial period of twenty-five (25) years after
the effective date, and shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business Manager nor PC shall
have given notice of termination of this Management Services Agreement at least
ninety (90) days before the end of the initial term or any renewal term, or un
less otherwise terminated as provided in Section 7.2 of this Management Services
Agreement.
Section 7.2 TERMINATION.
(a) TERMINATION BY BUSINESS MANAGER. Subject to Section 7.2(c), Business
Manager may only terminate this Management Services Agreement either without
cause upon ninety (90) days' written notice to PC, or upon the occurrence of any
one of the following events which shall be deemed to be "for cause":
(i) The dissolution of PC or the filing of a petition in
voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily or
involuntarily under any State or federal statute for the
protection of debtors;
(ii) Upon a good faith determination by Business Manager that
PC has materially defaulted in the performance of any of
its material duties or obligations hereunder, and such
default continues for thirty (30) days after PC receives
notice of the default, and such default has or is
reasonably expected to have a material adverse effect on
the business or affairs of Business Manager.
(b) TERMINATION BY PC. Subject to Section 7.2(c) PC may only terminate
this Management Services Agreement upon any of the following occurrences which
shall be deemed to be "for cause":
(i) The dissolution of Business Manager or the filing of a
petition in voluntary bankruptcy, an assignment for the
benefit of creditors, or other action taken
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voluntarily or involuntarily under any State or federal
statute for the protection of debtors;
(ii) In the event that Business Manager materially defaults
in the performance of any of its material obligations
hereunder and such default continues for sixty (60) days
after Business Manager receives notice of the default.
Termination by PC hereunder shall require the affirmative vote of three-fourths
of the outstanding voting shares of the common shareholders of PC entitled to
vote.
(c) TERMINATION BY AGREEMENT. In the event PC and Business Manager shall
mutually agree in writing, this Management Services Agreement may be terminated
on the date specified in such written agreement.
(d) LEGISLATIVE, REGULATORY OR ADMINISTRATIVE CHANGE. In the event there
shall be a change in the Act, any federal or State statutes, case laws,
regulations or general instructions, the interpretation of any of the foregoing,
the adoption of new federal or State legislation, or a change in any third party
reimbursement system, any of which are reasonably likely to materially and
adversely affect the manner in which either party may perform or be compensated
for its services under this Management Services Agreement or which shall make
this Management Services Agreement unlawful, the parties shall immediately enter
into good faith negotiations regarding a new service arrangement or basis for
compensation for the services furnished pursuant to this Management Services
Agreement that complies with the law, regulation, or policy and that
approximates as closely as possible the economic position of the parties prior
to the change. If good faith negotiations cannot resolve the matter, it shall be
submitted to arbitration as referenced in Section 8.6; provided however that in
the event that the Tennessee Board of Dentistry issues a final and
non-appealable order revoking the license of any Dentist on the grounds that
PC's entering into and performing its obligations under this Management Services
Agreement is unlawful, PC may immediately terminate this Management Services
Agreement.
Section 7.3 EFFECTS OF TERMINATION. Upon termination of this Management
Services Agreement, as hereinabove provided, neither party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fees and PC Expenses relating to services provided prior to the termination of
this Management Services Agreement, (ii) obligations, promises, or covenants set
forth herein that are expressly made to extend beyond the Term, including,
without limitation, indemnities, which provisions shall survive the expiration
or termination of this Management Services Agreement for any reason, and
noncompetition provisions, which provisions shall
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survive the expiration or termination of this Management Services Agreement by
Business Manager for cause or by PC in breach of this Agreement, and (iii) the
obligations of PC and Business Manager described in Section 7.4. In effectuating
the provisions of this Section 7.3, PC specifically acknowledges and agrees that
Business Manager shall continue to collect and receive on behalf of PC all cash
collections from accounts receivable in existence at the time this Management
Services Agreement is terminated, it being understood that such cash collections
will represent, in part, compensation to Business Manager for management
services already rendered and compensation on accounts receivable purchased by
Business Manager. Upon the expiration or termination of this Management Services
Agreement for any reason or cause whatsoever, Business Manager shall surrender
to PC all books and records pertaining to PC's dental practice.
Section 7.4 REPURCHASE OBLIGATION. Upon termination of this Management
Services Agreement by Business Manager for cause or by PC in breach of this
Agreement or pursuant to Section 7.2(d) hereof, Business Manager shall have the
option, exercisable at any time within thirty (30) days of such termination, to
require PC to:
(a) Purchase from Business Manager at book value the intangible assets,
deferred charges, and all other amounts on the books of the Business Manager
relating to the Management Services Agreement as adjusted through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges, or covenants. Provided, however, that in the event of
a termination of this Agreement pursuant to Section 7.2(d) hereof, the price at
which the intangible assets of Business Manager shall be purchased by PC shall
be reduced by 20% for each full year that has passed from the date of this
Management Services Agreement as of the date of sale;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as a Center at the greater of the appraised fair market value
thereof or the then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined by Business Manager and PC,
each selecting a duly qualified appraiser, who in turn will agree on a third
appraiser. This agreed-upon appraiser shall perform the appraisal which shall be
binding on both parties. In the event either party fails to select an appraiser
within fifteen (15) days of the selection of an appraiser by the other party,
the appraiser selected by the other party shall make the selection of the third
party appraiser;
(c) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Business Manager at any Center and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
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(d) Assume all debt, and all contracts, payables, and leases that are
obligations of Business Manager and that relate directly to the performance of
Business Manager's obligations under this Management Services Agreement or the
properties leased or subleased hereunder by Business Manager; and
(e) Purchase from Business Manager at the greater of appraised fair
market value or book value all of the equipment listed as set forth in the
Purchase Agreement or an exhibit thereto, including all replacements and
additions thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other assets,
including inventory and supplies, tangibles and intangibles, set forth on the
books of the Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with GAAP to
reflect operations of each Center, depreciation, amortization, and other
adjustments of assets shown on the books of the Business Manager.
Section 7.5 REPURCHASE OPTION. Upon termination of this Management
Services Agreement by Business Manager in breach of this Agreement or by PC for
cause, PC shall have the option but not the obligation to do all or none of the
following:
(a) Purchase from Business Manager any real estate owned by Business
Manager and used as a Center at the then book value thereof;
(b) Purchase at book value all improvements, additions, or leasehold
improvements that have been made by Business Manager at any Center and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(c) Assume all debt, and all contracts, payables, and leases that are
obligations of Business Manager and that relate directly to the performance of
Business Manager's obligations under this Management Services Agreement or the
properties leased or subleased by Business Manager; and
(d) Purchase from Business Manager at book value all of the equipment
listed as set forth in the Purchase Agreement or an exhibit thereto, including
all replacements and additions thereto made by Business Manager pursuant to the
performance of its obligations under this Management Services Agreement, and all
other tangible assets, including inventory and supplies, set forth on the books
of the Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with GAAP to
reflect operations of each Center, depreciation, amortization, and other
adjustments of assets shown on the books of the Business Manager.
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Section 7.6 CLOSING OF REPURCHASE. PC shall pay cash for the repurchased
assets. The amount of the purchase price shall be reduced by the amount of debt
and liabilities of Business Manager, if any, assumed by PC. PC and any Dentist
who is a shareholder of PC shall execute such documents as may be required to
cause or permit PC to assume the liabilities set forth in Section 7.4(d) or
Section 7.5(c) and to remove or, if PC and such Dentist or Dentists can
establish in good faith that such removal is not possible, to cause or permit PC
to indemnify Business Manager from any liability with respect to such
repurchased asset and with respect to any property leased or subleased by
Business Manager; provided, however, that such Dentist shall not be obligated or
required to guarantee the obligation of PC or otherwise enhance or supplement
the creditworthiness of PC. The closing date for the repurchase shall be
determined by Business Manager but shall in no event occur later than one
hundred eighty (180) days from the date of the notice of termination. The
termination of this Management Services Agreement shall become effective upon
the closing of the sale of the assets under Section 7.4 or Section 7.5 (or, if
PC does not exercise its option under Section 7.5, on the date it notifies
Business Manager of such decision). PC shall be released from the restrictive
covenants provided for in Section 5.8 on the closing date. From and after any
termination, each party shall provide the other party with reasonable access to
the books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations that may be required of it.
ARTICLE VIII. MISCELLANEOUS
Section 8.1 ADMINISTRATIVE SERVICES ONLY. Nothing in this Management
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which PC and its
Dentists perform Dental Services or other professional health care services. The
rendition of all Dental Services, including, but not limited to, the
prescription or administration of drugs shall be the sole responsibility of PC
and its Dentists, and Business Manager shall not interfere in any manner or to
any extent therewith. Nothing contained in this Management Services Agreement
shall be construed to permit Business Manager to engage in the practice of
dentistry, it being the sole intention of the parties hereto that the services
to be rendered to PC by Business Manager are solely for the purpose of providing
nondental management and administrative services to PC so as to enable PC to
devote its full time and energies to the professional conduct of its dental
practice and provision of Dental Services to its patients and not to
administration, or practice management.
Section 8.2 STATUS OF CONTRACTOR; AGENCY. It is expressly acknowledged
that the parties hereto are independent contractors and that this Management
Services Agreement is intended to constitute Business Manager as PC's agent.
Nothing herein shall be construed to create an
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employer/employee, partnership, or joint venture relationship, or to allow
either to exercise control or direction over the manner or method by which the
other performs the services that are the subject matter of this Management
Services Agreement or to permit Business Manager to take any action that would
constitute the practice of dentistry; provided always that the services to be
provided hereunder shall be furnished in a manner consistent with the standards
governing such services and the provisions of this Management Services
Agreement. Each party understands and agrees that (i) the other will not be
treated as an employee for federal tax purposes, (ii) neither will withhold on
behalf of the other any sums for income tax, unemployment insurance, social
security, or any other withholding pursuant to any law or requirement of any
governmental body or make available any of the benefits afforded to its
employees, (iii) all of such payments, withholdings, and benefits, if any, are
the sole responsibility of the party incurring the liability, and (iv) each will
indemnify and hold the other harmless from any and all loss or liability arising
with respect to such payments, withholdings, and benefits, if any.
Section 8.3 NOTICES. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be in writing and shall be
served on the parties at the following respective addresses:
PC: CASTLE MID-SOUTH DENTAL CENTERS, P.C.
1010 Murphreesboro Road
Suite 196
Franklin, Tennessee 37064
Business Manager: CASTLE DENTAL CENTERS OF TENNESSEE, INC.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted, or desired to be given hereunder shall be
sent either (a) by hand delivery, in which case notice shall be deemed received
when actually delivered, (b) by prepaid certified or registered mail, return
receipt requested, in which case notice shall be deemed received five calendar
days after deposit, postage prepaid in the United States Mail, or (c) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after deposit with such courier.
Section 8.4 GOVERNING LAW. This Management Services Agreement shall be
governed by the laws of the State of Tennessee applicable to agreements to be
performed wholly within the
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State. Tennessee law was chosen by the parties after negotiation to govern
interpretation of this Management Services Agreement because Davidson County,
Tennessee is, or is adjacent to, the seat of management for Business Manager.
The federal and State courts of Davidson County, Tennessee shall be the
exclusive venue for any litigation, special proceeding, or other proceeding
between the parties that may arise out of, or be brought in connection with or
by reason of, this Management Services Agreement.
Section 8.5 ASSIGNMENT. Except as may be herein specifically provided to
the contrary, this Management Services Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that PC may not
assign this Management Services Agreement without the prior written consent of
Business Manager, which consent may be withheld. The sale, transfer, pledge, or
assignment of any of the common shares held by any shareholder of PC or the
issuance by PC of common or other voting shares to any other person, or any
combination of such transactions within a period of one (1) year, such that the
existing shareholder in PC fails to maintain a majority of the voting interests
in PC shall be deemed an attempted assignment by PC, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours notice to PC.
Section 8.6 ARBITRATION.
(a) GENERAL. The parties shall use good faith negotiation to resolve any
controversy, dispute or disagreement arising out of or relating to this
Management Services Agreement or the breach of this Management Services
Agreement. Any matter not resolved by negotiation shall be submitted to binding
arbitration and such arbitration shall be governed by the terms of this Section
8.6.
(b) SCOPE. Unless otherwise specifically provided herein, the parties
hereto agree that any claim, controversy, dispute or disagreement between or
among any of the parties hereto arising out of or relating to this Management
Services Agreement (other than claims involving any noncompetition or
confidentiality covenant) shall be governed exclusively by the terms and
provisions of this Section 8.6; provided, however, that the terms and provisions
of this Section 8.6 shall not preclude any party hereto from seeking, or a court
of competent jurisdiction from granting, a temporary restraining order,
temporary injunction or other equitable relief for any breach of (i) any
noncompetition or confidentiality covenant herein or (ii) any duty, obligation,
covenant, representation or warranty, the breach of which may cause irreparable
harm or damage.
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(c) ARBITRATORS. In the event of any claim, controversy, dispute or
disagreement between the parties hereto arising out of or relating to this
Management Services Agreement, and in the further event the parties are unable
to resolve such claim, controversy, dispute or disagreement within thirty (30)
days after notice is first delivered pursuant to Section 8.3, the parties agree
to select arbitrators to hear and decide all such claims under this Section 8.6.
Each party shall select one arbitrator, The two arbitrators so chosen shall then
select a third arbitrator who is experienced in the matter or action that is
subject to such arbitration. If such matter or action involves health-care
issues, then the third arbitrator shall have such qualifications as would
satisfy the requirements of the National Health Lawyers Association Alternative
Dispute Resolution Service. Each of the arbitrators chosen shall be impartial
and independent of all parties hereto. If either of the parties fails to select
an arbitrator within twenty days after the end of such thirty-day period, or if
the arbitrators chosen fail to select a third arbitrator within twenty days,
then any party may in writing request the judge of the United States District
Court for the Middle District of Tennessee senior in term of service to appoint
the arbitrator or arbitrators and, subject to this Section 8.6, such arbitrators
shall hear all arbitration matters arising under this Section 8.6, and, in
default of such selection, may ask the American Arbitration Association.
(d) APPLICABLE RULES.
(i) Each arbitration hearing shall be held at a place in Nashville,
Tennessee acceptable to a majority of the arbitrators. The
arbitration shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association to the
extent such rules do not conflict with the terms hereof. The
decision of a majority of the arbitrators shall be reduced to
writing and shall be binding on the parties. Judgment upon the
award(s) rendered by a majority of the arbitrators may be
entered and execution had in any court of competent jurisdiction
or application may be made to such court for a judicial
acceptance of the award and an order of enforcement. The charges
and expenses of the arbitrators shall be shared equally by the
parties to the hearing.
(ii) The arbitration shall commence within thirty (30) days after the
arbitrators are selected in accordance with the provisions of
this Section 8.6. In fulfilling their duties with respect to the
matter in arbitration, the arbitrators may consider such matters
as, in the opinion of the arbitrators, are necessary or helpful
to make a proper valuation. The arbitrators may consult with and
engage disinterested third parties to advise the arbitrators.
The arbitrators shall not add any interest factor reflecting the
time value of money to the amount of any award granted under any
arbitration hereunder and shall not award any punitive damages.
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(iii) If any of the arbitrators selected hereunder should die, resign
or be unable to perform his or her duties hereunder, the
remaining arbitrators or such senior judge (or such judge's
successor) shall select a replacement arbitrator. The procedure
set forth in this Section 8.6 for selecting the arbitrators
shall be followed from time to time as necessary.
(iv) As to the resolution of any claim, controversy, dispute or
disagreement that under the terms hereof is made subject to
arbitration, no lawsuit based on such resolution shall be
instituted by either of the parties hereto, other than to compel
arbitration proceedings or enforce the award of a majority of
the arbitrators.
(v) All privileges under Tennessee and federal law, including
attorney-client and work- product privileges, shall be preserved
and protected to the same extent that such privileges would be
protected in a federal court proceeding applying Tennessee law.
Section 8.7 WAIVER OF BREACH. The waiver by either party of a breach or
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
Section 8.8 ENFORCEMENT. In the event either party resorts to legal
action to enforce or interpret any provision of this Management Services
Agreement, the prevailing party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
Section 8.9 GENDER AND NUMBER. Whenever the context of this Management
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
Section 8.10 ADDITIONAL ASSURANCES. Except as may be herein specifically
provided to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either par ty, the other party shall
execute such additional instruments and take such additional acts as are
reasonable and as the requesting party may deem necessary to effectuate this
Management Services Agreement.
Section 8.11 CONSENTS, APPROVALS, AND EXERCISE OF DISCRETION. Whenever
this Management Services Agreement requires any consent or approval to be given
by either party,
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or either party must or may exercise discretion, and except where specifically
set forth to the contrary, the parties agree that such consent or approval shall
not be unreasonably withheld or delayed, and that such discretion shall be
reasonably exercised.
Section 8.12 FORCE MAJEURE. Neither party shall be liable or deemed to
be in default for any delay or failure in performance under this Management
Services Agreement or other interruption of service deemed to result, directly
or indirectly, from acts of God, civil or military authority, acts of public
enemy, war, accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either party's employees,
or any other sim ilar cause beyond the reasonable control of either party unless
such delay or failure in performance is expressly addressed elsewhere in this
Management Services Agreement.
Section 8.13 SEVERABILITY. The parties hereto have negotiated and
prepared the terms of this Management Services Agreement in good faith with the
intent that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective parties. Accordingly, if
any one or more of the terms, provisions, promises, covenants or conditions of
this Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law. To the extent this
Management Services Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Management Services
Agreement, to the extent possible consistent with its purposes, to conform to
law.
Section 8.14 DIVISIONS AND HEADINGS. The divisions of this Management
Services Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
Section 8.15 AMENDMENTS AND MANAGEMENT SERVICES AGREEMENT EXECUTION.
This Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of PC by its President, and on behalf of
Business Manager by any duly authorized officer thereof. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument.
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Section 8.16 ENTIRE MANAGEMENT SERVICES AGREEMENT. With respect to the
subject matter of this Management Services Agreement, this Management Services
Agreement supersedes all previous contracts and constitutes the entire agreement
between the parties. Neither party shall be entitled to benefits other than
those specified herein. No prior oral statements or contemporaneous negotiations
or understandings, except for the Budget, or prior written material not
specifically incorporated herein shall be of any force and effect, and no
changes in or additions to this Management Services Agreement shall be
recognized unless incorporated herein by amendment as provided herein, such
amendment(s) to become effective on the date stipulated in such amendment(s).
The parties specifically acknowledge that, in entering into and executing this
Management Services Agreement, except for the Budget, the parties rely solely
upon the representations and agreements contained in this Management Services
Agreement and no others.
IN WITNESS WHEREOF, PC and Business Manager have caused this Management
Services Agreement to be executed by their duly authorized representatives, all
as of the day and year first above written.
PC: CASTLE MID-SOUTH DENTAL CENTER, P.C.
By:________________________________
G. Powell Bilyeu
President
BUSINESS MANAGER: CASTLE DENTAL CENTERS OF TENNESSEE,
INC.
By:
Name:
Title:
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EXHIBIT 10.33
AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
This Amendment (the "Amendment") to the Management Services Agreement
(the "Agreement"), effective as of May 31, 1996, between Castle Dental Centers
of Tennessee, Inc., a Tennessee corporation ("Business Manager"), and Castle
Mid-South Dental Center, P.C., a Tennessee professional corporation ("PC"), is
made and entered into as of the 16th day of August 1996.
1. INTRODUCTION. This Amendment is entered into pursuant to and in
conformity with Section 8.15 of the Agreement. All capitalized terms not
otherwise defined in this Amendment shall have the meanings ascribed to them in
the Agreement.
2. AMENDMENTS. Business Manager and PC hereby agree to amend the
Agreement as follows:
(a) Paragraph (h) of Section 3.1 is hereby amended to read in its
entirety as follows:
"(h) DENTIST HIRING. The PC shall, consistent with the Budget,
employ or otherwise retain and shall be responsible for
selecting, hiring, training, supervising, and terminating, the
number and type of Dentists as the PC deems necessary for the
efficient operation of PC's facilities. The PC shall review and
approve any variations to the restrictive covenants in any
dentist employment contract."
(b) Subparagraph (2) of Paragraph (a) of Section 4.10 is hereby
amended to read in its entirety as follows:
"(2) PROCESS FOR SUCCEEDING BUDGETS. Annually and at least
thirty (30) days prior to the commencement of each fiscal year
of PC, Business Manager, in consultation with PC, shall prepare
and deliver to PC for PC's approval a proposed Budget, setting
forth an estimate of PC's revenues and expenses for the upcoming
fiscal year (including, without limitation, the Management Fee
and Performance Fee associated with the services provided by
Business Manager hereunder). The Budget process shall not
supersede the Dentists' professional judgment, including, but
not limited to, decisions concerning equipment. PC shall review
the proposed Budget and either
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approve the proposed Budget or request any changes within
fifteen (15) days after receiving the proposed Budget. The
Budget shall be adopted by PC after its approval thereof and may
be revised or modified only in consultation with the Business
Manager."
(c) Section 4.11 is hereby amended to read in its entirety as
follows:
"Section 4.11 REPORTS AND RECORDS. Business Manager shall
establish, monitor, and maintain procedures and policies for the
timely creation, preparation, filing and retrieval of all dental
records generated by PC in connection with PC's provision of
Dental Services; and, subject to applicable law, shall use its
best efforts to ensure that dental records are promptly
available to Dentists and any other appropriate persons. All
such dental records shall be retained and maintained in
accordance with all applicable State and federal laws relating
to the confidentiality and retention thereof. All dental records
shall be and remain the property and under the control of PC and
shall be retained by PC in the event of termination of the
Manage ment Services Agreement. All dental records shall be
located at the applicable Center so that they are readily
available for patient care, and PC shall remain the custodian
thereof and responsible for their maintenance. Business Manager
shall use its reasonable efforts to preserve the confidentiality
of dental records and use information contained in such records
only for the limited purpose necessary to perform the services
set forth herein; provided, however, in no event shall a breach
of said confidenti ality be deemed a default under this
Agreement."
(d) Section 5.4 is hereby amended to read in its entirety as
follows:
"Section 5.4 DENTAL SERVICES. PC shall ensure that Dentists and
non-dentist dental care personnel are available to provide
Dental Services to patients during the normal operating hours of
each Center. In the event that Dentists are not available to
provide Dental Services coverage, PC shall engage and retain
LOCUM TENENS coverage as it deems reasonable and appropriate
based on patient care requirements. Dentists retained on a LOCUM
TENENS basis shall meet all of the requirements of Section 5.3,
and the cost of providing LOCUM TENENS coverage shall be a PC
Expense. PC and the Dentists shall be responsible for scheduling
Dentist and non-dentist dental care personnel coverage of all
dental procedures. PC shall cause all Dentists to develop and
promote PC."
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(e) Section 7.1 is hereby amended to read in its entirety as
follows:
"Section 7.1 INITIAL AND RENEWAL TERM. The Term of this
Management Services Agreement will be for an initial period of
forty (40) years after the effective date, and shall be
automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager nor PC shall
have given notice of termination of this Management Services
Agreement at least ninety (90) days before the end of the
initial term or any renewal term, or unless otherwise terminated
as provided in Section 7.2 of this Management Services
Agreement."
3. NO OTHER CHANGES. Except as set forth herein, provisions of the
Agreement shall remain in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument.
IN WITNESS WHEREOF, Business Manager and PC have caused this Amendment
to be executed as of the date first set forth above.
BUSINESS MANAGER:
CASTLE DENTAL CENTERS
OF TENNESSEE, INC.
By:
Jack H. Castle, Jr.
Chairman and Chief Executive Officer
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PC:
CASTLE MID-SOUTH DENTAL CENTER, P.C.
By:
G. Powell Bilyeu
President
-4-
Exhibit 10.34
Doc. No. 18
TRADE NAME LICENSE AGREEMENT
THIS TRADE NAME LICENSE AGREEMENT (the "Agreement") is effective as
of May 31, 1996 (hereinafter the "Effective Date") by and between Castle Dental
Centers of Tennessee, Inc., a corporation organized and existing under the laws
of the State of Tennessee (hereinafter referred to as "Licensor"), and Castle
Mid-South Dental Centers, P.C., a professional association organized and
existing under the laws of the State of Tennessee (hereinafter referred to as
"Licensee").
WHEREAS, Licensor is the owner of the trade name "Mid-South Dental
Center" (the "Name");
WHEREAS, Licensee desires to obtain a license from Licensor to use
the Name solely in connection with the practice of dentistry and advertising
related thereto; and
NOW, THEREFORE, in consideration of the foregoing and that certain
Management Services Agreement by and between Licensor and Licensee dated as of
May 31, 1996 (the "Management Services Agreement") and of the mutual promises
hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following terms shall have the meanings set
forth below:
"Territory" shall mean the State of Tennessee.
2. TERM
2.1 Subject to the provision of Article 7 herein, this Agreement
shall have the same term as the Management Services Agreement. Any termination
of the Management Services Agreement will automatically terminate this
Agreement.
3. GRANT OF LICENSE
3.1 Subject to the provisions of this Agreement, Licensor grants to
Licensee, and Licensee accepts, a nonexclusive, nontransferable, personal
license to use the Name in the Territory solely in connection with the practice
of dentistry and advertising related thereto.
3.2 Licensee shall not use the Name other than as provided in Section
3.1 hereof.
<PAGE>
4. QUALITY STANDARDS
4.1 Licensee agrees that the nature and quality of: (1) all dental
services rendered by and related facilities of Licensee in connection with the
Name; and (2) all related advertising, promotional, and other related uses of
the Name by Licensee shall conform to standards set by, and be under the control
of, Licensor.
5. THE NAME
5.1 Licensee acknowledges the ownership of the Name by Licensor,
agrees that it will do nothing inconsistent with such ownership, and that all
use of the Name by Licensee and all good will developed therefrom shall inure to
the benefit of and be on behalf of Licensor. Licensee agrees that nothing in
this Agreement shall give Licensee any right, title, or interest in the Name
other than the right to use the Name in accordance with this Agreement and
Licensee agrees that it will not attack the title of Licensor to the Name or
attack the validity of this Agreement.
6. INFRINGEMENT
6.1 Licensee shall notify Licensor promptly of any actual or
threatened infringements, imitations, or unauthorized use of the Name by third
parties of which Licensee becomes aware. Licensor shall have the sole right, at
its expense, to bring any action or account of any such infringements,
imitations, or unauthorized use, and Licensee shall cooperate with Licensor, as
Licensor may reasonably request, in connection with any such action brought by
Licensor. Licensor shall retain any and all damages, settlement and/or
compensation paid in connection with any such action brought by Licensor.
7. INDEMNIFICATION
7.1 Licensee agrees to indemnify and hold harmless Licensor from and
against any and all loss, cost, claim, liability or damage occasioned by a
related to any breach by Licensee of this Agreement. This right of
indemnification shall be in addition to any and other remedies to which Licensor
may be entitled at law or equity.
8. TERMINATION
8.1 Licensor shall have the right to terminate this Agreement
effective immediately upon Licensee's receipt of written notice from Licensor in
the event of any affirmative act of insolvency by Licensee, or upon the
appointment of any receiver or trustee to take possession of the properties of
Licensee or upon the winding-up, sale, consolidation, merger, or any
sequestration by
-2-
governmental authority of Licensee, or upon any breach of any of the duties and
obligations of Licensee under this Agreement.
8.2 The exercise of any right to terminate under this Article 8 shall
not affect any rights which have accrued prior to termination and shall be
without prejudice to any other legal or equitable remedies to which Licensor may
be entitled by reason of such rights. The obligations and provisions of Article
5 shall survive any expiration or termination of this Agreement.
9. EFFECTS OF AND PROCEDURE ON TERMINATION
9.1 Upon the expiration or termination of this Agreement, Licensee
agrees immediately to discontinue all use of the Name and any term confusingly
similar thereto, to destroy all printed materials bearing the Name, and that all
rights in the Name and the good will connected therewith shall remain the
property of Licensor.
10. ASSIGNMENT
10.1 This Agreement may be assigned by Licensor but shall not be
assignable or transferable by Licensee without the prior written consent of
Licensor, and any attempted assignment by Licensee without such prior written
consent shall be void and shall constitute a breach of the obligations of
Licensee hereunder.
11. NOTICES
11.1 Any notice, demand, waiver, consent, approval, or disapproval
(collectively referred to as "notice") required or permitted herein shall be in
writing and shall be given personally, by messenger, by air courier, by
telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective addresses set forth
above or at such other address as a party may hereafter designate in writing to
the other party.
11.2 A notice shall be deemed received on the date of receipt.
12. APPLICABLE LAW
12.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of Tennessee, without regard to principles of
conflicts of laws. Any case, controversy, suit, action, or proceeding arising
out of, in connection with, or related to, this Agreement shall be brought in
any federal or state court located in the State of Tennessee.
-3-
13. MODIFICATION, AMENDMENT, SUPPLEMENT, OR WAIVER
13.1 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all previous
agreements, promises, representations, understandings, and negotiations, whether
written or oral.
13.2 No modification, amendment, supplement to or waiver of this
Agreement or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by both of the parties to this Agreement.
A waiver by either party of any of the terms or conditions of this Agreement in
any one instance shall not be deemed a waiver of such terms or conditions in the
future.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the Effective Date.
CASTLE DENTAL CENTERS OF
TENNESSEE, INC. (Licensor)
By:
Jack H. Castle, Jr.
President
CASTLE MID-SOUTH DENTAL CENTERS, P.C.
(Licensee)
By:
G. Powell Bilyeu
President
-4-
Exhibit 10.35
Doc. No. 19
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK AGREEMENT (the "Agreement") is effective as of May 31,
1996 (hereinafter the "Effective Date") by and between Castle Dental Centers of
Tennessee, Inc., a corporation organized and existing under the laws of the
State of Tennessee, located at 1360 Post Oak Boulevard, Suite 1300, Houston,
Texas 77056 (hereinafter referred to as "Licensor"), and Castle Mid-South Dental
Centers, P.C., a professional corporation organized and existing under the laws
of the State of Tennessee, located at 1010 Murfreesboro Road, Suite 196,
Franklin, TN 37064 (hereinafter referred to as "Licensee").
WHEREAS, Licensor is the owner of the trademark and registration
thereof attached as Exhibit A hereto (the "Mark");
WHEREAS, Licensee desires to obtain a license from Licensor to use
the Mark solely in connection with the practice of dentistry and advertising
related thereto; and
NOW, THEREFORE, in consideration of the foregoing and that certain
Management Services Agreement by and between Licensor and Licensee dated May 31,
1996 (the "Management Services Agreement), and of the mutual promises
hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following terms shall have the meanings set
forth below:
"Territory" shall mean the State of Tennessee.
2. TERM
2.1 Subject to the provision of Article 7 herein, this Agreement
shall have the same term as the Management Services Agreement. Any termination
of the Management Services Agreement will automatically terminate this
Agreement.
3. GRANT OF LICENSE
3.1 Subject to the provisions of this Agreement, Licensor grants to
Licensee, and Licensee accepts, a nonexclusive, nontransferable, personal
license to use the Mark in the Territory solely in connection with the practice
of dentistry and advertising related thereto.
3.2 Licensee shall not use the Mark other than as provided in Section
3.1 hereof.
<PAGE>
4. QUALITY STANDARDS
4.1 Licensee agrees that the nature and quality of: (1) all dental
services rendered by and related facilities of Licensee in connection with the
Mark; and (2) all related advertising, promotional, and other related uses of
the Mark by Licensee shall conform to standards set by, and be under the control
of, Licensor.
5. THE MARK
5.1 Licensee acknowledges the ownership of the Mark by Licensor,
agrees that it will do nothing inconsistent with such ownership, and that all
use of the Mark by Licensee and all good will developed therefrom shall inure to
the benefit of and be on behalf of Licensor. Licensee agrees that nothing in
this Agreement shall give Licensee any right, title, or interest in the Mark
other than the right to use the Mark in accordance with this Agreement and
Licensee agrees that it will not attack the title of Licensor to the Mark or
attack the validity of this Agreement.
5.2 Licensee shall include all notices and legends with respect to
the Mark as is or may be required by applicable federal, state, and local laws
or which may be reasonably requested by Licensor.
6. INFRINGEMENT
6.1 Licensee shall promptly notify Licensor of any actual or
threatened infringements, imitations, or unauthorized use of the Mark by third
parties of which Licensee becomes aware. Licensor shall have the sole right, at
its expense, to bring any action or account of any such infringements,
imitations, or unauthorized use, and Licensee shall cooperate with Licensor, as
Licensor may reasonably request, in connection with any such action brought by
Licensor. Licensor shall retain any and all damages, settlement and/or
compensation paid in connection with any such action brought by Licensor.
7. INDEMNIFICATION
8. TERMINATION
8.1 Licensor shall have the right to terminate this Agreement
effective immediately upon Licensee's receipt of written notice from Licensor in
the event of any affirmative act of insolvency by Licensee, or upon the
appointment of any receiver or trustee to take possession of the properties
-2-
of Licensee or upon the winding-up, sale, consolidation, merger, or any
sequestration by governmental authority of Licensee, or upon any breach of any
of the duties and obligations of Licensee under this Agreement.
8.2 The exercise of any right to terminate under this Article 8 shall
not affect any rights which have accrued prior to termination and shall be
without prejudice to any other legal or equitable remedies to which Licensor may
be entitled by reason of such rights. The obligations and provisions of Article
5 shall survive any expiration or termination of this Agreement.
9. EFFECTS OF AND PROCEDURE ON TERMINATION
9.1 Upon the expiration or termination of this Agreement, Licensee
agrees immediately to discontinue all use of the Mark and any term confusingly
similar thereto, to destroy all printed materials bearing the Mark, and that all
rights in the Mark and the good will connected therewith shall remain the
property of Licensor.
10. ASSIGNMENT
10.1 This Agreement may be assigned by Licensor but shall not be
assignable or transferable by Licensee without the prior written consent of
Licensor, and any attempted assignment by Licensee without such prior written
consent shall be void and shall constitute a breach of the obligations of
Licensee hereunder.
11. NOTICES
11.1 Any notice, demand, waiver, consent, approval, or disapproval
(collectively referred to as "notice") required or permitted herein shall be in
writing and shall be given personally, by messenger, by air courier, by
telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective addresses set forth
above or at such other address as a party may hereafter designate in writing to
the other party.
11.2 A notice shall be deemed received on the date of receipt.
12. APPLICABLE LAW
12.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of Tennessee, without regard to principles of
conflicts of laws. Any case, controversy, suit, action, or proceeding arising
out of, in connection with, or related to, this Agreement shall be brought in
any federal or state court located in the State of Tennessee.
-3-
13. MODIFICATION, AMENDMENT, SUPPLEMENT, OR WAIVER
13.1 This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all previous
agreements, promises, representations, understandings, and negotiations, whether
written or oral.
13.2 No modification, amendment, supplement to or waiver of this
Agreement or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by both of the parties to this Agreement.
A waiver by either party of any of the terms or conditions of this Agreement in
any one instance shall not be deemed a waiver of such terms or conditions in the
future.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the Effective Date.
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
(Licensor)
By:
Jack H. Castle, Jr.
President
CASTLE MID-SOUTH DENTAL CENTERS, P.C.
(Licensee)
By:
G. Powell Bilyeu
President
-4-
Exhibit A
U.S. TRADEMARK:
NUMBER TRADEMARK REGISTRATION DATE
1,915,643 "Mid-South Dental Centers" August 29, 1995
and design of a dentist's
mirror
-5-
EXHIBIT 10.36
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
Doc. No. 3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of May
31, 1996 (the "Effective Date"), by and between Castle Dental Centers of
Tennessee, Inc., a Tennessee corporation (the "Company"), and G. Powell Bilyeu,
D.D.S. ("Employee").
RECITALS:
Prior to the date hereof, Employee was the owner of Mid-South Dental
Center, P.C., which along with the Company and the Employee is a party to that
certain Asset Purchase Agreement dated as of April 29, 1996 (the "Asset Purchase
Agreement"). As a condition to the consummation of the transactions contemplated
by the Asset Purchase Agreement and as an inducement for the Company and
Employee to perform their respective obligations under the Asset Purchase
Agreement, the Company and Employee have entered into this Agreement.
The parties agree as follows:
ARTICLE I
1.1 EMPLOYMENT.
(a) The Company agrees to, and hereby does, employ Employee, on the
terms and conditions set forth herein, to hold such offices, have such titles
and perform such duties as are assigned to him from time to time by the Board of
Directors of the Company.
(b) Employee's initial responsibility shall be to participate in the
development and implementation of the strategic plan of the Company for
specified markets in Tennessee, Kentucky, Alabama and portions of northwest
Georgia. Employee's role in the development of the strategic plan shall include,
but not be limited to, an analysis of markets selected by the Company and the
identification of acquisition candidates. Employee's role in the implementation
of the strategic plan, subject to the supervision of the Company's senior
management, shall include, but not be limited to, participating in the
acquisition of dental practices, development of new offices and responsibility
for the management of dental practices in accordance with a management services
agreement to which the Company and such practices are parties.
(c) The Company may reassign Employee from the duties described above
without breaching this Agreement; provided, however, that Employee shall not be
assigned duties inconsistent with his position as an executive of the Company,
and provided further, that no such reassignment shall justify a decrease in the
Base Salary (as herein defined) payable to Employee.
-1-
CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
(d) The duties Employee is to perform hereunder shall be conducted from
the Company's offices in the Nashville, Tennessee metropolitan area. Employee
acknowledges and agrees, however, that, in connection with his employment
hereunder, he may be required to travel to, and to perform his duties hereunder
on a temporary basis at, another place or places as the Board of Directors of
the Company shall designate or as the interests or business opportunities of the
Company may require from time to time. In the event that the duties to be
performed by Employee hereunder are required to be performed on a permanent
basis from a place or places other than the Nashville, Tennessee offices of the
Company, the Company shall be deemed to be in breach of this Agreement and
Employee may elect to terminate this Agreement.
(e) Employee shall devote his business time, efforts and abilities to
the business of the Company in a manner consistent with prior periods. Employee
shall use his reasonable best efforts to promote the interests of the Company.
ARTICLE II
* 2.1 SALARY. As compensation for his service during the term of this
Agreement (or until terminated pursuant to the provisions hereof), the Company
shall pay Employee a salary at the rate of $[REDACTED] per annum (the "Base
Salary"), subject to annual review relative to increase, through and until the
Expiration Date, as herein defined, payable in accordance with the regular
payroll practices of the Company as in effect from time to time, and which
currently provide for payment on a bi-weekly basis. Such Base Salary shall be
subject to withholding for the prescribed federal and state income tax, social
security and other items as required by law, and for other items consistent with
the Company's policy with respect to health insurance and other benefit plans
for similarly situated employees.
2.2 DEFERRED COMPENSATION. Following the Expiration Date, for the three
year period commencing on the Expiration Date, Employee will be entitled to an
aggregate compensation for such period equal to three times the amount of the
Incentive Bonus Plan compensation paid or payable to Employee (computed in
accordance with Section 2.3), during the twelve month period immediately
preceding the Expiration Date (the "Deferred Compensation"). The Deferred
Compensation will be prorated over such three year term, will be paid in
accordance with the regular payroll practices of the Company in effect from time
to time, and will be subject to withholding for the prescribed federal and state
income tax, social security and other items as required by law, and for other
items consistent with the Company's policy with respect to health insurance and
other benefit plans for similarly situated employees.
2.3 INCENTIVE BONUS COMPENSATION. The Company hereby establishes the
Castle Dental Centers of Tennessee, Inc. Incentive Bonus Plan (the "Plan") which
provides for the Company to set aside for grant to the Employee, Philip Hamner
and David North an aggregate of
-2-
CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
*
[REDACTED] ([REDACTED]) of the pretax income of the Company in excess of
$[REDACTED] per year. Pre-tax income of the Company shall be computed in
accordance with generally accepted accounting principles, but shall exclude the
periodic change in unbilled patient receivables resulting from the recognition
of orthodontic revenues on the proportional performance method of accounting for
service contracts, and shall be attributable to the operations of the Company in
Kentucky, Alabama, Tennessee and portions of northwest Georgia, as set forth in
Schedule 2.3 hereto, computed without general overhead allocation or charge with
respect to the general and administrative expenses of Castle Dental Center,
Inc., a Delaware corporation ("Castle"), but taking into account direct costs
incurred by Castle on behalf of the Company, and including a deduction equal to
the cost of capital invested (exclusive of initial acquisition costs) in the
Company by Castle. For the purposes of this Agreement, Castle's cost of capital
shall be deemed to be the prime rate established from time to time by
NationsBank of Texas, N.A. plus two percent, until such time as Castle's
subordinated debt described on Schedule 2.3 hereto is paid in full, and
thereafter shall be the prime rate established from time to time by NationsBank
of Texas, N.A. plus one percent. The Employee is hereby granted the right to
participate in the Plan for each year prior to the Expiration Date. Employee,
Mr. Hamner and Mr. North (each, a "Participant") shall be paid 60%, 20% and 20%,
respectively, under the Plan. In the event a Participant shall cease to be
employed by the Company during the term of this Agreement, the amount payable to
such Participant under the Plan shall thereafter be paid pro rata to the
Participants remaining in the employ of the Company. The annual amount payable
under the Plan shall be determined as soon as practicable each year following
the availability of the Company's financial statements for the preceding year,
and shall be paid in cash or other readily available funds to the Participants
within ten days following such determination.
2.4 STOCK OPTIONS.
2.4.1 As a condition to Employee's obligations hereunder,
Employee and Castle shall enter into a Stock Option Agreement in usual and
customary form providing Employee the option to purchase an aggregate of 50,000
shares of Common Stock of Castle (the "Options"), pursuant to the Castle Dental
Centers, Inc. Omnibus Stock and Incentive Plan (the "Stock Option Plan"). The
Options will vest according to a five-year vesting schedule, with twenty percent
(20%) of such shares vesting on the first anniversary of the date hereof, and an
additional twenty percent (20%) vesting at the end of each twelve month period
of continuous employment with the Company thereafter, until full vesting of all
the Options is completed.
2.4.2 The exercise price of the Options will be $5.00 per share,
and shall be subject to the anti-dilution and other provisions contained in the
Stock Option Plan.
2.5 BENEFITS. During the terms of this Agreement, Employee also shall be
entitled to receive such benefits as are made available to other personnel of
the Company in comparable positions, with comparable service credit and with
comparable duties and responsibilities, which
-3-
shall include, in the case of Employee, four weeks paid vacation each year
during the term of this Agreement, plus one week paid leave to the extent such
week is devoted to required continuing dental education. Such benefits, other
than paid vacation and leave, shall be subject to the terms of the applicable
plan documents, summary plan descriptions and/or employment policies and shall
be subject to modification, amendment or revocation in accordance with the terms
of such documents, policies and procedures.
2.6 REIMBURSEMENT OF EXPENSES. The Company shall reimburse all
reasonable travel and entertainment expenses incurred by Employee in connection
with the performance of his duties pursuant to this Agreement, consistent with
the Company's policies then in effect. Employee shall provide the Company with
written expense reports of his expenses in accordance with the usual customary
practice of the Company.
ARTICLE III
3.1 TERM. Upon the terms and subject to the conditions of this
Agreement, the Company hereby employs Employee and Employee accepts employment
with the Company for a term commencing on the date hereof and ending on May 30,
2001 (the "Expiration Date"), subject to the right of either party to terminate
this agreement as provided below.
3.2 DEATH; DISABILITY. This Agreement shall be automatically terminated
on the death of Employee or on the permanent disability of Employee if he is no
longer able, with reasonable accommodation, to perform the essential functions
of his position with the Company. In the event of Employee's disability, this
Agreement shall not terminate unless and until Employee has been unable to
perform the essential functions of his position hereunder for a period of three
(3) consecutive months as a result of the Employee's disability.
3.3 TERMINATION WITHOUT CAUSE. Either the Company or Employee may
terminate this Agreement at any time, without cause, by giving the other thirty
(30) days' written notice of termination.
3.4 TERMINATION WITH CAUSE. In addition to the Company's right to
terminate this Agreement without cause as provided in Section 3.3 hereof, the
Company may terminate this Agreement for "Cause." "Cause" means the termination
by the Company of Employee's employment for any of the following grounds:
(a) the commission of any act of fraud on the part of Employee
resulting or intending to result in personal gain or enrichment at the expense
of the Company;
-4-
(b) misappropriation, embezzlement, theft or willful and material
damage of or to any asset of the Company or the use of the Company funds or
assets for any illegal purpose;
(c) a good faith determination by the Board of Directors of the
Company that Employee has violated this Agreement or committed an act of gross
negligence or willful misconduct (in the case of a breach, following notice
thereof to Employee by the Company and a thirty day period thereafter within
which Employee shall have the opportunity to cure such breach) that has or is
reasonably expected to have a material adverse effect on the business or affairs
of the Company;
(d) the commission of any felony on the part of Employee which,
in the sole discretion of the Board of Directors of the Company, materially and
adversely, directly or indirectly, affects the name or goodwill of the Company;
or
(e) the termination of the Management Services Agreement (the
"Management Agreement") by and between the Company and Castle Mid-South Dental
Center, P.C. ("New PC") during the period that Employee is the majority
shareholder of New PC pursuant to Section 7.2(a)(ii) of the Management
Agreement.
A notice of termination pursuant to this Section 3.4 shall be in writing
and shall state the alleged reason for termination. With respect to a
termination pursuant to Section 3.4 (a)-(d), within not less than five (5) nor
more than twenty (20) days after such notice, Employee shall be given the
opportunity to appear before the Board of Directors of the Company, or a
committee thereof, to rebut or dispute the alleged violation. If the Board of
Directors or committee determines, by vote of a majority of the directors other
than Employee (if Employee is then a director), that one or more grounds exist
for termination of Employee for Cause, the Company may immediately terminate
Employee's employment under this Section 3.4. The Company may elect, during the
pendency of such inquiry, to relieve Employee of his regular duties.
3.5 OTHER TERMINATION. This Agreement shall terminate automatically on
the termination of the Management Agreement pursuant to Section 7.2(d) thereof.
3.6 SEVERANCE PAY. In the event of termination, Employee shall be
entitled to compensation (the "Severance Pay") in accordance with the following:
(a) If Employee's employment is terminated by reason of a
disability, Employee shall be entitled to Severance Pay in an amount equal to
the amount of monthly Base Salary (at his then current Base Salary rate
excluding any increases that would have taken effect beyond the date of
termination and any bonus and noncash benefits) the Employee would have earned
for the three month period subsequent to the effective date of termination,
payable at such time or times as would
-5-
have been paid to Employee had he remained employed by the Company. In addition,
for a three year period commencing on the date of termination, Employee shall be
entitled to a pro rata amount of Deferred Compensation, equal to the product of
(i) the amount of Incentive Bonus Plan compensation payable or paid to Employee
during the twelve months immediately preceding the date of such termination (the
"Bonus Amount"), times (ii) the product (the "Pro-Rata Period Amount") of three
times a fraction, the numerator of which is the total number of months in which
Employee shall have been employed under this Agreement, and the denominator of
which is sixty. Such Deferred Compensation shall be prorated and paid over a
three year term as if it were Deferred Compensation under Section 2.2.
(b) If (i) Employee voluntarily terminates his employment (other
than due to a breach of this Agreement by the Company), (ii) the Company
terminates this Agreement for Cause, (iii) if Employee's employment is
terminated by reason of his death, or (iv) this Agreement is terminated pursuant
to Section 3.5 hereof, Employee shall not be entitled to receive any additional
salary, bonus or benefits beyond those earned or accrued as of the effective
date of the termination of his employment; except that, in the case of
Employee's death or termination of this Agreement pursuant to Section 3.5
hereof, for a three year period commencing as of such termination, Employee or
Employee's estate, as the case may be, shall be entitled to a pro rata amount of
Deferred Compensation equal to the product of (i) the Bonus Amount, times (ii)
the Pro Rata Period Amount. Such Deferred Compensation shall be prorated and
paid over a three year term as if it were Deferred Compensation under Section
2.2.
(c) If Employee's employment hereunder is terminated prior to the
Expiration Date of this Agreement, and such termination is either (i) due to a
breach of this Agreement by the Company, or (ii) by the Company and not for
Cause, Employee shall be entitled to Severance Pay in an amount equal to the
amount of Base Salary that the Employee would have earned between the effective
date of termination through the Expiration Date, less applicable payroll
deductions (and any other deductions authorized in writing by the Employee),
payable at such time or times as would have been paid to Employee had he
remained employed by the Company through the Expiration Date; provided, however,
prior to the termination of this Agreement as the result of a breach hereof by
the Company, Employee shall give written notice of such breach and a thirty day
period within which to cure such breach. In addition, for a period of three
years commencing as of such termination, Employee shall be entitled to Deferred
Compensation equal to the product of (i) the Bonus Amount, times (ii) three.
Such Deferred Compensation shall be prorated and paid over a three year term as
if it were Deferred Compensation under Section 2.2. Further, the Options granted
to Employee pursuant to Section 2.4.1 hereof shall immediately and fully vest.
3.7 EFFECT OF TERMINATION ON AGREEMENT. Any termination of Employee's
employment shall not release either the Company or Employee from their
respective obligations
-6-
under this Agreement that are required to be performed subsequent to the date of
such termination, including but not limited to those obligations set forth under
Articles III, IV, V and VI.
3.8 PAYMENTS TO ESTATE. If Employee should die before all amounts
payable to him pursuant to Section 3.6 have been paid, such unpaid amounts shall
be paid to the personal representative of Employee's estate.
ARTICLE IV
4.1 ADDITIONAL ACTS BY EMPLOYEE. Employee further agrees at the request
of the Company (but without additional compensation from the Company during his
employment by the Company) to execute any and all papers and (at the expense of
the Company) perform all lawful acts that the Company deems necessary to
consummate and make effective the transactions contemplated by the Asset
Purchase Agreement and related documents.
ARTICLE V
5.1 NONDISCLOSURE AND NONUSE OF CONFIDENTIAL INFORMATION. Employee
understands and agrees that his employment by the Company creates a relationship
of confidence and trust between himself and the Company with respect to
Confidential Information (as defined below). Employee recognizes that he will
have access to and knowledge of Confidential Information. Employee will not,
during or after the term of his employment by the Company, in whole or in part,
disclose such Confidential Information to any person, firm, corporation,
association, or other entity for any reason or purpose whatsoever, nor shall he
make use of any such Confidential Information for his own purposes or for the
purposes of others; provided, however, that nothing in this Article shall be
construed to prohibit the disclosure of such Confidential Information by the
Employee (i) to another officer, director employee or agent of the Company; (ii)
as is reasonably necessary for the performance of his duties and
responsibilities under this Agreement; or (iii) as otherwise required by law. If
Employee is required by law to disclose "Confidential Information," Employee
shall notify the Company's Board of Directors, in writing, of the nature of such
disclosure and the Confidential Information to be disclosed, as soon as is
possible and/or practical, and permit the Company the opportunity to contest or
limit such disclosure.
5.2 CONFIDENTIAL INFORMATION DEFINED. The term "Confidential
Information" shall mean and include any and all records, computer programs,
data, patent applications, trade secrets, customer lists, customer databases,
video programs and programming, proprietary information, technology, pricing
policies, financial information, methods of doing business, policy and/or
procedure manuals, training and recruiting procedures, accounting procedures,
the status and content of the Company's contracts with its customers, the
Company's business philosophy, and servicing methods and techniques at any time
used, developed, or investigated by the Company, before or during
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Employee's tenure of employment, or other information of any kind expressed or
recorded on any medium arising out of, concerning, or acquired in connection
with the research, development, commercialization and other activities of the
Company; but "Confidential Information" does not include information (i)
generally known or available in the industry, through no fault of Employee; or
(ii) available from a third party without violation of any duty of
confidentiality by Employee or others.
5.3 DELIVERY OF MATERIALS. Employee further agrees to deliver to the
Company at the termination of his employment, or at any other time upon request
by the Company, all correspondence, memoranda, notes, records (including
computer records and data), drawings, sketches, plans, customer lists, and other
documents, which are made, composed, or received by Employee, solely or jointly
with others, during the term of his employment and which are in Employee's
possession, custody, or control at such date and which are related in any manner
to the past, present or anticipated business of the Company.
ARTICLE VI
6.1 NONINTERFERENCE WITH EMPLOYMENT RELATIONSHIPS. During the term of
Employee's employment and during the twenty-four months following the
termination of the Employee's employment, Employee agrees not to solicit or
induce any employee of the Company or Mid-South Dental Centers, P.C. to
terminate his or her employment, accept employment with anyone else, or to
interfere in a similar manner with the business of the Company or Mid-South
Dental Centers, P.C.
6.2 NONSOLICITATION OF CUSTOMERS AND SUPPLIERS During the employment of
the Employee pursuant to this Agreement and during the twenty-four months
following the termination of the Employee's employment, Employee agrees not to
contact, communicate with or solicit any customer, supplier, vendor,
distributor, promoter, contractor or prospective customer of the Company or Mid-
South Dental Centers, P.C. for the purpose of engaging in the Same or Similar
Business (as defined below) as the Company within the Restricted Territory (as
defined below).
6.3 NONCOMPETITION. Employee recognizes that in connection with the
performance of the Employee's duties and obligations under this Agreement, the
Company will provide Employee with confidential, proprietary and trade secret
information, which is necessary to Employee's employment with the Company, and
which Employee has agreed to protect and maintain as confidential, proprietary
and trade secret information for the Company's benefit. To protect and maintain
the confidentiality of the information, Employee agrees that, during the
employment of the Employee pursuant to this Agreement, including the period
during which Employee is receiving Deferred Compensation or Severance Pay
hereunder, Employee shall not directly or indirectly engage in, manage, operate,
join, control, or participate in the ownership, management, operation, or
control of, or be employed or engaged or act as a consultant to in any manner
by, any business
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competing in the Same or Similar Business as the Company or Mid-South Dental
Center, P.C. within a ten mile radius around the city limits of any city in the
States of Alabama, Kentucky, Tennessee or Georgia in which the Company is
operating or managing a location providing dental service as of the date of
Employee's employment hereunder (the "Restricted Territory").
6.4 SAME OR SIMILAR BUSINESS DEFINED. For purposes of this Article VI,
the "Same or Similar Business" as the Company or Mid-South Dental Centers, P.C.
shall be defined as any business that is engaged to a significant extent in the
provision of dental care and services, including but not limited to the practice
of general dentistry, orthodontics and all related dental care services, the
management of such services or practices, or the management of or consulting
with dental practice management companies or insurance companies.
6.5 REASONABLENESS OF RESTRICTIONS. Employee has carefully read and
considered the provisions of this Article VI and, having done so, agrees that
the restrictions set forth in such Article contain reasonable limitations as to
time, geographical area, scope of activity to be restrained, and do not impose a
greater restraint than is necessary to protect the goodwill or other legitimate
business interests of the Company. The Employee further understands and agrees
that, if at some later date, a court of competent jurisdiction determines that
the scope, duration or geographic area of any covenant set forth in this Article
is overbroad or unenforceable for any reason, these covenants shall be reformed
by the court and enforced to the maximum extent permissible under Tennessee law.
ARTICLE VII
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties and their heirs, legal representatives, successors and assigns. The
Company may assign its interest in this Agreement, and all covenants, conditions
and provisions hereunder shall inure to the benefit of and be enforceable by its
assignee or successor in interest. The rights and obligations of Employee under
this Agreement are personal to him, and no such rights, benefits or obligations
shall be assignable, except that his personal representatives and heirs may
enforce the obligations of the Company hereunder.
7.2 WAIVER OF BREACH. The waiver by any party to this Agreement of a
breach or violation of any provisions hereof shall not operate or be construed
to be a waiver of any subsequent breach hereof.
7.3 NOTICES. Any and all notices required or permitted to be given under
this Agreement shall be sufficient if furnished in writing and given in person,
or shall be deemed given five (5) days after sent by certified mail, return
receipt requested, to the address as set forth below on the signature pages of
this Agreement. If any party hereto desires to amend its address hereunder, that
party shall send written notice of the new address to all other parties hereto.
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7.4 GOVERNING LAW. This Agreement shall be interpreted, construed and
governed in accordance with the laws of the State of Tennessee, without regard
to conflict of laws provision. This Agreement is performable in Williamson
County, Tennessee.
7.5 HEADINGS. The paragraph headings contained in this Agreement are for
convenience only, and shall in no manner be construed to be part of this
Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same agreement. A fully executed copy of
this Agreement shall be delivered to each party hereto.
7.7 LEGAL CONSTRUCTION. In case anyone or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not effect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. In addition, such invalid, illegal or unenforceable
provision shall be modified to the minimum extent necessary to permit it to be
valid, legal and enforceable. For all purposes hereof "day" shall mean calendar
day and shall include weekends and holidays; provided, however, that if any
notice period terminates on a weekend or holiday, the person who is required to
deliver the notice shall have until the next business day to complete the notice
requirement.
7.8 AMENDMENT. No modification, amendment, addition to, or termination
of this Agreement, nor waiver of any of its provisions, shall be valid or
enforceable unless it is in writing and signed by all of the parties hereto.
7.9 PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and
only Agreement of the parties hereto and supersedes any prior understanding or
written or oral agreements, correspondence or communications between the parties
respecting the subject matter hereof.
7.10 ARBITRATION. EXCEPT FOR THE REMEDY PROVIDED UNDER SECTION 7.11
BELOW, ANY CLAIM OR DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE
EMPLOYMENT OF EMPLOYEE BY THE COMPANY SHALL BE SUBMITTED TO FINAL AND BINDING
ARBITRATION IN NASHVILLE, TENNESSEE PURSUANT TO THE EMPLOYMENT DISPUTE
RESOLUTION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. THE PARTIES AGREE THAT
ANY PARTY REQUESTING ARBITRATION OF ANY DISPUTE UNDER THIS SECTION MUST GIVE
FORMAL WRITTEN NOTICE OF THE PARTY'S DEMAND FOR ARBITRATION ("ARBITRATION
NOTICE") WITHIN ONE HUNDRED TWENTY (120) DAYS AFTER SUCH DISPUTE FIRST ARISES
AND FAILURE TO TIMELY COMMUNICATE ARBITRATION NOTICE SHALL
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CONSTITUTE A WAIVER OF SUCH DISPUTE. THE PARTIES FURTHER AGREE THAT EACH PARTY
MAY BE REPRESENTED BY COUNSEL IN ANY PROCEEDING UNDER THIS SECTION, AND THAT ALL
EXPENSES AND FEES INCURRED IN CONNECTION WITH ANY PROCEEDING UNDER THIS SECTION
SHALL BE PAID BY THE NON-PREVAILING PARTY (AS DETERMINED BY THE ARBITRATORS).
BOTH PARTIES AGREE THAT NOTHING IN THIS SECTION SHALL BE CONSTRUED TO REQUIRE
THE ARBITRATION OF ANY DISPUTE OR CLAIM (i) ARISING UNDER ARTICLES IV, V OR VI
OF THIS AGREEMENT; (ii) FOR UNEMPLOYMENT COMPENSATION BENEFITS; OR (iii) FOR
WORKERS' COMPENSATION BENEFITS. BY THEIR EXECUTION OF THIS AGREEMENT, EACH PARTY
TO THIS AGREEMENT CONSENTS, ON BEHALF OF HIMSELF OR ITSELF AND THEIR RESPECTIVE
SUCCESSORS, HEIRS AND ASSIGNS, TO SUCH BINDING ARBITRATION IN ACCORDANCE WITH
THE TERMS OF THIS SECTION.
7.11 REMEDIES. Employee agrees that the remedy at law for any breach of
any provision of Articles IV, V and VI will be inadequate and that the Company
will be entitled to injunctive and equitable relief for any such breach, in
addition to all other remedies permitted by law.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement in Nashville, Tennessee as of the date first set forth above.
THE COMPANY:
CASTLE DENTAL CENTERS OF TENNESSEE,
INC.
By:
Name:
Title:
Address:
ATTENTION:
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EMPLOYEE:
G. Powell Bilyeu, D.D.S.
Address:
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EXHIBIT 10.37
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
================================================================================
ASSET PURCHASE AGREEMENT
Dated as of August 9, 1996
By and Among
Castle Dental Centers, Inc.,
Castle Dental Centers of Texas, Inc.,
as Purchaser,
Consolidated Industries, Inc.,
S.A. Dental Services, P.C.,
C.A. Dental Services, P.C.,
S.C.A. Dental Services, P.C., and
Austin Periodontist Associates, Inc.,
as Sellers,
and
Joseph A. Bonola, D.D.S. and
Kristen Bonola,
as Shareholders
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS............................................................1
1.1 Definitions.....................................................1
ARTICLE II.
THE TRANSACTION........................................................5
2.1 Purchase and Sale of Assets.....................................5
2.2 Excluded Assets.................................................6
2.3 Assumption of Obligations.......................................6
2.4 Nonassignable Contracts and Leases..............................6
2.5 Closing.........................................................7
ARTICLE III.
PAYMENT OF PURCHASE PRICE..............................................7
3.1 Amount; Allocation; Delivery....................................7
3.2 Purchase Price Adjustment.......................................8
3.3 Agency Relationship.............................................8
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS...................................................9
4.1 Representations and Warranties of Sellers and
the Shareholders................................................9
4.2 Existence and Good Standing.....................................9
4.3 Authorization and Validity of Agreement.........................9
4.4 Capital Stock...................................................9
4.5 Consents and Approvals; No Violations..........................10
4.6 Subsidiaries and Affiliates....................................10
4.7 Financial Statements; No Material Adverse Change...............10
4.8 Books and Records..............................................11
4.9 Title to Properties; Encumbrances; Condition...................11
4.10 Real Property..................................................11
4.11 Leases.........................................................11
4.12 Material Contracts.............................................11
4.13 Permits........................................................12
4.14 Litigation.....................................................12
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4.15 Taxes..........................................................12
4.16 Insurance......................................................13
4.17 Intellectual Properties........................................13
4.18 Compliance with Laws...........................................14
4.19 Employment Relations...........................................14
4.20 Employee Benefit Plans.........................................14
4.21 Environmental Laws and Regulations.............................14
4.22 Interests in Customers, Suppliers, Etc.........................15
4.23 Compensation of Employees......................................15
4.24 Payors.........................................................15
4.25 Accounts Receivable; Accounts Payable..........................15
4.26 Solvency.......................................................15
4.27 Disclosure.....................................................16
4.28 Investments....................................................16
4.29 Broker's or Finder's Fees......................................16
4.30 Copies of Documents............................................16
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND CASTLE DENTAL........................................16
5.1 Existence and Good Standing of Purchaser;
Power and Authority............................................16
5.2 No Violations..................................................16
5.3 Litigation.....................................................17
5.4 Compliance with Laws...........................................17
5.5 Broker's or Finder's Fees......................................17
5.6 Existence and Good Standing of Castle Dental;
Power and Authority............................................17
5.7 Financial Statements...........................................18
5.8 Litigation.....................................................18
ARTICLE VI.
CONDITIONS TO SELLERS' AND THE SHAREHOLDERS' OBLIGATIONS..............18
6.1 Truth of Representations and Warranties........................18
6.2 Performance of Agreements......................................19
6.3 No Litigation Threatened.......................................19
6.4 Consideration..................................................19
6.5 Governmental Approvals.........................................19
6.6 Proceedings....................................................19
6.7 Good Standing Certificates.....................................19
6.8 Due Diligence..................................................19
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ARTICLE VII.
CONDITIONS TO PURCHASER'S OBLIGATIONS.................................19
7.1 Truth of Representations and Warranties........................20
7.2 Performance of Agreements......................................20
7.3 Documents of Conveyance........................................20
7.4 No Litigation Threatened.......................................20
7.5 Governmental Approvals.........................................20
7.6 Consents.......................................................20
7.7 Legal Opinion..................................................20
7.8 Proceedings....................................................20
7.9 JHC............................................................20
7.10 Subordination Agreements.......................................21
7.11 Due Diligence..................................................21
7.12 Sellers Name Change............................................21
7.13 Termination of Agreements......................................21
7.14 Good Standing Certificates.....................................21
7.15 Releases of Liens..............................................21
7.16 Noncompetition Agreement.......................................21
7.17 License Agreement..............................................21
ARTICLE VIII.
COVENANTS OF SELLERS AND THE SHAREHOLDERS.............................22
8.1 Cooperation by Sellers.........................................22
8.2 Conduct of Business............................................22
8.3 Exclusive Dealing..............................................22
8.4 Review of the Assets...........................................22
8.5 Further Assurances.............................................23
8.6 Accounts Payable; Accounts Receivable; Management..............23
ARTICLE IX.
COVENANTS OF PURCHASER................................................23
9.1 Cooperation by Purchaser.......................................23
9.2 Books and Records; Personnel...................................23
9.3 Further Assurances.............................................24
9.4 Due Diligence Investigation....................................24
ARTICLE X.
TERMINATION...........................................................24
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10.1 Termination....................................................24
10.2 Effect on Obligations..........................................25
ARTICLE XI.
SURVIVAL AND INDEMNIFICATION..........................................25
11.1 Indemnification of Sellers.....................................25
11.2 Indemnification of the Purchaser...............................26
11.3 Demands........................................................26
11.4 Right to Contest and Defend....................................26
11.5 Cooperation....................................................27
11.6 Right to Participate...........................................27
11.7 Payment of Damages.............................................27
ARTICLE XII.
MISCELLANEOUS.........................................................27
12.1 Entire Agreement...............................................27
12.2 Successors and Assigns.........................................28
12.3 Counterparts...................................................28
12.4 Headings.......................................................28
12.5 Modification and Waiver........................................28
12.6 No Third-Party Beneficiary Rights..............................28
12.7 Sales and Transfer Taxes.......................................28
12.8 Expenses.......................................................28
12.9 Notice.........................................................28
12.10 Governing Law..................................................29
12.11 Confidentiality; Publicity.....................................29
12.12 Consent to Jurisdiction........................................30
12.13 Severability...................................................30
12.14 Enforcement....................................................30
SCHEDULES
Schedule 2.2(b) Excluded Contracts
Schedule 2.2(e) Excluded Assets
Schedule 2.3 Assumed Obligations
Schedule 3.1 Allocation of Purchase Price
Schedule 4.5 Consents
Schedule 4.6 Asset Owned by Third Parties which are Used
in the Business
Schedule 4.7 Material Adverse Change
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Schedule 4.9 Encumbrances
Schedule 4.10 Real Property
Schedule 4.11 Leased Personal Property
Schedule 4.12 Material Contracts and Proposals
Schedule 4.13 Permits
Schedule 4.14 Litigation
Schedule 4.15 Taxes
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
Schedule 4.21 Environmental Matters
Schedule 4.23 Employee Compensation
Schedule 4.25 Accounts Receivable
Schedule 5.7 Castle Dental Financial Statements
Schedule 7.13 Agreements to be Terminated
EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Legal Opinion
Exhibit C-1 Subordination Agreement - NationsBank of Texas, N.A.
Exhibit C-2 Subordination Agreement - Senior Subordinated Notes
Exhibit D Noncompetition Agreement
Exhibit E License Agreement
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of August 9, 1996, by and among Castle
Dental Centers of Texas, Inc., a Texas corporation ("Purchaser"), Consolidated
Industries, Inc., a Texas corporation ("Consolidated"), S. A. Dental Services,
P.C., a Texas professional corporation, C.A. Dental Services, P.C., a Texas
professional corporation, S.C.A. Dental Services, P.C., a Texas professional
corporation, and Austin Periodontist Associates, Inc., a Texas professional
corporation (collectively, the "Dental Centers"), and Joseph A. Bonola, D.D.S.,
the sole shareholder of each of the Dental Centers and a shareholder of
Consolidated, and Kristen Bonola, a shareholder of Consolidated. Joseph A.
Bonola and Kristen Bonola are referred to herein collectively as the
"Shareholders," and Consolidated and the Dental Centers are referred to herein
collectively as the "Sellers."
WITNESSETH:
WHEREAS, Sellers wish to sell, and Purchaser wishes to purchase,
substantially all of the property, assets and business of the Dental Centers and
certain assets of Consolidated, all upon the terms and subject to the conditions
set forth below;
NOW THEREFORE, for the mutual covenants and other consideration
described herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE I.
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of the Dental
Centers.
"ACCOUNTS PAYABLE": the current payables of the Dental Centers to trade
account and other creditors that are not more than thirty (30) days old as of
August 1, 1996.
"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including, but not limited to, all directors and
officers of such Person), controlled by, or under direct or indirect common
control with such Person. For purposes of Section 11.1 of this Agreement, the
term "Affiliates" shall include the individuals who have signed lease agreements
as tenant or guarantor on behalf of the Dental Centers, which are being assumed
by Purchaser hereunder.
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"AGREEMENT": this Asset Purchase Agreement, as amended from time to time
as provided herein.
"ASSETS": as defined in Section 2.1 hereof.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 3.2 hereof.
"BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof
"BOOKS AND RECORDS": all books, records, books of account, files and
data (including customer and supplier lists), certificates and other documents
related to the conduct of the Business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of Sellers which relate exclusively to
organizational and corporate governance proceedings of Sellers.
"BUSINESS": the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by Sellers related to the Business.
"CLOSING": as defined in Section 2.5 hereof.
"CLOSING DATE": as defined in Section 2.5 hereof.
"CLOSING DATE BALANCE SHEET": as defined in Section 3.2 hereof.
"CLOSING DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"CONSOLIDATED": as defined in the preamble of this Agreement.
"DENTAL CENTERS": as defined in the preamble of this Agreement.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements,
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encroachments, licenses, leases, permits, security agreements, or any other
encumbrances and other restrictions or limitations on use of real or personal
property or irregularities in title thereto that would have a Material Adverse
Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law (for purposes of this definition, "Claims") or any
permit issued under any such Environmental Law, including without limitation (i)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED CONTRACTS": as defined in Section 2.2(b) hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.7 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely
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hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "contaminants" or "pollutants," or words of similar import under
any applicable Environmental Law; and (iii) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"JHC": Jack H. Castle, D.D.S., P.C., a Texas professional corporation.
"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of Sellers, or its Affiliates.
"PERMITS": as defined in Section 4.13 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.9 hereof.
"PERSON": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or other entity.
"PLANS": as defined in Section 4.20 hereof.
"PRE-CLOSING PERIODS": as defined in Section 4.15(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.15(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
"SELLERS": as defined in the preamble of this Agreement.
"SELLERS' PROPERTY": any real property and improvements thereon
presently owned, leased, operated or occupied by Sellers.
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"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"TRANSFER DATE": August 1, 1996.
ARTICLE II.
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from Sellers and the Shareholders,
and Sellers and the Shareholders agree to sell, convey, transfer, assign and
deliver, and cause to be sold, conveyed, transferred, assigned and delivered, to
Purchaser, on the Closing Date, against the receipt by Sellers and the
Shareholders of the consideration specified in Section 3.1 hereof, the Assets,
free and clear of any Encumbrances except Permitted Encumbrances. The term
"Assets" shall mean all of the rights, title and interests of Sellers and the
Shareholders in and to the assets used in or relating to the conduct of the
Business on the Closing Date, tangible and intangible, real, personal and mixed,
wheresoever situated and whether or not specifically referred to herein or in
any instrument of conveyance delivered pursuant hereto. The Assets shall include
but are not limited to the following categories of assets:
(a) all title to, interest in or rights with respect to real
property, including leasehold interests, described in Schedule 4.10 attached
hereto together with all buildings, facilities, fixtures and other leasehold
improvements thereon and all easements, rights-of-way, transferable licenses and
permits and other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and other
fixed assets owned or leased and used or held for use in the conduct of the
Business;
(c) contracts, documents, instruments, insurance and indemnity
policies and general intangibles of Sellers, other than the Excluded Contracts;
(d) Accounts Receivable as of August 1, 1996;
(e) all licenses, permits, registrations and authorizations,
proprietary information, methods, know-how, designs, processes, procedures,
goodwill and all rights to other Intellectual Property used in the Business;
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(f) Books and Records;
(g) any rights pertaining to any counterclaims, set-offs or
defenses it may have with respect to any Assumed Obligations;
(h) all deposits, advance payments, prepaid claims, prepaid
taxes, prepaid insurance premiums and other prepaid expense items; and
(i) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded thereby
relating to the Assets.
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) cash, cash equivalents, securities, letters of credit naming
Sellers as account party, certificates of deposit, notes, drafts, checks and
similar instruments;
(b) each dentist employment contract, managed care contract,
insurance or third party reimbursement agreement or other contract set forth on
Schedule 2.2(b) (the "Excluded Contracts");
(c) tax refunds related to the Business or the Assets received or
receivable by Sellers or the Shareholders relating to taxes paid by Sellers or
the Shareholders for all periods prior to the Closing Date;
(d) minute books and governance documents of Sellers; and
(e) any Asset listed on Schedule 2.2(e).
2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Sellers,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Sellers in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder, and (b) the Accounts Payable (collectively,
"Assumed Obligations"). Notwithstanding anything contained herein to the
contrary, Purchaser does not assume, and hereby expressly disclaims
responsibility for, any obligation or liability of Sellers or the Shareholders
not described on Schedule 2.3.
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date, Sellers and the
Shareholders agree to use their best efforts to obtain, or cause to be obtained,
prior to the Closing Date, any written consents necessary to convey to Purchaser
the
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
benefit thereof. Purchaser shall cooperate with Sellers and the Shareholders, in
such manner as may be reasonably requested, in connection therewith, including
without limitation, active participation in visits to and meetings, discussions
and negotiations with all Persons with the authority to grant or withhold
consent. If Sellers and the Shareholders are unable to obtain such necessary
written consents for the remaining term of such Assigned Contract, Purchaser
shall act as such Sellers' and the Shareholders' agent in the performance of all
obligations and liabilities under such Assigned Contract and such Sellers and
the Shareholders shall act as Purchaser's agents in the receipt of any benefits,
rights or interests which inure to such Sellers or the Shareholders under such
Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing
set forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Bracewell & Patterson, L.L.P., 711
Louisiana, Suite 2900, Houston, Texas 77002, on or before July ___, 1996, or
such other place, date and time as may be mutually agreed upon by the parties.
Such time and date are referred to herein as the "Closing Date."
ARTICLE III.
PAYMENT OF PURCHASE PRICE
3.1 AMOUNT; ALLOCATION; DELIVERY. Sellers and the Shareholders agree and
direct Purchaser to pay the Purchase Price (as defined below) to Joseph A.
Bonola. At the Closing, Purchaser shall pay to Joseph A. Bonola the following
(the "Purchase Price"):
* (a) $[REDACTED] in cash on the Closing Date, which shall be paid
by wire transfer of immediately available funds to an account or accounts of
Sellers identified by Sellers; and
* (b) a five-year subordinated promissory note of Castle Dental
payable to Joseph A. Bonola in the original principal amount of $[REDACTED]
payable in equal quarterly installments of principal and interest at the rate of
10% per annum substantially in the form of Exhibit A attached hereto.
Purchaser and Sellers hereby agree to allocate the Purchase Price in
accordance with Section 1060 of the Code among the Assets in accordance with
Schedule 3.1 attached hereto (the "Price Allocation"). The parties hereby
undertake and agree to file timely any information that may be required to be
filed pursuant to regulations promulgated under Section 1060(b) of the Code. The
parties further agree that they will report the federal, state, municipal,
foreign and local and other tax consequences of the purchase and sale hereunder
in a manner consistent with the Price Allocation, as so adjusted, and that they
will not take any position inconsistent therewith.
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3.2 PURCHASE PRICE ADJUSTMENT.
(a) Each of the Sellers previously has delivered to Purchaser an
unaudited balance sheet (the "Base Date Balance Sheet") as of March 31, 1996
(the "Balance Sheet Date"), (the book value of the Assets included in such
balance sheet less the book value of the Assumed Obligations included in such
balance sheet is hereinafter referred to as the "Base Date Net Asset Value").
(b) Within 45 days following the Transfer Date, each of the
Sellers shall prepare and deliver to Purchaser a balance sheet as of the
Transfer Date (the "Closing Date Balance Sheet"), together with a calculation of
the book value of the Assets and Assumed Obligations determined on the same
basis as the March 31, 1996, balance sheet (such book value of such Assets less
such book value of such Assumed Obligations is hereinafter referred to as the
"Closing Date Net Asset Value"). Purchaser and its representatives shall have
the right to review all work papers and procedures used to prepare the Base Date
Balance Sheet and the Closing Date Balance Sheet and the calculation of the Base
Date Net Asset Value and the Closing Date Net Asset Value, and shall have the
right to perform any other reasonable procedures necessary to verify the
accuracy thereof. Unless Purchaser, within 20 days after delivery to Purchaser
of the Closing Date Balance Sheet, notifies Sellers in writing that it objects
to the Base Date Balance Sheet or the Closing Date Balance Sheet or the
calculation of the Base Date Net Asset Value or the Closing Date Net Asset
Value, and specifies the basis for such objection, the Base Date Balance Sheet
and the Closing Date Balance Sheet and the calculation of the Base Date Net
Asset Value and the Closing Date Net Asset Value shall become final and binding
upon the parties for purposes of this Agreement. If Purchaser and Sellers are
unable to resolve any objections within 10 days after any such notification has
been given, the dispute shall be submitted to Coopers & Lybrand, L.L.P. (or
another nationally recognized public accounting firm mutually agreed upon by
Purchaser and Sellers). Such accounting firm shall make a final and binding
determination as to the matter or matters in dispute. Purchaser and Sellers
agree to cooperate with each other and with each other's authorized
representatives in order to resolve any and all matters in dispute as soon as
practicable.
(c) Within 10 days after the Closing Date Net Asset Value has
been finally determined, the difference, if any, between the Base Date Net Asset
Value and the Closing Date Net Asset Value shall be added to the principal
amount of the promissory note described in Section 3.1(b) (if the Closing Date
Net Asset Value exceeds the Base Date Net Asset Value) or deducted from the
principal amount of the promissory note described in Section 3.1(b) (if the Base
Date Net Asset Value exceeds the Closing Date Net Asset Value).
(d) Purchaser and Sellers, in the aggregate, each shall bear
one-half of the fees, costs and expenses of the accounting firm retained under
subsection (c) to resolve any dispute.
3.3 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
Sellers or the Shareholders receive any funds, documents or instruments which
constitute or are delivered in respect of Assets transferred to Purchaser
pursuant to this Agreement, Sellers and the Shareholders
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agree to hold such funds, documents or instruments in trust for Purchaser and as
Purchaser's agent therefor.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS
4.1 REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE SHAREHOLDERS. As
an inducement to the Purchaser to enter into and perform this Agreement, Sellers
and the Shareholders, jointly and severally, hereby represent and warrant to
Purchaser as follows:
4.2 EXISTENCE AND GOOD STANDING. Each of the Sellers are a corporation
duly organized and validly existing under the laws of the State of Texas. Each
of the Sellers have the full corporate power and authority to own, lease and
operate its property and to carry on the Business as now being conducted and to
own or lease the Assets owned or leased by it. Each of the Sellers are duly
qualified or licensed to do business in each jurisdiction in which the character
or location of the properties owned or leased by it or the nature of the
business conducted by it makes such qualification necessary and the absence of
which would have a Material Adverse Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Sellers have full corporate
power and authority, and the Shareholders have full power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Sellers and the consummation by
them of the transactions contemplated hereby, have been duly authorized and
approved by the Board of Directors and the shareholders of Sellers, and no other
action on the part of Sellers or their shareholders is necessary to authorize
the execution, delivery and performance of this Agreement by Sellers and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Sellers and the Shareholders and is a valid and
binding obligation of Sellers and the Shareholders enforceable against each in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
4.4 CAPITAL STOCK. The authorized capital stock of each of the Dental
Centers (except Austin Periodontist Associates, Inc.) consists solely of
1,000,000 shares of common stock, $.01 par value per share, of which 100,000
shares have been issued, and are outstanding, all of which are owned by Joseph
A. Bonola. The authorized capital stock of Austin Periodontist Associates, Inc.
consists solely of 10,000 shares of common stock, $1.50 par value per share, of
which 751 shares have been issued, and are outstanding, all of which are owned
by Joseph A. Bonola. The authorized capital stock of Consolidated consists
solely of 1,000,000 shares of common stock, $.01 par value per share, of which
100,000 shares have been issued, and are outstanding, all of which are owned
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by the Shareholders. All of the shares of common stock of Sellers have been duly
and validly authorized and issued, and are fully paid and nonassessable and free
of any liens or encumbrances.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
Schedule 4.5, the execution, delivery and performance of this Agreement by
Sellers and the Shareholders and the consummation by Sellers and the
Shareholders of the transactions contemplated hereby will not, with or without
the giving of notice or the lapse of time or both: (a) violate, conflict with,
or result in a breach or default under any provision of the organizational
documents of Sellers; (b) to the knowledge of Sellers and the Shareholders,
violate any statute, ordinance, rule, regulation, order, judgment or decree of
any court or of any governmental or regulatory body, agency or authority
applicable to Sellers or the Shareholders or by which any of Sellers' properties
or assets may be bound; (c) to the knowledge of Sellers and the Shareholders,
require any filing by Sellers or the Shareholders with, or require Sellers or
the Shareholders to obtain any permit, consent or approval of, or require
Sellers or the Shareholders to give any notice to, any governmental or
regulatory body, agency or authority other than as set forth in Schedule 4.5
attached hereto; or (d) result in a violation or breach by Sellers or the
Shareholders of, conflict with, constitute (with or without due notice or lapse
of time or both) a default by Sellers or the Shareholders (or give rise to any
right of termination, cancellation, payment or acceleration) under, or result in
the creation of any Encumbrance upon any of the properties or assets of Sellers
or the Shareholders pursuant to, any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease franchise agreement or other instrument or obligation to which Sellers or
the Shareholders are a party, or by which Sellers or any of their properties or
assets may be bound, except in the case of Subsections 4.5(b), (c) and (d), for
such violations, consents, breaches, defaults, terminations and accelerations
which in the aggregate would not have a Material Adverse Effect.
4.6 SUBSIDIARIES AND AFFILIATES. Sellers have no subsidiaries. Except as
set forth on Schedule 4.6, all of the Assets used in the Business are owned by
Sellers, and on consummation of the transactions contemplated hereby Purchaser
will have acquired all of the Assets used in the Business.
4.7 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Each of the
Sellers have heretofore furnished Purchaser with its unaudited balance sheet as
of the Balance Sheet Date and the unaudited statements of operations and cash
flows for the year then ended (the "Financial Statements"). The Financial
Statements fairly present in all material respects the financial position of
Sellers at the date thereof and the results of operations of Sellers and their
respective cash flows for the period indicated. Except as set forth in Schedule
4.7 attached hereto, since the Balance Sheet Date there has been no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations of Sellers.
Other than as (a) disclosed on the Financial Statements, (b) incurred
since the Balance Sheet Date in the ordinary course of business or (c) disclosed
on Schedule 4.7 or another Schedule hereto, Sellers have no direct or indirect
indebtedness, liability, claim, deficiency, obligation or
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responsibility, known or unknown, fixed or contingent, liquidated or
unliquidated, accrued, absolute or otherwise.
4.8 BOOKS AND RECORDS. Sellers have previously made available to
Purchaser true, correct and complete copies of their respective articles of
incorporation and bylaws, and all amendments to each. The minute books of
Sellers, as previously made available to Purchaser and its representatives,
contain accurate records in all material respects of the meetings of, the
shareholders and Board of Directors of Sellers.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedules 4.9 or 4.10, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Sellers have
good and valid title to the Assets, in each case subject to no Encumbrances
except for (a) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Sellers in the operation of the Business,
(b) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (c) Encumbrances created by
Purchaser, and (d) Encumbrances relating to Assumed Obligations (liens of the
type described in clauses (a), (b), (c) and (d) above are hereinafter sometimes
referred to as "Permitted Encumbrances"). Sellers have heretofore furnished
Purchaser with a fixed asset ledger, which sets forth all fixed assets owned by
Sellers as of the Balance Sheet Date. Sellers and the Shareholders are not aware
of any defects in such assets that would have a Material Adverse Effect on the
ability of Purchaser to use such assets in the Business, ordinary wear and tear
excepted.
4.10 REAL PROPERTY. Schedule 4.10 identifies all interests in real
property used by Sellers in the Business, including leases, and includes the
name of the record title holder thereof. All of the buildings, structures and
appurtenances situated on the real property owned or leased by Sellers are in
good operating condition, and in a state of good maintenance and repair, subject
to ordinary wear and tear. The real property has adequate rights of ingress and
egress for operation of the Business in the ordinary course. No condemnation or
similar proceeding is pending or, to the best knowledge of Sellers and the
Shareholders, threatened, which would preclude or impair the use of any such
property, except where such proceeding would not have a Material Adverse Effect.
4.11 LEASES. Schedule 4.11 contains an accurate and complete list of all
personal property leases to which Sellers are a party (as lessee or lessor) and
a description of all such leases to which Sellers are a party as lessee. Each
lease set forth in Schedule 4.11 is in full force and effect, and no event has
occurred that with the giving of notice, the passage of time or both would
constitute a default thereunder.
4.12 MATERIAL CONTRACTS. Except as set forth in Schedule 4.12, the
Assigned Contracts do not include (a) any agreement, contract or commitment
relating to the employment of any person by
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Sellers, (b) any agreement, indenture or other instrument which contains
restrictions with respect to payment of profits, dividends or any other
distributions, (c) any agreement, contract or commitment relating to capital
expenditures in excess of $5,000, (d) any loan or advance to, or investment in,
any Person or any agreement, contract or commitment relating to the making of
any such loan, advance or investment, (e) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any Person, (f) any
management service, consulting or any other similar type contract, (g) any
agreement, contract or commitment limiting the freedom of Sellers to engage in
any line of business or to compete with any Person, (h) any agreement, contract
or commitment that involves $5,000 or more and is not cancelable without penalty
within 30 days, or (i) any other agreement, contract or commitment which would
have a Material Adverse Effect. Also set forth in Schedule 4.12 is a list of all
proposals submitted by Sellers to any third party that, if accepted by such
third party, would require disclosure on Schedule 4.12. Except where it would
not have a Material Adverse Effect, each contract or agreement set forth in
Schedule 4.12 is in full force and effect and there exists no default or event
of default or event, occurrence, condition or act (including the purchase of the
Assets hereunder) which, with the giving of notice, the lapse of time or the
happening of any other event or condition, would become a default or event of
default thereunder.
4.13 PERMITS. Schedule 4.13 attached hereto lists all of the
governmental and other third party permits (including occupancy permits),
licenses, consents and authorizations ("Permits") required, to the knowledge of
Sellers and the Shareholders, in connection with the use, operation or ownership
of the Assets and the conduct of the Business as currently conducted. Sellers
hold all of the Permits listed on Schedule 4.13, and none is presently subject
to revocation or challenge. Except as set forth on Schedule, all such Permits
will be assigned to Purchaser, and none of such Permits will be subject to
revocation or termination as a result thereof.
4.14 LITIGATION. Except as set forth in Schedule 4.14, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Sellers and
the Shareholders, threatened, against or affecting the properties, rights or
goodwill of Sellers, the Shareholders, or employees of Sellers, and Sellers and
the Shareholders do not know of any valid basis for any such action, proceeding
or investigation. There are no such suits, actions, claims, proceedings or
investigations pending or to the knowledge of Sellers and the Shareholders
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement. Purchaser will assume no liability whatsoever with respect to
any matter described on Schedule 4.14. Schedule 4.14 also describes any actions,
suits, disciplinary proceedings and investigations undertaken by the Dental
Board of the State of Texas, or other body regulating the activities of
dentists.
4.15 TAXES.
(a) All returns and reports for Taxes for all taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
year or period beginning before and
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ending after the Closing Date the portion of such taxable year or period ending
on and including the Closing Date ("Pre-Closing Periods"), which are required to
be filed by or with respect to Sellers (collectively, the "Returns") have been
or will be filed when due in a timely fashion and such Returns as filed are or
will be accurate in all material respects, and all such Taxes showed to be due
and owing have been paid.
(b) Except as provided in Schedule 4.15 there is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Sellers or the Shareholders, threatened by any authority regarding
any Taxes relating to Sellers for any Pre-Closing Period.
(c) There are no liens or security interests on any of the assets
of Sellers that arose in connection with any failure (or alleged failure) to pay
any Taxes.
(d) Except as provided in Schedule 4.15, there are no agreements
for the extension or waiver of the time for assessment of any Taxes relating to
Sellers for any Pre-Closing Period and Sellers have not been requested to enter
into any such agreement or waiver.
(e) All Taxes relating to Sellers which Sellers are required by
law to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and payable.
(f) Sellers are not now nor have ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.16 INSURANCE. Set forth in Schedule 4.16 is a complete list of
insurance policies that Sellers maintain with respect to their Business and
properties that are included in the Assets or on their employees. Such policies
are in full force and effect and are free from any right of termination on the
part of the insurance carriers. In the judgment of Sellers, such policies, with
respect to their amounts and types of coverage, are adequate to insure against
risks to which Sellers and their property and assets are normally exposed in the
operation of the Business, subject to customary deductibles and policy limits.
4.17 INTELLECTUAL PROPERTIES. Schedule 4.17 sets forth all Intellectual
Property used in the Business and the owner of such Intellectual Property. The
operation of the Business as conducted by Sellers as of the Closing Date
requires no rights under Intellectual Property other than rights under
Intellectual Property listed on Schedule 4.17 and rights granted to Sellers
pursuant to agreements listed on Schedule 4.17. Except as otherwise set forth in
Schedule 4.17, Sellers own all right, title and interest in the Intellectual
Property listed in Schedule 4.17. No litigation is pending or, to the knowledge
of Sellers or the Shareholders, threatened wherein Sellers are accused of
infringing or otherwise violating the Intellectual Property rights of another,
or of breaching a contract conveying rights under Intellectual Property.
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4.18 COMPLIANCE WITH LAWS. To the knowledge of Sellers and the
Shareholders, Sellers are in compliance with all applicable laws, regulations,
orders, judgments and decrees applicable to their respective business, except
where any noncompliance would not have a Material Adverse Effect on the assets,
liabilities, business, condition (financial or otherwise), results of operation
or prospects of Sellers.
4.19 EMPLOYMENT RELATIONS. Sellers are not and have not engaged in any
unfair labor practice; to the knowledge of Sellers and the Shareholders, no
representation question exists respecting the employees of Sellers; Sellers have
not been notified of any grievance that might have a Material Adverse Effect and
no arbitration proceeding arising out of or under any collective bargaining
agreement is pending; and (d) no collective bargaining agreement is currently
being negotiated by Sellers.
4.20 EMPLOYEE BENEFIT PLANS. Sellers have delivered to Purchaser true
and complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Sellers and the Shareholders, been maintained in compliance with
its terms and the requirements of all applicable laws. None of the Plans are
subject to Title IV of ERISA or the minimum funding obligations of Section 412
of the Code, and Sellers and any entity required to be aggregated therewith
pursuant to Section 414(b) or (c) of the Code have no liability under Title IV
of ERISA or under Section 412(f) or 412(n) of the Code.
4.21 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.21, and except where it would not have a Material Adverse Effect Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Sellers Property by Sellers, its authorized agents or its
independent contractors (including suppliers) or any property adjoining any
Sellers Property, Hazardous Materials have not been Released or disposed of by
Sellers, its authorized agents or its independent contractors (including
suppliers) on any Sellers Property or any property adjoining any Sellers
Property except such Releases which do not violate any Environmental Laws,
Sellers are, to its and the Shareholders's knowledge, in compliance with all
applicable Environmental Laws and the requirements of any Permits issued under
such Environmental Laws with respect to any Sellers Property, there are no
pending or, to the knowledge of Sellers and the Shareholders, threatened
Environmental Claims against Sellers or any Sellers Property, (e) there are no
facts or circumstances, conditions, pre-existing conditions or occurrences on
any Sellers Property known to Sellers or the Shareholders that could reasonably
be anticipated (A) to form the basis of an Environmental Claim against Sellers
or any Sellers Property, or (B) to cause such Sellers Property to be subject to
any restrictions on the ownership, occupancy use or transferability of such
Sellers Property under any Environmental Law, (f) there are not now and there
never have been any underground storage tanks located on any Sellers Property,
and (g) Sellers have not in the ordinary course of business transported or
stored Hazardous Materials.
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4.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships
with Affiliates, Sellers do not possess, directly or indirectly, any financial
interest in, and no Shareholder serves as a director, officer or employee of,
any corporation, firm, association or business organization which is a supplier,
customer, lessor, lessee, or competitor of Sellers.
4.23 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.23 is an
accurate and complete list showing the names of all persons whose compensation
from Sellers collectively for the fiscal year ended on the Balance Sheet Date
exceeded an annualized rate of $20,000, together with a statement of the full
amount paid or payable to each such person for services rendered during the
current fiscal year to date.
4.24 PAYORS. No significant payor has canceled or otherwise terminated
or, to the knowledge of Sellers or the Shareholders threatened to cancel or
otherwise terminate its relationship with Sellers within the last three years.
4.25 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.25, the Accounts Receivable on the Closing Date Balance Sheet are
collectible in the ordinary course of business, net of the reserves established
with respect thereto. Except as set forth on Schedule 4.25, there has been no
change since the Balance Sheet Date (other than in the ordinary course of
business) in the amount of the Accounts Receivable or other fees or debts due to
Sellers or the allowances with respect thereto, or Accounts Payable by Sellers,
from that reflected in the Base Date Balance Sheet.
4.26 SOLVENCY. Sellers are not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the Assets of Sellers (on a
going concern basis) will exceed the liability of Sellers on its debts
(including its contingent obligations);
(b) Sellers have not incurred, nor does it intend to or believe
that it will incur, debts (including contingent obligations) beyond its ability
to pay such debts as such debts mature (taking into account the timing and
amounts of cash to be received from any source, and of amounts to be payable on
or in respect of debts); and the amount of cash available to Sellers after
taking into account all other anticipated uses of funds is anticipated to be
sufficient to pay all such amounts on or in respect of debts, when such amounts
are required to be paid; and
(c) Sellers will have sufficient capital with which to conduct
its business, and the property of Sellers do not constitute unreasonably small
capital with which to conduct its business.
For purposes of this Section 4.26 "debt" means any liability or a (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right
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to an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured.
4.27 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
4.28 INVESTMENTS. The Assets do not include any capital stock or other
equity ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
4.29 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of Sellers is, or will be, entitled to any fee, commission or broker's
or finder's fees in connection with this Agreement or any of the transactions
contemplated hereby.
4.30 COPIES OF DOCUMENTS. Sellers have caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND CASTLE DENTAL
Purchaser represents and warrants to Sellers and the Shareholders as
follows:
5.1 EXISTENCE AND GOOD STANDING OF PURCHASER; POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. Purchaser has full corporate power and
authority to make, execute, deliver and perform this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and approved by all required corporate
action of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and is a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
5.2 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both; (a) violate, conflict with, or result in a
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breach or default under any provision of the certificate of incorporation or
by-laws of Purchaser; (b) to the knowledge of Purchaser, violate any statute,
ordinance, rule, regulation, order, judgment or decree of any court or of any
governmental or regulatory body, agency or authority applicable to Purchaser or
by which any of its properties or assets may be bound; (c) to the knowledge of
Purchaser, require any filing by Purchaser with, or require Purchaser to obtain
any permit, consent or approval of, or require Purchaser to give any notice to,
any governmental or regulatory body, agency or authority or any third party; or
(d) result in a violation or breach by Purchaser of, conflict with, constitute
(with or without due notice or lapse of time or both) a default by Purchaser (or
give rise to any right of termination, cancellation, payment or acceleration)
under, or result in the creation of any Encumbrance upon any of the properties
or assets of Purchaser pursuant to, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease, franchise agreement or other instrument or obligation to which Purchaser
is a party, or by which it or any of its properties or assets may be bound,
except in the case of Subsections 5.2(b), (c) and (d), for such violations,
consents, breaches, defaults, terminations and accelerations which in the
aggregate would not have a Material Adverse Effect.
5.3 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Purchaser, threatened, against or affecting the
properties, rights or goodwill of Castle Dental, Purchaser or their employees,
except where such Proceeding would not have a material adverse effect on the
assets, liabilities, business, condition (financial or otherwise), results of
operations or prospects of Castle Dental or Purchaser, and Purchaser does not
know of any valid basis for any such action, proceeding or investigation. There
are no such Proceedings pending or, to the knowledge of Purchaser, threatened,
seeking to prevent or challenge the transactions contemplated by this Agreement.
5.4 COMPLIANCE WITH LAWS. To the knowledge of Purchaser, Purchaser are
in compliance with all applicable laws, regulations, orders, judgments and
decrees applicable to their respective business, except where any noncompliance
would not have a Material Adverse Effect on the assets, liabilities, business,
condition (financial or otherwise), results of operations or prospects of
Purchaser.
5.5 BROKER'S OR FINDER'S FEES. Except for a fee payable by or on behalf
of Purchaser to The GulfStar Group, no agent, broker, Person or firm acting on
behalf of Purchaser is, or will be, entitled to any fee, commission or broker's
or finder's fee in connection with this Agreement or any of the transactions
contemplated hereby.
Castle Dental represents and warrants to Sellers and Shareholders as
follows:
5.6 EXISTENCE AND GOOD STANDING OF CASTLE DENTAL; POWER AND AUTHORITY.
Castle Dental is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Castle Dental has full
corporate power and authority to make, execute, deliver and
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perform this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly authorized
and approved by all required corporate action of Castle Dental. This Agreement
has been duly executed and delivered by Castle Dental and is a valid and binding
obligation of Castle Dental enforceable against Castle Dental in accordance with
its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
5.7 FINANCIAL STATEMENTS. The audited financial statements of Castle
Dental as of December 31, 1995, attached hereto as Schedule 5.7, are complete
and correct in all material respects and present fairly in accordance with
generally accepted accounting principles consistently applied, the financial
condition of Castle Dental and the results of operations of Castle Dental as of
the dates thereof and for the periods indicated. Since December 31, 1995, there
has been no material adverse change in the assets or liabilities, or in the
business or condition, financial or otherwise, or in the results of operations
of Castle Dental.
5.8 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Castle Dental, threatened, against or affecting the
properties, rights or goodwill of Castle Dental, Castle Dental or their
employees, except where such Proceeding would not have a material adverse effect
on the assets, liabilities, business, condition (financial or otherwise),
results of operations or prospects of Castle Dental, and Castle Dental does not
know of any valid basis for any such action, proceeding or investigation. There
are no such Proceedings pending or, to the knowledge of Castle Dental,
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement.
ARTICLE VI.
CONDITIONS TO SELLERS' AND THE SHAREHOLDERS' OBLIGATIONS
The obligations of Sellers and the Shareholders under this Agreement to
sell, or cause to be sold, the Assets and to consummate the other transactions
contemplated hereby shall be subject to the satisfaction (or waiver by the party
entitled to performance) on or prior to the Closing Date of all of the following
conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, and Purchaser shall have delivered to Sellers on the Closing Date
a certificate of an authorized officer of Purchaser, dated the Closing Date, to
such effect.
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6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Purchaser shall have delivered to Sellers a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect.
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser shall have delivered to Sellers a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect to the best knowledge of
such officer.
6.4 CONSIDERATION. Joseph A. Bonola, on behalf of Sellers, shall have
received the consideration described in Section 3.1.
6.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Sellers and the
Shareholders and their counsel, and Sellers and the Shareholders shall have
received copies of all such documents and other evidence as its or their counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.7 GOOD STANDING CERTIFICATES. Sellers shall have received good
standing and corporate existence certificates respecting Purchaser and Castle
Dental.
6.8 DUE DILIGENCE. Joseph A. Bonola shall have satisfactorily completed
his due diligence review of Castle Dental and Purchaser and shall not have
determined, in the exercise of his reasonable discretion, that the information
obtained from such review materially and adversely affects his appraisal of the
business, prospects and financial condition of Castle Dental.
ARTICLE VII.
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser under this Agreement to purchase the Assets
and to consummate the other transactions contemplated hereby shall be subject to
the satisfaction (or waiver by Purchaser) on or prior to the Closing Date of all
of the following conditions:
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7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Sellers and the Shareholders contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and Sellers and the Shareholders shall have delivered to
Purchaser on the Closing Date a certificate of an authorized representative of
Sellers and the Shareholders, dated the Closing Date, to such effect.
7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Sellers to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Sellers shall have delivered to Purchaser a certificate of an authorized
representative of Sellers, dated the Closing Date, to such effect.
7.3 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Sellers
fully executed documents of conveyance, in form and substance satisfactory to
Purchaser and its counsel, vesting in Purchaser good and valid title to the
Assets, free and clear of any Encumbrances except Permitted Encumbrances.
7.4 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Sellers
shall have delivered to Purchaser a certificate of an authorized representative
of Sellers, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.6 CONSENTS. Each of the consents referred to in Schedule 4.5 attached
hereto shall have been obtained, and Purchaser shall have also received the
consent of all other parties, including its senior lender, whose consent is
required to permit Purchaser to perform its obligations hereunder.
7.7 LEGAL OPINION. Sellers shall have delivered to Purchaser the opinion
of their counsel, substantially in the form of Exhibit B attached hereto.
7.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel, and Purchaser shall have received copies of all such documents and
other evidence as it or its counsel may reasonably request in order to establish
the consummation of such transactions and the taking of all proceedings in
connection therewith.
7.9 JHC. Contemporaneous with the Closing, (a) JHC shall have entered
into employment agreements with Drs. Kuhlman, Kubo and Jones, (b) the employment
agreements
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between the other dentists presently employed by the Dental Centers shall have
been duly and validly assigned to JHC, (c) all reimbursement contracts with
third-party insurance companies, managed care companies and other reimbursement
sources shall have been duly and validly assigned to JHC, (d) all patient
records shall have been delivered to JHC and (e) all permits and other Assets as
are required for JHC to perform its obligations under the Management Services
Agreement by and between Purchaser and JHC shall have been duly and validly
assigned to JHC.
7.10 SUBORDINATION AGREEMENTS. Joseph A. Bonola shall have executed and
delivered Subordination Agreements with respect to the promissory note described
in Section 3.1(b), substantially in the forms of Exhibits C-1 and C-2 attached
hereto, which shall also be in form and substance satisfactory to the senior and
senior subordinated lenders of Castle Dental.
7.11 DUE DILIGENCE. Purchaser shall have satisfactorily completed a due
diligence review of Sellers and the Business and shall not have determined, in
the exercise of its reasonable discretion, that the information obtained from
such review materially and adversely affects their appraisal of the business,
prospects and financial condition of Sellers or the Business.
7.12 SELLERS NAME CHANGE. Sellers shall have changed their corporate
name and/or any assumed names currently being used by them in connection with
the Business to a name not including the words "Horizon Dental Center."
7.13 TERMINATION OF AGREEMENTS. All agreements, contracts, commitments
and understandings between (a) the Dental Centers and the entities and persons
listed on Schedule 7.13 and (b) the Dental Centers and Consolidated shall be
terminated on or before the Closing Date.
7.14 GOOD STANDING CERTIFICATES. Purchaser shall have received good
standing and corporate existence certificates respecting Sellers.
7.15 RELEASES OF LIENS. Purchaser shall have received evidence
satisfactory to Purchaser and its counsel to the effect that all liens and other
encumbrances on the Assets being transferred to Purchaser (other than Permitted
Encumbrances) have been released.
7.16 NONCOMPETITION AGREEMENT. Joseph A. Bonola shall have entered into
a Noncompetition Agreement with Castle Dental, substantially in the form of
Exhibit D attached hereto.
7.17 LICENSE AGREEMENT. Joseph A. Bonola and Purchaser shall have
entered into a License Agreement, whereby Mr. Bonola grants the Purchaser the
right to use the name "Horizon Dental Center" substantially in the form of
Exhibit E attached hereto.
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ARTICLE VIII.
COVENANTS OF SELLERS AND THE SHAREHOLDERS
Sellers and the Shareholders hereby covenant and agree with Purchaser as
follows:
8.1 COOPERATION BY SELLERS. Sellers and the Shareholders shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Sellers and the Shareholders to effect
the transactions contemplated on its or his part hereby, and Sellers and the
Shareholders shall otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied. Sellers and the Shareholders further agree to deliver
to Purchaser prompt written notice of any event or condition which if it existed
on the date of this Agreement, would result in any of the representations and
warranties of Sellers or the Shareholders contained herein being untrue in any
material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Sellers shall, (a)
conduct the Business only in the ordinary course, (b) use its reasonable efforts
to keep available the services of its employees and maintain satisfactory
relationships with licensors, suppliers, lessors, distributors, customers,
clients and others, (c) maintain, consistent with past practice and good
business judgment, all the Assets in customary repair, order and condition,
ordinary wear and tear excepted, and insurance upon all the Assets used in the
conduct of the Business in such amounts and of such kinds comparable to that in
effect on the date hereof, to the extent available at current premiums, and (d)
maintain the Books and Records in the usual, regular and ordinary manner, on a
basis consistent with past practice.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Sellers nor the Shareholders shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Sellers
or the Shareholders.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Sellers' certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records of Sellers and to
otherwise review the financial and legal condition of Sellers as Purchaser deems
necessary or advisable to familiarize itself with the Business and related
matters; such review shall not, however, affect the representations and
warranties made by Sellers and the Shareholders hereunder or the remedies of
Purchaser for breaches of those representations and warranties. Such review
shall occur only during normal business hours upon reasonable notice by
Purchaser. Sellers and the Shareholders shall permit Purchaser and its
representatives to have, after the execution of
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this Agreement, full access to employees of any Sellers who can furnish
Purchaser with financial and operating data and other information with respect
to the Business as Purchaser shall from time to time reasonably request.
8.5 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Sellers and the Shareholders shall, at the reasonable request of
Purchaser and at Purchaser's expense, execute and deliver any further
instruments or documents and take all such further action as Purchaser may
reasonably request in order to consummate and make effective the sale of the
Assets and the assumption of the Assumed Obligations pursuant to this Agreement.
8.6 ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE; MANAGEMENT. The parties agree
as follows:
(a) From and after the Closing until July 31, 1996, the Dental
Centers shall continue to collect for their account any amounts received by them
in payment of accounts receivable of the Business. Following July 31, 1996, the
Dental Centers shall remit to Purchaser any amounts received by them in payment
of any accounts receivable of the Business.
(b) Purchaser shall assume all Accounts Payable as of August 1,
1996. From and after the Closing until July 31, 1996, Sellers agree to pay all
bills in the normal course of business. In addition, Sellers agree that payroll
respecting any periods in July will be paid by Sellers. With respect to payroll
for the dentists, the Dental Centers agree to pay the dentists' payroll due on
August 5, 1996, and Purchaser agrees to pay the dentists' payroll due on August
20, 1996.
ARTICLE IX.
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Sellers and the Shareholders
as follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Sellers and the Shareholders, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable Purchaser to effect the
transactions contemplated on its part hereby, and Purchaser will otherwise use
its reasonable best efforts to cause the consummation of such transactions in
accordance with the terms and conditions hereof and to cause all conditions
contained in this Agreement over which it has control to be satisfied. Purchaser
further agrees to deliver to Sellers and the Shareholders prompt written notice
of any event or condition, which if it existed on the date of this Agreement,
would result in any of the representations and warranties of Purchaser contained
herein being untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Sellers and any agents of any Sellers, upon reasonable
advance notice to Purchaser, access to
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all Books and Records of Sellers which are transferred to Purchaser in
connection herewith, to the extent necessary or desirable in anticipation of, or
preparation for, existing or future litigation, employment matters, tax returns
or audits, or reports to or filings with governmental agencies, during normal
working hours at Purchaser's principal places of business or at any location
where such Books and Records are stored, and Sellers shall have the right, at
Sellers' sole cost, to make copies of any such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Purchaser shall, at the request of Sellers or the Shareholders and
at such Sellers' expense, execute and deliver any further instruments or
documents and take all such further action as Sellers may reasonably request in
order to consummate and make effective the sale of the Assets and the assumption
of the Assumed Obligations pursuant to this Agreement.
9.4 DUE DILIGENCE INVESTIGATION. Prior to the Closing Date, Purchaser
and Castle Dental will make available to Sellers and the Shareholders and their
respective attorneys, accountants, consultants and agents, any and all
information regarding Purchaser and Castle Dental and their respective
businesses, operations, financial affairs and management, to the extent such
information is in the possession of Purchaser or Castle Dental or can be
obtained without unreasonable burden or expense, to permit Sellers and the
Shareholders to familiarize themselves with the business of the Purchaser and
Castle Dental and to make an informed investment judgment with respect to the
Common Stock of Castle Dental referred to in Section 3.1(c). The Purchaser and
Castle Dental agree to make available to Sellers and the Shareholders and their
respective attorneys, accountants, consultants and agents management members and
representatives of Purchaser and Castle Dental to respond to any questions or
inquiries from such parties regarding the Purchaser, Castle Dental and their
respective businesses, operations, financial affairs and management.
The due diligence investigation shall be conducted at the principal
offices of Castle Dental in Houston, Texas, at such time or times during normal
business hours as are reasonably requested by Sellers and the Shareholders.
Sellers and the Shareholders agree to complete such investigation on or before
July __, 1996.
All parties participating in the due diligence review shall be bound by
confidentiality agreements in form and substance satisfactory to the Purchaser
and Castle Dental.
ARTICLE X.
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, the Shareholders
and Sellers; or
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(b) by Purchaser, the Shareholders, or Sellers in writing without
liability on the part of the terminating party on account of such termination
(provided the terminating party is not otherwise in default or in breach of this
Agreement), if the Closing Date shall not have occurred on or before July 31,
1996; or
(c) by either Purchaser, on the one hand, or the Shareholders and
Sellers, on the other hand, in writing, without liability on the part of the
terminating party on account of such termination (provided the terminating party
is not otherwise in default or breach of this Agreement), if the other party
shall (i) fail to perform its or their covenants or agreements contained herein
required to be performed prior to the Closing Date, or (ii) breach or have
breached any of its representations or warranties contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 12.8 and 12.11 hereof and the obligations set
forth in the next succeeding sentence of this Section 10.2. Upon any termination
of this Agreement each party hereto will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
ARTICLE XI.
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF SELLERS. The Purchaser, from and after the
Closing Date, shall indemnify and hold Sellers and the Shareholders and their
respective Affiliates (the "Sellers Indemnitees") harmless from and against any
and all damages, including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation (collectively, the
"Damages"), suffered by any Sellers Indemnitee as a result of, caused by,
arising out of, or in any way relating to (a) any misrepresentation, breach of
warranty, or nonfulfillment of any agreement or covenant on the part of the
Purchaser under this Agreement or any misrepresentation in or omission from any
list, schedule, certificate, or other instrument furnished or to be furnished to
Sellers by the Purchaser pursuant to the terms of this Agreement or (b) any
liability or obligation (other than those for which Purchaser are being
indemnified by Sellers and the Shareholders hereunder) which pertains to the
ownership, operation or conduct of the Business or Assets arising from any acts,
omissions, events, conditions or circumstances occurring on or after the Closing
Date. Castle Dental, from and after the Closing Date, shall indemnify and hold
the Sellers Indemnitees harmless from and against any and all Damages suffered
by any Sellers Indemnitee as a result of, caused by, arising out of, or in any
way relating to any breach of warranty of Sections 5.6, 5.7 or 5.8 of this
Agreement.
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11.2 INDEMNIFICATION OF THE PURCHASER. Sellers and the Shareholders,
jointly and severally, shall indemnify and hold Purchaser and its Affiliates
(the "Purchaser Indemnitees") harmless from and against any and all Damages
suffered by any Purchaser Indemnitee as a result of, caused by, arising out of,
or in any way relating to (a) any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Sellers or the
Shareholders under this Agreement or any misrepresentation in or omission from
any list, schedule, certificate, or other instrument furnished or to be
furnished to the Purchaser by Sellers pursuant to the terms of this Agreement,
(b) any liability or obligation (other than those for which Sellers and the
Shareholders are being indemnified by Purchaser hereunder and other than those
relating to or arising from the Assumed Obligations) which pertains to the
ownership, operation or conduct of the Business or Assets arising from any acts,
omissions, events, conditions or circumstances occurring before the Closing
Date, or (c) the uncollectibility of any Account Receivable (net of applicable
reserve), after six months.
11.3 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party knowingly failed to notify the indemnifying party
thereof in accordance with the provisions of this Agreement in sufficient time
to permit the indemnifying party or its counsel to defend against such matter
and to make a timely response thereto including, without limitation, any
responsive motion or answer to a complaint, petition, notice or other legal,
equitable or administrative process relating to the Claim, only insofar as such
knowing failure to notify the indemnifying party has actually resulted in
prejudice or damage to the indemnifying party.
11.4 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to
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any obligation whatsoever, other than the performance of purely ministerial
tasks or obligations not involving material expense. If the indemnifying party
does not elect to contest any such Claim, the indemnifying party shall be bound
by the result obtained with respect thereto by the indemnified party. At any
time after the commencement of the defense of any Claim, the indemnifying party
may request the indemnified party to agree in writing to the abandonment of such
contest or to the payment or compromise by the indemnified party of the asserted
Claim, whereupon such action shall be taken unless the indemnified party
determines that the contest should be continued, and so notifies the
indemnifying party in writing within 15 days of such request from the
indemnifying party. If the indemnified party determines that the contest should
be continued, the indemnifying party shall be liable hereunder only to the
extent of the amount that the other party to the contested Claim had agreed
unconditionally to accept in payment or compromise as of the time the
indemnifying party made its request therefor to the indemnified party.
11.5 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.6 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
11.7 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
ARTICLE XII.
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
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12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Sellers or the Shareholders
without the prior written consent of Purchaser or by Purchaser to any Person
without the prior written consent of Sellers.
12.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in writing at any time
by the party which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
12.6 NO THIRD-PARTY BENEFICIARY RIGHTS. This Agreement is not intended
to and shall not be construed to give any Person (other than the parties
signatory hereto any interest or rights (including, without limitation, any
third party beneficiary rights) with respect to or in connection with any
agreement or provision contained herein or contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and
pay all applicable sales, stamp, transfer, documentary, use, registration,
filing and other taxes and fees (including any penalties and interest) that may
become due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Sellers,
the Shareholders and Purchaser shall each pay all costs and expenses incurred by
them or on their behalf in connection with this Agreement and the transactions
contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
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if to Purchaser, to:
Castle Dental Centers of Texas, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
with a copy to:
Mr. William D. Gutermuth
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2856
if to Sellers or the Shareholders to:
Dr. Joseph A. Bonola
1109 Smethwick Cove
Keller, Texas 76248
with a copy to:
Mr. David Wright
Heard & Wright
201 Main Street, Suite 1820
Ft. Worth, Texas 76102
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without regards to conflict of
law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the requirements of its lenders
and investors and to comply with applicable securities laws. No party hereto
shall issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining
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the prior approval of the other party hereto to the contents and the manner of
presentation and publication thereof.
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in any federal or state
court located in Houston, Texas, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
CASTLE DENTAL CENTERS OF TEXAS, INC.
By:
Name:
Title:
CONSOLIDATED INDUSTRIES, INC.
By:
Name:
Title:
S.A. DENTAL SERVICES, P.C.
By:
Name:
Title:
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S.C.A. DENTAL SERVICES, P.C.
By:
Name:
Title:
C.A. DENTAL SERVICES, P.C.
By:
Name:
Title:
AUSTIN PERIODONTIST ASSOCIATES, INC.
By:
Name:
Title:
Joseph A. Bonola, D.D.S.
Kristen Bonola
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EXHIBIT 10.38
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
- --------------------------------------------------------------------------------
PLAN AND AGREEMENT OF REORGANIZATION
Dated as of August 9, 1996
By and Among
Castle Dental Centers, Inc.,
Castle Dental Centers of Texas, Inc.,
as Purchaser,
N.A. Dental Services, P.C.,
EFW Dental Services, P.C.,
HDC Dental Services, P.C.,
Midcities Dental Services, P.C.,
NEFW Dental Services, P.C. and
West Ft. Worth Dental Services, P.C.,
as Sellers
and
Joseph A. Bonola, D.D.S.,
Kristen Bonola and Larry Charles Jackson
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................2
1.1 Definitions.....................................................2
ARTICLE II
THE TRANSACTION........................................................6
2.1 Purchase and Sale of Assets.....................................6
2.2 Excluded Assets.................................................7
2.3 Assumption of Obligations.......................................7
2.4 Nonassignable Contracts and Leases..............................7
2.5 Closing.........................................................8
ARTICLE III
PAYMENT OF PURCHASE PRICE..............................................8
3.1 Amount; Allocation; Delivery....................................8
3.2 Purchase Price Adjustment.......................................9
3.3 Agency Relationship............................................10
3.4 Escrow Arrangement.............................................11
3.5 No Action to Violate Tax-Free Reorganization...................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS..................................................12
4.1 Representations and Warranties of Sellers and
the Shareholders...............................................12
4.2 Existence and Good Standing....................................12
4.3 Authorization and Validity of Agreement........................12
4.4 Capital Stock..................................................13
4.5 Consents and Approvals; No Violations..........................13
4.6 Subsidiaries and Affiliates....................................14
4.7 Financial Statements; No Material Adverse Change...............14
4.8 Books and Records..............................................14
4.9 Title to Properties; Encumbrances; Condition...................14
4.10 Real Property..................................................15
4.11 Leases.........................................................15
4.12 Material Contracts.............................................15
4.13 Permits........................................................16
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4.14 Litigation.....................................................16
4.15 Taxes..........................................................16
4.16 Insurance......................................................17
4.17 Intellectual Properties........................................17
4.18 Compliance with Laws...........................................17
4.19 Employment Relations...........................................17
4.20 Employee Benefit Plans.........................................18
4.21 Environmental Laws and Regulations.............................18
4.22 Interests in Customers, Suppliers, Etc.........................18
4.23 Compensation of Employees......................................18
4.24 Payors. .......................................................19
4.25 Accounts Receivable; Accounts Payable..........................19
4.26 Solvency.......................................................19
4.27 Disclosure.....................................................19
4.28 Investments....................................................20
4.29 Broker's or Finder's Fees......................................20
4.30 Copies of Documents............................................20
4.31 Investment Representations.....................................20
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND CASTLE DENTAL........................................21
5.1 Existence and Good Standing of Purchaser;
Power and Authority............................................21
5.2 No Violations..................................................21
5.3 Litigation.....................................................22
5.4 Compliance with Laws...........................................22
5.5 Broker's or Finder's Fees......................................22
5.6 Existence and Good Standing of Castle Dental;
Power and Authority............................................22
5.7 Financial Statements...........................................22
5.8 Capital Stock..................................................23
5.9 Litigation.....................................................23
ARTICLE VI
CONDITIONS TO SELLERS' AND THE SHAREHOLDERS' OBLIGATIONS..............23
6.1 Truth of Representations and Warranties........................23
6.2 Performance of Agreements......................................23
6.3 No Litigation Threatened.......................................24
6.4 Consideration..................................................24
6.5 Governmental Approvals.........................................24
6.6 Proceedings....................................................24
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6.7 Good Standing Certificates.....................................24
6.8 Registration Rights Agreement..................................24
6.9 Stockholders Agreement.........................................24
6.10 Due Diligence..................................................24
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS.................................24
7.1 Truth of Representations and Warranties........................25
7.2 Performance of Agreements......................................25
7.3 Documents of Conveyance........................................25
7.4 No Litigation Threatened.......................................25
7.5 Governmental Approvals.........................................25
7.6 Consents.......................................................25
7.7 Legal Opinion..................................................25
7.8 Proceedings....................................................25
7.9 JHC............................................................26
7.10 Stockholders Agreement.........................................26
7.11 Due Diligence..................................................26
7.12 Sellers Name Change............................................26
7.13 Termination of Agreements......................................26
7.14 Good Standing Certificates.....................................26
7.15 Releases of Liens..............................................26
7.16 Noncompetition Agreement.......................................26
7.17 License Agreement..............................................27
ARTICLE VIII
COVENANTS OF SELLERS AND THE SHAREHOLDERS.............................27
8.1 Cooperation by Sellers.........................................27
8.2 Conduct of Business............................................27
8.3 Exclusive Dealing..............................................27
8.4 Review of the Assets...........................................27
8.5 Further Assurances.............................................28
8.6 Accounts Payable; Accounts Receivable..........................28
ARTICLE IX
COVENANTS OF PURCHASER................................................28
9.1 Cooperation by Purchaser.......................................28
9.2 Books and Records; Personnel...................................29
9.3 Further Assurances.............................................29
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9.4 Due Diligence Investigation....................................29
ARTICLE X
TERMINATION...........................................................30
10.1 Termination....................................................30
10.2 Effect on Obligations..........................................30
ARTICLE XI
SURVIVAL AND INDEMNIFICATION..........................................30
11.1 Indemnification of Sellers.....................................30
11.2 Indemnification of the Purchaser...............................31
11.3 Demands........................................................31
11.4 Right to Contest and Defend....................................32
11.5 Cooperation....................................................32
11.6 Right to Participate...........................................32
11.7 Payment of Damages.............................................33
ARTICLE XII
MISCELLANEOUS.........................................................33
12.1 Entire Agreement...............................................33
12.2 Successors and Assigns.........................................33
12.3 Counterparts...................................................33
12.4 Headings.......................................................33
12.5 Modification and Waiver........................................33
12.6 No Third-Party Beneficiary Rights..............................34
12.7 Sales and Transfer Taxes.......................................34
12.8 Expenses.......................................................34
12.9 Notice.........................................................34
12.10 Governing Law..................................................35
12.11 Confidentiality; Publicity.....................................35
12.12 Consent to Jurisdiction........................................35
12.13 Severability...................................................35
12.14 Enforcement....................................................36
SCHEDULES
Schedule 2.2(b) Excluded Contracts
Schedule 2.2(e) Excluded Assets
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Schedule 2.3 Assumed Obligations
Schedule 4.5 Consents
Schedule 4.6 Asset Owned by Third Parties which are Used in the
Business
Schedule 4.7 Material Adverse Change
Schedule 4.9 Encumbrances
Schedule 4.10 Real Property
Schedule 4.11 Leased Personal Property
Schedule 4.12 Material Contracts and Proposals
Schedule 4.13 Permits
Schedule 4.14 Litigation
Schedule 4.15 Taxes
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
Schedule 4.21 Environmental Matters
Schedule 4.23 Employee Compensation
Schedule 4.25 Accounts Receivable
Schedule 5.7 Castle Dental Financial Statements
EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Legal Opinion
Exhibit C Stockholders Agreement
Exhibit D Registration Rights Agreement
Exhibit E Noncompetition Agreement
Exhibit F License Agreement
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PLAN AND AGREEMENT OF REORGANIZATION
PLAN AND AGREEMENT OF REORGANIZATION dated as of August 9, 1996, by and
among Castle Dental Centers, Inc., a Delaware corporation ("Castle Dental"),
Castle Dental Centers of Texas, Inc., a Texas corporation ("Purchaser"),
(hereinafter referred to as the "Agreement"), N.A. Dental Services, P.C., a
Texas professional corporation, EFW Dental Services, P.C., a Texas professional
corporation, HDC Dental Services, P.C., a Texas professional corporation,
Midcities Dental Services, P.C., a Texas professional corporation, NEFW Dental
Services, P.C., a Texas professional corporation and West Ft. Worth Dental
Services, P.C., a Texas professional corporation (collectively, the "Dental
Centers") and Joseph A. Bonola, D.D.S., Kristen Bonola and Larry Charles
Jackson. Joseph A. Bonola, Kristen Bonola and Larry Charles Jackson are referred
to herein collectively as the "Shareholders," and the Dental Centers are
referred to herein collectively as the "Sellers." Kristen Bonola is made a party
hereto solely for her community property interest in the Assets (as defined
below).
PLAN OF REORGANIZATION
This Agreement is intended to be a reorganization within the meaning of
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended.
Purchaser shall acquire substantially all of the property, assets and
business of the Dental Centers, in exchange solely for a part of the voting
common stock of Castle Dental, all upon the terms and subject to the conditions
set forth below.
As soon as practical after the Closing (as defined below), the Dental
Centers will completely liquidate and dissolve and will cause to be distributed
to their shareholders, on a pro rata basis based on stock ownership, all of
their right, title and interest in and to the shares of Castle Dental's voting
common stock (including the Escrowed Shares (as defined below)) to be received
in exchange for the surrender by such shareholders for cancellation of
certificates representing all of the Dental Centers' outstanding capital stock.
The foregoing shall be referred to as the Plan of Reorganization.
AGREEMENT
NOW, THEREFORE, for the mutual covenants and other consideration
described herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto approve and
adopt the foregoing Plan of Reorganization and covenant and agree as follows:
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ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of the Dental
Centers.
"ACCOUNTS PAYABLE": the current payables of the Dental Centers to trade
account and other creditors that are not more than thirty (30) days old as of
August 1, 1996.
"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person. For purposes of Section 11.1 of this Agreement, the term
"Affiliates" shall include the individuals who have signed lease agreements as
tenant or guarantor on behalf of the Dental Centers, which are being assumed by
Purchaser hereunder.
"AGREEMENT": this Plan and Agreement of Reorganization, as amended from
time to time as provided herein.
"ASSETS": as defined in Section 2.1 hereof.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 3.2 hereof.
"BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof
"BOOKS AND RECORDS": all books, records, books of account, files and
data (including customer and supplier lists), certificates and other documents
related to the conduct of the Business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of Sellers which relate exclusively to
organizational and corporate governance proceedings of Sellers.
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"BUSINESS": the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by Sellers related to the Business.
"CASTLE DENTAL": as defined in the preamble to this Agreement.
"CLOSING": as defined in Section 2.5 hereof.
"CLOSING DATE": as defined in Section 2.5 hereof.
"CLOSING DATE BALANCE SHEET": as defined in Section 3.2 hereof.
"CLOSING DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"DENTAL CENTERS": as defined in the preamble of this Agreement.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto that would have a Material Adverse Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law (for purposes of this definition, "Claims") or any
permit issued under any such Environmental Law, including without limitation (i)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree
-3-
or judgment, relating to Hazardous Materials, the environment or health relating
to or arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED CONTRACTS": as defined in Section 2.2(b) hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.7 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"JHC": Jack H. Castle, D.D.S., P.C., a Texas professional corporation.
"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of Sellers, or its Affiliates.
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"PERMITS": as defined in Section 4.13 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.9 hereof.
"PERSON": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or other entity.
"PLANS": as defined in Section 4.20 hereof.
"PRE-CLOSING PERIODS": as defined in Section 4.15(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.15(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
"SELLERS": as defined in the preamble of this Agreement.
"SELLERS' PROPERTY": any real property and improvements thereon
presently owned, leased, operated or occupied by Sellers.
"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
"TRANSFER DATE": August 1, 1996.
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ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from Sellers, and Sellers agree to
sell, convey, transfer, assign and deliver, and cause to be sold, conveyed,
transferred, assigned and delivered, to Purchaser, on the Closing Date, against
the receipt by Sellers of the consideration specified in Section 3.1 hereof, the
Assets, free and clear of any Encumbrances except Permitted Encumbrances. The
term "Assets" shall mean all of the rights, title and interests of Sellers and
the Shareholders in and to the assets used in or relating to the conduct of the
Business on the Closing Date, tangible and intangible, real, personal and mixed,
wheresoever situated and whether or not specifically referred to herein or in
any instrument of conveyance delivered pursuant hereto. The Assets shall include
but are not limited to the following categories of assets:
(a) all title to, interest in or rights with respect to real
property, including leasehold interests, described in Schedule 4.10 attached
hereto together with all buildings, facilities, fixtures and other leasehold
improvements thereon and all easements, rights-of-way, transferable licenses and
permits and other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and other
fixed assets owned or leased and used or held for use in the conduct of the
Business;
(c) contracts, documents, instruments, insurance and indemnity
policies and general intangibles of Sellers, other than the Excluded Contracts;
(d) Accounts Receivable as of August 1, 1996;
(e) all licenses, permits, registrations and authorizations,
proprietary information, methods, know-how, designs, processes, procedures,
goodwill and all rights to other Intellectual Property used in the Business;
(f) Books and Records;
(g) any rights pertaining to any counterclaims, set-offs or
defenses it may have with respect to any Assumed Obligations;
(h) all deposits, advance payments, prepaid claims, prepaid
taxes, prepaid insurance premiums and other prepaid expense items; and
-6-
(i) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded thereby
relating to the Assets.
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) cash, cash equivalents, securities, letters of credit naming
Sellers as account party, certificates of deposit, notes, drafts, checks and
similar instruments;
(b) each dentist employment contract, managed care contract,
insurance or third-party reimbursement agreement or other contract set forth on
Schedule 2.2(b) (the "Excluded Contracts");
(c) tax refunds related to the Business or the Assets received or
receivable by Sellers or the Shareholders relating to taxes paid by Sellers or
the Shareholders for all periods prior to the Closing Date;
(d) minute books and governance documents of Sellers;
(e) any Asset listed on Schedule 2.2(e); and
(f) the consideration which Purchaser agrees to pay Sellers
hereunder.
2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Sellers,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Sellers in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder, and (b) the Accounts Payable (collectively,
"Assumed Obligations"). Notwithstanding anything contained herein to the
contrary, Purchaser does not assume, and hereby expressly disclaims
responsibility for, any obligation or liability of Sellers or the Shareholders
not described on Schedule 2.3.
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date, Sellers and the
Shareholders agree to use their best efforts to obtain, or cause to be obtained,
prior to the Closing Date, any written consents necessary to convey to Purchaser
the benefit thereof. Purchaser shall cooperate with Sellers and the
Shareholders, in such manner as may be reasonably requested, in connection
therewith, including without limitation, active participation in visits to and
meetings, discussions and negotiations with all Persons with the authority to
grant or withhold consent. If Sellers and the Shareholders are unable to obtain
such necessary written
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
consents for the remaining term of such Assigned Contract, Purchaser shall act
as such Sellers' and the Shareholders' agent in the performance of all
obligations and liabilities under such Assigned Contract and such Sellers and
the Shareholders shall act as Purchaser's agents in the receipt of any benefits,
rights or interests which inure to such Sellers or the Shareholders under such
Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing
set forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Bracewell & Patterson, L.L.P., 711
Louisiana, Suite 2900, Houston, Texas 77002, on or before July __, 1996, or such
other place, date and time as may be mutually agreed upon by the parties.
Such time and date are referred to herein as the "Closing Date."
ARTICLE III
PAYMENT OF PURCHASE PRICE
3.1 AMOUNT; ALLOCATION; DELIVERY.
* (a) In addition to assuming the liabilities set forth in Schedule
2.3, the purchase price (the "Purchase Price") for the Assets shall consist of
[REDACTED] and (337,000) shares of common stock of Castle
Dental, $.001 par value per share (the "Common Stock"). The shares of Common
Stock shall be distributed among the Sellers as follows:
* Total Number of
Shares of Received at Escrowed
DENTAL CENTER COMMON STOCK CLOSING Shares
- ------------- ------- ------- ------
EFW Dental Centers, P.C ............... [REDACTED] [REDACTED] [REDACTED]
NEFW Dental Centers, P.C .............. [REDACTED] [REDACTED] [REDACTED]
HDC Dental Services, P.C .............. [REDACTED] [REDACTED] [REDACTED]
Midcities Dental ...................... [REDACTED] [REDACTED] [REDACTED]
Services, P.C ......................... [REDACTED]
West Ft. Worth Dental ................. [REDACTED] [REDACTED] [REDACTED]
Services, P.C .........................
N.A. Dental Services, P.C ............ [REDACTED] [REDACTED] [REDACTED]
------- ------- ------
TOTALS ................................ [REDACTED] [REDACTED] [REDACTED]
(b) Pursuant to Section 3.4 below, seventy-five (75,000) thousand
shares of Common Stock to be delivered by Purchaser, which will be beneficially
owned by Joseph A. Bonola, will be placed in escrow (the "Escrowed Shares"). The
Escrowed Shares are listed under the column heading "Escrowed Shares" in Section
3.1(a) above.
(c) Once the Dental Centers have liquidated and dissolved
pursuant to the Plan of Reorganization, the Shares of Common Stock shall be
distributed to the shareholders of the Dental Centers, on a pro rata basis based
on stock ownership, as follows:
Shares of Common Stock
to be Received
by Shareholders
------------------------------
Joseph A. Larry
* Joseph A. Bonola Charles
DENTAL CENTERS BONOLA (IN ESCROW) JACKSON
- -------------- ------- ------ -----
EFW Dental Centers, P.C .................... [REDACTED] [REDACTED] --
NEFW Dental Centers, P.C ................... [REDACTED] [REDACTED] --
HDC Dental Services, P.C ................... [REDACTED] [REDACTED] --
Midcities Dental Services, P.C ............. [REDACTED] [REDACTED][REDACTED]
West Ft. Worth Dental Services, P.C ........ [REDACTED] [REDACTED] --
N.A. Dental Services, P.C .................. [REDACTED] [REDACTED] --
------- ------ -----
TOTALS ..................................... [REDACTED] [REDACTED][REDACTED]
3.2 PURCHASE PRICE ADJUSTMENT.
(a) Each of the Sellers previously has delivered to Purchaser an
unaudited balance sheet (the "Base Date Balance Sheet") as of March 31, 1996
(the "Balance Sheet Date"), (the book value of the Assets included in such
balance sheet less the book value of the Assumed Obligations included in such
balance sheet is hereinafter referred to as the "Base Date Net Asset Value").
(b) Within 45 days following the Transfer Date, each of the
Sellers shall prepare and deliver to Purchaser a balance sheet as of the
Transfer Date (the "Closing Date Balance Sheet"), together with a calculation of
the book value of the Assets and Assumed Obligations determined on the same
basis as the March 31, 1996, balance sheet (such book value of such Assets less
such book
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value of such Assumed Obligations is hereinafter referred to as the "Closing
Date Net Asset Value"). Purchaser and its representatives shall have the right
to review all work papers and procedures used to prepare the Base Date Balance
Sheet and the Closing Date Balance Sheet and the calculation of the Base Date
Net Asset Value and the Closing Date Net Asset Value, and shall have the right
to perform any other reasonable procedures necessary to verify the accuracy
thereof. Unless Purchaser, within 20 days after delivery to Purchaser of the
Closing Date Balance Sheet, notifies Sellers in writing that it objects to the
Base Date Balance Sheet or the Closing Date Balance Sheet or the calculation of
the Base Date Net Asset Value or the Closing Date Net Asset Value, and specifies
the basis for such objection, the Base Date Balance Sheet and the Closing Date
Balance Sheet and the calculation of the Base Date Net Asset Value and the
Closing Date Net Asset Value shall become final and binding upon the parties for
purposes of this Agreement. If Purchaser and Sellers are unable to resolve any
objections within 10 days after any such notification has been given, the
dispute shall be submitted to Coopers & Lybrand, L.L.P. (or another nationally
recognized public accounting firm mutually agreed upon by Purchaser and
Sellers). Such accounting firm shall make a final and binding determination as
to the matter or matters in dispute. Purchaser and Sellers agree to cooperate
with each other and with each other's authorized representatives in order to
resolve any and all matters in dispute as soon as practicable.
(c) Within 10 days after the Closing Date Net Asset Value has
been finally determined, the difference, if any, between the Base Date Net Asset
Value and the Closing Date Net Asset Value shall be calculated. If the Closing
Date Net Asset Value exceeds the Base Date Net Asset Value, then Purchaser shall
promptly pay to Joseph A. Bonola (for the account of the Sellers) the amount by
which the Closing Date Net Asset Value exceeds the Base Date Net Asset Value. If
the Base Date Net Asset Value exceeds the Closing Date Net Asset Value, then the
Sellers shall promptly join with Purchaser in joint written instructions to the
Escrow Agent (as defined below) to disburse to Purchaser from the Escrowed
Shares (as defined below) the number of shares of Common Stock equal to the
amount by which the Base Date Net Asset Value exceeds the Closing Date Net Asset
Value. For this purpose, the Escrowed Shares will be valued at $9.00 per share.
If the number of Escrowed Shares is not sufficient for Sellers to satisfy its
obligations to Purchaser pursuant to the foregoing sentence, Sellers shall
promptly pay any shortfall to Purchaser in cash.
(d) Purchaser and Sellers, in the aggregate, each shall bear
one-half of the fees, costs and expenses of the accounting firm retained under
subsection (b) to resolve any dispute.
3.3 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
Sellers or the Shareholders receive any funds, documents or instruments which
constitute or are delivered in respect of Assets transferred to Purchaser
pursuant to this Agreement, Sellers and the Shareholders agree to hold such
funds, documents or instruments in trust for Purchaser and as Purchaser's agent
therefor.
-9-
3.4 ESCROW ARRANGEMENT.
(a) At Closing, the Escrowed Shares will be placed in escrow with
NationsBank of Texas, N.A., as escrow agent (the "Escrow Agent") pursuant to an
escrow agreement in the form attached hereto as Exhibit A (the "Escrow
Agreement"). At the end of the first 12 months following the Closing Date,
Purchaser shall calculate (and deliver such calculation to Joseph A. Bonola) the
aggregate pretax income of the practices formerly conducted by EFW Dental
Services, P.C., NEFW Dental Services, P.C., HDC Dental Services, P.C., Midcities
Dental Services, P.C., and West Ft. Worth Dental Services, P.C. (the "Metroplex
Centers"), which shall be computed without general overhead allocation or charge
with respect to the general and administrative expenses of Castle Dental, but
taking into account direct costs incurred by Castle Dental on behalf of the
Metroplex Centers and including a deduction equal to the cost of capital
invested (exclusive of initial acquisition costs) in the Metroplex Centers by
Castle. If the aggregate pretax income as calculated aforesaid equals or exceeds
$520,000, all of the Escrowed Shares shall be released from escrow and delivered
to Joseph A. Bonola. For purposes of calculating "pretax income" pursuant to
this Section 3.4(a), pretax income shall equal gross collections (excluding
collections relating to orthodontics) LESS operating costs (which shall in no
event exceed 76.5% of such gross collection figure). Castle Dental's cost of
capital shall be deemed to be the prime rate established from time to time by
NationsBank of Texas, N.A. plus 4%, but in no event to be, less than 10%. If the
aggregate pretax income of the Metroplex Centers for such period is less than
$320,000, all of the Escrowed Shares shall be returned to Castle Dental for
cancellation. If the aggregate pretax income for such period is between $320,000
and $520,000, the percentage of the Escrowed Shares to be released from escrow
and delivered to Joseph A. Bonola shall be determined by dividing (i) the amount
by which the aggregate pretax income exceeds $320,000, by (ii) $200,000, and
multiplying the result by 75,000, with the balance of said 75,000 shares
returned to Castle Dental for cancellation.
(b) Unless Joseph A. Bonola, within 10 days after delivery to him
of the calculation of aggregate pretax income, notifies Purchaser in writing
that he objects to such calculation, and specifies the basis for such objection,
the calculation shall become final and binding upon the parties for purposes of
this Agreement. If Purchaser and Joseph A. Bonola are unable to resolve any
objections within 10 days after any such notification has been given, the
dispute shall be submitted to Coopers & Lybrand, L.L.P. (or another nationally
recognized public accounting firm mutually agreed upon by Purchaser and Joseph
A. Bonola). Such accounting firm shall make a final and binding determination as
to the matters in dispute. Purchaser and Joseph A. Bonola agree to cooperate
with each other and with each other's authorized representatives in order to
resolve any and all matters in dispute as soon as practicable. Purchaser and
Joseph A. Bonola each shall bear one-half of the costs of the fees, costs and
expenses of the accounting firm retained pursuant to this subsection (b) to
resolve any dispute.
-10-
(c) If Castle shall effect a split of its outstanding Common
Stock or effect a reclassification or combination of its outstanding Common
Stock by way of recapitalization, merger, consolidation or otherwise, or declare
a stock dividend payable to its stockholders of record with respect to its
Common Stock on the date or dates prior to the Escrowed Shares being released
from escrow, the number of shares of Common Stock shall, in the case of a stock
dividend, be increased by the number of shares or, in the case of a stock split,
combination or reclassification, be changed into such number of shares of Common
Stock or other voting stock as Sellers would have been entitled to receive on
account of such dividend, stock split, reclassification or combination.
3.5 NO ACTION TO VIOLATE TAX-FREE REORGANIZATION. Castle Dental and its
Affiliates will not take any action at any time after the Closing Date which
would cause the transactions described herein not to qualify as reorganizations
within the meaning of Section 368 of the Code for failure to satisfy the
"continuity of business enterprise" requirement of Section 1.368-1(d) of the
Income Tax Regulations, the "substantially all the properties" requirement of
Section 368(a)(2)(D) of the Code, both as presently constituted, or if amended
so as to apply to the transactions, as amended at the time any such action might
be taken, or for any other reason. Castle Dental and its Affiliates will file
their federal income tax returns for all periods beginning after or including
the Closing Date on a basis consistent with the treatment of the transactions as
reorganizations within the meaning of Section 368 of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE SHAREHOLDERS
4.1 REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE SHAREHOLDERS. As
an inducement to the Purchaser to enter into and perform this Agreement, Sellers
and the Shareholders, jointly and severally, hereby represent and warrant to
Purchaser as follows:
4.2 EXISTENCE AND GOOD STANDING. Each of the Sellers are a corporation
duly organized and validly existing under the laws of the State of Texas. Each
of the Sellers have the full corporate power and authority to own, lease and
operate its property and to carry on the Business as now being conducted and to
own or lease the Assets owned or leased by it. Each of the Sellers are duly
qualified or licensed to do business in each jurisdiction in which the character
or location of the properties owned or leased by it or the nature of the
business conducted by it makes such qualification necessary and the absence of
which would have a Material Adverse Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Sellers have full corporate
power and authority, and the Shareholders have full power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder and to consummate the transactions contemplated
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hereby. The execution, delivery and performance of this Agreement by Sellers and
the consummation by them of the transactions contemplated hereby, have been duly
authorized and approved by the Board of Directors and the shareholders of
Sellers, and no other action on the part of Sellers or their shareholders is
necessary to authorize the execution, delivery and performance of this Agreement
by Sellers and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Sellers and the Shareholders
and is a valid and binding obligation of Sellers and the Shareholders
enforceable against each in accordance with its terms, except to the extent that
its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
4.4 CAPITAL STOCK. Except for Midcities Dental Services, P.C., the
authorized capital stock of each of the Dental Centers consists solely of
1,000,000 shares of Common Stock, $.01 par value per share, of which 100,000
shares have been issued, and are outstanding, all of which are owned by Joseph
A. Bonola. The authorized capital stock of Midcities Dental Services, P.C.
consists solely of 1,000,000 shares of Common Stock, $.01 par value per share,
of which 100,000 shares have been issued, and are outstanding, all of which are
owned by Joseph A. Bonola and Larry Charles Jackson. All of the shares of Common
Stock of Sellers have been duly and validly authorized and issued, and are fully
paid and nonassessable and free of any liens or encumbrances.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
Schedule 4.5, the execution, delivery and performance of this Agreement by
Sellers and the Shareholders and the consummation by Sellers and the
Shareholders of the transactions contemplated hereby will not, with or without
the giving of notice or the lapse of time or both: (a) violate, conflict with,
or result in a breach or default under any provision of the organizational
documents of Sellers; (b) to the knowledge of Sellers and the Shareholders,
violate any statute, ordinance, rule, regulation, order, judgment or decree of
any court or of any governmental or regulatory body, agency or authority
applicable to Sellers or the Shareholders or by which any of Sellers' properties
or assets may be bound; (c) to the knowledge of Sellers and the Shareholders,
require any filing by Sellers or the Shareholders with, or require Sellers or
the Shareholders to obtain any permit, consent or approval of, or require
Sellers or the Shareholders to give any notice to, any governmental or
regulatory body, agency or authority other than as set forth in Schedule 4.5
attached hereto; or (d) result in a violation or breach by Sellers or the
Shareholders of, conflict with, constitute (with or without due notice or lapse
of time or both) a default by Sellers or the Shareholders (or give rise to any
right of termination, cancellation, payment or acceleration) under or result in
the creation of any Encumbrance upon any of the properties or assets of Sellers
or the Shareholders pursuant to, any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease franchise agreement or other instrument or obligation to which Sellers or
the Shareholders are a party, or by which Sellers or any of their properties or
assets may be bound,
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except in the case of Subsections 4.5(b), (c) and (d), for such violations,
consents, breaches, defaults, terminations and accelerations which in the
aggregate would not have a Material Adverse Effect.
4.6 SUBSIDIARIES AND AFFILIATES. Sellers have no subsidiaries. Except as
set forth on Schedule 4.6, all of the Assets used in the Business are owned by
Sellers, and on consummation of the transactions contemplated hereby Purchaser
will have acquired all of the Assets used in the Business.
4.7 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Each of the
Sellers have heretofore furnished Purchaser with its unaudited balance sheet as
of the Balance Sheet Date and the unaudited statements of operations and cash
flows for the year then ended (the "Financial Statements"). The Financial
Statements fairly present in all material respects the financial position of
Sellers at the date thereof and the results of operations of Sellers and their
respective cash flows for the period indicated. Except as set forth in Schedule
4.7 attached hereto, since the Balance Sheet Date there has been no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations of Sellers.
Other than as (a) disclosed on the Financial Statements, (b) incurred
since the Balance Sheet Date in the ordinary course of business or (c) disclosed
on Schedule 4.7 or another Schedule hereto, Sellers have no direct or indirect
indebtedness, liability, claim, deficiency, obligation or responsibility, known
or unknown, fixed or contingent, liquidated or unliquidated, accrued, absolute
or otherwise.
4.8 BOOKS AND RECORDS. Sellers have previously made available to
Purchaser true, correct and complete copies of their respective articles of
incorporation and bylaws, and all amendments to each. The minute books of
Sellers, as previously made available to Purchaser and its representatives,
contain accurate records in all material respects of the meetings of, the
shareholders and Board of Directors of Sellers.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedules 4.9 or 4.10, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Sellers have
good and valid title to the Assets, in each case subject to no Encumbrances
except for (a) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Sellers in the operation of the Business,
(b) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (c) Encumbrances created by
Purchaser, and (d) Encumbrances relating to Assumed Obligations (liens of the
type described in clauses (a), (b), (c) and (d) above are hereinafter sometimes
referred to as "Permitted Encumbrances"). Sellers have heretofore furnished
Purchaser
-13-
with a fixed asset ledger, which sets forth all fixed assets owned by Sellers as
of the Balance Sheet Date. Sellers and the Shareholders are not aware of any
defects in such assets that would have a Material Adverse Effect on the ability
of Purchaser to use such assets in the Business, ordinary wear and tear
excepted.
4.10 REAL PROPERTY. Schedule 4.10 identifies all interests in real
property used by Sellers in the Business, including leases, and includes the
name of the record title holder thereof. All of the buildings, structures and
appurtenances situated on the real property owned or leased by Sellers are in
good operating condition, and in a state of good maintenance and repair, subject
to ordinary wear and tear. The real property has adequate rights of ingress and
egress for operation of the Business in the ordinary course. No condemnation or
similar proceeding is pending or, to the best knowledge of Sellers and the
Shareholders, threatened, which would preclude or impair the use of any such
property, except where such proceeding would not have a Material Adverse Effect.
4.11 LEASES. Schedule 4.11 contains an accurate and complete list of all
personal property leases to which Sellers are a party (as lessee or lessor) and
a description of all such leases to which Sellers are a party as lessee. Each
lease set forth in Schedule 4.11 is in full force and effect, and no event has
occurred that with the giving of notice, the passage of time or both would
constitute a default thereunder.
4.12 MATERIAL CONTRACTS. Except as set forth in Schedule 4.12, the
Assigned Contracts do not include (a) any agreement, contract or commitment
relating to the employment of any person by Sellers, (b) any agreement,
indenture or other instrument which contains restrictions with respect to
payment of profits, dividends or any other distributions, (c) any agreement,
contract or commitment relating to capital expenditures in excess of $5,000, (d)
any loan or advance to, or investment in, any Person or any agreement, contract
or commitment relating to the making of any such loan, advance or investment,
(e) any guarantee or other contingent liability in respect of any indebtedness
or obligation of any Person, (f) any management service, consulting or any other
similar type contract, (g) any agreement, contract or commitment limiting the
freedom of Sellers to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment that involves $5,000 or more
and is not cancelable without penalty within 30 days, or (i) any other
agreement, contract or commitment which would have a Material Adverse Effect.
Also set forth in Schedule 4.12 is a list of all proposals submitted by Sellers
to any third party that, if accepted by such third party, would require
disclosure on Schedule 4.12. Except where it would not have a Material Adverse
Effect, each contract or agreement set forth in Schedule 4.12 is in full force
and effect and there exists no default or event of default or event, occurrence,
condition or act (including the purchase of the Assets hereunder) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder.
-14-
4.13 PERMITS. Schedule 4.13 attached hereto lists all of the
governmental and other third party permits (including occupancy permits),
licenses, consents and authorizations ("Permits") required, to the knowledge of
Sellers and the Shareholders, in connection with the use, operation or ownership
of the Assets and the conduct of the Business as currently conducted. Sellers
hold all of the Permits listed on Schedule 4.13, and none is presently subject
to revocation or challenge. Except as set forth on Schedule, all such Permits
will be assigned to Purchaser, and none of such Permits will be subject to
revocation or termination as a result thereof.
4.14 LITIGATION. Except as set forth in Schedule 4.14, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Sellers and
the Shareholders, threatened, against or affecting the properties, rights or
goodwill of Sellers, the Shareholders, or employees of Sellers, and Sellers and
the Shareholders do not know of any valid basis for any such action, proceeding
or investigation. There are no such suits, actions, claims, proceedings or
investigations pending or to the knowledge of Sellers and the Shareholders
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement. Purchaser will assume no liability whatsoever with respect to
any matter described on Schedule 4.14. Schedule 4.14 also describes any actions,
suits, disciplinary proceedings and investigations undertaken by the Dental
Board of the State of Texas, or other body regulating the activities of
dentists.
4.15 TAXES.
(a) All returns and reports for Taxes for all taxable years or
periods that end on or before the Closing Date and, with respect to any taxable
year or period beginning before and ending after the Closing Date the portion of
such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
Sellers (collectively, the "Returns") have been or will be filed when due in a
timely fashion and such Returns as filed are or will be accurate in all material
respects, and all such Taxes showed to be due and owing have been paid.
(b) Except as provided in Schedule 4.15 there is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Sellers or the Shareholders, threatened by any authority regarding
any Taxes relating to Sellers for any Pre-Closing Period.
(c) There are no liens or security interests on any of the assets
of Sellers that arose in connection with any failure (or alleged failure) to pay
any Taxes.
-15-
(d) Except as provided in Schedule 4.15, there are no agreements
for the extension or waiver of the time for assessment of any Taxes relating to
Sellers for any Pre-Closing Period and Sellers have not been requested to enter
into any such agreement or waiver.
(e) All Taxes relating to Sellers which Sellers are required by
law to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and payable.
(f) Sellers are not now nor have ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.16 INSURANCE. Set forth in Schedule 4.16 is a complete list of
insurance policies that Sellers maintain with respect to their Business and
properties that are included in the Assets or on their employees. Such policies
are in full force and effect and are free from any right of termination on the
part of the insurance carriers. In the judgment of Sellers, such policies, with
respect to their amounts and types of coverage, are adequate to insure against
risks to which Sellers and their property and assets are normally exposed in the
operation of the Business, subject to customary deductibles and policy limits.
4.17 INTELLECTUAL PROPERTIES. Schedule 4.17 sets forth all Intellectual
Property used in the Business and the owner of such Intellectual Property. The
operation of the Business as conducted by Sellers as of the Closing Date
requires no rights under Intellectual Property other than rights under
Intellectual Property listed on Schedule 4.17 and rights granted to Sellers
pursuant to agreements listed on Schedule 4.17. Except as otherwise set forth in
Schedule 4.17, Sellers own all right, title and interest in the Intellectual
Property listed in Schedule 4.17. No litigation is pending or, to the knowledge
of Sellers or the Shareholders, threatened wherein Sellers are accused of
infringing or otherwise violating the Intellectual Property rights of another,
or of breaching a contract conveying rights under Intellectual Property.
4.18 COMPLIANCE WITH LAWS. To the knowledge of Sellers and the
Shareholders, Sellers are in compliance with all applicable laws, regulations,
orders, judgments and decrees applicable to their respective business, except
where any noncompliance would not have a Material Adverse Effect on the assets,
liabilities, business, condition (financial or otherwise), results of operation
or prospects of Sellers.
4.19 EMPLOYMENT RELATIONS. (a) Sellers are not and have not engaged in
any unfair labor practice; (b) to the knowledge of Sellers and the Shareholders,
no representation question exists respecting the employees of Sellers; (c)
Sellers have not been notified of any grievance that might have a Material
Adverse Effect and no arbitration proceeding arising out of or under any
collective
-16-
bargaining agreement is pending; and (d) no collective bargaining agreement is
currently being negotiated by Sellers.
4.20 EMPLOYEE BENEFIT PLANS. Sellers have delivered to Purchaser true
and complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Sellers and the Shareholders, been maintained in compliance with
its terms and the requirements of all applicable laws. None of the Plans are
subject to Title IV of ERISA or the minimum funding obligations of Section 412
of the Code, and Sellers and any entity required to be aggregated therewith
pursuant to Section 414(b) or (c) of the Code have no liability under Title IV
of ERISA or under Section 412(f) or 412(n) of the Code.
4.21 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.21, and except where it would not have a Material Adverse Effect (a) Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Sellers Property by Sellers, its authorized agents or its
independent contractors (including suppliers) or any property adjoining any
Sellers Property, (b) Hazardous Materials have not been Released or disposed of
by Sellers, its authorized agents or its independent contractors (including
suppliers) on any Sellers Property or any property adjoining any Sellers
Property except such Releases which do not violate any Environmental Laws, (c)
Sellers are, to its and the Shareholders's knowledge, in compliance with all
applicable Environmental Laws and the requirements of any Permits issued under
such Environmental Laws with respect to any Sellers Property, (d) there are no
pending or, to the knowledge of Sellers and the Shareholders, threatened
Environmental Claims against Sellers or any Sellers Property, (e) there are no
facts or circumstances, conditions, pre-existing conditions or occurrences on
any Sellers Property known to Sellers or the Shareholders that could reasonably
be anticipated (A) to form the basis of an Environmental Claim against Sellers
or any Sellers Property, or (B) to cause such Sellers Property to be subject to
any restrictions on the ownership, occupancy use or transferability of such
Sellers Property under any Environmental Law, (f) there are not now and there
never have been any underground storage tanks located on any Sellers Property,
and (g) Sellers have not in the ordinary course of business transported or
stored Hazardous Materials.
4.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships
with Affiliates, Sellers do not possess, directly or indirectly, any financial
interest in, and no Shareholder serves as a director, officer or employee of,
any corporation, firm, association or business organization which is a supplier,
customer, lessor, lessee, or competitor of Sellers.
4.23 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.23 is an
accurate and complete list showing the names of all persons whose compensation
from Sellers collectively for the fiscal year ended on the Balance Sheet Date
exceeded an annualized rate of $20,000, together with a
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statement of the full amount paid or payable to each such person for services
rendered during the current fiscal year to date.
4.24 PAYORS. No significant payor has canceled or otherwise terminated
or, to the knowledge of Sellers or the Shareholders threatened to cancel or
otherwise terminate its relationship with Sellers within the last three years.
4.25 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.25, the Accounts Receivable on the Closing Date Balance Sheet are
collectible in the ordinary course of business, net of the reserves established
with respect thereto. Except as set forth on Schedule 4.25, there has been no
change since the Balance Sheet Date (other than in the ordinary course of
business) in the amount of the Accounts Receivable or other fees or debts due to
Sellers or the allowances with respect thereto, or Accounts Payable by Sellers,
from that reflected in the Base Date Balance Sheet.
4.26 SOLVENCY. Sellers are not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the Assets of Sellers (on a
going concern basis) will exceed the liability of Sellers on its debts
(including its contingent obligations);
(b) Sellers have not incurred, nor does it intend to or believe
that it will incur, debts (including contingent obligations) beyond its ability
to pay such debts as such debts mature (taking into account the timing and
amounts of cash to be received from any source, and of amounts to be payable on
or in respect of debts); and the amount of cash available to Sellers after
taking into account all other anticipated uses of funds is anticipated to be
sufficient to pay all such amounts on or in respect of debts, when such amounts
are required to be paid; and
(c) Sellers will have sufficient capital with which to conduct
its business, and the property of Sellers do not constitute unreasonably small
capital with which to conduct its business.
For purposes of this Section 4.26 "debt" means any liability or a (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
4.27 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the
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statements contained herein or therein not misleading in light of the
circumstances under which they were made.
4.28 INVESTMENTS. The Assets do not include any capital stock or other
equity ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
4.29 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of Sellers is, or will be, entitled to any fee, commission or broker's
or finder's fees in connection with this Agreement or any of the transactions
contemplated hereby.
4.30 COPIES OF DOCUMENTS. Sellers have caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
4.31 INVESTMENT REPRESENTATIONS.
(a) Sellers understand that the Common Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities Act").
Sellers also understands that the Common Stock is being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon his representations contained in this Agreement.
(b) Sellers, in consultation with their accountants, attorneys
and financial advisers, have the requisite experience in evaluating and
investing in private placement transactions of securities so that they are
capable of evaluating the merits and risks of their investment in Castle Dental
and have the capacity to protect their own interests. Sellers understand that
they must bear the economic risk of this investment indefinitely unless the
Common Stock is registered pursuant to the Securities Act, or an exemption from
registration is available. Sellers also understand that there is no assurance
that any exemption from registration under the Securities Act will be available
and that, even if available, such exemption may not allow them to transfer all
or any portion of the Common Stock under the circumstances, in the amounts or at
the times they might propose.
(c) Sellers are acquiring the Common Stock for their own account
for investment only, and not with a view towards distribution.
(d) Sellers represent that by reason of their business or
financial experience, they have the capacity to protect their own interests in
connection with the transactions contemplated in this Agreement.
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(e) Sellers represent that they are each an accredited investor
within the meaning of Regulation D under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND CASTLE DENTAL
Purchaser represents and warrants to Sellers and Shareholders as
follows:
5.1 EXISTENCE AND GOOD STANDING OF PURCHASER; POWER AND AUTHORITY.
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. Purchaser has full corporate power and
authority to make, execute, deliver and perform this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and approved by all required corporate
action of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and is a valid and binding obligation of Purchaser enforceable against
Purchaser in accordance with its terms, except to the extent that its
enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
5.2 NO VIOLATIONS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both; (a) violate, conflict with, or result in a breach or default
under any provision of the certificate of incorporation or by-laws of Purchaser;
(b) to the knowledge of Purchaser, violate any statute, ordinance, rule,
regulation, order, judgment or decree of any court or of any governmental or
regulatory body, agency or authority applicable to Purchaser or by which any of
its properties or assets may be bound; (c) to the knowledge of Purchaser,
require any filing by Purchaser with, or require Purchaser to obtain any permit,
consent or approval of, or require Purchaser to give any notice to, any
governmental or regulatory body, agency or authority or any third party; or (d)
result in a violation or breach by Purchaser of, conflict with, constitute (with
or without due notice or lapse of time or both) a default by Purchaser (or give
rise to any right of termination, cancellation, payment or acceleration) under,
or result in the creation of any Encumbrance upon any of the properties or
assets of Purchaser pursuant to, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease, franchise agreement or other instrument or obligation to which Purchaser
is a party, or by which it or any of its properties or assets may be bound,
except in the case of Subsections 5.2(b), (c), and (d), for such violations,
consents, breaches, defaults, terminations and accelerations which in the
aggregate would not have a Material Adverse Effect.
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5.3 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Purchaser, threatened, against or affecting the
properties, rights or goodwill of Purchaser or their employees, except where
such Proceeding would not have a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), results of operations
or prospects of Purchaser, and Purchaser does not know of any valid basis for
any such action, proceeding or investigation. There are no such Proceedings
pending or, to the knowledge of Purchaser, threatened, seeking to prevent or
challenge the transactions contemplated by this Agreement.
5.4 COMPLIANCE WITH LAWS. To the knowledge of Purchaser, Purchaser is in
compliance with all applicable laws, regulations, orders, judgments and decrees
applicable to their respective business, except where any noncompliance would
not have a Material Adverse Effect on the assets, liabilities, business,
condition (financial or otherwise), results of operations or prospects of
Purchaser.
5.5 BROKER'S OR FINDER'S FEES. Except for a fee payable by or on behalf
of Purchaser to The GulfStar Group, no agent, broker, Person or firm acting on
behalf of Purchaser is, or will be, entitled to any fee, commission or broker's
or finder's fee in connection with this Agreement or any of the transactions
contemplated hereby.
Castle Dental represents and warrants to Sellers and Shareholders as
follows:
5.6 EXISTENCE AND GOOD STANDING OF CASTLE DENTAL; POWER AND AUTHORITY.
Castle Dental is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Castle Dental has full
corporate power and authority to make, execute, deliver and perform this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly authorized and
approved by all required corporate action of Castle Dental. This Agreement has
been duly executed and delivered by Castle Dental and is a valid and binding
obligation of Castle Dental enforceable against Castle Dental in accordance with
its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
5.7 FINANCIAL STATEMENTS. The audited financial statements of Castle
Dental as of December 31, 1995, attached hereto as Schedule 5.7, are complete
and correct in all material respects and present fairly in accordance with
generally accepted accounting principles consistently applied, the financial
condition of Castle Dental and the results of operations of Castle Dental as of
the dates thereof and for the periods indicated. Since December 31, 1995, there
has been no material adverse
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change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations of Castle Dental.
5.8 CAPITAL STOCK. Immediately prior to Closing, the authorized capital
stock of Castle Dental consists solely of 18,755,263 shares of Common Stock of
which 4,275,243 shares have been issued, and 1,244,737 shares of Preferred
Stock, $.001 par value per share. all of which shares have been issued. All of
the shares of Common Stock of Castle Dental delivered pursuant to Section 3.1
hereof shall be duly and validly authorized, and, following the Closing, will be
validly issued, fully paid, nonassessable and free of any liens or encumbrances.
5.9 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Castle Dental, threatened, against or affecting the
properties, rights or goodwill of Castle Dental, Castle Dental or their
employees, except where such Proceeding would not have a material adverse effect
on the assets, liabilities, business, condition (financial or otherwise),
results of operations or prospects of Castle Dental, and Castle Dental does not
know of any valid basis for any such action, proceeding or investigation. There
are no such Proceedings pending or, to the knowledge of Castle Dental,
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement.
ARTICLE VI
CONDITIONS TO SELLERS' AND THE SHAREHOLDERS' OBLIGATIONS
The obligations of Sellers and the Shareholders under this Agreement to
sell, or cause to be sold, the Assets and to consummate the other transactions
contemplated hereby shall be subject to the satisfaction (or waiver by the party
entitled to performance) on or prior to the Closing Date of all of the following
conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, and Purchaser shall have delivered to Sellers on the Closing Date
a certificate of an authorized officer of Purchaser, dated the Closing Date, to
such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Purchaser shall have delivered to Sellers a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect.
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6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser shall have delivered to Sellers a certificate of an authorized officer
of Purchaser, dated the Closing Date, to such effect to the best knowledge of
such officer.
6.4 CONSIDERATION. Purchaser shall have delivered the Purchase Price in
the manner described in Section 3.1.
6.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Sellers and the
Shareholders and their counsel, and Sellers and the Shareholders shall have
received copies of all such documents and other evidence as its or their counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.7 GOOD STANDING CERTIFICATES. Sellers shall have received good
standing and corporate existence certificates respecting Purchaser and Castle
Dental.
6.8 REGISTRATION RIGHTS AGREEMENT. Sellers shall have received a
Registration Rights Agreement, substantially in the form of Exhibit D hereto,
executed by Castle Dental.
6.9 STOCKHOLDERS AGREEMENT. Sellers shall have received a Stockholders
Agreement, substantially in the form of Exhibit C, executed by the Purchaser and
the other parties thereto.
6.10 DUE DILIGENCE. Sellers shall have satisfactorily completed his due
diligence review of Castle Dental and Purchaser and shall not have determined,
in the exercise of his reasonable discretion, that the information obtained from
such review materially and adversely affects his appraisal of the business,
prospects and financial condition of Castle Dental.
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
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The obligations of Purchaser under this Agreement to purchase the Assets
and to consummate the other transactions contemplated hereby shall be subject to
the satisfaction (or waiver by Purchaser) on or prior to the Closing Date of all
of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Sellers and the Shareholders contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and Sellers and the Shareholders shall have delivered to
Purchaser on the Closing Date a certificate of an authorized representative of
Sellers and the Shareholders, dated the Closing Date, to such effect.
7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Sellers to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Sellers shall have delivered to Purchaser a certificate of an authorized
representative of Sellers, dated the Closing Date, to such effect.
7.3 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Sellers
fully executed documents of conveyance, in form and substance satisfactory to
Purchaser and its counsel, vesting in Purchaser good and valid title to the
Assets, free and clear of any Encumbrances except Permitted Encumbrances.
7.4 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Sellers
shall have delivered to Purchaser a certificate of an authorized representative
of Sellers, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.6 CONSENTS. Each of the consents referred to in Schedule 4.5 attached
hereto shall have been obtained, and Purchaser shall have also received the
consent of all other parties, including its senior lender, whose consent is
required to permit Purchaser to perform its obligations hereunder.
7.7 LEGAL OPINION. Sellers shall have delivered to Purchaser the opinion
of their counsel, substantially in the form of Exhibit B attached hereto.
7.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory
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in form and substance to Purchaser and its counsel, and Purchaser shall have
received copies of all such documents and other evidence as it or its counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
7.9 JHC. Contemporaneous with the Closing, (a) JHC shall have entered
into employment agreements with Drs. Atterson, Jackson and Moore, (b) the
employment agreements between the other dentists presently employed by the
Dental Centers shall have been duly and validly assigned to JHC, (c) all
reimbursement contracts with third-party insurance companies, managed care
companies and other reimbursement sources shall have been duly and validly
assigned to JHC, (d) all patient records shall have been delivered to JHC and
(e) all permits and other Assets as are required for JHC to perform its
obligations under the Management Services Agreement by and between Purchaser and
JHC shall have been duly and validly assigned to JHC.
7.10 STOCKHOLDERS AGREEMENT. Sellers shall have entered into a
Stockholders Agreement with Castle Dental and certain of its other shareholders,
substantially in the form of Exhibit C attached hereto.
7.11 DUE DILIGENCE. Purchaser shall have satisfactorily completed a due
diligence review of Sellers and the Business and shall not have determined, in
the exercise of its reasonable discretion, that the information obtained from
such review materially and adversely affects their appraisal of the business,
prospects and financial condition of Sellers or the Business.
7.12 SELLERS NAME CHANGE. Sellers shall have changed their corporate
name and/or any assumed names currently being used by them in connection with
the Business to a name not including the words "Horizon Dental Center."
7.13 TERMINATION OF AGREEMENTS. All agreements, contracts, commitments
and understandings between (a) the Dental Centers and the entities and persons
listed on Schedule 7.13 and (b) Consolidated and the entities and persons listed
on Schedule 7.13 shall be terminated on or before the Closing Date.
7.14 GOOD STANDING CERTIFICATES. Purchaser shall have received good
standing and corporate existence certificates respecting Sellers.
7.15 RELEASES OF LIENS. Purchaser shall have received evidence
satisfactory to Purchaser and its counsel to the effect that all liens and other
encumbrances on the Assets being transferred to Purchaser (other than Permitted
Encumbrances) have been released.
7.16 NONCOMPETITION AGREEMENT. Joseph A. Bonola shall have entered into
a Noncompetition Agreement with Purchaser, substantially in the form of Exhibit
E attached hereto.
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7.17 LICENSE AGREEMENT. Joseph A. Bonola shall have entered into a
License Agreement with Purchaser, whereby Dr. Bonola grants the Purchaser the
right to use the name "Horizon Dental Center," substantially in the form of
Exhibit F attached hereto.
ARTICLE VIII
COVENANTS OF SELLERS AND THE SHAREHOLDERS
Sellers and the Shareholders hereby covenant and agree with Purchaser as
follows:
8.1 COOPERATION BY SELLERS. Sellers and the Shareholders shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Sellers and the Shareholders to effect
the transactions contemplated on its or his part hereby, and Sellers and the
Shareholders shall otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied. Sellers and the Shareholders further agree to deliver
to Purchaser prompt written notice of any event or condition which if it existed
on the date of this Agreement, would result in any of the representations and
warranties of Sellers or the Shareholders contained herein being untrue in any
material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Sellers shall, (a)
conduct the Business only in the ordinary course, (b) use its reasonable efforts
to keep available the services of its employees and maintain satisfactory
relationships with licensors, suppliers, lessors, distributors, customers,
clients and others, (c) maintain, consistent with past practice and good
business judgment, all the Assets in customary repair, order and condition,
ordinary wear and tear excepted, and insurance upon all the Assets used in the
conduct of the Business in such amounts and of such kinds comparable to that in
effect on the date hereof, to the extent available at current premiums, and (d)
maintain the Books and Records in the usual, regular and ordinary manner, on a
basis consistent with past practice.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Sellers nor the Shareholders shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Sellers
or the Shareholders.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Sellers' certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records
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of Sellers and to otherwise review the financial and legal condition of Sellers
as Purchaser deems necessary or advisable to familiarize itself with the
Business and related matters; such review shall not, however, affect the
representations and warranties made by Sellers and the Shareholders hereunder or
the remedies of Purchaser for breaches of those representations and warranties.
Such review shall occur only during normal business hours upon reasonable notice
by Purchaser. Sellers and the Shareholders shall permit Purchaser and its
representatives to have, after the execution of this Agreement, full access to
employees of any Sellers who can furnish Purchaser with financial and operating
data and other information with respect to the Business as Purchaser shall from
time to time reasonably request.
8.5 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Sellers and the Shareholders shall, at the reasonable request of
Purchaser and at Purchaser's expense, execute and deliver any further
instruments or documents and take all such further action as Purchaser may
reasonably request in order to consummate and make effective the sale of the
Assets and the assumption of the Assumed Obligations pursuant to this Agreement.
8.6 ACCOUNTS PAYABLE; ACCOUNTS RECEIVABLE. The parties agree as follows:
(a) From and after the Closing until July 31, 1996, the Dental
Centers shall continue to collect for their account any amounts received by them
in payment of accounts receivable of the Business. Following July 31, 1996, the
Dental Centers shall remit to Purchaser any amounts received by them in payment
of any accounts receivable of the Business.
(b) Purchaser shall assume all Accounts Payable as of August 1,
1996. From and after the Closing until July 31, 1996, Sellers agree to pay all
bills in the normal course of business. In addition, Sellers agree that payroll
respecting any periods in July will be paid by Sellers. With respect to payroll
for the dentists, the Dental Centers agree to pay the dentists' payroll due on
August 5, 1996, and Purchaser agrees to pay the dentists' payroll due on August
20, 1996.
ARTICLE IX
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Sellers and the Shareholders
as follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Sellers and the Shareholders, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable Purchaser to effect the
transactions contemplated on its part hereby, and Purchaser will otherwise use
its reasonable best efforts to cause the consummation of such transactions in
accordance with
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the terms and conditions hereof and to cause all conditions contained in this
Agreement over which it has control to be satisfied. Purchaser further agrees to
deliver to Sellers and the Shareholders prompt written notice of any event or
condition, which if it existed on the date of this Agreement, would result in
any of the representations and warranties of Purchaser contained herein being
untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Sellers and any agents of any Sellers, upon reasonable
advance notice to Purchaser, access to all Books and Records of Sellers which
are transferred to Purchaser in connection herewith, to the extent necessary or
desirable in anticipation of, or preparation for, existing or future litigation,
employment matters, tax returns or audits, or reports to or filings with
governmental agencies, during normal working hours at Purchaser's principal
places of business or at any location where such Books and Records are stored,
and Sellers shall have the right, at Sellers' sole cost, to make copies of any
such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Purchaser shall, at the request of Sellers or the Shareholders and
at such Sellers' expense, execute and deliver any further instruments or
documents and take all such further action as Sellers may reasonably request in
order to consummate and make effective the sale of the Assets and the assumption
of the Assumed Obligations pursuant to this Agreement.
9.4 DUE DILIGENCE INVESTIGATION. Prior to the Closing Date, Purchaser
and Castle Dental will make available to Sellers and the Shareholders and their
respective attorneys, accountants, consultants and agents, any and all
information regarding Purchaser and Castle Dental and their respective
businesses, operations, financial affairs and management, to the extent such
information is in the possession of Purchaser or Castle Dental or can be
obtained without unreasonable burden or expense, to permit Sellers and the
Shareholders to familiarize themselves with the business of the Purchaser and
Castle Dental and to make an informed investment judgment with respect to the
Common Stock of Castle Dental referred to in Section 3.1(c). The Purchaser and
Castle Dental agree to make available to Sellers and the Shareholders and their
respective attorneys, accountants, consultants and agents management members and
representatives of Purchaser and Castle Dental to respond to any questions or
inquiries from such parties regarding the Purchaser, Castle Dental and their
respective businesses, operations, financial affairs and management.
The due diligence investigation shall be conducted at the principal
offices of Castle Dental in Houston, Texas, at such time or times during normal
business hours as are reasonably requested by Sellers and the Shareholders.
Sellers and the Shareholders agree to complete such investigation on or before
July __, 1996.
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All parties participating in the due diligence review shall be bound by
confidentiality agreements in form and substance satisfactory to the Purchaser
and Castle Dental.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, the Shareholders
and Sellers; or
(b) by Purchaser, the Shareholders, or Sellers in writing without
liability on the part of the terminating party on account of such termination
(provided the terminating party is not otherwise in default or in breach of this
Agreement), if the Closing Date shall not have occurred on or before July 31,
1996; or
(c) by either Purchaser, on the one hand, or the Shareholders and
Sellers, on the other hand, in writing, without liability on the part of the
terminating party on account of such termination (provided the terminating party
is not otherwise in default or breach of this Agreement), if the other party
shall (i) fail to perform its or their covenants or agreements contained herein
required to be performed prior to the Closing Date, or (ii) breach or have
breached any of its representations or warranties contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 12.8 and 12.11 hereof and the obligations set
forth in the next succeeding sentence of this Section 10.2. Upon any termination
of this Agreement each party hereto will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF SELLERS. The Purchaser, from and after the
Closing Date, shall indemnify and hold Sellers and the Shareholders and their
respective Affiliates (the "Sellers Indemnitees") harmless from and against any
and all damages, including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities,
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including reasonable counsel fees and reasonable expenses of investigation,
defending and prosecuting litigation (collectively, the "Damages"), suffered by
any Sellers Indemnitee as a result of, caused by, arising out of, or in any way
relating to (a) any misrepresentation, breach of warranty, or nonfulfillment of
any agreement or covenant on the part of the Purchaser under this Agreement or
any misrepresentation in or omission from any list, schedule, certificate, or
other instrument furnished or to be furnished to Sellers by the Purchaser
pursuant to the terms of this Agreement or (b) any liability or obligation
(other than those for which Purchaser are being indemnified by Sellers and the
Shareholders hereunder) which pertains to the ownership, operation or conduct of
the Business or Assets arising from any acts, omissions, events, conditions or
circumstances occurring on or after the Closing Date. Castle Dental, from and
after the Closing Date, shall indemnify and hold the Sellers Indemnitees
harmless from and against any and all Damages suffered by any Sellers Indemnitee
as a result of, caused by, arising out of, or in any way relating to any breach
of warranty of Sections 5.6, 5.7, 5.8 or 5.9 of this Agreement.
11.2 INDEMNIFICATION OF THE PURCHASER. Sellers and the Shareholders,
jointly and severally, shall indemnify and hold Purchaser and its Affiliates
(the "Purchaser Indemnitees") harmless from and against any and all Damages
suffered by any Purchaser Indemnitee as a result of, caused by, arising out of,
or in any way relating to (a) any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Sellers or the
Shareholders under this Agreement or any misrepresentation in or omission from
any list, schedule, certificate, or other instrument furnished or to be
furnished to the Purchaser by Sellers pursuant to the terms of this Agreement,
(b) any liability or obligation (other than those for which Sellers and the
Shareholders are being indemnified by Purchaser hereunder and other than those
relating to or arising from the Assumed Obligations) which pertains to the
ownership, operation or conduct of the Business or Assets arising from any acts,
omissions, events, conditions or circumstances occurring before the Closing
Date, or (c) the uncollectibility of any Account Receivable (net of applicable
reserve), after six months.
11.3 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third-party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party knowingly failed to notify the indemnifying party
thereof in accordance with the provisions of this Agreement in sufficient time
to permit the indemnifying party or its counsel to defend against such matter
and to make a timely response thereto including, without limitation, any
responsive
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motion or answer to a complaint, petition, notice or other legal, equitable or
administrative process relating to the Claim, only insofar as such knowing
failure to notify the indemnifying party has actually resulted in prejudice or
damage to the indemnifying party.
11.4 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnified party of the asserted Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest should be
continued, and so notifies the indemnifying party in writing within 15 days of
such request from the indemnifying party. If the indemnified party determines
that the contest should be continued, the indemnifying party shall be liable
hereunder only to the extent of the amount that the other party to the contested
Claim had agreed unconditionally to accept in payment or compromise as of the
time the indemnifying party made its request therefor to the indemnified party.
11.5 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.6 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons,
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including governmental authorities, asserting any Claim against the indemnified
party or conferences with representatives of or counsel for such persons.
11.7 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Sellers or the Shareholders
without the prior written consent of Purchaser or by Purchaser to any Person
without the prior written consent of Sellers.
12.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in writing at any time
by the party which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
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12.6 NO THIRD-PARTY BENEFICIARY RIGHTS. Except as otherwise provided in
Section 11.1, this Agreement is not intended to and shall not be construed to
give any Person (other than the parties signatory hereto any interest or rights
(including, without limitation, any third-party beneficiary rights) with respect
to or in connection with any agreement or provision contained herein or
contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and
pay all applicable sales, stamp, transfer, documentary, use, registration,
filing and other taxes and fees (including any penalties and interest) that may
become due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Sellers,
the Shareholders and Purchaser shall each pay all costs and expenses incurred by
them or on their behalf in connection with this Agreement and the transactions
contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
if to Purchaser, to:
Castle Dental Centers of Texas, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
with a copy to:
Mr. William D. Gutermuth
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2856
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if to Sellers or the Shareholders to:
Dr. Joseph A. Bonola
1109 Smethwick Cove
Keller, Texas 76248
with a copy to:
Mr. David Wright
Heard & Wright
201 Main Street, Suite 1820
Ft. Worth, Texas 76102
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas without regards to conflict of
law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the requirements of its lenders
and investors and to comply with applicable securities laws. No party hereto
shall issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the other party hereto
to the contents and the manner of presentation and publication thereof.
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in any federal or state
court located in Houston, Texas, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
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Upon such determination that any provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
CASTLE DENTAL CENTERS OF TEXAS, INC.
By:
Name:
Title:
N.A. DENTAL SERVICES, P.C.
By:
Name:
Title:
EFW DENTAL SERVICES, P.C.
By:
Name:
Title:
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HDC DENTAL SERVICES, P.C.
By:
Name:
Title:
MIDCITIES DENTAL SERVICES, P.C.
By:
Name:
Title:
NEFW DENTAL SERVICES, P.C.
By:
Name:
Title:
WEST FT. WORTH DENTAL SERVICES, P.C.
By:
Name:
Title:
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Joseph A. Bonola, D.D.S.
Kristen Bonola
Larry Charles Jackson
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EXHIBIT 10.39
CASTLE DENTAL CENTERS, INC.
10% Note
due August 9, 2001
$1,000,000 August 9, 1996
FOR VALUE RECEIVED, the undersigned, CASTLE DENTAL CENTERS, INC., a
corporation organized and existing under the laws of the State of Delaware
(herein called the "Company"), promises to pay to Joseph A. Bonola ("Payee"), or
the holder hereof, the principal sum of $1,000,000 in twenty (20) equal
installments of principal plus accrued interest (computed on the basis of a
360-day year of twelve 30-day months) at the rate of 10% per annum from the date
hereof, payable quarterly in arrears in cash on the last day of January, April,
July and October in each year, commencing on January 31, 1997, until the
principal of this Note shall have become due and payable (whether at maturity,
upon acceleration or otherwise) or shall have been paid. In the event the
Company fails to make a scheduled payment of principal or interest hereunder,
and such failure is not cured within five business days after the Company
receives written notice thereof from Payee, all unpaid principal hereunder shall
become immediately due and payable. Upon the occurrence and during the
continuation of any payment default, the rate of interest under this Note shall
be increased to a rate per annum from time to time equal to the lower of (a) 16%
and (b) the maximum rate, if any, permitted by applicable law, compounded
quarterly.
The Company may prepay this Note in whole or in part without penalty.
All unpaid principal of the Note and accrued interest thereon shall be
immediately due and payable ten days following the consummation of an
underwritten public offering of the Company's common stock, $.001 par value, in
which the gross proceeds (before underwriters' discounts and selling
commissions) are greater than or equal to $25,000,000.00 (a "Designated
Offering"). Notwithstanding the foregoing, in no event shall any portion of this
Note be paid before January 1, 1997.
The Company is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set-off and apply any and all
indebtedness at any time owing by Sellers (as defined by that certain Asset
Purchase Agreement dated as of August 9, 1996 by and among Castle Dental Centers
of Texas, Inc. ("Purchaser"), Consolidated Industries, Inc., S.A. Dental
Services, P.C., C.A. Dental Services, P.C., S.C.A. Dental Services, P.C. and
Austin Periodontist Associates, Inc., as Sellers, and Joseph A. Bonola, D.D.S.
and Kristen Bonola, as Shareholders (the "Agreement")) or the Shareholders (as
defined in the Agreement) under the Agreement against any and all of the
obligations of the Company existing under this Note. The rights of the Company
to
<PAGE>
set-off are in addition to any other rights and remedies which the Company or
Purchaser may have against the Sellers and Shareholders.
Payments of both principal and interest of this Note are to be made at
1109 Smethwick Cove, Keller, Texas 76248 or at such other place as the holder
hereof shall designate to the Company in writing, in lawful money of the United
States of America. In the event Payee is required to bring suit to effect
collection of this Note, all costs of collection including attorneys fees shall
be paid by the Company.
This Note is intended to be performed in the State of Texas and shall be
construed and enforced in accordance with the law of such State, without giving
effect to the conflicts or choice of law principles of such State. This Note is
subject to the terms of that certain Subordination Agreement of even date
herewith by and among the Company, Payee and NationsBank of Texas, N.A., and
that certain Subordination Agreement by and among the Company, Payee and the
holders of the Senior Subordinated Notes (as defined therein).
CASTLE DENTAL CENTERS, INC.
By:_______________________________________
Name: Jack H. Castle, Jr.
Title: President
ATTEST:
By:_________________________
Name: John M. Slack
Title: Secretary
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EXHIBIT 10.40
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is effective as of August 9,
1996 (hereinafter the "Effective Date") by and between Joseph A. Bonola, D.D.S.,
located at 1109 Smethwick Cove, Keller, Texas 76428 (hereinafter referred to as
"Licensor"), and Castle Dental Centers of Texas, Inc., a corporation organized
and existing under the laws of the State of Texas, located at 1360 Post Oak
Boulevard, Suite 1300, Houston, Texas 77056 (hereinafter referred to as
"Licensee").
WHEREAS, Licensor and Licensee are parties to (i) that certain Asset
Purchase Agreement of even date herewith and (ii) that certain Plan and
Agreement of Reorganization of even date herewith, whereby Licensee has agreed
to purchase substantially all of the assets of certain entities owned by
Licensor;
WHEREAS, Licensor is the owner of or has the rights to license the
service mark and trademark and registration thereof attached as Exhibit A hereto
(the "Mark");
WHEREAS, Licensee desires to obtain a license from Licensor to use the
Mark solely in connection with the practice of dentistry and advertising related
thereto; and
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
promises hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following term shall have the meaning set forth
below:
"Territory" shall mean the areas where the following dental facilities are
located: S. A. Dental Services, P.C., C.A. Dental Services, P.C., S.C.A. Dental
Services, P.C., Austin Periodontist Associates, Inc., N.A. Dental Services,
P.C., EFW Dental Services, P.C., HDC Dental Services, P.C., Midcities Dental
Services, P.C., NEFW Dental Services, P.C. and West Ft. Worth Dental Services,
P.C.
2. TERM
2.1 Subject to the provisions of Article 8 herein, this Agreement shall
terminate on August 9, 1998, unless sooner terminated as provided for herein.
<PAGE>
3. GRANT OF LICENSE
3.1 Subject to the provisions of this Agreement, Licensor grants to
Licensee, and Licensee accepts, a fully paid license to use the Mark in the
Territory solely in connection with the practice of dentistry and advertising
related thereto.
3.2 Licensee shall not use the Mark other than as provided in Section
3.1 hereof.
4. QUALITY STANDARDS
4.1 Licensee agrees that the nature and quality of: (1) all dental
services rendered by related facilities of Licensee in connection with the Mark;
and (2) all related advertising, promotional, and other related uses of the Mark
by Licensee shall conform to standards set by, and be under the control of,
Licensor. The quality of services, advertising and other uses by Licensor under
the Mark is hereby adopted as acceptable quality standards applicable to
Licensee's use of the Mark. Licensor will not object to Licensee's use of the
Mark in association with services, advertising, or other permitted uses equal to
or exceeding such standard. Licensee may not reduce such quality or product
specifications without the prior written consent of Licensor.
5. THE MARK
5.1 Licensee acknowledges the ownership of the Mark by Licensor, agrees
that it will do nothing inconsistent with such ownership, and that all use of
the Mark by Licensee and all good will developed therefrom shall inure to the
benefit of and be on behalf of Licensor.
5.2 Licensee shall include all notices and legends with respect to the
Mark as is or may be required by applicable federal, state, and local laws or
which may be reasonably requested by Licensor.
6. INFRINGEMENT
6.1 Licensee shall promptly notify Licensor of any actual or threatened
infringements, imitations, or unauthorized use of the Mark by third parties of
which Licensee becomes aware. Licensor shall have the sole right, at its
expense, to bring any action or account of any such infringements, imitations,
or unauthorized use. Licensor shall bear the costs and expenses of any
infringement proceeding.
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7. WARRANTIES BY LICENSOR; INDEMNIFICATION
7.1 Licensor hereby warrants that Horizon Dental Associates, an
unincorporated association, is the current record owner of the Mark and that
Licensor has the authority and right to license the Mark to Licensee hereto.
7.2 Licensor will at all times indemnify and hold harmless Licensee and
its agents and servants from and against any and all claims arising out of a
breach by Licensor of this Agreement including but not limited to any and all
claims arising out of (i) Licensor's breach of the warranties made by Licensor
in this Agreement and (ii) infringement of any intellectual property right of
any third party. This right of indemnification shall be in addition to any other
remedies to which Licensor may be entitled at law or equity.
7.3 Licensee agrees to indemnify and hold harmless Licensor from and
against any and all loss, cost, claim, liability or damage occasioned by a
related to any breach by Licensee of this Agreement. This right of
indemnification shall be in addition to any other remedies to which Licensor may
be entitled at law or equity.
8. TERMINATION
8.1 Licensor shall have the right to terminate this Agreement effective
immediately upon Licensee's receipt of written notice from Licensor in the event
of any affirmative act of insolvency by Licensee, or upon the appointment of any
receiver or trustee to take possession of the properties of Licensee or upon the
winding-up, sale, consolidation, merger, or any sequestration by governmental
authority of Licensee, or upon any breach of any of the duties and obligations
of Licensee under this Agreement.
8.2 The exercise of any right to terminate under this Article 8 shall
not affect any rights which have accrued prior to termination and shall be
without prejudice to any other legal or equitable remedies to which Licensor may
be entitled by reason of such rights.
9. EFFECTS OF AND PROCEDURE ON TERMINATION
9.1 Upon the expiration or termination of this Agreement, Licensee
agrees immediately to discontinue all use of the Mark and any term confusingly
similar thereto, to destroy all printed materials bearing the Mark, and that all
rights in the Mark and the good will connected therewith shall remain the
property of Licensor.
-3-
10. ASSIGNMENT
10.1 This Agreement may be assigned (i) by Licensor or (ii) by Licensee
in connection with the sale or transfer by Licensee of all or substantially all
of its business, in connection with a merger or consolidation of Licensee, or to
an affiliate of Licensee.
11. NOTICES
11.1 Any notice, demand, waiver, consent, approval, or disapproval
(collectively referred to as "notice") required or permitted herein shall be in
writing and shall be given personally, by messenger, by air courier, by
telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective addresses set forth
above or at such other address as a party may hereafter designate in writing to
the other party.
11.2 A notice shall be deemed received on the date of receipt.
12. APPLICABLE LAW
12.1 This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without regard to principles of conflicts
of laws. Any case, controversy, suit, action, or proceeding arising out of, in
connection with, or related to, this Agreement shall be brought in any federal
or state court located in the State of Texas.
13. MODIFICATION, AMENDMENT, SUPPLEMENT, OR WAIVER
13.1 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all previous
agreements, promises, representations, understandings, and negotiations, whether
written or oral.
13.2 No modification, amendment, supplement to or waiver of this
Agreement or any of its provisions shall be binding upon the parties hereto
unless made in writing and duly signed by both of the parties to this Agreement.
A waiver by either party of any of the terms or conditions of this Agreement in
any one instance shall not be deemed a waiver of such terms or conditions in the
future.
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the Effective Date.
Joseph A. Bonola, D.D.S. (Licensor)
CASTLE DENTAL CENTERS OF TEXAS, INC.
(Licensee)
By:
Seth Miller
President
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Exhibit A
TRADEMARK AND SERVICE MARK:
NUMBER TRADEMARK REGISTRATION DATE
39280 Horizon Dental and Design October 9, 1991
-6-
EXHIBIT 10.41
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
JACK H. CASTLE, D.D.S., P.C.
EMPLOYMENT AGREEMENT
This agreement (the "Agreement") is made this ___day of August, 1996, by
and between Jack H. Castle, D.D.S., P.C., a Texas professional corporation
("Castle"), and Joseph A. Bonola, D.D.S., a dentist licensed to practice his/her
profession in the State of Texas ("Employee").
WHEREAS, Employee desires to practice general dentistry as an employee
of Castle, and Castle desires to hire Employee under the terms of this
Agreement;
NOW, THEREFORE, in the mutual agreements of the parties hereinafter set
forth, it is hereby agreed as follows:
ARTICLE I
EMPLOYMENT
1.1 Castle hereby hires Employee and Employee accepts such hiring to
render professional services on behalf of Castle, subject to the rules thereof
and the standards of the dental profession.
1.2 Employee shall at all times be a dental employee subject to the
terms of this Agreement, and nothing contained in this Agreement or in the
relation of Castle and Employee shall be deemed as constituting a partnership,
joint venture or other relationship. Castle and Employee recognize that the
relationship of employer and employee requires Castle to comply with all income
tax laws pertinent to such relationship.
1.3 This Agreement shall commence as of the date first above written,
and shall thereinafter continue until terminated as herein provided, subject to
the terms of this Agreement.
ARTICLE II
TERMINATION
2.1 Termination of this Agreement shall be classified as voluntary or
involuntary.
2.2 Voluntary termination shall be that termination by either Castle or
Employee upon giving not less than thirty (30) days written notice of intent to
terminate to the other party.
<PAGE>
2.3 Involuntary termination shall be termination, in Castle's sole
determination, due to any of the following reasons:
A. Employee fails to perform his/her duties hereunder as a result
of illness or other incapacity and such illness or incapacity
shall continue for a period of more than two (2) months;
B. Employee has been disqualified to practice dentistry by reason
of law or fails to maintain insurance in effect as required by
Article VI;
C. Employee shall willfully violate any law or ethical rule
relating to the practice of dentistry; or
D. Employee engages in alcohol or drug abuse; conducts
himself/herself privately or professionally in a manner
detrimental to Castle, which shall be determined solely within
Castle's discretion, or breaches any of the terms of this
agreement.
2.4 In the event of involuntary termination of this Agreement pursuant
to sub-paragraphs 2.3 A-D, Employee's employment may be immediately terminated
by oral or written notification.
ARTICLE III
DUTIES
3.1 Employee will maintain the highest standard of care of the dental
profession.
3.2 Employee shall not provide dental services of any kind to any person
without the advance written consent of Castle. Concurrently with the execution
of this Agreement, Castle shall provide Employee with a letter, whereby Castle
shall agree to Employee's work schedule for the period from August 1, 1996 to
August 31, 1996. Such letter shall satisfy the requirements of the first
sentence of this Section 3.2. Thereafter, on a monthly basis, Castle will issue
a letter addressing Employee's work schedule.
3.3 Employee shall promote, to the extent permitted by law and the
applicable canons of professional ethics, the professional practice of Castle,
and shall to a reasonable extent attend professional conventions, postgraduate
seminars and participate in continuing education courses, and shall do all
things necessary to maintain and improve his/her professional skills.
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
3.4 Employee shall secure the patient's (or legal guardian of the
patient, if the patient is a minor) consent in writing to provide treatment,
prior to starting a dental procedure on the patient, in accordance with Texas
law.
3.5 Employee shall not provide or administer nitrous oxide sedation to
patients unless he/she is certified to do so by the Texas State Board of Dental
Examiners.
3.6 Employee agrees that he/she will become familiar with and remain
familiar with the Occupational Safety and Health Act ("OSHA") requirements
applicable to the dental profession. Employee further agrees that he/she will
ensure compliance with OSHA requirements as to himself/herself and any other
personnel working directly with him/her at Castle. In the event Employee fails
to comply with OSHA requirements applicable to the dental professional and such
failure results in any fine or imposition of penalty upon Castle, Employee
agrees to pay to Castle the amount of such fine and make restitution for any
other penalty imposed.
ARTICLE IV
EMPLOYEE COMPENSATION
* During the term of this Agreement, the Company agrees to pay Employee an
annual salary of $[REDACTED] ("Salary"). Salary payments shall be subject to all
applicable federal and state payroll, withholding and other taxes.
ARTICLE V
CONDITIONS DURING EMPLOYMENT
5.1 Employee shall maintain records of all discussions with patients
regarding treatment needs and treatment recommendations, all treatment
procedures, and will remain in compliance with all state regulatory rules
regarding patient records. Castle and Employee agree that Castle will retain all
past, current and future dental records on any patient treated by Employee.
Employee shall have access to such records for inspection and copying. In the
event of termination of this Agreement for any reason, all dental records of
patients treated by Employee shall be maintained by Castle and shall be deemed
owned by Castle and shall continue to be maintained by Castle and Employee shall
retain the right to inspect and copy records of patients treated by Employee.
5.2 Unless required by service of legal process, no dental record shall
be displayed or delivered to, nor any information therefrom disclosed to, any
person not connected with Castle, except in strict accordance with the rules
promulgated by Castle and the state dental examiners.
-3-
5.3 Castle shall schedule the days and times Employee shall perform
his/her duties. Changes by Employee in Employee's schedule are to be submitted
at least thirty (30) days in advance. If it is necessary for Employee to be
absent from regularly scheduled patient care, it is his/her responsibility to
contact another Employee to work in his/her place.
ARTICLE VI
INDEMNITY AND INSURANCE
Employee must be covered by professional liability (malpractice)
insurance through an insurance company acceptable to Castle. Castle agrees to
pay the expense of such insurance during the term of this contract. The
insurance shall have limits of not less than $1,000,000.00 per claim or
occurrence, and $3,000,000.00 in aggregate. Proof of such insurance coverage
shall be provided to Castle by Employee two (2) days before Employee commences
his/her duties under this contract. Employee shall provide to Castle proof of
renewal of said coverage ten (10) days prior to the expiration of such policy.
Employee must maintain the insurance required under this article at all times
during the term of this contract. If Employee's insurance is canceled, Employee
shall notify Castle within twenty-four (24) hours after he/she receives such
notice. At no time shall Employee render professional services pursuant to this
Agreement without insurance coverage and Employee shall not perform any
procedures for which his/her professional liability insurance does not provide
coverage. Employee shall hold harmless and indemnify Castle, its employees,
successors and assigns from and against any and all liabilities, costs, damages,
expenses and attorneys' fees resulting from or attributable in whole or in part
to any and all acts or omissions of Employee while providing professional
services for Castle.
ARTICLE VII
CONFIDENTIALITY
7.1 It is agreed by Employee that all patients referred to him/her will
be seen and treated by Employee exclusively at the offices of Castle.
7.2 Employee further agrees that the forms, brochures, operating policy
and procedural manuals used by Castle and marketing programs and techniques
developed by Castle are of a confidential nature and Employee agrees that he/she
shall in no way copy same; or otherwise use Castle's forms, operating policies
and procedures and marketing techniques except in the furtherance of his/her
duties for Castle.
-4-
ARTICLE VIII
ARBITRATION
Any and all disputes, controversies, claims, and demands arising out of
or relating to this Agreement or any provision hereof, or in any way relating to
the relationship between Castle and Employee, whether in contract, tort, or
otherwise, at law or in equity, for damages or any other relief, shall be
resolved by binding arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in effect with the
American Arbitration Association. Any such arbitration proceeding shall be
conducted in Harris County, Texas. This arbitration provision shall be
enforceable in either federal or state court in Harris County, Texas pursuant to
the substantive federal laws established by the Federal Arbitration Act. Any
party to any award rendered in such arbitration proceeding may seek a judgment
upon the award and that judgment may be entered by any federal or state court in
Harris County, Texas having jurisdiction.
ARTICLE IX
MISCELLANEOUS
9.1 This Agreement is made pursuant to, and shall be governed by and
construed in accordance with the laws applicable to contracts made and to be
performed entirely within the State of Texas.
9.2 The services provided under this Agreement may be performed only by
Employee and this Agreement is not assignable by Employee.
9.3 The failure of Castle or Employee to seek redress for a violation or
to insist upon strict performance of any covenant agreement, provision or
condition of this Agreement, shall not constitute a waiver of the terms of such
covenant, agreement, provision or condition.
9.4 This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
9.5 Notices required to be given to any party hereunder shall be in
writing and shall be personally delivered or shall be sent by registered mail,
return receipt requested postage prepaid, addressed to the party at their
respective address set forth below.
9.6 This instrument contains the sole Agreement of the parties hereto
and correctly sets forth the rights, duties and obligations of each to the other
as of this day. Any prior agreements, promises, negotiations, or representations
not expressly set forth in this Agreement are of no force and effect.
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IN WITNESS WHEREOF, the parties have set their hands the day and year
first above written.
JACK H. CASTLE, D.D.S., P.C.
1360 Post Oak Road., Suite 1300
Houston, Texas 77056-3021
By:
Jack H. Castle, D.D.S.
President
Employee
Joseph A. Bonola, D.D.S.
Address:
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EXHIBIT 10.42
ESCROW AGREEMENT
This Escrow Agreement (as the same may from time to time be amended or
modified and including any and all written instructions given to "Escrow Agent"
(hereinafter defined) pursuant hereto, this "Escrow Agreement") is made and
entered into as of August 9, 1996 by and among N.A. Dental Services, P.C., EFW
Dental Services, P.C., NEFW Dental Services, P.C., HDC Dental Services, P.C.,
Midcities Dental Services, P.C. and West Ft. Worth Dental Services, P.C.
(collectively, the "Dental Centers"), Joseph A. Bonola and Kristen Bonola (the
"Beneficial Owners"), Castle Dental Centers of Texas, Inc., a Texas corporation
(the "Purchaser") and NationsBank of Texas, N.A., as escrow agent (the "Bank").
The Dental Centers and the Beneficial Owners are sometimes referred to herein as
the "Sellers." Purchaser and Sellers are sometimes referred to herein
collectively as the "Other Parties."
WITNESSETH :
WHEREAS, pursuant to the terms and conditions of that certain Plan and
Agreement of Reorganization dated as of August 9, 1996 (the "Agreement"),
Purchaser acquired substantially all of the assets of the Dental Centers in
exchange for common stock of Castle Dental Centers, Inc., a Delaware corporation
(the "Castle Stock"); and
WHEREAS, the parties to the Agreement have agreed that 75,000 shares of
Castle Stock shall be deposited in escrow for the purpose of satisfying certain
purchase price adjustments and performance conditions set forth in the
Agreement; and
WHEREAS, Purchaser and Sellers have requested Bank to act in the
capacity of escrow agent under this Escrow Agreement, and Bank, subject to the
terms and provisions hereof, has agreed so to do;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:
1. APPOINTMENT OF ESCROW AGENT. Purchaser and Sellers hereby
appoint the Bank as the escrow agent under this Escrow Agreement (the Bank in
such capacity, the "Escrow Agent"), and Escrow Agent hereby accepts such
appointment.
2. APPOINTMENT OF REPRESENTATIVE FOR SELLERS. Each Seller hereby
(1) appoints Joseph A. Bonola, D.D.S. as his or her agent and attorney (the
"Representative") to execute and deliver any notifications or instructions or to
take any other action on their behalf in connection with this Escrow Agreement,
and (2) expressly bind themselves to such notifications, instructions or other
actions without further action on his or her part. Such powers-of-attorney
granted herein are deemed to be coupled with an interest in the Deposit (as
defined herein) and shall survive the death, disability or bankruptcy of such
Seller.
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3. DEPOSIT. Upon execution of this Escrow Agreement, Sellers will
deliver to the Escrow Agent 75,000 shares of common stock, par value $0.001 per
share, of Castle Dental (the "Deposit") to be held by Escrow Agent in accordance
with the terms hereof. Subject to and in accordance with the terms and
conditions hereof, Escrow Agent agrees that it shall receive, hold in escrow and
release or distribute the Deposit.
4. DISBURSEMENT INSTRUCTIONS. Upon the determination of any
amounts to which Purchaser is entitled by reason of the provisions of Section
3.2 and 3.4 of the Agreement, the Representative and Purchaser shall promptly
execute written instructions to the Escrow Agent directing the disbursement of a
portion of the Deposit to satisfy such amounts. Such shares shall be disbursed
based on a value of $9.00 per share. All parties hereto shall execute and
deliver any documents or instruments required by Castle Dental's transfer agent
for the common stock to effect such disbursement.
5. DISBURSEMENT OF DEPOSIT. Escrow Agent is hereby authorized to
make disbursements of the Deposit pursuant to any of the following:
(a) Upon receipt of written instructions signed by both
Purchaser and the Representative and otherwise in form and substance
satisfactory to Escrow Agent, in accordance with such instructions;
(b) As permitted by this Escrow Agreement, to Escrow
Agent; and
(c) With the court in accordance with Sections 8 or 14
hereof.
6. SCOPE OF UNDERTAKING. Escrow Agent's duties and
responsibilities in connection with this Escrow Agreement shall be purely
ministerial and shall be limited to those expressly set forth in this Escrow
Agreement. Escrow Agent is not a principal, participant or beneficiary in any
transaction underlying this Escrow Agreement and shall have no duty to inquire
beyond the terms and provisions hereof. Escrow Agent shall have no
responsibility or obligation of any kind in connection with this Escrow
Agreement or the Deposit and shall not be required to deliver the Deposit or any
part thereof or take any action with respect to any matters that might arise in
connection therewith, other than to receive, hold and deliver the Deposit as
herein provided. Without limiting the generality of the foregoing, it is hereby
expressly agreed and stipulated by the parties hereto that Escrow Agent shall
not be required to exercise any discretion hereunder and shall have no
investment or management responsibility and, accordingly, shall have no duty to,
or liability for its failure to, provide investment recommendations or
investment advice to the Other Parties or either of them. Escrow Agent shall not
be liable for any error in judgment, any act or omission, any mistake of law or
fact, or for anything it may do or refrain from doing in connection herewith,
except for, subject to Section 7 hereinbelow, its own willful misconduct or
gross negligence. It is the intention of the parties hereto that Escrow Agent
shall never
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be required to use, advance or risk its own funds or otherwise incur financial
liability in the performance of any of its duties or the exercise of any of its
rights and powers hereunder.
7. RELIANCE; LIABILITY. Escrow Agent may rely on, and shall not
be liable for following the instructions contained in any written notice,
instruction or request or other paper furnished to it hereunder or pursuant
hereto and believed by it to have been signed or presented by the proper party
or parties. Escrow Agent shall be responsible for holding and disbursing the
Deposit pursuant to this Escrow Agreement; PROVIDED, HOWEVER, that in no event
shall Escrow Agent be liable for any lost profits, lost savings or other
special, exemplary, consequential or incidental damages in excess of Escrow
Agent's fee hereunder and PROVIDED, FURTHER, that Escrow Agent shall have no
liability for any loss arising from any cause beyond its control, including, but
not limited to, the following: (a) acts of God, force majeure, including,
without limitation, war (whether or not declared or existing), revolution,
insurrection, riot, civil commotion, accident, fire, explosion, stoppage of
labor, strikes and other differences with employees; (b) the act, failure or
neglect of any Other Party or any agent or correspondent or any other person
selected by Escrow Agent; (c) any delay, error, omission or default of any mail,
courier, telegraph, cable or wireless agency or operator; or (d) the acts or
edicts of any government or governmental agency or other group or entity
exercising governmental powers. Escrow Agent is not responsible or liable in any
manner whatsoever for the sufficiency, correctness, genuineness or validity of
the subject matter of this Escrow Agreement or any part hereof or for the
transaction or transactions requiring or underlying the execution of this Escrow
Agreement, the form or execution hereof or for the identity or authority of any
person executing this Escrow Agreement or any part hereof or depositing the
Deposit.
8. RIGHT OF INTERPLEADER. Should any controversy arise involving
the parties hereto or any of them or any other person, firm or entity with
respect to this Escrow Agreement or the Deposit, or should a substitute escrow
agent fail to be designated as provided in Section 14 hereof, or if Escrow Agent
should be in doubt as to what action to take, Escrow Agent shall have the right,
but not the obligation, either to (a) withhold delivery of the Deposit until the
controversy is resolved, the conflicting demands are withdrawn or its doubt is
resolved, or (b) institute a petition for interpleader in any court of competent
jurisdiction to determine the rights of the parties hereto. In the event Escrow
Agent is a party to any dispute, Escrow Agent shall have the additional right to
refer such controversy to binding arbitration. Should a petition for
interpleader be instituted, or should Escrow Agent be threatened with litigation
or become involved in litigation or binding arbitration in any manner whatsoever
in connection with this Escrow Agreement or the Deposit, then, as between (a)
the Other Parties on the one hand and (b) Escrow Agent on the other, the Other
Parties hereby jointly and severally agree to reimburse Escrow Agent for its
attorneys' fees and any and all other expenses, losses, costs and damages
incurred by Escrow Agent in connection with or resulting from such threatened or
actual litigation or arbitration prior to any disbursement hereunder.
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9. INDEMNIFICATION. The Other Parties hereby jointly and
severally indemnify Escrow Agent, its officers, directors, partners, employees
and agents (each herein called an "Indemnified Party") against, and hold each
Indemnified Party harmless from, any and all expenses, including, without
limitation, attorneys' fees and court costs, losses, costs, damages and claims,
including, but not limited to, costs of investigation, litigation and
arbitration, tax liability and loss on investments suffered or incurred by any
Indemnified Party in connection with or arising from or out of this Escrow
Agreement, except such acts or omissions as may result from the willful
misconduct or gross negligence of such Indemnified Party. IT IS THE EXPRESS
INTENT OF PURCHASER AND EACH SELLER TO INDEMNIFY AND HOLD HARMLESS EACH
INDEMNIFIED PARTY FOR EACH INDEMNIFIED PARTY'S OWN NEGLIGENT ACTS OR OMISSIONS.
10. COMPENSATION AND REIMBURSEMENT OF EXPENSES. As between (a)
Purchaser on the one hand and (b) Sellers on the other, each agrees to pay
Escrow Agent one-half of the costs for Escrow Agent's services hereunder in
accordance with the fee schedule attached hereto and to pay one-half of all
expenses incurred by Escrow Agent in connection with the performance of its
duties and enforcement of its rights hereunder and otherwise in connection with
the preparation, operation, administration and enforcement of this Escrow
Agreement, including, without limitation, attorneys' fees, brokerage costs and
related expenses incurred by Escrow Agent. The foregoing notwithstanding, as
between (a) the Other Parties on the one hand and (b) the Escrow Agent on the
other, the Other Parties shall be jointly and severally liable to Escrow Agent
for the payment of all such fees and expenses.
11. NOTICES. Any notice or other communication required or
permitted to be given under this Escrow Agreement by any party hereto to any
other party hereto shall be considered as properly given if in writing and (a)
delivered against receipt therefor, (b) mailed by registered or certified mail,
return receipt requested and postage prepaid or (c) sent by telex, telefax
machine or prepaid telegram, in each case addressed as follows:
IF TO SELLERS OR THE REPRESENTATIVE, ADDRESSED TO:
Joseph A. Bonola, D.D.S.
1109 Smethwick Cove
Keller, Texas 76248
Telecopy: (817) 379-6007
IF TO PURCHASER, ADDRESSED TO:
Castle Dental Centers of Texas, Inc.
1360 Post Boulevard, Suite 1300
Houston, Texas 77056-3021
Attention: Mr. Seth Miller
Telecopy: (713) 513-1401
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IF TO ESCROW AGENT:
NationsBank of Texas, N.A.
P.O. Box 2518
Houston, Texas 77252-2518
Attention: Ms. Debbie Toon
Telecopy: (713) 247-7150
Except to the extent otherwise provided in the second paragraph of Section 4
hereinabove, delivery of any communication given in accordance herewith shall be
effective only upon actual receipt thereof by the party or parties to whom such
communication is directed. Any party to this Escrow Agreement may change the
address to which communications hereunder are to be directed by giving written
notice to the other party or parties hereto in the manner provided in this
section.
12. CONSULTATION WITH LEGAL COUNSEL. Escrow Agent may consult
with its counsel or other counsel satisfactory to it concerning any question
relating to its duties or responsibilities hereunder or otherwise in connection
herewith and shall not be liable for any action taken, suffered or omitted by it
in good faith upon the advice of such counsel.
13. CHOICE OF LAWS; CUMULATIVE RIGHTS. This Escrow Agreement
shall be construed under, and governed by, the laws of the State of Texas
(excluding any conflicts- of-law rule or principle that might refer same to the
laws of another jurisdiction). All of Escrow Agent's rights hereunder are
cumulative of any other rights it may have at law, in equity or otherwise.
14. RESIGNATION. Escrow Agent may resign hereunder upon ten (10)
days' prior notice to the Other Parties. Upon the effective date of such
resignation, Escrow Agent shall deliver the Deposit to any substitute escrow
agent designated by the Other Parties in writing. If the Other Parties fail to
designate a substitute escrow agent within ten (10) days after the giving of
such notice, Escrow Agent may institute a petition for interpleader. Escrow
Agent's sole responsibility after such 10-day notice period expires shall be to
hold the Deposit (without any obligation to reinvest the same) and to deliver
the same to a designated substitute escrow agent, if any, or in accordance with
the directions of a final order or judgment of a court of competent
jurisdiction, at which time of delivery Escrow Agent's obligations hereunder
shall cease and terminate.
15. ASSIGNMENT. This Escrow Agreement shall not be assigned by
either of the Other Parties without the prior written consent of Escrow Agent
(such assigns of the Other Parties to which Escrow Agent consents, if any, and
Escrow Agent's assigns being hereinafter referred to collectively as "Permitted
Assigns").
-5-
16. SEVERABILITY. If one or more of the provisions hereof shall
for any reason be held to be invalid, illegal or unenforceable in any respect
under applicable law, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof, and this Escrow Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been contained
herein, and the remaining provisions hereof shall be given full force and
effect.
17. TERMINATION. This Escrow Agreement shall terminate upon (a)
disbursement of all of the Deposit in accordance with Section 5 hereof, and (b)
unless Escrow Agent shall otherwise elect, full and final payment of all amounts
required to be paid to the Escrow Agent hereunder (whether fees, expenses, costs
or otherwise); PROVIDED, HOWEVER, that in the event all such amounts required to
be paid to Escrow Agent hereunder are not fully and finally paid prior to
termination, the provisions of Section 10 hereof shall survive the termination
hereof and, PROVIDED FURTHER, that the last two sentences of Section 8 hereof
and the provisions of Section 9 hereof shall, in any event, survive the
termination hereof.
18. GENERAL. The section headings contained in this Escrow
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Escrow Agreement. This Escrow Agreement and
any affidavit, certificate, instrument, agreement or other document required to
be provided hereunder may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
but one and the same instrument. Unless the context shall otherwise require, the
singular shall include the plural and VICE VERSA, and each pronoun in any gender
shall include all other genders. The terms and provisions of this Escrow
Agreement constitute the entire agreement among the parties hereto in respect of
the subject matter hereof, and neither (a) the Other Parties on the one hand nor
(b) Escrow Agent on the other has relied on any representations or agreements of
the other, except as specifically set forth in this Escrow Agreement. This
Escrow Agreement or any provision hereof may be amended, modified, waived or
terminated only by written instrument duly signed by the parties hereto. This
Escrow Agreement shall inure to the benefit of, and be binding upon, the parties
hereto and their respective heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers and Permitted Assigns. This
Escrow Agreement is for the sole and exclusive benefit of the Other Parties and
the Escrow Agent, and nothing in this Escrow Agreement, express or implied, is
intended to confer or shall be construed as conferring upon any other person any
rights, remedies or any other type or types of benefits.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement to be effective as of the date first above written.
PURCHASER:
CASTLE DENTAL CENTERS OF TEXAS, INC.
By:
Name:
Title:
N.A. DENTAL SERVICES, P.C.
By:
Name:
Title:
EFW DENTAL SERVICES, P.C.
By:
Name:
Title:
NEFW DENTAL SERVICES, P.C.
By:
Name:
Title:
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HDC DENTAL SERVICES, P.C.
By:
Name:
Title:
MIDCITIES DENTAL SERVICES, P.C.
By:
Name:
Title:
WEST FT. WORTH DENTAL SERVICES, P.C.
By:
Name:
Title:
Joseph A. Bonola, D.D.S.
Kristen Bonola
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ESCROW AGENT:
NATIONSBANK OF TEXAS, N.A.
By:
Name:
Title:
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EXHIBIT 10.43
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
ASSET PURCHASE AGREEMENT
Dated as of August 21, 1996
By and Among
Castle Dental Centers of Arkansas, Inc.
and Castle Dental Centers of Oklahoma, Inc.
as Purchasers,
Castle Dental Centers, Inc.,
as Castle
United Dental Care Tom Harris D.D.S. & Associates
as Seller
and
Tom Harris
as Shareholder
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS...................................................................1
1.1 Definitions.....................................................1
ARTICLE II
THE TRANSACTION........................................................6
2.1 Purchase and Sale of Assets.....................................6
2.2 Excluded Assets.................................................7
2.3 Assumption of Obligations.......................................8
2.4 Nonassignable Contracts and Leases..............................8
2.5 Closing.........................................................8
ARTICLE III
PAYMENT OF PURCHASE PRICE..............................................9
3.1 Amount; Allocation; Delivery....................................9
3.2 Additional Consideration........................................9
3.2.1 Net Operating Income Adjustment.................................9
3.2.2 Net Asset Value Adjustment.....................................10
3.3 Apportionments.................................................11
3.4 Agency Relationship............................................12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDER...................................................12
4.1 Representations and Warranties of Seller and the Shareholder. 12
4.2 Existence and Good Standing....................................12
4.3 Authorization and Validity of Agreement........................12
4.4 Capital Stock..................................................13
4.5 Consents and Approvals; No Violations..........................13
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4.6 Subsidiaries and Affiliates....................................13
4.7 Financial Statements; No Material Adverse Change...............13
4.8 Books and Records..............................................14
4.9 Title to Properties; Encumbrances; Condition...................14
4.10 Real Property..................................................14
4.11 Leases.........................................................15
4.12 Material Contracts.............................................15
4.13 Permits........................................................15
4.14 Litigation.....................................................16
4.15 Taxes..........................................................16
4.16 Insurance......................................................17
4.17 Intellectual Properties........................................17
4.18 Compliance with Laws...........................................17
4.19 Employment Relations...........................................17
4.20 Employee Benefit Plans.........................................18
4.21 Environmental Laws and Regulations.............................18
4.22 Interests in Customers, Suppliers, Etc.........................18
4.23 Compensation of Employees......................................18
4.24 Payors. .....................................................19
4.25 Accounts Receivable; Accounts Payable..........................19
4.26 Solvency.......................................................19
4.27 Disclosure.....................................................20
4.28 Investments....................................................20
4.29 Broker's or Finder's Fees......................................20
4.30 Copies of Documents............................................20
4.31 Investment Representations.....................................20
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND CASTLE............................................................21
5.1 Representations and Warranties of Purchaser....................21
5.2 Representations and Warranties of Castle.......................23
-ii-
ARTICLE VI
CONDITIONS TO SELLER'S AND THE SHAREHOLDER'S OBLIGATIONS..............25
6.1 Truth of Representations and Warranties........................25
6.2 Performance of Agreements......................................25
6.3 No Litigation Threatened.......................................26
6.4 Consideration..................................................26
6.5 Governmental Approvals.........................................26
6.6 Proceedings....................................................26
6.7 Good Standing Certificates.....................................26
6.8 Consulting Agreement...........................................26
6.9 Registration Rights Agreement..................................26
6.10 Leases.........................................................26
6.11 Legal Opinion..................................................27
6.12 Other Transaction..............................................27
6.13 Repair Agreement...............................................27
6.14 Release of Personal Collateral.................................27
ARTICLE VII
CONDITIONS TO PURCHASER'S AND CASTLE'S OBLIGATIONS....................27
7.1 Truth of Representations and Warranties........................27
7.2 Performance of Agreements......................................28
7.3 No Material Adverse Change.....................................28
7.4 Documents of Conveyance........................................28
7.5 No Litigation Threatened.......................................28
7.6 Governmental Approvals.........................................28
7.7 Consents.......................................................28
7.8 Legal Opinion..................................................28
7.9 Proceedings....................................................28
7.10 New PCS........................................................29
7.11 Execution of Management Services Agreements....................29
7.12 Execution of Practice Purchase Agreements......................29
7.13 Approval of Lenders............................................29
7.14 Consummation of Initial Public Offering........................29
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7.15 Seller Name Change.............................................29
7.16 Tradename and Trademark License Agreements.....................29
7.17 Accounts Receivable Purchase Agreement.........................30
7.18 Option Agreement...............................................30
7.19 Other Transactions.............................................30
7.20 Good Standing Certificates.....................................30
7.21 Releases of Liens..............................................30
ARTICLE VIII
COVENANTS OF SELLER AND THE SHAREHOLDER...............................30
8.1 Cooperation by Seller..........................................30
8.2 Conduct of Business............................................31
8.3 Exclusive Dealing..............................................31
8.4 Review of the Assets...........................................31
8.5 Further Assurances.............................................32
8.6 Issuance of Shares.............................................32
8.7 License Holders of New PCs.....................................32
ARTICLE IX
COVENANTS OF PURCHASER................................................32
9.1 Cooperation by Purchaser.......................................32
9.2 Books and Records; Personnel...................................33
9.3 Further Assurances.............................................33
ARTICLE X
TERMINATION...........................................................33
10.1 Termination....................................................33
10.2 Effect on Obligations..........................................34
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ARTICLE XI
SURVIVAL AND INDEMNIFICATION..........................................34
11.1 Indemnification of the Seller by Purchaser.....................34
11.2 Indemnification of the Seller by Castle........................35
11.3 Indemnification of the Purchaser and Castle....................35
11.4 Demands........................................................35
11.5 Right to Contest and Defend....................................36
11.6 Cooperation....................................................37
11.7 Right to Participate...........................................37
11.8 Payment of Damages.............................................37
ARTICLE XII
MISCELLANEOUS.........................................................37
12.1 Entire Agreement...............................................37
12.2 Successors and Assigns.........................................37
12.3 Counterparts...................................................38
12.4 Headings.......................................................38
12.5 Modification and Waiver........................................38
12.6 No Third Party Beneficiary Rights..............................38
12.7 Sales and Transfer Taxes.......................................38
12.8 Expenses.......................................................38
12.9 Notice.........................................................38
12.10 Governing Law..................................................40
12.11 Confidentiality; Publicity.....................................40
12.12 Consent to Jurisdiction........................................40
12.13 Severability...................................................40
12.14 Enforcement....................................................41
SCHEDULES
Schedule 2.2(aExcluded Contracts
Schedule 2.2(fGeneral Terms of Two Leases
Schedule 2.2(gOther Excluded Assets
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Schedule 2.3 Assumed Obligations
Schedule 4.5 Consents
Schedule 4.6 Asset Owned by Third Parties which are Used in the
Business
Schedule 4.7 Material Adverse Change
Schedule 4.9 Encumbrances
Schedule 4.10 Real Property
Schedule 4.11 Leased Personal Property
Schedule 4.12 Material Contracts and Proposals
Schedule 4.13 Permits
Schedule 4.14 Litigation
Schedule 4.15 Taxes
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
Schedule 4.21 Environmental Matters
Schedule 4.23 Employee Compensation
Schedule 4.24 Payors
Schedule 4.25 Accounts Receivable
Schedule 5.2.5Consents of Castle
EXHIBITS
Exhibit A Consulting Agreement
Exhibit B Seller's Counsel Legal Opinion
Exhibit C Registration Rights Agreement
Exhibit D-1 Management Services Agreement - Arkansas
Exhibit D-2 Management Services Agreement - Oklahoma
Exhibit E-1 Arkansas Practice Purchase Agreement
Exhibit E-2 Oklahoma Practice Purchase Agreement
Exhibit F Option Agreement
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of August 7, 1996 by and among Castle
Dental Centers of Arkansas, Inc., an Arkansas corporation ("Castle Arkansas")
and Castle Dental Centers of Oklahoma, Inc., an Oklahoma corporation ("Castle
Oklahoma") (collectively "Purchaser"), Castle Dental Centers, Inc., a Delaware
corporation ("Castle"), United Dental Care Tom Harris D.D.S. & Associates, an
Arkansas professional corporation ("Seller"), and Tom Harris, the sole
shareholder of Seller (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Seller wishes to sell, and Purchaser wishes to purchase,
substantially all of the property, assets and business of Seller, all upon the
terms and subject to the conditions set forth below.
NOW, THEREFORE, for the mutual covenants and other consideration
described herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of Seller as of
the Closing Date.
"ACCOUNTS PAYABLE": the payables of Seller to trade account and other
creditors as of the Closing Date as shown on Schedule 2.3.
"ADJUSTED BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof.
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"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person.
"AGREEMENT": this Asset Purchase Agreement, as amended from time to time
as provided herein.
"ARKANSAS ASSETS": means the Assets used in the Business as conducted in
the State of Arkansas.
"ASSETS": as defined in Section 2.1 hereof, including the Arkansas
Assets and the Oklahoma Assets.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 3.2 hereof.
"BASE DATE NET ASSET VALUE": as defined in Section 3.2 hereof
"BOOKS AND RECORDS": all books, records, books of account, files and
data (including customer and supplier lists), certificates and other documents
related to the conduct of the business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of Seller which relate exclusively to
organizational and corporate governance proceedings of Seller.
"BUSINESS": the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by Seller.
"CLOSING": as defined in Section 2.5 hereof.
"CLOSING DATE": as defined in Section 2.5 hereof.
"CLOSING DATE BALANCE SHEET": as defined in Section 3.3 hereof.
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"CLOSING DATE NET ASSET VALUE": as defined in Section 3.3 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"CONSULTING AGREEMENT": the employment agreement executed pursuant
hereto substantially in the form of Exhibit A attached hereto.
"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto that would have a Material Adverse Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law (for purposes of this definition, "Claims") or any
permit issued under any such Environmental Law, including without limitation (I)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the
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Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42
U.S.C. ss. 3808 ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET
SEQ.; and relevant state and local laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED ASSETS": as defined in Section 2.2 hereof.
"EXCLUDED CONTRACTS": as defined in Section 2.2(a) hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.6 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (I) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of the Seller, or its Affiliates.
"NEW PC": either New Arkansas PC or New Oklahoma PC, as the context
requires.
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"NEW ARKANSAS PC": a newly formed professional corporation in the State
of Arkansas with a license holder mutually agreeable to Castle and Purchaser.
"NEW OKLAHOMA PC": a newly formed professional corporation in the State
of Oklahoma with a license holder mutually agreeable to Castle and Purchaser.
"OKLAHOMA ASSETS": means the Assets used in the Business as conducted in
the State of Oklahoma.
"PERMITS": as defined in Section 4.13 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.9 hereof.
"PERSON": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or other entity.
"PLANS": as defined in Section 4.20 hereof.
"PRE-CLOSING PERIODS": as defined in Section 4.15(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.15(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
"SELLER": as defined in the preamble of this Agreement.
"SELLER PROPERTY": any real property and improvements thereon presently
owned, leased, operated or occupied by Seller.
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"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement (i) Castle Arkansas agrees to purchase from the Seller, and the
Seller agrees to sell, convey, transfer, assign and deliver, and cause to be
sold, conveyed, transferred, assigned and delivered, to Castle Arkansas, on the
Closing Date, against the receipt by the Seller of the consideration specified
in Section 3.1 hereof, the Arkansas Assets, free and clear of any Encumbrances
except Permitted Encumbrances; and (ii) Castle Oklahoma agrees to purchase from
the Seller, and the Seller agrees to sell, convey, transfer, assign and deliver,
and cause to be sold, conveyed, transferred, assigned and delivered, to Castle
Oklahoma, on the Closing Date, against the receipt by the Seller of the
consideration specified in Section 3.1 hereof, the Oklahoma Assets, free and
clear of any Encumbrances except Permitted Encumbrances. The term "Assets"
includes the Arkansas Assets and the Oklahoma Assets and shall mean all of the
rights, title and interests of Seller and the Shareholder in and to the assets
used in or relating to the conduct of the Business on the Closing Date, tangible
and intangible, real, personal and mixed, wheresoever situated and whether or
not specifically referred to herein or in any instrument of conveyance delivered
pursuant hereto, except the Excluded Assets. The Assets shall include but are
not limited to the following categories of assets:
(a) all title to, interest in or rights with respect to real
property, including leasehold interests, described in Schedule 4.10
attached hereto together with all buildings, facilities, fixtures and
other leasehold improvements thereon and all easements, rights-of-way,
transferable licenses and permits and other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and
other fixed assets owned or leased and used or held for use in the
conduct of the Business;
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(c) contracts, documents, instruments, insurance and indemnity
policies and general intangibles of Seller, including the name "United
Dental Care" and derivatives thereof, and goodwill associated therewith,
other than the Excluded Contracts;
(d) Accounts Receivable as of the Closing Date;
(e) all licenses, permits, registrations and authorizations to
the extent transferable, proprietary information, methods, know-how,
designs, processes, procedures, goodwill and all rights to other
Intellectual Property used in the Business;
(f) Books and Records;
(g) any rights pertaining to any counterclaims, set-offs or
defenses it may have with respect to any Assumed Obligations;
(h) all prepaid claims, prepaid taxes, prepaid insurance
premiums and other prepaid expense items; and
(i) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded
thereby relating to the Assets; and
2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) each dentist employment contract, managed care contract,
insurance or third party reimbursement agreement or other contract set
forth on Schedule 2.2(a) and assumed by New PC (the Excluded
Contracts");
(b) cash, cash equivalents, deposits, advance payments,
securities, letters of credit naming Seller as account party,
certificates of deposit, drafts, checks and similar instruments;
(c) minute books and governance documents of the Seller;
(d) patient records all of which shall be assigned to New PC;
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(e) any other Asset the ownership of which shall be transferred
by Seller to New PC at the direction of Purchaser;
(f) two buildings to be leased by Purchaser from Shareholder;
and
(g) any Asset listed on Schedule 2.2(g).
2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Seller,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Seller in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder, (b) Accounts Payable contained on the Closing
Date Balance Sheet and (c) the long term debt (including automobile notes and
the current portion of such long term debt) contained on the Closing Date
Balance Sheet (collectively, "Assumed Obligations"). Notwithstanding anything
contained herein to the contrary, Purchaser does not assume, and hereby
expressly disclaims responsibility for, any obligation or liability of Seller or
the Shareholder not described on Schedule 2.3.
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date, Seller and the
Shareholder agree to use their best efforts to obtain, or cause to be obtained,
prior to the Closing Date, any written consents necessary to convey to Purchaser
the benefit thereof. Purchaser shall cooperate with Seller and the Shareholder,
in such manner as may be reasonably requested, in connection therewith,
including without limitation, written assumptions of liability, active
participation in visits to and meetings, discussions and negotiations with all
Persons with the authority to grant or withhold consent. If Seller and the
Shareholder are unable to obtain such necessary written consents for the
remaining term of such Assigned Contract, Purchaser shall act, or cause New PC
to act as Seller's and the Shareholder's agent in the performance of all
obligations and liabilities under such Assigned Contract and such Seller and the
Shareholder shall act as Purchaser's agents in the receipt of any benefits,
rights or interests which inure to such Seller or the Shareholder under such
Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing
set forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Bracewell & Patterson, L.L.P., South
Tower Pennzoil Place, 711 Louisiana Street, Suite 2900, Houston, Texas, on or
before the earlier of (i) December 31, 1996 or (ii) expiration of thirty days
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
following the consummation of an initial public offering of Castle Dental stock
in which gross proceeds exceed $25 million, or such other place, date and time
as may be mutually agreed upon by the parties. Such time and date are referred
to herein as the "Closing Date."
ARTICLE III
PAYMENT OF PURCHASE PRICE
3.1 AMOUNT; ALLOCATION; DELIVERY. At the Closing, Purchaser shall pay to
Seller the following (the "Purchase Price"):
* (a) [REDACTED] in cash on the Closing Date, which shall be paid
by wire transfer of immediately available funds to an account or
accounts of Seller identified by Seller;
(b) additional cash in an amount to be determined in accordance
with Section 3.2, payable in accordance with Section 3.2; and
* (c) [REDACTED] fully paid and nonassessable shares of Common
Stock, $.001 par value, of Castle Dental, duly issued in the name of
Seller, free and clear of all liens and restrictions, except those
created by Seller or as evidenced by the Securities Act of 1933 legend
contained on each certificate representing such shares, subject to
equitable adjustment for stock splits, dividends and similar events.
On or before Closing, Purchaser and Seller will agree on how to allocate
the Purchase Price among the Arkansas Assets and the Oklahoma Assets (the "Price
Allocation"). The parties hereby undertake and agree to file timely any
information that may be required to be filed pursuant to regulations promulgated
under Section 1060(b) of the Code. The parties further agree that they will
report the federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner consistent with the
Price Allocation, as so adjusted, and that they will not take any position
inconsistent therewith.
3.2 ADDITIONAL CONSIDERATION.
3.2.1 NET OPERATING INCOME ADJUSTMENT. The Purchase Price shall
be (a) increased by an amount, if any, equal to six (6) times the amount of Net
Operating Income in excess of [REDACTED] or (b) decreased by an amount, if any,
equal to six (6) times the amount that Net Operating
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CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
*
Income is less than [REDACTED], determined in each case in accordance with this
Section for the twelve (12) months ending December 31, 1996 (the "Net Operating
Income Adjustment"). For purposes of this Section, "Net Operating Income" shall
mean:
* (i) for all periods from January 1, 1996 to Closing Date,
combined operating revenues less combined operating
expenses (excluding interest expense, salary paid to
Shareholder in excess of a monthly gross income of
[REDACTED] and certain accounting fees incurred by
Seller in connection with this transaction up to
[REDACTED] of (A) Seller and (B) William T. Harris,
D.D.S. and Associates (a Professional Dental
Corporation) (the "Louisiana Affiliate"), determined in
accordance with GAAP, plus
(ii) for all periods on or after Closing Date, the amount
determined by multiplying the combined operating
revenues of (A) Purchaser and (B) New PC or any entity
operating, leasing or owning the Assets or for whom the
Purchaser is providing management services by a
fraction, the numerator of which equals the amount of
Net Operating Income derived pursuant to subsection
3.2.1(i) above and the denominator of which equals the
combined operating revenues of (A) Seller and (B) the
Louisiana Affiliate for all periods from January 1, 1996
to Closing Date.
* The parties acknowledge and agree that the Net Operating Income of
Seller and the Louisiana Affiliate as of May 31, 1996 (the "Base Date") was
[REDACTED]. The Operating Income Adjustment shall be paid in cash on or before
February 15, 1997.
3.2.2 NET ASSET VALUE ADJUSTMENT.
(a) Seller previously has delivered to Purchaser an unaudited
balance sheet (the "Base Date Balance Sheet") of the Seller and the Louisiana
Affiliate as of May 31, 1996 (the "Balance Sheet Date"), (the book value of the
Assets included in such balance sheet (other than Excluded Assets) less the book
value of the Assumed Obligations included in such balance sheet is hereinafter
referred to as the "Base Date Net Asset Value"). Seller and Purchaser hereby
agree that the Base Date Net Asset Value is $33,621.76.
(b) Within 45 days following the Closing Date, Seller shall
prepare and deliver to Purchaser a balance sheet of the Seller and the Louisiana
Affiliate as of the Closing Date (the
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"Closing Date Balance Sheet"), together with a calculation of the book value of
the Assets (other than Excluded Assets) and Assumed Obligations determined on
the same basis as the May 31, 1996 balance sheet (such book value of such Assets
(other than Excluded Assets) less such book value of such Assumed Obligations is
hereinafter referred to as the "Closing Date Net Asset Value"). Purchaser and
its representatives shall have the right to review all work papers and
procedures used to prepare the Closing Date Balance Sheet and the calculation of
the Closing Date Net Asset Value, and shall have the right to perform any other
reasonable procedures necessary to verify the accuracy thereof. Unless
Purchaser, within 20 days after delivery to Purchaser of the Closing Date
Balance Sheet, notifies Seller in writing that it objects to the Closing Date
Balance Sheet or the calculation of the Closing Date Net Asset Value, and
specifies the basis for such objection, the Closing Date Balance Sheet and the
calculation of the Closing Date Net Asset Value shall become final and binding
upon the parties for purposes of this Agreement. If Purchaser and Seller are
unable to resolve such objections within 10 days after any such notification has
been given, the dispute shall be submitted to a recognized public accounting
firm mutually agreed upon by Purchaser and Seller). Such accounting firm shall
make a final and binding determination as to the matter or matters in dispute.
Purchaser and Seller agree to cooperate with each other and with each other's
authorized representatives in order to resolve any and all matters in dispute as
soon as practicable.
(c) Within 10 days after the Closing Date Net Asset Value has
been finally determined, the difference, if any, between the Base Date Net Asset
Value and the Closing Date Net Asset Value of Seller and Louisiana Affiliate
shall be paid in cash to Seller (if the Closing Date Net Asset Value exceeds the
Base Date Net Asset Value) or paid in cash to Purchaser (if the Base Date Net
Asset Value exceeds the Closing Date Net Asset Value).
(d) Purchaser and Seller, in the aggregate, each shall bear
one-half of the fees, costs and expenses of the accounting firm retained under
subsection (c) to resolve any dispute.
3.3 APPORTIONMENTS. The following items shall be apportioned as of 11:59
p.m., on the day preceding the Closing Date: (a) personal property taxes, sewer
rents and charges and other state, county, metropolitan and municipal taxes and
assessments and charges affecting the Assets; (b) rents and other payments under
any of the Assigned Contracts; (c) charges for water, electricity, gas, oil,
steam and all other utilities (except to the extent disposed of by final billing
to Seller); and (d) such other items as are customarily apportioned in
connection with the sale of similar property, all such items prior to such time
being for the account of Seller and all such times after such time being the
account of Purchaser. Any adjustments required by the apportionments described
herein shall be made as a part of the Purchase Price Adjustment described in
Section 3.2.
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3.4 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
Seller or the Shareholder receive any funds, documents or instruments which
constitute or are delivered in respect of Assets transferred to Purchaser
pursuant to this Agreement, Seller and the Shareholder agree to hold such funds,
documents or instruments in trust for Purchaser and as Purchaser's agent
therefor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDER
4.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDER. As an
inducement to the Purchaser to enter into and perform this Agreement, Seller and
the Shareholder, jointly and severally, hereby represent and warrant to
Purchaser as follows:
4.2 EXISTENCE AND GOOD STANDING. Seller is a corporation duly organized
and validly existing under the laws of the State of Arkansas. Seller has the
full corporate power and authority to own, lease and operate its property and to
carry on the Business as now being conducted and to own or lease the Assets
owned or leased by it. Seller is duly qualified or licensed to do business in
each jurisdiction in which the character or location of the properties owned or
leased by Seller or the nature of the business conducted by Seller makes such
qualification necessary and the absence of which would have a Material Adverse
Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Seller has full corporate
power and authority, and the Shareholder have full power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Seller and the consummation by it
of the transactions contemplated hereby, have been duly authorized and approved
by the Board of Directors and the Shareholder of Seller, and no other action on
the part of Seller or its Shareholder is necessary to authorize the execution,
delivery and performance of this Agreement by Seller and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and the Shareholder and is a valid and binding obligation of
Seller and the Shareholder enforceable against each in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
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4.4 CAPITAL STOCK. The authorized capital stock of the Seller consists
solely of 1,000 shares of common stock of which none of the shares have been
issued. All of the shares of common stock of the Seller have been duly and
validly authorized and free of any liens or encumbrances.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
Schedule 4.5, the execution, delivery and performance of this Agreement by
Seller and the Shareholder and the consummation by Seller and the Shareholder of
the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time or both: (a) violate, conflict with, or result in a
breach or default under any provision of the organizational documents of Seller;
(b) violate any statute, ordinance, rule, regulation, order, judgment or decree
of any court or of any governmental or regulatory body, agency or authority
applicable to Seller or the Shareholder or by which any of Seller's properties
or assets may be bound; (c) require any filing by Seller or the Shareholder
with, or require Seller or the Shareholder to obtain any permit, consent or
approval of, or require Seller or the Shareholder to give any notice to, any
governmental or regulatory body, agency or authority other than as set forth in
Schedule 4.5 attached hereto; or (d) result in a violation or breach by Seller
or the Shareholder of, conflict with, constitute (with or without due notice or
lapse of time or both) a default by Seller or the Shareholder (or give rise to
any right of termination, cancellation, payment or acceleration) under or result
in the creation of any Encumbrance upon any of the properties or assets of
Seller or the Shareholder under any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease franchise agreement or other instrument or obligation to which Seller or
the Shareholder is a party, or by which Seller or any of its properties or
assets may be bound, except for such violations, consents, breaches, defaults,
terminations and accelerations which would not have a Material Adverse Effect.
4.6 SUBSIDIARIES AND AFFILIATES. Seller has no subsidiaries. Except as
set forth on Schedule 4.6, all of the Assets used in the Business are owned by
Seller, and on consummation of the transactions contemplated hereby Purchaser
will have acquired all of the Assets used in the Business.
4.7 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Seller has
heretofore furnished Purchaser with the unaudited balance sheet of Seller as of
the Balance Sheet Date and the unaudited statements of operations and cash flows
for the year then ended (the "Financial Statements"). The Financial Statements
fairly present in all material respects the financial position of Seller at the
date thereof and the results of operations of Seller and its cash flows for the
period indicated. Except as set forth in Schedule 4.7 attached hereto, since the
Balance Sheet Date there has been no material
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adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations of Seller.
Other than as (i) disclosed on the Financial Statements, (ii) incurred
since the Balance Sheet Date in the ordinary course of business or (iii)
disclosed on Schedule 4.7 or another Schedule hereto, the Seller has no direct
or indirect indebtedness, liability, claim, deficiency, obligation or
responsibility, known or unknown, fixed or contingent, liquidated or
unliquidated, accrued, absolute or otherwise.
4.8 BOOKS AND RECORDS. The Seller has previously made available to
Purchaser true, correct and complete copies of its articles of incorporation and
bylaws, and all amendments to each. The minute books of Seller, as previously
made available to Purchaser and its representatives, contain accurate records in
all material respects of the meetings of, the shareholders and Board of
Directors of Seller.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedule 4.9 or 4.10, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Seller has
good and valid title to the Assets, in each case subject to no Encumbrances
except for (i) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Seller in the operation of the Business,
(ii) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (iii) Encumbrances created by
Purchaser, and (iv) Encumbrances relating to Assumed Obligations and obligations
assumed by New PC (liens of the type described in clauses (i), (ii), (iii) and
(iv) above and liens disclosed on Schedules 4.9 or 4.10 are hereinafter
sometimes referred to as "Permitted Encumbrances"). Seller has heretofore
furnished Purchaser with a fixed asset ledger which sets forth all fixed assets
owned by Seller as of the Balance Sheet Date. Seller and the Shareholder are not
aware of any defects in such assets that would have a Material Adverse Effect on
the ability of Purchaser to use such assets in the Business, ordinary wear and
tear excepted.
4.10 REAL PROPERTY. Schedule 4.10 identifies all interests in real
property used by the Seller in the Business, including leases, and includes the
name of the record title holder thereof. All of the buildings, structures and
appurtenances situated on the real property owned or leased by Seller are in
such an operating condition, and in a state of maintenance and repair, subject
to ordinary wear and tear, as is necessary for the operation of the Assets in
the Business. The real property has
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adequate rights of ingress and egress for operation of the Business in the
ordinary course. No condemnation or similar proceeding is pending or, to the
best knowledge of Seller and the Shareholder, threatened, which would preclude
or impair the use of any such property, except where such proceeding would not
have a Material Adverse Effect.
4.11 LEASES. Schedule 4.11 contains an accurate and complete list of all
personal property leases to which Seller is a party (as lessee or lessor) and an
identification of all such leases to which Seller is a party as lessee. Each
lease set forth in Schedule 4.11 is in full force and effect, and no event has
occurred that with the giving of notice, the passage of time or both would
constitute a default thereunder.
4.12 MATERIAL CONTRACTS. Except as set forth in Schedule 4.12, the
Assigned Contracts do not include (a) any agreement, contract or commitment
relating to the employment of any person by Seller, (b) any agreement, indenture
or other instrument which contains restrictions with respect to payment of
profits, dividends or any other distributions, (c) any agreement, contract or
commitment relating to capital expenditures in excess of $5,000 (d) any loan or
advance to, or investment in, any Person or any agreement, contract or
commitment relating to the making of any such loan, advance or investment, (e)
any guarantee or other contingent liability in respect of any indebtedness or
obligation of any Person, (f) any management service, consulting or any other
similar type contract, (g) any agreement, contract or commitment limiting the
freedom of Seller to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment which involves $5,000 or more
and is not cancelable without penalty within 30 days, or (i) any other
agreement, contract or commitment which would have a Material Adverse Effect.
Also set forth in Schedule 4.12 is a list of all proposals submitted by Seller
to any third party that, if accepted by such third party, would require
disclosure on Schedule 4.12. Except where it would not have a Material Adverse
Effect, each contract or agreement set forth in Schedule 4.12 is in full force
and effect and there exists no default or event of default or event, occurrence,
condition or act (including the purchase of the Assets hereunder) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder.
4.13 PERMITS. Schedule 4.13 attached hereto lists all of the
governmental and other third party permits (including occupancy permits),
licenses, consents and authorizations ("Permits") required, to the knowledge of
Seller and the Shareholder, in connection with the use, operation or ownership
of the Assets and the conduct of the Business as currently conducted. Seller
holds all of the Permits listed on Schedule 4.13, and, except as set forth in
Schedule 4.13, none is presently subject to revocation or challenge. Except as
set forth on Schedule 4.13, all such Permits will be
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assigned to Purchaser or New PC, and none of such Permits will be subject to
revocation or termination as a result thereof.
4.14 LITIGATION. Except as set forth in Schedule 4.14, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Seller and the
Shareholder, threatened, against or affecting the properties, rights or goodwill
of Seller, the Shareholder, or employees of Seller, and Seller and the
Shareholder do not know of any valid basis for any such action, proceeding or
investigation. There are no such suits, actions, claims, proceedings or
investigations pending or to the knowledge of Seller and the Shareholder
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement. Purchaser will assume no liability whatsoever with respect to
any matter described on Schedule 4.14. Schedule 4.14 also describes any actions,
suits, disciplinary proceedings and investigations undertaken by the Dental
Board of the States of Arkansas, Louisiana, Oklahoma and Tennessee, or other
body regulating the activities of dentists, against Thomas Harris.
4.15 TAXES. (a) All returns and reports for Taxes for all taxable years
or periods that end on or before the Closing Date and, with respect to any
taxable year or period beginning before and ending after the Closing Date the
portion of such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
Seller (collectively, the "Returns") have been or will be filed when due in a
timely fashion and such Returns as filed are or will be accurate in all material
respects.
(b) Except as provided in Schedule 4.15 there is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Seller or the Shareholder, threatened by any authority regarding
any Taxes relating to Seller for any Pre-Closing Period.
(c) There are no liens or security interests on any of the assets
of Seller that arose in connection with any failure (or alleged failure) to pay
any Taxes.
(d) Except as provided in Schedule 4.15, there are no agreements
for the extension or waiver of the time for assessment of any Taxes relating to
Seller for any Pre-Closing Period and Seller has not been requested to enter
into any such agreement or waiver.
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(e) All Taxes relating to Seller which Seller is required by law
to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and payable.
(f) Seller is not now nor has ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.16 INSURANCE. Set forth in Schedule 4.16 is a complete list of
insurance policies that Seller maintains with respect to its Business and
properties that are included in the Assets or on its employees. Such policies
are in full force and effect, are free from any right of termination on the part
of the insurance carriers, and are transferable to Purchaser for the unexpired
portion of their term. In the judgment of Seller, such policies, with respect to
their amounts and types of coverage, are adequate to insure against risks to
which Seller and its property and assets are normally exposed in the operation
of the Business, subject to customary deductibles and policy limits.
4.17 INTELLECTUAL PROPERTIES. Schedule 4.17 sets forth all material
Intellectual Property used in the Business and the owner of such Intellectual
Property. The operation of the Business as conducted by Seller as of the Closing
Date requires no rights under Intellectual Property other than rights under
Intellectual Property listed on Schedule 4.17 and rights granted to Seller
pursuant to agreements listed on Schedule 4.17. Except as otherwise set forth in
Schedule 4.17, Seller owns all right, title and interest in the Intellectual
Property listed in Schedule 4.17. No litigation is pending or, to the knowledge
of Seller or the Shareholder, threatened wherein Seller is accused of infringing
or otherwise violating the Intellectual Property rights of another, or of
breaching a contract conveying rights under Intellectual Property.
4.18 COMPLIANCE WITH LAWS. Seller is in compliance in all material
respects with all applicable laws, regulations, orders, judgments and decrees
applicable to the Business.
4.19 EMPLOYMENT RELATIONS. (a) Seller is not and has not engaged in any
unfair labor practice; (b) to the knowledge of Seller and the Shareholder, no
representation question exists respecting the employees of Seller; (c) Seller
has not been notified of any grievance that might have a Material Adverse Effect
and no arbitration proceeding arising out of or under any collective bargaining
agreement is pending; and (f) no collective bargaining agreement is currently
being negotiated by Seller.
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4.20 EMPLOYEE BENEFIT PLANS. Seller has delivered to Purchaser true and
complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Seller and the Shareholder, been maintained in compliance with its
terms and the requirements of all applicable laws. None of the Plans are subject
to Title IV of ERISA or the minimum funding obligations of Section 412 of the
Code, and Seller and any entity required to be aggregated therewith pursuant to
Section 414(b) or (c) of the Code have no liability under Title IV of ERISA or
under Section 412(f) or 412(n) of the Code.
4.21 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.21, and except where it would not have a Material Adverse Effect (a) Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Seller Property by Seller, its authorized agents or its independent
contractors (including suppliers) or any property adjoining any Seller Property,
(b) Hazardous Materials have not been Released or disposed of by Seller, its
authorized agents or its independent contractors (including suppliers) on any
Seller Property or any property adjoining any Seller Property except such
Releases which do not violate any Environmental Laws, (c) Seller is, to its and
the Shareholder's knowledge, in compliance with all applicable Environmental
Laws and the requirements of any Permits issued under such Environmental Laws
with respect to any Seller Property, (d) there are no pending or, to the
knowledge of Seller and the Shareholder, threatened Environmental Claims against
Seller or any Seller Property, (e) there are no facts or circumstances,
conditions, pre-existing conditions or occurrences on any Seller Property known
to Seller or the Shareholder that could reasonably be anticipated (A) to form
the basis of an Environmental Claim against Seller or any Seller Property, or
(B) to cause such Seller Property to be subject to any restrictions on the
ownership, occupancy use or transferability of such Seller Property under any
Environmental Law, (f) there are not now and there never have been any
underground storage tanks located on any Seller Property, and (g) Seller has not
in the ordinary course of business transported or stored Hazardous Materials.
4.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships
with Affiliates, Seller does not possess, directly or indirectly, any financial
interest in, and no Shareholder serves as a director, officer or employee of,
any corporation, firm, association or business organization which is a supplier,
customer, lessor, lessee, or competitor of Seller.
4.23 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.23 is an
accurate and complete list showing the names of all persons whose compensation
from Seller collectively for the fiscal year
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ended on the Balance Sheet Date exceeded an annualized rate of $20,000, together
with a statement of the full amount paid or payable to each such person for
services rendered during the current fiscal year to date.
4.24 PAYORS. Schedule 4.24 sets forth the ten largest payors of Seller
for the most recently completed fiscal year. The relationship of Seller with
each of such payors as of the date of this Agreement is a good commercial
working relationship, and except as set forth in Schedule 4.24 no significant
payor has canceled or otherwise terminated or, to the knowledge of Seller or the
Shareholder threatened to cancel or otherwise terminate its relationship with
Seller within the last three years.
4.25 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.25, the Accounts Receivable on the Closing Date Balance Sheet are
collectible in the ordinary course of business, net of the reserves established
with respect thereto. Except as set forth on Schedule 4.25, there has been no
change since the Balance Sheet Date (other than in the ordinary course of
business) in the amount of the Accounts Receivable or other fees or debts due to
Seller or the allowances with respect thereto, or Accounts Payable by Seller,
from that reflected in the Balance Sheet.
4.26 SOLVENCY. Seller is not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the Assets of Seller (on a
going concern basis) will exceed the liability of Seller on its debts
(including its contingent obligations);
(b) Seller has not incurred, nor does it intend to or believe
that it will incur, debts (including contingent obligations) beyond its
ability to pay such debts as such debts mature (taking into account the
timing and amounts of cash to be received from any source, and of
amounts to be payable on or in respect of debts); and the amount of cash
available to Seller after taking into account all other anticipated uses
of funds is anticipated to be sufficient to pay all such amounts on or
in respect of debts, when such amounts are required to be paid; and
(c) Seller will have sufficient capital with which to conduct its
business, and the property of Seller does not constitute unreasonably
small capital with which to conduct its business.
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For purposes of this Section 4.26 "debt" means any liability or a (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
4.27 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not materially misleading in light of the circumstances under
which they were made.
4.28 INVESTMENTS. The Assets do not include any capital stock or other
equity ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
4.29 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of Seller is, or will be, entitled to any fee, commission or broker's
or finder's fees in connection with this Agreement or any of the transactions
contemplated hereby.
4.30 COPIES OF DOCUMENTS. Seller has caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
4.31 INVESTMENT REPRESENTATIONS.
(a) Seller understands that the Common Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"). Seller also understands that the Common Stock is being offered
and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon its representations contained in this
Agreement.
(b) Seller, in consultation with its accountants, attorneys and
financial advisors has, the requisite experience in evaluating and
investing in private placement transactions of securities so that it is
capable of evaluating the merits and risks of its investment in Castle
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Dental and has the capacity to protect its own interests. Seller
understands that it must bear the economic risk of this investment
indefinitely unless the Common Stock is registered pursuant to the
Securities Act, or an exemption from registration is available. Seller
also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even
if available, such exemption may not allow it to transfer all or any
portion of the Common Stock under the circumstances, in the amounts or
at the times it might propose.
(c) Seller is acquiring the Common Stock for its own account for
investment only, and not with a view towards distribution.
(d) Seller represents that by reason of its business or financial
experience, it has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement.
(e) Seller represents that it is an accredited investor within
the meaning of Regulation D under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND CASTLE
5.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. As an inducement to the
Seller and Shareholder to enter into and perform this Agreement, Purchaser
hereby represents and warrants to Seller and Shareholder as follows:
5.1.1 EXISTENCE AND GOOD STANDING. Castle Arkansas is a
corporation duly organized and validly existing under the laws of the State of
Arkansas, and Castle Oklahoma is a corporation duly organized and validly
existing under the laws of the State of Oklahoma. Each has the full corporate
power and authority to own, lease and operate its property and to make, execute,
deliver and perform this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
5.1.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Purchaser has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to
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consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Purchaser and the consummation by it of the
transactions contemplated hereby, have been duly authorized and approved by the
Board of Directors of Purchaser, and no other action on the part of Purchaser is
necessary to authorize the execution, delivery and performance of this Agreement
by Purchaser and the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Purchaser and is a valid and
binding obligation of Purchaser enforceable against it in accordance with its
terms, except to the extent that its enforceability may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
5.1.3 CAPITAL STOCK. Each Purchaser is a wholly-owned subsidiary
of Castle.
5.1.4 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution,
delivery and performance of this Agreement by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby will not, with or without the
giving of notice or the lapse of time or both: (a) violate, conflict with, or
result in a breach or default under any provision of the organizational
documents of Purchaser; (b) violate any statute, ordinance, rule, regulation,
order, judgment or decree of any court or of any governmental or regulatory
body, agency or authority applicable to Purchaser or by which any of Purchaser's
properties or assets may be bound; (c) require any filing by Purchaser with, or
require Purchaser to obtain any permit, consent or approval of, or require
Purchaser to give any notice to, any governmental or regulatory body, agency or
authority; or (d) result in a violation or breach by Purchaser of, conflict
with, constitute (with or without due notice or lapse of time or both) a default
by Purchaser (or give rise to any right of termination, cancellation, payment or
acceleration) under or result in the creation of any Encumbrance upon any of the
properties or assets of Purchaser under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, license, franchise, permit,
agreement, lease franchise agreement or other instrument or obligation to which
Purchaser is a party, or by which Purchaser or any of its properties or assets
may be bound, except for such violations, consents, breaches, defaults,
termination and accelerations which would not have a Material Adverse Effect.
5.1.5 COMPLIANCE WITH LAWS. To the knowledge of Purchaser,
Purchaser is in compliance with all applicable laws, regulations, orders,
judgments and decrees applicable to its business, except where any noncompliance
would not have a material adverse effect on the assets, liabilities, business,
condition (financial or otherwise), results of operations or prospects of
Purchaser.
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5.1.6 BROKER'S OR FINDER'S FEES. Except for a fee payable by or
on behalf of Purchaser to The GulfStar Group, no agent, broker, Person or firm
acting on behalf of Purchaser is, or will be, entitled to any fee, commission or
broker's or finder's fee in connection with this Agreement or any of the
transactions contemplated hereby.
5.2 REPRESENTATIONS AND WARRANTIES OF CASTLE. As an inducement to the
Seller and Shareholder to enter into and perform this Agreement, Castle hereby
represents and warrants to Purchaser and Shareholder as follows:
5.2.1 EXISTENCE AND GOOD STANDING. Castle is a corporation duly
organized and validly existing under the laws of the State of Delaware. Castle
has the full corporate power and authority to own, lease and operate its
property and to carry on its business as now being conducted and to own or lease
the assets owned or leased by it. Castle is duly qualified or licensed to do
business in each jurisdiction in which the character or location of the
properties owned or leased by Castle or the nature of the business conducted by
Castle makes such qualification necessary and the absence of which would have a
Material Adverse Effect.
5.2.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Castle has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Castle and
the consummation by it of the transactions contemplated hereby, have been duly
authorized and approved by the Board of Directors of Castle, and no other action
on the part of Castle is necessary to authorize the execution, delivery and
performance of this Agreement by Castle and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Castle and is a valid and binding obligation of Castle enforceable against it in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
5.2.3 CAPITAL STOCK.The authorized capital stock of Castle
consists solely of 18,755,263 shares of Common Stock and 1,244,737 shares of
Preferred Stock, $.001 par value per share ("Preferred Stock"). All of the
shares of Common Stock of Castle delivered pursuant to Section 3.1 hereof shall
be duly and validly authorized, and, following the Closing, will be validly
issued, fully paid, nonassessable and free of any liens or encumbrances.
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5.2.4 LITIGATION. There is no action, suit, proceeding at law or
in equity, arbitration or administrative or other proceeding by or before (or
any investigation by) any governmental or other instrumentality or agency,
pending, or, to the knowledge of Castle, threatened, against or affecting the
properties, rights or goodwill of Castle, Purchaser or their employees, except
where such Proceeding would not have a material adverse effect on the assets,
liabilities, business, condition (financial or otherwise), results of operations
or prospects of Castle or Purchaser, and Purchaser does not know of any valid
basis for any such action, proceeding or investigation. There are no such
Proceedings pending or, to the knowledge of Purchaser, threatened, seeking to
prevent or challenge the transactions contemplated by this Agreement.
5.2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth
on Schedule 5.2.5, the execution, delivery and performance of this Agreement by
Castle and the consummation by Castle of the transactions contemplated hereby
will not, with or without the giving of notice or the lapse of time or both: (a)
violate, conflict with, or result in a breach or default under any provision of
the organizational documents of Castle; (b) violate any statute, ordinance,
rule, regulation, order, judgment or decree of any court or of any governmental
or regulatory body, agency or authority applicable to Castle or by which any of
Castle's properties or assets may be bound; (c) require any filing by Castle
with, or require Castle to obtain any permit, consent or approval of, or require
Castle to give any notice to, any governmental or regulatory body, agency or
authority other than as set forth in Schedule 5.2.5 attached hereto; or (d)
result in a violation or breach by Castle of, conflict with, constitute (with or
without due notice or lapse of time or both) a default by Castle (or give rise
to any right of termination, cancellation, payment or acceleration) under or
result in the creation of any Encumbrance upon any of the properties or assets
of Castle under any of the terms, conditions, or provisions of any note, bond,
mortgage, indenture, license, franchise, permit, agreement, lease franchise
agreement or other instrument or obligation to which Castle is a party, or by
which Castle or any of its properties or assets may be bound, except for such
violations, consents, breaches, defaults, terminations and accelerations which
would not have a Material Adverse Effect.
5.2.6 CASTLE FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE.
Castle has heretofore furnished Purchaser with its audited financial statements
for the year ended December 31, 1995 and the unaudited statements of operations
and cash flows for the interim period ended May 31, 1996 (the "Castle Financial
Statements"). The Castle Financial Statements fairly present in all material
respects the financial position of Castle at the dates thereof and the results
of operations of Castle and its cash flows for the period indicated. Except as
set forth in Schedule 5.2.6 attached
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hereto, since May 31, 1996, there has been no material adverse change in the
assets or liabilities, or in the business or condition, financial or otherwise,
or in the results of operations of Castle.
5.2.7 BOOKS AND RECORDS. Castle has previously made available to
Seller true, correct and complete copies of its articles of incorporation and
bylaws, and all amendments to each.
5.2.8 COMPLIANCE WITH LAWS. To the knowledge of Castle, Castle is
in compliance with all applicable laws, regulations, orders, judgments and
decrees applicable to its business which are necessary for Castle to perform its
obligations hereunder, except where any noncompliance would not have a material
adverse effect on the assets, liabilities, business, condition (financial or
otherwise), results of operations or prospects of Castle.
5.2.9 CONSENT OF LENDER. Castle has submitted to NationsBank of
Texas, N.A. ("NationsBank") certain information and has entered into certain
discussions with NationsBank regarding the transactions contemplated hereby.
Based on such discussions, Castle believes that NationsBank will consent to the
transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS TO SELLER'S AND THE SHAREHOLDER'S OBLIGATIONS
The obligations of Seller and the Shareholder under this Agreement to
sell the Assets and to consummate the other transactions contemplated hereby
shall be subject to the satisfaction (or waiver by the party entitled to
performance) on or prior to the Closing Date of all of the following conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser and Castle contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date, and Purchaser and Castle shall have delivered to Seller on the
Closing Date a certificate of an authorized officer of Purchaser and Castle,
dated the Closing Date, to such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser and Castle to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects, and Purchaser and Castle shall have
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delivered to Seller a certificate of an authorized officer of each of Purchaser
and Castle, dated the Closing Date, to such effect.
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser and Castle shall have delivered to Seller a certificate of an
authorized officer of each of Purchaser and Castle, dated the Closing Date, to
such effect to the best knowledge of such officer.
6.4 CONSIDERATION. The Seller shall have received the consideration
described in Section 3.1.
6.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Seller and the
Shareholder and their counsel, and Seller and the Shareholder shall have
received copies of all such documents and other evidence as its or its counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.7 GOOD STANDING CERTIFICATES. Seller shall have received good standing
and corporate existence certificates respecting Purchaser and Castle.
6.8 CONSULTING AGREEMENT. Thomas Harris shall have received a Consulting
Agreement, substantially in the form of Exhibit A, executed by the Purchaser.
6.9 REGISTRATION RIGHTS AGREEMENT. Seller shall have received a
Registration Rights Agreement, substantially in the form of Exhibit C hereto,
executed by Castle.
6.10 LEASES. Shareholder and Purchaser shall have executed leases on two
parcels of real property currently occupied by Seller, which leases shall
contain commercially reasonable terms and conditions and provide for fair market
value rental.
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6.11 LEGAL OPINION. Purchaser shall have delivered to Seller and
Shareholder an opinion of Castle's counsel and Wright, Lindsey & Jennings
reasonably acceptable to Seller.
6.12 OTHER TRANSACTION. Castle Dental Centers of Louisiana, Inc. shall
have acquired substantially all of the assets of the Louisiana Affiliate on
terms and conditions set forth in that certain Asset Purchase Agreement of even
date herewith by and among Castle Dental Centers of Louisiana, Inc., Castle, the
Louisiana Affiliate and Tom Harris (the "Louisiana Purchase Agreement").
6.13 REPAIR AGREEMENT. Purchaser and Creecy Dental Equipment, Inc.
("Creecy") shall have entered into a dental equipment repair agreement for a
minimum term of one year which provides that Creecy shall continue providing
repair services at existing Arkansas locations and to maintain office space
located at 4700 West Commercial Drive, Suite A, North Little Rock, Arkansas.
Such agreement shall be terminable on one month's notice by Purchaser and shall
obligate Creecy to provide goods and services to Purchaser on terms no less
favorable than those available from unrelated third parties.
6.14 RELEASE OF PERSONAL COLLATERAL. Pulaski Bank and Trust Company
shall have terminated or released any liens against real or personal property
owned by Shareholder and not included in the Assets to the extent that such
liens secure Assumed Obligation.
ARTICLE VII
CONDITIONS TO PURCHASER'S AND CASTLE'S OBLIGATIONS
The obligations of Purchaser and Castle under this Agreement to purchase
the Assets and to consummate the other transactions contemplated hereby shall be
subject to the satisfaction (or waiver by Purchaser) on or prior to the Closing
Date of all of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and the Shareholder contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and Seller and the Shareholder shall have delivered to
Purchaser on the Closing Date a certificate of an authorized representative of
Seller and the Shareholder, dated the Closing Date, to such effect.
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7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Seller to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Seller shall have delivered to Purchaser a certificate of an authorized
representative of Seller, dated the Closing Date, to such effect.
7.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the condition of Seller or the financial results of its
operations in the period commencing with the date of this Agreement and ending
on the Closing Date, compared to the same period in previous years.
7.4 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Seller
fully executed documents of conveyance, in form and substance reasonably
satisfactory to Purchaser and its counsel, vesting in Purchaser good and valid
title to the Assets, free and clear of any Encumbrances except Permitted
Encumbrances.
7.5 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Seller
shall have delivered to Purchaser a certificate of an authorized representative
of Seller, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.6 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.7 CONSENTS. Each of the consents referred to in Schedule 5.2.5
attached hereto shall have been obtained, and Purchaser shall have also received
the consent of all other parties, including its senior lender, whose consent is
required to permit Purchaser to perform its obligations hereunder.
7.8 LEGAL OPINION. Seller shall have delivered to Purchaser the opinion
of their counsel, substantially in the form of Exhibit B attached hereto.
7.9 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel, and Purchaser shall have received copies of all
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such documents and other evidence as it or its counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
7.10 NEW PCS. New Arkansas PC and New Oklahoma PC shall have been duly
and validly organized with license holders mutually agreeable to Castle and
Purchaser, and the appropriate New PC shall have entered into Employment
Agreements with the dentists presently employed by Seller and Seller shall have
duly and validly assigned, to the extent assignable, to the appropriate New PC
all reimbursement contracts with third party insurance companies, managed care
companies and other reimbursement sources referred to in Section 2.2(a). Seller
shall also have delivered to the appropriate New PC all patient records and
shall have duly and validly assigned, to the extent assignable, to the
appropriate New PC all Permits and such other of the Assets as are required for
the appropriate New PC to perform its obligations under the Management Services
Agreement.
7.11 EXECUTION OF MANAGEMENT SERVICES AGREEMENTS. New Arkansas PC and
Castle Dental Centers of Arkansas shall have entered into a Management Services
Agreement substantially in the form of Exhibit D-1 attached hereto, and New
Oklahoma PC and Castle Dental Centers of Oklahoma, Inc. shall have entered into
a Management Services Agreement substantially in the form of Exhibit D-2
attached hereto.
7.12 EXECUTION OF PRACTICE PURCHASE AGREEMENTS. Seller shall have
entered into Practice Purchase Agreements with Purchaser, substantially in the
forms of Exhibit E-1 and E-2 attached hereto.
7.13 APPROVAL OF LENDERS. All approvals and consents required to be
received from Castle's lenders as a condition to funding the acquisition
described herein shall have been received.
7.14 CONSUMMATION OF INITIAL PUBLIC OFFERING. Castle shall have
consummated an initial public offering of its Common Stock.
7.15 SELLER NAME CHANGE. Seller shall have changed its corporate name to
a name not including the words "United Dental Care".
7.16 TRADENAME AND TRADEMARK LICENSE AGREEMENTS. Purchaser and New PC
shall have entered into a Tradename License Agreement and a Trademark License
Agreement in form and substance satisfactory to Purchaser and its counsel.
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7.17 ACCOUNTS RECEIVABLE PURCHASE AGREEMENT. Purchaser and New PC shall
have entered into an Accounts Receivable Purchase Agreement in form and
substance satisfactory to Purchaser and its counsel. Purchaser and New PC also
shall have sent to the appropriate parties the letters and notifications
attached as exhibits thereto, and filed in the appropriate offices the UCC
Financing Statement attached thereto.
7.18 OPTION AGREEMENT. Purchaser and the shareholder of New PC shall
have entered into an Option Agreement regarding ownership of stock in New PC,
substantially in the form of Exhibit F, and certificates representing shares of
stock in New PC shall be inscribed with an appropriate legend referencing the
Option Agreement.
7.19 OTHER TRANSACTIONS. Castle Dental Centers of Louisiana, Inc. shall
have acquired substantially all of the assets of the Louisiana Affiliate on
terms and conditions set forth in the Louisiana Purchase Agreement.
7.20 GOOD STANDING CERTIFICATES. Purchaser shall have received good
standing and corporate existence certificates respecting the Seller.
7.21 RELEASES OF LIENS. Purchaser shall have received evidence
satisfactory to Purchaser and its counsel to the effect that all liens and other
encumbrances on the Assets being transferred either to Purchaser or New PC
(other than Permitted Encumbrances) have been released.
ARTICLE VIII
COVENANTS OF SELLER AND THE SHAREHOLDER
Seller and the Shareholder hereby covenant and agree with Purchaser as
follows:
8.1 COOPERATION BY SELLER. Seller and the Shareholder shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Seller and the Shareholder to effect the
transactions contemplated on its or his part hereby, and Seller and the
Shareholder shall otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied. Without limiting the generality of the foregoing,
Seller and the Shareholder agree to negotiate in good faith the lease agreements
described
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in Section 6.10 hereto. Seller and the Shareholder further agree to deliver to
Purchaser prompt written notice of any event or condition which if it existed on
the date of this Agreement, would result in any of the representations and
warranties of Seller or the Shareholder contained herein being untrue in any
material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Seller shall, (a) conduct
the Business only in the ordinary course, (b) use its reasonable efforts to keep
available the services of its employees and maintain satisfactory relationships
with licensors, suppliers, lessors, distributors, customers, clients and others,
(c) maintain, consistent with past practice and good business judgment, all the
Assets in customary repair, order and condition, ordinary wear and tear
excepted, and insurance upon all the Assets used in the conduct of the Business
in such amounts and of such kinds comparable to that in effect on the date
hereof, to the extent available at current premiums, (d) maintain the Books and
Records in the usual, regular and ordinary manner, on a basis consistent with
past practice, (e) not incur any indebtedness other than current taxes not yet
due and payable and accounts payable and other accrued expenses incurred in the
ordinary course of business, or permit any lien to be placed on any of the
Assets and (f) not make any capital expenditure in excess of $5,000.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Seller nor the Shareholder shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Seller or
the Shareholder.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Seller's certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records of Seller and to
otherwise review the financial and legal condition of Seller as Purchaser deems
necessary or advisable to familiarize itself with the Business and related
matters; such review shall not, however, affect the representations and
warranties made by Seller and the Shareholder hereunder or the remedies of
Purchaser for breaches of those representations and warranties. Such review
shall occur only during normal business hours upon reasonable notice by
Purchaser. Seller and the Shareholder shall permit Purchaser and its
representatives to have, after the execution of this Agreement, full access to
employees of any Seller who can furnish Purchaser with financial and operating
data and other information with respect to the Business as Purchaser shall from
time to time reasonably request.
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8.5 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Seller and the Shareholder shall, at the reasonable request of
Purchaser and at Purchaser's expense, execute and deliver any further
instruments or documents and take all such further action as Purchaser may
reasonably request in order to consummate and make effective the sale of the
Assets and the assumption of the Assumed Obligations pursuant to this Agreement.
8.6 ISSUANCE OF SHARES. Prior to the Closing Date, Seller shall validly
issue 1,000 shares of its common stock to Shareholder, and such shares shall be
issued and outstanding as of the Closing Date.
8.7 LICENSE HOLDERS OF NEW PCS. Seller and Shareholder shall use their
best efforts to secure license holders for the New Arkansas PC and the New
Oklahoma PC that will execute the Management Services Agreement and the Option
Agreement substantially in the forms attached to this Agreement, with such
changes thereto as are agreed by the license holders and the Purchaser. Seller
and Shareholder understand and agree that any financial accommodation (other
than payment provisions set forth in the Management Services Agreement, the
Option Agreement and any agreement for employment or dental services by and
between Purchaser and such license holder pertaining to matters other than
financial accommodations for serving as a license holder) that any party makes
or agrees to make to any third party in order to induce such third party to
become a license holder of the New Arkansas PC or the New Oklahoma PC shall be
for the account of Seller and Shareholder and shall not be the responsibility of
Purchaser or Castle. Provided, however, that the aggregate financial
accommodation for which Shareholder shall be responsible, when added to other
financial accommodations described in that certain Asset Purchase Agreement to
which Shareholder is a party with Castle Dental Centers of Louisiana, Inc.,
shall not exceed $75,000 per year that he is employed or consulting. In the
event Shareholder has not obtained a license holder within 45 days of the date
hereof, Purchaser may retain a license holder to perform the obligations of the
license holder under the Management Services Agreement.
ARTICLE IX
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller and the Shareholder as
follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Seller and the Shareholder, to secure all
necessary consents, approvals,
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authorizations, exemptions and waivers from third parties as shall be required
in order to enable Purchaser to effect the transactions contemplated on its part
hereby, and Purchaser will otherwise use its reasonable best efforts to cause
the consummation of such transactions in accordance with the terms and
conditions hereof and to cause all conditions contained in this Agreement over
which it has control to be satisfied. Without limiting the generality of the
foregoing, Purchaser agrees to negotiate in good faith the lease agreements
described in Section 6.10 hereof. Purchaser further agrees to deliver to Seller
and the Shareholder prompt written notice of any event or condition, which if it
existed on the date of this Agreement, would result in any of the
representations and warranties of Purchaser contained herein being untrue in any
material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Seller and any agents of any Seller, upon reasonable
advance notice to Purchaser, access to all Books and Records of Seller which are
transferred to Purchaser in connection herewith, to the extent necessary or
desirable in anticipation of, or preparation for, existing or future litigation,
employment matters, tax returns or audits, or reports to or filings with
governmental agencies, during normal working hours at Purchaser's principal
places of business or at any location where such Books and Records are stored,
and Seller shall have the right, at Seller's sole cost, to make copies of any
such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Purchaser shall, at the request of Seller or the Shareholder,
execute and deliver any further instruments or documents and take all such
further action as Seller may reasonably request in order to consummate and make
effective the sale of the Assets and the assumption of the Assumed Obligations
pursuant to this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, Castle, the
Shareholder and Seller; or
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(b) by Purchaser or Seller in writing without liability on the
part of the terminating party on account of such termination (provided
the terminating party is not otherwise in default or in breach of this
Agreement), if the Closing Date shall not have occurred on or before
December 31, 1996; or
(c) by either Purchaser and Castle, on the one hand, or the
Shareholder and Seller, on the other hand, in writing, without liability
on the part of the terminating party on account of such termination
(provided the terminating party is not otherwise in default or breach of
this Agreement), if the other party shall (i) fail in any material
respect to perform its or their covenants or agreements contained herein
required to be performed prior to the Closing Date, or (ii) breach or
have breached in any material respect any of its representations or
warranties contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 12.8 and 12.11 hereof and the obligations set
forth in the next succeeding sentence of this Section 10.2. Upon any termination
of this Agreement each party hereto will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF THE SELLER BY PURCHASER. To the extent that
aggregate Damages exceed $15,000, the Purchaser, from and after the Closing
Date, shall indemnify and hold Seller and the Shareholder and their respective
Affiliates (the "Seller Indemnitees") harmless from and against any and all
damages (including exemplary damages and penalties, losses, deficiencies, costs,
expenses, obligations, fines, expenditures, claims and liabilities, including
reasonable counsel fees and reasonable expenses of investigation, defending and
prosecuting litigation (collectively, the "Damages"), suffered by any Seller
Indemnitee as a result of, caused by, arising out of, or in any way relating to
(a) any misrepresentation, breach of warranty, or nonfulfillment of any
agreement or covenant on the part of the Purchaser under this Agreement or any
misrepresentation in or omission from any list, schedule, certificate, or other
instrument furnished or to be furnished to the Seller by the Purchaser pursuant
to the terms of this Agreement; (b) any liability or obligation (other than
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those for which Purchaser are being indemnified by Seller and the Shareholder
hereunder) which pertains to the ownership, operation or conduct of the Business
or Assets arising from any acts, omissions, events, conditions or circumstances
occurring on or after the Closing Date; or (c) any liability or obligation under
the Assumed Obligations.
11.2 INDEMNIFICATION OF THE SELLER BY CASTLE. To the extent that
aggregate Damages exceed $15,000, Castle, from and after the Closing Date, shall
indemnify and hold Seller and the Shareholder and their respective Affiliates
(the "Seller Indemnitees") harmless from and against any and all damages
(including exemplary damages and penalties, losses, deficiencies, costs,
expenses, obligations, fines, expenditures, claims and liabilities, including
reasonable counsel fees and reasonable expenses of investigation, defending and
prosecuting litigation (collectively, the "Damages"), suffered by any Seller
Indemnitee as a result of, caused by, arising out of, or in any way relating to
any misrepresentation, breach of warranty, or nonfulfillment of any agreement or
covenant on the part of Castle under this Agreement or any misrepresentation in
or omission from any list, schedule, certificate, or other instrument furnished
or be furnished to the Seller by Castle pursuant to the terms of this Agreement.
11.3 INDEMNIFICATION OF THE PURCHASER AND CASTLE. to the extent that
aggregate Damages exceed $15,000 Seller and the Shareholder, jointly and
severally, shall indemnify and hold Purchaser, Castle and their respective
Affiliates (the "Purchaser Indemnitees") harmless from and against any and all
Damages suffered by any Purchaser Indemnitee as a result of, caused by, arising
out of, or in any way relating to (a) any misrepresentation, breach of warranty,
or nonfulfillment of any agreement or covenant on the part of the Seller or the
Shareholder under this Agreement or any misrepresentation in or omission from
any list, schedule, certificate, or other instrument furnished or to be
furnished to the Purchaser by the Seller pursuant to the terms of this
Agreement, (b) any liability or obligation (other than those for which Seller
and the Shareholder are being indemnified by Purchaser hereunder and other than
those relating to or arising from the Assumed Obligations and obligations
assumed by New PC) which pertains to the ownership, operation or conduct of the
Business or Assets arising from any acts, omissions, events, conditions or
circumstances occurring before the Closing Date, or (c) the uncollectibility of
any Account Receivable (net of applicable reserve), after six months.
11.4 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect
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to any matter as to which it claims to be entitled to indemnity under the
provisions of this Agreement, it will give prompt notice thereof in writing to
the indemnifying party, together with a statement of such information respecting
any of the foregoing as it shall have. Such notice shall include a formal demand
for indemnification under this Agreement. The indemnifying party shall not be
obligated to indemnify the indemnified party with respect to any Claim if the
indemnified party knowingly failed to notify the indemnifying party thereof in
accordance with the provisions of this Agreement in sufficient time to permit
the indemnifying party or its counsel to defend against such matter and to make
a timely response thereto including, without limitation, any responsive motion
or answer to a complaint, petition, notice or other legal, equitable or
administrative process relating to the Claim, only insofar as such knowing
failure to notify the indemnifying party has actually resulted in prejudice or
damage to the indemnifying party.
11.5 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnified party of the asserted Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest should be
continued, and so notifies the indemnifying party in writing within 15 days of
such request from the indemnifying party. If the indemnified party determines
that the contest should be continued, the indemnifying party shall be liable
hereunder only to the extent of the amount that the other party to the contested
Claim had agreed unconditionally to accept in payment or compromise as of the
time the indemnifying party made its request therefor to the indemnified party.
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11.6 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.7 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
11.8 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Seller or the Shareholder without
the prior written consent of Purchaser or by Purchaser to any Person without the
prior written consent of Seller.
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12.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in writing at any time
by the party which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
12.6 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is not intended
to and shall not be construed to give any Person (other than the parties
signatory hereto any interest or rights (including, without limitation, any
third party beneficiary rights) with respect to or in connection with any
agreement or provision contained herein or contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and
pay all applicable sales, stamp, transfer, documentary, use, registration,
filing and other taxes and fees (including any penalties and interest) that may
become due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Seller,
the Shareholder and Purchaser shall each pay all costs and expenses incurred by
them or on their behalf in connection with this Agreement and the transactions
contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
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if to Purchaser, to:
Castle Dental Centers of Arkansas, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
or
Castle Dental of Oklahoma, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
if to Castle, to
Castle Dental Centers, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
with a copy to:
Mr. William D. Gutermuth
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2856
if to Seller or the Shareholder to:
Dr. Tom Harris
United Dental Care Tom Harris D.D.S. & Associates
4700 West Commercial Drive, Suite A
North Little Rock, Arkansas 72116
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with a copy to:
Ms. Paula J. Storeygard
Hilburn, Calhoon, Harper, Pruniski & Calhoun, Ltd.
One Riverfront Place
Suite 850
North Little Rock, Arkansas 72114
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Arkansas without regards to conflict
of law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the requirements of its lenders
and investors and to comply with applicable securities laws. No party hereto
shall issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the other party hereto
to the contents and the manner of presentation and publication thereof.
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in any federal or state
court located in Little Rock, Arkansas, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any provision is invalid, illegal or
incapable of being enforced, the
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parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS OF ARKANSAS,
INC.
By:_____________________________
Name: Jack H. Castle, Jr.
Title: Chief Executive Officer
CASTLE DENTAL CENTERS OF OKLAHOMA,
INC.
By:______________________________
Name: Jack H. Castle, Jr.
Title: Chief Executive Officer
CASTLE DENTAL CENTERS, INC.
By:______________________________
Name: Jack H. Castle, Jr.
Title: President
UNITED DENTAL CARE TOM HARRIS D.D.S &
ASSOCIATES
By:_____________________________
Name: Tom Harris
Title: President
--------------------------------
Tom Harris
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EXHIBIT 10.44
PAGES WHERE CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED ARE STAMPED
"CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION."
THE APPROPRIATE SECTION HAS BEEN MARKED
AT THE APPROPRIATE PLACE AND IN THE
MARGIN WITH A STAR (*)."
ASSET PURCHASE AGREEMENT
Dated as of August 21,1996
By and Among
Castle Dental Centers of Louisiana, Inc.
as Purchaser,
Castle Dental Centers, Inc.,
as Castle
William T. Harris D.D.S. and Associates
(a Professional Dental Corporation)
as Seller
and
Tom Harris
as Shareholder
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS............................................................1
1.1 Definitions.....................................................1
ARTICLE II
THE TRANSACTION........................................................5
2.1 Purchase and Sale of Assets.....................................5
2.2 Excluded Assets.................................................7
2.3 Assumption of Obligations.......................................7
2.4 Nonassignable Contracts and Leases..............................7
2.5 Closing.........................................................8
ARTICLE III
PAYMENT OF PURCHASE PRICE..............................................8
3.1 Amount; Allocation; Delivery....................................8
3.2 Apportionments..................................................8
3.3 Agency Relationship.............................................9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDER....................................................9
4.1 Representations and Warranties of Seller and the Shareholder. .9
4.2 Existence and Good Standing.....................................9
4.3 Authorization and Validity of Agreement.........................9
4.4 Capital Stock..................................................10
4.5 Consents and Approvals; No Violations..........................10
4.6 Subsidiaries and Affiliates....................................11
4.7 Financial Statements; No Material Adverse Change...............11
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4.8 Books and Records..............................................11
4.9 Title to Properties; Encumbrances; Condition...................11
4.10 Real Property..................................................12
4.11 Leases.........................................................12
4.12 Material Contracts.............................................12
4.13 Permits........................................................13
4.14 Litigation.....................................................13
4.15 Taxes..........................................................13
4.16 Insurance......................................................14
4.17 Intellectual Properties........................................14
4.18 Compliance with Laws...........................................15
4.19 Employment Relations...........................................15
4.20 Employee Benefit Plans.........................................15
4.21 Environmental Laws and Regulations.............................15
4.22 Interests in Customers, Suppliers, Etc.........................16
4.23 Compensation of Employees......................................16
4.24 Payors. .....................................................16
4.25 Accounts Receivable; Accounts Payable..........................16
4.26 Solvency.......................................................17
4.27 Disclosure.....................................................17
4.28 Investments....................................................17
4.29 Broker's or Finder's Fees......................................18
4.30 Copies of Documents............................................18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND CASTLE.....................................................18
5.1 Representations and Warranties of Purchaser....................18
5.2 Representations and Warranties of Castle.......................19
ARTICLE VI
CONDITIONS TO SELLER'S AND THE SHAREHOLDER'S OBLIGATIONS..............22
6.1 Truth of Representations and Warranties........................22
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6.2 Performance of Agreements......................................22
6.3 No Litigation Threatened.......................................22
6.4 Consideration..................................................22
6.5 Governmental Approvals.........................................23
6.6 Proceedings....................................................23
6.7 Good Standing Certificates.....................................23
6.8 Other Transaction..............................................23
ARTICLE VII
CONDITIONS TO PURCHASER'S AND CASTLE'S OBLIGATIONS....................23
7.1 Truth of Representations and Warranties........................23
7.2 Performance of Agreements......................................24
7.3 No Material Adverse Change.....................................24
7.4 Documents of Conveyance........................................24
7.5 No Litigation Threatened.......................................24
7.6 Governmental Approvals.........................................24
7.7 Consents.......................................................24
7.8 Legal Opinion..................................................24
7.9 Proceedings....................................................24
7.10 New PC.........................................................25
7.11 Execution of Management Services Agreement.....................25
7.12 Practice Purchase Agreement....................................25
7.13 Approval of Lenders............................................25
7.14 Consummation of Initial Public Offering........................25
7.15 Seller Name Change.............................................25
7.16 Tradename and Trademark License Agreements.....................25
7.17 Accounts Receivable Purchase Agreement.........................25
7.18 Option Agreement...............................................26
7.19 Other Transaction..............................................26
7.20 Good Standing Certificates.....................................26
7.21 Releases of Liens..............................................26
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ARTICLE VIII
COVENANTS OF SELLER AND THE SHAREHOLDER...............................26
8.1 Cooperation by Seller..........................................26
8.2 Conduct of Business............................................27
8.3 Exclusive Dealing..............................................27
8.4 Review of the Assets...........................................27
8.5 Further Assurances.............................................28
8.6 License Holder of New PC.......................................28
ARTICLE IX
COVENANTS OF PURCHASER................................................28
9.1 Cooperation by Purchaser.......................................28
9.2 Books and Records; Personnel...................................29
9.3 Further Assurances.............................................29
ARTICLE X
TERMINATION...........................................................29
10.1 Termination....................................................29
10.2 Effect on Obligations..........................................30
ARTICLE XI
SURVIVAL AND INDEMNIFICATION..........................................30
11.1 Indemnification of the Seller by Purchaser.....................30
11.2 Indemnification of the Seller by Castle........................31
11.3 Indemnification of the Purchaser and Castle....................31
11.4 Demands........................................................31
11.5 Right to Contest and Defend....................................32
11.6 Cooperation....................................................32
11.7 Right to Participate...........................................33
11.8 Payment of Damages.............................................33
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ARTICLE XII
MISCELLANEOUS.........................................................33
12.1 Entire Agreement...............................................33
12.2 Successors and Assigns.........................................33
12.3 Counterparts...................................................33
12.4 Headings.......................................................34
12.5 Modification and Waiver........................................34
12.6 No Third Party Beneficiary Rights..............................34
12.7 Sales and Transfer Taxes.......................................34
12.8 Expenses.......................................................34
12.9 Notice.........................................................34
12.10 Governing Law..................................................36
12.11 Confidentiality; Publicity.....................................36
12.12 Consent to Jurisdiction........................................36
12.13 Severability...................................................36
12.14 Enforcement....................................................37
SCHEDULES
Schedule 2.2(a) Excluded Contracts
Schedule 2.2(f) Other Excluded Assets
Schedule 2.3 Assumed Obligations
Schedule 4.5 Consents
Schedule 4.6 Asset Owned by Third Parties which are Used in the
Business
Schedule 4.7 Material Adverse Change
Schedule 4.9 Encumbrances
Schedule 4.10 Real Property
Schedule 4.11 Leased Personal Property
Schedule 4.12 Material Contracts and Proposals
Schedule 4.13 Permits
Schedule 4.14 Litigation
Schedule 4.15 Taxes
Schedule 4.16 Insurance Policies
Schedule 4.17 Intellectual Property
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Schedule 4.21 Environmental Matters
Schedule 4.23 Employee Compensation
Schedule 4.24 Payors
Schedule 4.25 Accounts Receivable
Schedule 5.2.5 Consents of Castle
EXHIBITS
Exhibit A Seller's Counsel Legal Opinion
Exhibit B Management Services Agreement
Exhibit C Practice Purchase Agreement
Exhibit D Option Agreement
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of August 21, 1996 by and among Castle
Dental Centers of Louisiana, Inc., a Louisiana corporation ("Purchaser"), Castle
Dental Centers, Inc., a Delaware corporation ("Castle"), William T. Harris
D.D.S. and Associates (a Professional Dental Corporation ("Seller"), and Tom
Harris, the sole shareholder of Seller (the "Shareholder").
W I T N E S S E T H:
WHEREAS, Seller wishes to sell, and Purchaser wishes to purchase,
substantially all of the property, assets and business of Seller, all upon the
terms and subject to the conditions set forth below.
NOW, THEREFORE, for the mutual covenants and other consideration
described herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms have the meanings
set forth below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"ACCOUNTS RECEIVABLE": all notes and accounts receivable of Seller as of
the Closing Date.
"ACCOUNTS PAYABLE": the payables of Seller to trade account and other
creditors as of the Closing Date as shown on Schedule 2.3.
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"AFFILIATE": with respect to any Person, any other Person directly or
indirectly controlling (including but not limited to all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person.
"AGREEMENT": this Asset Purchase Agreement, as amended from time to time
as provided herein.
"ASSETS": as defined in Section 2.1 hereof.
"ASSIGNED CONTRACTS": as defined in Section 2.3 hereof.
"ASSUMED OBLIGATIONS": as defined in Section 2.3 hereof.
"BALANCE SHEET DATE": as defined in Section 4.7 hereof.
"BOOKS AND RECORDS": all books, records, books of account, files and
data (including customer and supplier lists), certificates and other documents
related to the conduct of the business or the ownership of the Assets, including
personnel records and files, except that the Books and Records shall not include
any books, records, files and other data of Seller which relate exclusively to
organizational and corporate governance proceedings of Seller.
"BUSINESS": the practice management of dentistry, including orthodontics
and periodontics and all other management and related activities currently
conducted by Seller.
"CLOSING": as defined in Section 2.5 hereof.
"CLOSING DATE": as defined in Section 2.5 hereof.
"CODE": the Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code as in effect at the date of this
Agreement and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
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"ENCUMBRANCES": liens, security interests, options, rights of first
refusal, easements, mortgages, charges, debentures, indentures, deeds of trust,
rights-of-way, restrictions, agreements, encroachments, licenses, leases,
permits, security agreements, or any other encumbrances and other restrictions
or limitations on use of real or personal property or irregularities in title
thereto that would have a Material Adverse Effect.
"ENVIRONMENTAL CLAIM": any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violations, investigations or proceedings relating in any way
to any Environmental Law (for purposes of this definition, "Claims") or any
permit issued under any such Environmental Law, including without limitation (I)
any and all Claims by governmental or regulatory authorities for enforcement,
cleanup, removal, remedial or other actions of damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW": any federal, state or local statute, law, rule,
regulation, ordinance, code, policy or rule of common law now in effect and in
each case as amended and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to Hazardous Materials, the environment or health relating to or
arising from environmental conditions, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended 42 U.S.C. ss. 9601 ET SEQ.; the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss. 1801 ET SEQ.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss. 6901 ET SEQ.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss. 1251 ET SEQ.; the Toxic
Substances Control Act, 15 U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C.
ss. 7401 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. ss. 3808 ET SEQ.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 ET SEQ.; and relevant state and
local laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA as in effect at the date of
this Agreement and any subsequent provisions of ERISA amendatory thereof,
supplemental thereto or substituted therefor.
"EXCLUDED ASSETS": as defined in Section 2.2 hereof.
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"EXCLUDED CONTRACTS": as defined in Section 2.2(a) hereof.
"FINANCIAL STATEMENTS": as defined in Section 4.6 hereof.
"GAAP": generally accepted accounting principles consistently applied.
"HAZARDOUS MATERIALS": (I) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar import
under any applicable Environmental Law; and (iii) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by an
governmental authority.
"INTELLECTUAL PROPERTY": domestic and foreign patents, patent
applications, registered and unregistered trademarks, service marks, trade names
and logos, registered and unregistered copyrights, computer programs, data
bases, trade secrets and proprietary information relating to the conduct of the
Business.
"MATERIAL ADVERSE EFFECT": material adverse effect on the assets,
liabilities, Business, condition (financial or otherwise), results or operations
or prospects of the Seller, or its Affiliates.
"NEW PC": a newly formed professional corporation in the State of
Louisiana with a license holder mutually agreeable to Castle and Purchaser.
"PERMITS": as defined in Section 4.13 hereof.
"PERMITTED ENCUMBRANCES": as defined in Section 4.9 hereof.
"PERSON": any individual, partnership, joint venture, corporation,
trust, unincorporated organization, government or other department or agency
thereof or other entity.
"PLANS": as defined in Section 4.20 hereof.
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"PRE-CLOSING PERIODS": as defined in Section 4.15(a) hereof.
"PRICE ALLOCATION": as defined in Section 3.1 hereof.
"PURCHASE PRICE": as defined in Section 3.1 hereof.
"PURCHASER": as defined in the preamble of this Agreement.
"RETURNS": as defined in Section 4.15(a) hereof.
"RELEASE": disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
"SELLER" as defined in the preamble of this Agreement.
"SELLER PROPERTY": any real property and improvements thereon presently
owned, leased, operated or occupied by Seller.
"TAX": any net income, alternative or add-on minimum tax, advance,
corporation, gross income, gross receipts, sales, use, AD VALOREM, franchise,
profits, license, value added, withholding, payroll, employment, excise, stamp
or occupation tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty imposed by any
governmental authority with respect thereto, and any liability for such amounts
as a result either of being a member of an affiliated group or of a contractual
obligation to indemnify any other entity.
ARTICLE II
THE TRANSACTION
2.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from the Seller, and the Seller
agrees to sell, convey, transfer, assign and deliver, and cause to be sold,
conveyed, transferred, assigned and delivered to Purchaser, on the Closing Date,
against the receipt by the Seller of the consideration specified in Section 3.1
hereof, the Assets, free and clear of any Encumbrances except Permitted
Encumbrances. The term "Assets"
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shall mean all of the rights, title and interests of Seller and the Shareholder
in and to the assets used in or relating to the conduct of the Business on the
Closing Date, tangible and intangible, real, personal and mixed, wheresoever
situated and whether or not specifically referred to herein or in any instrument
of conveyance delivered pursuant hereto, except the Excluded Assets. The Assets
shall include but are not limited to the following categories of assets:
(a) all title to, interest in or rights with respect to real
property, including leasehold interests, described in Schedule 4.10
attached hereto together with all buildings, facilities, fixtures and
other leasehold improvements thereon and all easements, rights-of-way,
transferable licenses and permits and other appurtenances thereof;
(b) plant, machinery, equipment, operating equipment, tools,
supplies, inventories, furniture, fixtures, furnishings, vehicles and
other fixed assets owned or leased and used or held for use in the
conduct of the Business;
(c) contracts, documents, instruments, insurance and indemnity
policies and general intangibles of Seller, including the name "United
Dental Care" and derivatives thereof, and goodwill associated therewith,
other than the Excluded Contracts;
(d) Accounts Receivable as of the Closing Date;
(e) all licenses, permits, registrations and authorizations to
the extent transferable, proprietary information, methods, know-how,
designs, processes, procedures, goodwill and all rights to other
Intellectual Property used in the Business;
(f) Books and Records;
(g) any rights pertaining to any counterclaims, set-offs or
defenses it may have with respect to any Assumed Obligations;
(h) all prepaid claims, prepaid taxes, prepaid insurance
premiums and other prepaid expense items; and
(i) third-party indemnities, policies of insurance identified by
Purchaser, fidelity, surety or similar bonds and the coverages afforded
thereby relating to the Assets.
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2.2 EXCLUDED ASSETS. The Assets shall not include any of the following
(the "Excluded Assets"):
(a) each dentist employment contract, managed care contract,
insurance or third party reimbursement agreement or other contract set
forth on Schedule 2.2(a) and assumed by New PC (the Excluded
Contracts");
(b) cash, cash equivalents, deposits, advance payments,
securities, letters of credit naming Seller as account party,
certificates of deposit, drafts, checks and similar instruments;
(c) minute books and governance documents of the Seller;
(d) patient records all of which shall be assigned to New PC;
(e) any other Asset the ownership of which shall be transferred
by Seller to New PC at the direction of Purchaser; and
(f) any Asset listed on Schedule 2.2(f).
2.3 ASSUMPTION OF OBLIGATIONS. Upon the sale of the Assets by Seller,
Purchaser shall assume and agree to pay, perform and discharge, in a timely
manner and in accordance with the terms thereof, only such of the obligations of
Seller in respect of (a) the licenses, leases, permits, contracts, notes and
other debts set forth in Schedule 2.3 (the "Assigned Contracts") which are being
assigned to Purchaser hereunder and (b) Accounts Payable as of the Closing Date
(collectively, "Assumed Obligations"). Notwithstanding anything contained herein
to the contrary, Purchaser does not assume, and hereby expressly disclaims
responsibility for, any obligation or liability of Seller or the Shareholder not
described on Schedule 2.3, unless they are Assumed Obligations as that term is
defined in that certain Asset Purchase Agreement of even date herewith by and
among Castle Dental Centers of Arkansas, Inc., Castle Dental Centers of
Oklahoma, Inc., Castle, United Dental Care Tom Harris D.D.S. & Associates and
Tom Harris (the "Arkansas Purchase Agreement").
2.4 NONASSIGNABLE CONTRACTS AND LEASES. In the case of any Assigned
Contracts which are not by their terms assignable or with respect to which a
consent to assignment is not obtained by the Closing Date, Seller and the
Shareholder agree to use their best efforts to obtain, or cause to be obtained,
prior to the Closing Date, any written consents necessary to convey to Purchaser
the
-7-
CONFIDENTIAL TREATMENT REQUESTED.
THE REDACTED MATERIAL HAS BEEN
SEPARATELY FILED WITH THE COMMISSION.
benefit thereof. Purchaser shall cooperate with Seller and the Shareholder, in
such manner as may be reasonably requested, in connection therewith, including
without limitation, written assumptions of liability, active participation in
visits to and meetings, discussions and negotiations with all Persons with the
authority to grant or withhold consent. If Seller and the Shareholder are unable
to obtain such necessary written consents for the remaining term of such
Assigned Contract, Purchaser shall act, or cause New PC to act as Seller's and
the Shareholder's agent in the performance of all obligations and liabilities
under such Assigned Contract and such Seller and the Shareholder shall act as
Purchaser's agents in the receipt of any benefits, rights or interests which
inure to such Seller or the Shareholder under such Assigned Contract.
2.5 CLOSING. Subject to the satisfaction of the conditions to closing
set forth herein, the closing (the "Closing") of the transactions contemplated
hereby shall be held at the offices of Bracewell & Patterson, L.L.P., South
Tower Pennzoil Place, 711 Louisiana Street, Suite 2900, Houston, Texas, on or
before the earlier of (i) December 31, 1996 or (ii) expiration of thirty days
following the consummation of an initial public offering of Castle stock in
which gross proceeds exceed $25 million, or such other place, date and time as
may be mutually agreed upon by the parties. Such time and date are referred to
herein as the "Closing Date."
ARTICLE III
PAYMENT OF PURCHASE PRICE
* 3.1 AMOUNT; ALLOCATION; DELIVERY. On the Closing Date, Purchaser shall
pay to Seller [REDACTED] in cash (the "Purchase Price"), which shall be paid by
wire transfer of immediately available funds to an account or accounts of Seller
identified by Seller. Purchaser and Seller hereby agree to allocate the Purchase
Price among the Assets in accordance with Section 1060 of the Code (the "Price
Allocation"). The parties hereby undertake and agree to file timely any
information that may be required to be filed pursuant to regulations promulgated
under Section 1060(b) of the Code. The parties further agree that they will
report the federal, state, municipal, foreign and local and other tax
consequences of the purchase and sale hereunder in a manner consistent with the
Price Allocation, as so adjusted, and that they will not take any position
inconsistent therewith.
3.2 APPORTIONMENTS. The following items shall be apportioned as of 11:59
p.m., on the day preceding the Closing Date: (a) personal property taxes, sewer
rents and charges and other state, county, metropolitan and municipal taxes and
assessments and charges affecting the Assets; (b) rents
-8-
and other payments under any of the Assigned Contracts; (c) charges for water,
electricity, gas, oil, steam and all other utilities (except to the extent
disposed of by final billing to Seller); and (d) such other items as are
customarily apportioned in connection with the sale of similar property, all
such items prior to such time being for the account of Seller and all such times
after such time being the account of Purchaser. Any adjustments required by the
apportionments described herein shall be made as a part of the Purchase Price
Adjustment described in Section 3.2.
3.3 AGENCY RELATIONSHIP. In the event that, following the Closing Date,
Seller or the Shareholder receive any funds, documents or instruments which
constitute or are delivered in respect of Assets transferred to Purchaser
pursuant to this Agreement, Seller and the Shareholder agree to hold such funds,
documents or instruments in trust for Purchaser and as Purchaser's agent
therefor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SHAREHOLDER
4.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDER. As an
inducement to the Purchaser to enter into and perform this Agreement, Seller and
the Shareholder, jointly and severally, hereby represent and warrant to
Purchaser as follows:
4.2 EXISTENCE AND GOOD STANDING. Seller is a corporation duly organized
and validly existing under the laws of the State of Louisiana. Seller has the
full corporate power and authority to own, lease and operate its property and to
carry on the Business as now being conducted and to own or lease the Assets
owned or leased by it. Seller is duly qualified or licensed to do business in
each jurisdiction in which the character or location of the properties owned or
leased by Seller or the nature of the business conducted by Seller makes such
qualification necessary and the absence of which would have a Material Adverse
Effect.
4.3 AUTHORIZATION AND VALIDITY OF AGREEMENT. Seller has full corporate
power and authority, and the Shareholder have full power and authority to
execute and deliver this Agreement, to perform their respective obligations
hereunder and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by Seller and the consummation by it
of the transactions contemplated hereby, have been duly authorized and approved
by the Board
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of Directors and the Shareholder of Seller, and no other action on the part of
Seller or its Shareholder is necessary to authorize the execution, delivery and
performance of this Agreement by Seller and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller and the Shareholder and is a valid and binding obligation of Seller and
the Shareholder enforceable against each in accordance with its terms, except to
the extent that its enforceability may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles.
4.4 CAPITAL STOCK. The authorized capital stock of the Seller consists
solely of 1,000 shares of common stock of which 1,000 shares have been issued,
and are outstanding, all of which are owned by the Shareholder. All of the
shares of common stock of the Seller have been duly and validly authorized and
issued, and are fully paid and nonassessable and free of any liens or
encumbrances.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
Schedule 4.5, the execution, delivery and performance of this Agreement by
Seller and the Shareholder and the consummation by Seller and the Shareholder of
the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time or both: (a) violate, conflict with, or result in a
breach or default under any provision of the organizational documents of Seller;
(b) violate any statute, ordinance, rule, regulation, order, judgment or decree
of any court or of any governmental or regulatory body, agency or authority
applicable to Seller or the Shareholder or by which any of Seller's properties
or assets may be bound; (c) require any filing by Seller or the Shareholder
with, or require Seller or the Shareholder to obtain any permit, consent or
approval of, or require Seller or the Shareholder to give any notice to, any
governmental or regulatory body, agency or authority other than as set forth in
Schedule 4.5 attached hereto; or (d) result in a violation or breach by Seller
or the Shareholder of, conflict with, constitute (with or without due notice or
lapse of time or both) a default by Seller or the Shareholder (or give rise to
any right of termination, cancellation, payment or acceleration) under or result
in the creation of any Encumbrance upon any of the properties or assets of
Seller or the Shareholder under any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement,
lease franchise agreement or other instrument or obligation to which Seller or
the Shareholder is a party, or by which Seller or any of its properties or
assets may be bound, except for such violations, consents, breaches, defaults,
terminations and accelerations which would not have a Material Adverse Effect.
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4.6 SUBSIDIARIES AND AFFILIATES. Seller has no subsidiaries. Except as
set forth on Schedule 4.6, all of the Assets used in the Business are owned by
Seller, and on consummation of the transactions contemplated hereby Purchaser
will have acquired all of the Assets used in the Business.
4.7 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Seller has
heretofore furnished Purchaser with the unaudited combined balance sheet of
Seller and United Dental Care Tom Harris D.D.S. & Associates as of May 31, 1996
(the "Balance Sheet Date") and the unaudited statements of operations and cash
flows for the year then ended (the "Financial Statements"). The Financial
Statements fairly present in all material respects the financial position of
Seller and United Dental Care Tom Harris D.D.S. & Associates at the date thereof
and the results of operations of Seller and United Dental Care Tom Harris D.D.S.
& Associates and their cash flows for the period indicated. Except as set forth
in Schedule 4.7 attached hereto, since the Balance Sheet Date there has been no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations of Seller.
Other than as (i) disclosed on the Financial Statements, (ii) incurred
since the Balance Sheet Date in the ordinary course of business or (iii)
disclosed on Schedule 4.7 or another Schedule hereto, the Seller has no direct
or indirect indebtedness, liability, claim, deficiency, obligation or
responsibility, known or unknown, fixed or contingent, liquidated or
unliquidated, accrued, absolute or otherwise.
4.8 BOOKS AND RECORDS. The Seller has previously made available to
Purchaser true, correct and complete copies of its articles of incorporation and
bylaws, and all amendments to each. The minute books of Seller, as previously
made available to Purchaser and its representatives, contain accurate records in
all material respects of the meetings of, the shareholders and Board of
Directors of Seller.
4.9 TITLE TO PROPERTIES; ENCUMBRANCES; CONDITION. Except as set forth in
Schedule 4.9 or 4.10, and except for properties and assets reflected in the
Financial Statements or acquired since the Balance Sheet Date which have been
sold or otherwise disposed of in the ordinary course of business, Seller has
good and valid title to the Assets, in each case subject to no Encumbrances
except for (i) Encumbrances consisting of easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto that do not materially detract from the value of, or materially
impair the use of, such property by Seller in the operation of the Business,
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(ii) Encumbrances for current taxes, assessments or governmental charges or
levies on property not yet due or delinquent, (iii) Encumbrances created by
Purchaser, and (iv) Encumbrances relating to Assumed Obligations and obligations
assumed by New PC (liens of the type described in clauses (i), (ii), (iii) and
(iv) above and liens disclosed on Schedules 4.9 or 4.10 are hereinafter
sometimes referred to as "Permitted Encumbrances"). Seller has heretofore
furnished Purchaser with a fixed asset ledger which sets forth all fixed assets
owned by Seller as of the Balance Sheet Date. Seller and the Shareholder are not
aware of any defects in such assets that would have a Material Adverse Effect on
the ability of Purchaser to use such assets in the Business, ordinary wear and
tear excepted.
4.10 REAL PROPERTY. Schedule 4.10 identifies all interests in real
property used by the Seller in the Business, including leases, and includes the
name of the record title holder thereof. All of the buildings, structures and
appurtenances situated on the real property owned or leased by Seller are in
such an operating condition, and in a state of maintenance and repair, subject
to ordinary wear and tear, as is necessary for the operation of the Assets in
the Business. The real property has adequate rights of ingress and egress for
operation of the Business in the ordinary course. No condemnation or similar
proceeding is pending or, to the best knowledge of Seller and the Shareholder,
threatened, which would preclude or impair the use of any such property, except
where such proceeding would not have a Material Adverse Effect.
4.11 LEASES. Schedule 4.11 contains an accurate and complete list of all
personal property leases to which Seller is a party (as lessee or lessor) and an
identification of all such leases to which Seller is a party as lessee. Each
lease set forth in Schedule 4.11 is in full force and effect, and no event has
occurred that with the giving of notice, the passage of time or both would
constitute a default thereunder.
4.12 MATERIAL CONTRACTS. Except as set forth in Schedule 4.12, the
Assigned Contracts do not include (a) any agreement, contract or commitment
relating to the employment of any person by Seller, (b) any agreement, indenture
or other instrument which contains restrictions with respect to payment of
profits, dividends or any other distributions, (c) any agreement, contract or
commitment relating to capital expenditures in excess of $5,000 (d) any loan or
advance to, or investment in, any Person or any agreement, contract or
commitment relating to the making of any such loan, advance or investment, (e)
any guarantee or other contingent liability in respect of any indebtedness or
obligation of any Person, (f) any management service, consulting or any other
similar type contract, (g) any agreement, contract or commitment limiting the
freedom of Seller to engage in any line of business or to compete with any
Person, (h) any agreement, contract or commitment which involves
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$5,000 or more and is not cancelable without penalty within 30 days, or (i) any
other agreement, contract or commitment which would have a Material Adverse
Effect. Also set forth in Schedule 4.12 is a list of all proposals submitted by
Seller to any third party that, if accepted by such third party, would require
disclosure on Schedule 4.12. Except where it would not have a Material Adverse
Effect, each contract or agreement set forth in Schedule 4.12 is in full force
and effect and there exists no default or event of default or event, occurrence,
condition or act (including the purchase of the Assets hereunder) which, with
the giving of notice, the lapse of time or the happening of any other event or
condition, would become a default or event of default thereunder.
4.13 PERMITS. Schedule 4.13 attached hereto lists all of the
governmental and other third party permits (including occupancy permits),
licenses, consents and authorizations ("Permits") required, to the knowledge of
Seller and the Shareholder, in connection with the use, operation or ownership
of the Assets and the conduct of the Business as currently conducted. Seller
holds all of the Permits listed on Schedule 4.13, and, except as set forth in
Schedule 4.13, none is presently subject to revocation or challenge. Except as
set forth on Schedule 4.13, all such Permits will be assigned to Purchaser or
New PC, and none of such Permits will be subject to revocation or termination as
a result thereof.
4.14 LITIGATION. Except as set forth in Schedule 4.14, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or any investigation by) any governmental or
other instrumentality or agency, pending, or, to the knowledge of Seller and the
Shareholder, threatened, against or affecting the properties, rights or goodwill
of Seller, the Shareholder, or employees of Seller, and Seller and the
Shareholder do not know of any valid basis for any such action, proceeding or
investigation. There are no such suits, actions, claims, proceedings or
investigations pending or to the knowledge of Seller and the Shareholder
threatened, seeking to prevent or challenge the transactions contemplated by
this Agreement. Purchaser will assume no liability whatsoever with respect to
any matter described on Schedule 4.14. Schedule 4.14 also describes any actions,
suits, disciplinary proceedings and investigations undertaken by the Dental
Board of the States of Louisiana, Louisiana, Oklahoma and Tennessee, or other
body regulating the activities of dentists, against Thomas Harris.
4.15 TAXES. (a) All returns and reports for Taxes for all taxable years
or periods that end on or before the Closing Date and, with respect to any
taxable year or period beginning before and ending after the Closing Date the
portion of such taxable year or period ending on and including the Closing Date
("Pre-Closing Periods"), which are required to be filed by or with respect to
Seller
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(collectively, the "Returns") have been or will be filed when due in a timely
fashion and such Returns as filed are or will be accurate in all material
respects.
(b) Except as provided in Schedule 4.15 there is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of Seller or the Shareholder, threatened by any authority regarding
any Taxes relating to Seller for any Pre-Closing Period.
(c) There are no liens or security interests on any of the assets
of Seller that arose in connection with any failure (or alleged failure) to pay
any Taxes.
(d) Except as provided in Schedule 4.15, there are no agreements
for the extension or waiver of the time for assessment of any Taxes relating to
Seller for any Pre-Closing Period and Seller has not been requested to enter
into any such agreement or waiver.
(e) All Taxes relating to Seller which Seller is required by law
to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper authorities to the extent due and payable.
(f) Seller is not now nor has ever been a party to any Tax
allocation or sharing agreement that could result in any liability to Purchaser.
4.16 INSURANCE. Set forth in Schedule 4.16 is a complete list of
insurance policies that Seller maintains with respect to its Business and
properties that are included in the Assets or on its employees. Such policies
are in full force and effect, are free from any right of termination on the part
of the insurance carriers, and are transferable to Purchaser for the unexpired
portion of their term. In the judgment of Seller, such policies, with respect to
their amounts and types of coverage, are adequate to insure against risks to
which Seller and its property and assets are normally exposed in the operation
of the Business, subject to customary deductibles and policy limits.
4.17 INTELLECTUAL PROPERTIES. Schedule 4.17 sets forth all material
Intellectual Property used in the Business and the owner of such Intellectual
Property. The operation of the Business as conducted by Seller as of the Closing
Date requires no rights under Intellectual Property other than rights under
Intellectual Property listed on Schedule 4.17 and rights granted to Seller
pursuant to agreements listed on Schedule 4.17. Except as otherwise set forth in
Schedule 4.17, Seller owns all
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right, title and interest in the Intellectual Property listed in Schedule 4.17.
No litigation is pending or, to the knowledge of Seller or the Shareholder,
threatened wherein Seller is accused of infringing or otherwise violating the
Intellectual Property rights of another, or of breaching a contract conveying
rights under Intellectual Property.
4.18 COMPLIANCE WITH LAWS. Seller is in compliance in all material
respects with all applicable laws, regulations, orders, judgments and decrees
applicable to the Business.
4.19 EMPLOYMENT RELATIONS. (a) Seller is not and has not engaged in any
unfair labor practice; (b) to the knowledge of Seller and the Shareholder, no
representation question exists respecting the employees of Seller; (c) Seller
has not been notified of any grievance that might have a Material Adverse Effect
and no arbitration proceeding arising out of or under any collective bargaining
agreement is pending; and (f) no collective bargaining agreement is currently
being negotiated by Seller.
4.20 EMPLOYEE BENEFIT PLANS. Seller has delivered to Purchaser true and
complete copies of all employee benefit plans, policies, programs and
arrangements and all related contracts, agreements and other descriptions
thereof with respect to the employee benefits provided to the employees of the
Business prior to the Closing Date (the "Plans"). Each of the Plans has, to the
knowledge of Seller and the Shareholder, been maintained in compliance with its
terms and the requirements of all applicable laws. None of the Plans are subject
to Title IV of ERISA or the minimum funding obligations of Section 412 of the
Code, and Seller and any entity required to be aggregated therewith pursuant to
Section 414(b) or (c) of the Code have no liability under Title IV of ERISA or
under Section 412(f) or 412(n) of the Code.
4.21 ENVIRONMENTAL LAWS AND REGULATIONS. Except as set forth in Schedule
4.21, and except where it would not have a Material Adverse Effect (a) Hazardous
Materials have not been generated, used, treated or stored on, or transported to
or from, any Seller Property by Seller, its authorized agents or its independent
contractors (including suppliers) or any property adjoining any Seller Property,
(b) Hazardous Materials have not been Released or disposed of by Seller, its
authorized agents or its independent contractors (including suppliers) on any
Seller Property or any property adjoining any Seller Property except such
Releases which do not violate any Environmental Laws, (c) Seller is, to its and
the Shareholder's knowledge, in compliance with all applicable Environmental
Laws and the requirements of any Permits issued under such Environmental Laws
with respect to any Seller Property, (d) there are no pending or, to the
knowledge of Seller and the
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Shareholder, threatened Environmental Claims against Seller or any Seller
Property, (e) there are no facts or circumstances, conditions, pre-existing
conditions or occurrences on any Seller Property known to Seller or the
Shareholder that could reasonably be anticipated (A) to form the basis of an
Environmental Claim against Seller or any Seller Property, or (B) to cause such
Seller Property to be subject to any restrictions on the ownership, occupancy
use or transferability of such Seller Property under any Environmental Law, (f)
there are not now and there never have been any underground storage tanks
located on any Seller Property, and (g) Seller has not in the ordinary course of
business transported or stored Hazardous Materials.
4.22 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except for relationships
with Affiliates, Seller does not possess, directly or indirectly, any financial
interest in, and no Shareholder serves as a director, officer or employee of,
any corporation, firm, association or business organization which is a supplier,
customer, lessor, lessee, or competitor of Seller.
4.23 COMPENSATION OF EMPLOYEES. Set forth in Schedule 4.23 is an
accurate and complete list showing the names of all persons whose compensation
from Seller collectively for the fiscal year ended on the Balance Sheet Date
exceeded an annualized rate of $20,000, together with a statement of the full
amount paid or payable to each such person for services rendered during the
current fiscal year to date.
4.24 PAYORS. Schedule 4.24 sets forth the ten largest payors of Seller
for the most recently completed fiscal year. The relationship of Seller with
each of such payors as of the date of this Agreement is a good commercial
working relationship, and except as set forth in Schedule 4.24 no significant
payor has canceled or otherwise terminated or, to the knowledge of Seller or the
Shareholder threatened to cancel or otherwise terminate its relationship with
Seller within the last three years.
4.25 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. Except as set forth on
Schedule 4.25, the Accounts Receivable are collectible in the ordinary course of
business, net of the reserves established with respect thereto. Except as set
forth on Schedule 4.25, there has been no change since the Balance Sheet Date
(other than in the ordinary course of business) in the amount of the Accounts
Receivable or other fees or debts due to Seller or the allowances with respect
thereto, or Accounts Payable by Seller, from that reflected in such balance
sheet.
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4.26 SOLVENCY. Seller is not entering into this Agreement with actual
intent to hinder, delay or defraud creditors. Immediately prior to and
immediately subsequent to the Closing Date:
(a) the present fair salable value of the Assets of Seller (on a
going concern basis) will exceed the liability of Seller on its debts
(including its contingent obligations);
(b) Seller has not incurred, nor does it intend to or believe
that it will incur, debts (including contingent obligations) beyond its
ability to pay such debts as such debts mature (taking into account the
timing and amounts of cash to be received from any source, and of
amounts to be payable on or in respect of debts); and the amount of cash
available to Seller after taking into account all other anticipated uses
of funds is anticipated to be sufficient to pay all such amounts on or
in respect of debts, when such amounts are required to be paid; and
(c) Seller will have sufficient capital with which to conduct its
business, and the property of Seller does not constitute unreasonably
small capital with which to conduct its business.
For purposes of this Section 4.26 "debt" means any liability or a (i)
right to payment whether or not such a right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable secured, or unsecured; or (ii) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such a right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.
4.27 DISCLOSURE. None of this Agreement, the Financial Statements, any
Schedule, Exhibit or certificate attached hereto or delivered in accordance with
the terms hereof contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not materially misleading in light of the circumstances under
which they were made.
4.28 INVESTMENTS. The Assets do not include any capital stock or other
equity ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity.
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4.29 BROKER'S OR FINDER'S FEES. No agent, broker, Person or firm acting
on behalf of Seller is, or will be, entitled to any fee, commission or broker's
or finder's fees in connection with this Agreement or any of the transactions
contemplated hereby.
4.30 COPIES OF DOCUMENTS. Seller has caused to be made available for
inspection and copying by Purchaser and its advisers, true, complete and correct
copies of all documents referred to in this Article IV or in any Schedule
attached hereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND CASTLE
5.1 REPRESENTATIONS AND WARRANTIES OF PURCHASER. As an inducement to the
Seller and Shareholder to enter into and perform this Agreement, Purchaser
hereby represents and warrants to Seller and Shareholder as follows:
5.1.1 EXISTENCE AND GOOD STANDING. Purchaser is a corporation
duly organized and validly existing under the laws of the State of Louisiana.
Purchaser has the full corporate power and authority to own, lease and operate
its property and to make, execute, deliver and perform this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby.
5.1.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Purchaser has full
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Purchaser
and the consummation by it of the transactions contemplated hereby, have been
duly authorized and approved by the Board of Directors of Purchaser, and no
other action on the part of Purchaser is necessary to authorize the execution,
delivery and performance of this Agreement by Purchaser and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Purchaser and is a valid and binding obligation of Purchaser
enforceable against it in accordance with its terms, except to the extent that
its enforceability may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
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5.1.3 CAPITAL STOCK. Purchaser is a wholly-owned subsidiary of
Castle.
5.1.4 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution,
delivery and performance of this Agreement by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby will not, with or without the
giving of notice or the lapse of time or both: (a) violate, conflict with, or
result in a breach or default under any provision of the organizational
documents of Purchaser; (b) violate any statute, ordinance, rule, regulation,
order, judgment or decree of any court or of any governmental or regulatory
body, agency or authority applicable to Purchaser or by which any of Purchaser's
properties or assets may be bound; (c) require any filing by Purchaser with, or
require Purchaser to obtain any permit, consent or approval of, or require
Purchaser to give any notice to, any governmental or regulatory body, agency or
authority; or (d) result in a violation or breach by Purchaser of, conflict
with, constitute (with or without due notice or lapse of time or both) a default
by Purchaser (or give rise to any right of termination, cancellation, payment or
acceleration) under or result in the creation of any Encumbrance upon any of the
properties or assets of Purchaser under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, license, franchise, permit,
agreement, lease franchise agreement or other instrument or obligation to which
Purchaser is a party, or by which Purchaser or any of its properties or assets
may be bound, except for such violations, consents, breaches, defaults,
termination and accelerations which would not have a Material Adverse Effect.
5.1.5 COMPLIANCE WITH LAWS. To the knowledge of Purchaser,
Purchaser is in compliance with all applicable laws, regulations, orders,
judgments and decrees applicable to its business, except where any noncompliance
would not have a material adverse effect on the assets, liabilities, business,
condition (financial or otherwise), results of operations or prospects of
Purchaser.
5.1.6 BROKER'S OR FINDER'S FEES. Except for a fee payable by or
on behalf of Purchaser to The GulfStar Group, no agent, broker, Person or firm
acting on behalf of Purchaser is, or will be, entitled to any fee, commission or
broker's or finder's fee in connection with this Agreement or any of the
transactions contemplated hereby.
5.2 REPRESENTATIONS AND WARRANTIES OF CASTLE. As an inducement to the
Seller and Shareholder to enter into and perform this Agreement, Castle hereby
represents and warrants to Purchaser and Shareholder as follows:
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5.2.1 EXISTENCE AND GOOD STANDING. Castle is a corporation duly
organized and validly existing under the laws of the State of Delaware. Castle
has the full corporate power and authority to own, lease and operate its
property and to carry on its business as now being conducted and to own or lease
the assets owned or leased by it. Castle is duly qualified or licensed to do
business in each jurisdiction in which the character or location of the
properties owned or leased by Castle or the nature of the business conducted by
Castle makes such qualification necessary and the absence of which would have a
Material Adverse Effect.
5.2.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Castle has full corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Castle and the
consummation by it of the transactions contemplated hereby, have been duly
authorized and approved by the Board of Directors of Castle, and no other action
on the part of Castle is necessary to authorize the execution, delivery and
performance of this Agreement by Castle and the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Castle and is a valid and binding obligation of Castle enforceable against it in
accordance with its terms, except to the extent that its enforceability may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles.
5.2.3 CAPITAL STOCK.The authorized capital stock of Castle consists
solely of 18,755,263 shares of Common Stock and 1,244,737 shares of Preferred
Stock, $.001 par value per share.
5.2.4 LITIGATION. There is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or any
investigation by) any governmental or other instrumentality or agency, pending,
or, to the knowledge of Castle, threatened, against or affecting the properties,
rights or goodwill of Castle, Purchaser or their employees, except where such
Proceeding would not have a material adverse effect on the assets, liabilities,
business, condition (financial or otherwise), results of operations or prospects
of Castle or Purchaser, and Purchaser does not know of any valid basis for any
such action, proceeding or investigation. There are no such Proceedings pending
or, to the knowledge of Purchaser, threatened, seeking to prevent or challenge
the transactions contemplated by this Agreement.
5.2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set forth on
Schedule 5.2.5, the execution, delivery and performance of this Agreement by
Castle and the consummation by Castle
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of the transactions contemplated hereby will not, with or without the giving of
notice or the lapse of time or both: (a) violate, conflict with, or result in a
breach or default under any provision of the organizational documents of Castle;
(b) violate any statute, ordinance, rule, regulation, order, judgment or decree
of any court or of any governmental or regulatory body, agency or authority
applicable to Castle or by which any of Castle's properties or assets may be
bound; (c) require any filing by Castle with, or require Castle to obtain any
permit, consent or approval of, or require Castle to give any notice to, any
governmental or regulatory body, agency or authority other than as set forth in
Schedule 5.2.5 attached hereto; or (d) result in a violation or breach by Castle
of, conflict with, constitute (with or without due notice or lapse of time or
both) a default by Castle (or give rise to any right of termination,
cancellation, payment or acceleration) under or result in the creation of any
Encumbrance upon any of the properties or assets of Castle under any of the
terms, conditions, or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement, lease franchise agreement or other
instrument or obligation to which Castle is a party, or by which Castle or any
of its properties or assets may be bound, except for such violations, consents,
breaches, defaults, terminations and accelerations which would not have a
Material Adverse Effect.
5.2.6 FINANCIAL STATEMENT; NO MATERIAL ADVERSE CHANGE. Castle has
heretofore furnished Purchaser with its audited financial statements for the
year ended December 31, 1995 and the unaudited statements of operations and cash
flows for the interim period ended May 31, 1996 (the "Castle Financial
Statements"). The Castle Financial Statements fairly present in all material
respects the financial position of Castle at the dates thereof and the results
of operations of Castle and its cash flows for the period indicated. Except as
set forth in Schedule 5.2.6 attached hereto, since May 31, 1996, there has been
no material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations of Castle.
5.2.7 BOOKS AND RECORDS. Castle has previously made available to Seller
true, correct and complete copies of its articles of incorporation and bylaws,
and all amendments to each.
5.2.8 COMPLIANCE WITH LAWS. To the knowledge of Castle, Castle is in
compliance with all applicable laws, regulations, orders, judgments and decrees
applicable to its business which are necessary for Castle to perform its
obligations hereunder, except where any noncompliance would not have a material
adverse effect on the assets, liabilities, business, condition (financial or
otherwise), results of operations or prospects of Castle.
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5.2.9 CONSENT OF LENDER. Castle has submitted to NationsBank of Texas,
N.A. ("NationsBank") certain information and has entered into certain
discussions with NationsBank regarding the transactions contemplated hereby.
Based on such discussions, Castle believes that NationsBank will consent to the
transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS TO SELLER'S AND THE SHAREHOLDER'S OBLIGATIONS
The obligations of Seller and the Shareholder under this Agreement to
sell the Assets and to consummate the other transactions contemplated hereby
shall be subject to the satisfaction (or waiver by the party entitled to
performance) on or prior to the Closing Date of all of the following conditions:
6.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser and Castle contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date, and Purchaser and Castle shall have delivered to Seller on the
Closing Date a certificate of an authorized officer of Purchaser and Castle,
dated the Closing Date, to such effect.
6.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Purchaser and Castle to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects, and Purchaser and Castle shall have delivered to Seller a certificate
of an authorized officer of each of Purchaser and Castle, dated the Closing
Date, to such effect.
6.3 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and
Purchaser and Castle shall have delivered to Seller a certificate of an
authorized officer of each of Purchaser and Castle, dated the Closing Date, to
such effect to the best knowledge of such officer.
6.4 CONSIDERATION. The Seller shall have received the consideration
described in Section 3.1.
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6.5 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
6.6 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Seller and the
Shareholder and their counsel, and Seller and the Shareholder shall have
received copies of all such documents and other evidence as its or its counsel
may reasonably request in order to establish the consummation of such
transactions and the taking of all proceedings in connection therewith.
6.7 GOOD STANDING CERTIFICATES. Seller shall have received good standing
and corporate existence certificates respecting Purchaser and Castle.
6.8 OTHER TRANSACTION. Castle Dental Centers of Arkansas, Inc. and
Castle Dental Centers of Oklahoma, Inc. shall have acquired substantially all of
the assets of United Dental Care Tom Harris D.D.S. & Associates on terms and
conditions set forth in the Arkansas Purchase Agreement.
ARTICLE VII
CONDITIONS TO PURCHASER'S AND CASTLE'S OBLIGATIONS
The obligations of Purchaser and Castle under this Agreement to purchase
the Assets and to consummate the other transactions contemplated hereby shall be
subject to the satisfaction (or waiver by Purchaser) on or prior to the Closing
Date of all of the following conditions:
7.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller and the Shareholder contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
the Closing Date; and Seller and the Shareholder shall have delivered to
Purchaser on the Closing Date a certificate of an authorized representative of
Seller and the Shareholder, dated the Closing Date, to such effect.
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7.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements and
covenants of Seller to be performed on or before the Closing Date pursuant to
the terms hereof shall have been duly performed in all material respects, and
Seller shall have delivered to Purchaser a certificate of an authorized
representative of Seller, dated the Closing Date, to such effect.
7.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the condition of Seller or the financial results of its
operations in the period commencing with the date of this Agreement and ending
on the Closing Date, compared to the same period in previous years.
7.4 DOCUMENTS OF CONVEYANCE. Purchaser shall have received from Seller
fully executed documents of conveyance, in form and substance reasonably
satisfactory to Purchaser and its counsel, vesting in Purchaser good and valid
title to the Assets, free and clear of any Encumbrances except Permitted
Encumbrances.
7.5 NO LITIGATION THREATENED. No action or proceedings shall have been
instituted before a court or other governmental body or by any public authority
to restrain or prohibit any of the transactions contemplated hereby, and Seller
shall have delivered to Purchaser a certificate of an authorized representative
of Seller, dated the Closing Date, to such effect to the best knowledge of such
officer.
7.6 GOVERNMENTAL APPROVALS. All governmental consents and approvals, if
any, necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been received.
7.7 CONSENTS. Each of the consents referred to in Schedule 5.2.5
attached hereto shall have been obtained, and Purchaser shall have also received
the consent of all other parties, including its senior lender, whose consent is
required to permit Purchaser to perform its obligations hereunder.
7.8 LEGAL OPINION. Seller shall have delivered to Purchaser the opinion
of their counsel, substantially in the form of Exhibit A attached hereto.
7.9 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel, and Purchaser shall have received copies of all
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such documents and other evidence as it or its counsel may reasonably request in
order to establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
7.10 NEW PC. New PC shall have been duly and validly organized with a
license holder mutually agreeable to Castle and Purchaser, and the appropriate
New PC shall have entered into Employment Agreements with the dentists presently
employed by Seller and Seller shall have duly and validly assigned, to the
extent assignable, to the appropriate New PC all reimbursement contracts with
third party insurance companies, managed care companies and other reimbursement
sources referred to in Section 2.2(a). Seller shall also have delivered to the
appropriate New PC all patient records and shall have duly and validly assigned,
to the extent assignable, to the appropriate New PC all Permits and such other
of the Assets as are required for the appropriate New PC to perform its
obligations under the Management Services Agreement.
7.11 EXECUTION OF MANAGEMENT SERVICES AGREEMENT. Purchaser and New PC
shall have entered into a Management Services Agreement substantially in the
form of Exhibit B attached hereto.
7.12 PRACTICE PURCHASE AGREEMENT. Seller shall have entered into
Practice Purchase Agreement with Purchaser, substantially in the form of Exhibit
C attached hereto.
7.13 APPROVAL OF LENDERS. All approvals and consents required to be
received from Castle's lenders as a condition to funding the acquisition
described herein shall have been received.
7.14 CONSUMMATION OF INITIAL PUBLIC OFFERING. Castle shall have
consummated an initial public offering of its Common Stock.
7.15 SELLER NAME CHANGE. Seller shall have changed its corporate name to
a name not including the words "United Dental Care".
7.16 TRADENAME AND TRADEMARK LICENSE AGREEMENTS. Purchaser and New PC
shall have entered into a Tradename License Agreement and a Trademark License
Agreement in form and substance satisfactory to Purchaser and its counsel.
7.17 ACCOUNTS RECEIVABLE PURCHASE AGREEMENT. Purchaser and New PC shall
have entered into an Accounts Receivable Purchase Agreement in form and
substance satisfactory to Purchaser
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and its counsel. Purchaser and New PC also shall have sent to the appropriate
parties the letters and notifications attached as exhibits thereto, and filed in
the appropriate offices the UCC Financing Statement attached thereto.
7.18 OPTION AGREEMENT. Purchaser and the shareholder of New PC shall
have entered into an Option Agreement regarding ownership of stock in New PC,
substantially in the form of Exhibit D, and certificates representing shares of
stock in New PC shall be inscribed with an appropriate legend referencing the
Option Agreement.
7.19 OTHER TRANSACTION. Castle Dental Centers of Arkansas, Inc. and
Castle Dental Centers of Oklahoma, Inc. shall have acquired substantially all of
the assets of United Dental Care Tom Harris D.D.S. & Associates on terms and
conditions set forth in the Arkansas Purchase Agreement.
7.20 GOOD STANDING CERTIFICATES. Purchaser shall have received good
standing and corporate existence certificates respecting the Seller.
7.21 RELEASES OF LIENS. Purchaser shall have received evidence
satisfactory to Purchaser and its counsel to the effect that all liens and other
encumbrances on the Assets being transferred either to Purchaser or New PC
(other than Permitted Encumbrances) have been released.
ARTICLE VIII
COVENANTS OF SELLER AND THE SHAREHOLDER
Seller and the Shareholder hereby covenant and agree with Purchaser as
follows:
8.1 COOPERATION BY SELLER. Seller and the Shareholder shall use their
reasonable best efforts to cooperate with Purchaser to secure all necessary
consents, approvals, authorizations, exemptions and waivers from third parties
as shall be required in order to enable Seller and the Shareholder to effect the
transactions contemplated on its or his part hereby, and Seller and the
Shareholder shall otherwise use their reasonable best efforts to cause the
consummation of such transactions in accordance with the terms and conditions
hereof and to cause all conditions contained in this Agreement over which it has
control to be satisfied. Seller and the Shareholder further agree to deliver to
Purchaser prompt written notice of any event or condition which if it existed on
the date
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of this Agreement, would result in any of the representations and warranties of
Seller or the Shareholder contained herein being untrue in any material respect.
8.2 CONDUCT OF BUSINESS. Except as Purchaser may otherwise consent to in
writing, between the date hereof and the Closing Date, Seller shall, (a) conduct
the Business only in the ordinary course, (b) use its reasonable efforts to keep
available the services of its employees and maintain satisfactory relationships
with licensors, suppliers, lessors, distributors, customers, clients and others,
(c) maintain, consistent with past practice and good business judgment, all the
Assets in customary repair, order and condition, ordinary wear and tear
excepted, and insurance upon all the Assets used in the conduct of the Business
in such amounts and of such kinds comparable to that in effect on the date
hereof, to the extent available at current premiums, (d) maintain the Books and
Records in the usual, regular and ordinary manner, on a basis consistent with
past practice, (e) not incur any indebtedness other than current taxes not yet
due and payable and accounts payable and other accrued expenses incurred in the
ordinary course of business, or permit any lien to be placed on any of the
Assets and (f) not make any capital expenditure in excess of $5,000.
8.3 EXCLUSIVE DEALING. During the period from the date of this Agreement
to the earlier of the Closing Date or the termination of this Agreement, neither
Seller nor the Shareholder shall take any action to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations with, or provide
any information to, any Person other than Purchaser, concerning any sale of the
Assets or any material part thereof or a similar transaction involving Seller or
the Shareholder.
8.4 REVIEW OF THE ASSETS. Purchaser may, prior to the Closing Date,
through its representatives, review (a) the Assets, (b) the complete working
papers of Seller's certified public accountants used in their preparation of
financial statements for Seller and (c) the Books and Records of Seller and to
otherwise review the financial and legal condition of Seller as Purchaser deems
necessary or advisable to familiarize itself with the Business and related
matters; such review shall not, however, affect the representations and
warranties made by Seller and the Shareholder hereunder or the remedies of
Purchaser for breaches of those representations and warranties. Such review
shall occur only during normal business hours upon reasonable notice by
Purchaser. Seller and the Shareholder shall permit Purchaser and its
representatives to have, after the execution of this Agreement, full access to
employees of any Seller who can furnish Purchaser with financial and operating
data and other information with respect to the Business as Purchaser shall from
time to time reasonably request.
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8.5 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Seller and the Shareholder shall, at the reasonable request of
Purchaser and at Purchaser's expense, execute and deliver any further
instruments or documents and take all such further action as Purchaser may
reasonably request in order to consummate and make effective the sale of the
Assets and the assumption of the Assumed Obligations pursuant to this Agreement.
8.6 LICENSE HOLDER OF NEW PC. Seller and Shareholder shall use their
best efforts to secure a license holder for the New PC that will execute the
Management Services Agreement and the Option Agreement substantially in the
forms attached to this Agreement, with such changes thereto as are agreed by the
license holder and the Purchaser. Seller and Shareholder understand and agree
that during the period that Shareholder is a consultant or employee of Purchaser
or any of its Affiliates, any financial accommodation (other than payment
provisions set forth in the Management Services Agreement, the Option Agreement
and any agreement for employment or dental services by and between Purchaser and
such license holder pertaining to matters other than financial accommodations
for serving as a license holder) that any party makes or agrees to make to any
third party in order to induce such third party to become a license holder of
the New PC shall be for the account of Seller and Shareholder and shall not be
the responsibility of Purchaser or Castle. Provided, however, that the aggregate
financial accommodation for which Seller and Shareholder shall be responsible,
when added to other financial accommodations described in that certain Asset
Purchase Agreement to which Shareholder is a party with Castle Dental Centers of
Arkansas, shall not exceed $75,000 per year while he is employed or consulting.
In the event Shareholder has not obtained a license holder within 45 days of the
date hereof, Purchaser may seek and retain a license holder to perform the
obligations of the license holder under the Management Services Agreement.
ARTICLE IX
COVENANTS OF PURCHASER
Purchaser hereby covenants and agrees with Seller and the Shareholder as
follows:
9.1 COOPERATION BY PURCHASER. Purchaser will use its reasonable best
efforts, and will cooperate with Seller and the Shareholder, to secure all
necessary consents, approvals, authorizations, exemptions and waivers from third
parties as shall be required in order to enable Purchaser to effect the
transactions contemplated on its part hereby, and Purchaser will otherwise use
its reasonable best efforts to cause the consummation of such transactions in
accordance with
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the terms and conditions hereof and to cause all conditions contained in this
Agreement over which it has control to be satisfied. Purchaser further agrees to
deliver to Seller and the Shareholder prompt written notice of any event or
condition, which if it existed on the date of this Agreement, would result in
any of the representations and warranties of Purchaser contained herein being
untrue in any material respect.
9.2 BOOKS AND RECORDS; PERSONNEL. At all times after the Closing Date,
Purchaser shall allow Seller and any agents of any Seller, upon reasonable
advance notice to Purchaser, access to all Books and Records of Seller which are
transferred to Purchaser in connection herewith, to the extent necessary or
desirable in anticipation of, or preparation for, existing or future litigation,
employment matters, tax returns or audits, or reports to or filings with
governmental agencies, during normal working hours at Purchaser's principal
places of business or at any location where such Books and Records are stored,
and Seller shall have the right, at Seller's sole cost, to make copies of any
such Books and Records.
9.3 FURTHER ASSURANCES. At any time or from time to time after the
Closing Date, Purchaser shall, at the request of Seller or the Shareholder,
execute and deliver any further instruments or documents and take all such
further action as Seller may reasonably request in order to consummate and make
effective the sale of the Assets and the assumption of the Assumed Obligations
pursuant to this Agreement.
ARTICLE X
TERMINATION
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:
(a) by the mutual written consent of Purchaser, Castle, the
Shareholder and Seller; or
(b) by Purchaser or Seller in writing without liability on the
part of the terminating party on account of such termination (provided
the terminating party is not otherwise in default or in breach of this
Agreement), if the Closing Date shall not have occurred on or before
December 31, 1996; or
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(c) by either Purchaser and Castle, on the one hand, or the
Shareholder and Seller, on the other hand, in writing, without liability
on the part of the terminating party on account of such termination
(provided the terminating party is not otherwise in default or breach of
this Agreement), if the other party shall (i) fail in any material
respect to perform its or their covenants or agreements contained herein
required to be performed prior to the Closing Date, or (ii) breach or
have breached in any material respect any of its representations or
warranties contained herein.
10.2 EFFECT ON OBLIGATIONS. Termination of this Agreement pursuant to
this Article shall terminate all obligations of the parties hereunder, except
for the obligations under Sections 12.8 and 12.11 hereof and the obligations set
forth in the next succeeding sentence of this Section 10.2. Upon any termination
of this Agreement each party hereto will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same.
ARTICLE XI
SURVIVAL AND INDEMNIFICATION
11.1 INDEMNIFICATION OF THE SELLER BY PURCHASER. Purchaser, from and
after the Closing Date, shall indemnify and hold Seller and the Shareholder and
their respective Affiliates (the "Seller Indemnitee") harmless from and against
any and all damages (including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation (collectively, the
"Damages"), suffered by any Seller Indemnitee as a result of, caused by, arising
out of, or in any way relating to (a) any misrepresentation, breach of warranty,
or nonfulfillment of any agreement or covenant on the part of the Purchaser
under this Agreement or any misrepresentation in or omission from any list,
schedule, certificate, or other instrument furnished or to be furnished to the
Seller by the Purchaser pursuant to the terms of this Agreement; (b) any
liability or obligation (other than those for which Purchaser are being
indemnified by Seller and the Shareholder hereunder) which pertains to the
ownership, operation or conduct of the Business or Assets arising from any acts,
omissions, events, conditions or circumstances occurring on or after the Closing
Date; or (c) any liability or obligation under the Assumed Obligations.
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11.2 INDEMNIFICATION OF THE SELLER BY CASTLE. Castle, from and after the
Closing Date, shall indemnify and hold Seller and the Shareholder and their
respective Affiliates (the "Seller Indemnitee") harmless from and against any
and all damages (including exemplary damages and penalties, losses,
deficiencies, costs, expenses, obligations, fines, expenditures, claims and
liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation (collectively, the
"Damages"), suffered by any Seller Indemnitee as a result of, caused by, arising
out of, or in any way relating to any misrepresentation, breach of warranty, or
nonfulfillment of any agreement or covenant on the part of Castle under this
Agreement or any misrepresentation in or omission from any list, schedule,
certificate, or other instrument furnished or be furnished to the Seller by
Castle pursuant to the terms of this Agreement.
11.3 INDEMNIFICATION OF THE PURCHASER AND CASTLE. Seller and the
Shareholder, jointly and severally, shall indemnify and hold Purchaser, Castle
and their respective Affiliates (the "Purchaser Indemnitee") harmless from and
against any and all Damages suffered by any Purchaser Indemnitee as a result of,
caused by, arising out of, or in any way relating to (a) any misrepresentation,
breach of warranty, or nonfulfillment of any agreement or covenant on the part
of the Seller or the Shareholder under this Agreement or any misrepresentation
in or omission from any list, schedule, certificate, or other instrument
furnished or to be furnished to the Purchaser by the Seller pursuant to the
terms of this Agreement, (b) any liability or obligation (other than those for
which Seller and the Shareholder are being indemnified by Purchaser hereunder
and other than those relating to or arising from the Assumed Obligations and
obligations assumed by New PC) which pertains to the ownership, operation or
conduct of the Business or Assets arising from any acts, omissions, events,
conditions or circumstances occurring before the Closing Date, or (c) the
uncollectibility of any Account Receivable (net of applicable reserve), after
six months.
11.4 DEMANDS. Each indemnified party hereunder agrees that promptly upon
its discovery of facts giving rise to a claim for indemnity under the provisions
of this Agreement, including receipt by it of notice of any demand, assertion,
claim, action or proceeding, judicial or otherwise, by any third party (such
third party actions being collectively referred to herein as the "Claim"), with
respect to any matter as to which it claims to be entitled to indemnity under
the provisions of this Agreement, it will give prompt notice thereof in writing
to the indemnifying party, together with a statement of such information
respecting any of the foregoing as it shall have. Such notice shall include a
formal demand for indemnification under this Agreement. The indemnifying party
shall not be obligated to indemnify the indemnified party with respect to any
Claim if the indemnified party knowingly failed to notify the indemnifying party
thereof in accordance with the provisions
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of this Agreement in sufficient time to permit the indemnifying party or its
counsel to defend against such matter and to make a timely response thereto
including, without limitation, any responsive motion or answer to a complaint,
petition, notice or other legal, equitable or administrative process relating to
the Claim, only insofar as such knowing failure to notify the indemnifying party
has actually resulted in prejudice or damage to the indemnifying party.
11.5 RIGHT TO CONTEST AND DEFEND. The indemnifying party shall be
entitled at its cost and expense to contest and defend by all appropriate legal
proceedings any Claim with respect to which it is called upon to indemnify the
indemnified party under the provisions of this Agreement; provided, that notice
of the intention so to contest shall be delivered by the indemnifying party to
the indemnified party within 20 days from the date of receipt by the
indemnifying party of notice by the indemnified party of the assertion of the
Claim. Any such contest may be conducted in the name and on behalf of the
indemnifying party or the indemnified party as may be appropriate. Such contest
shall be conducted by reputable counsel employed by the indemnifying party, but
the indemnified party shall have the right but not the obligation to participate
in such proceedings and to be represented by counsel of its own choosing at its
sole cost and expense. The indemnifying party shall have full authority to
determine all action to be taken with respect thereto; provided, however, that
the indemnifying party will not have the authority to subject the indemnified
party to any obligation whatsoever, other than the performance of purely
ministerial tasks or obligations not involving material expense. If the
indemnifying party does not elect to contest any such Claim, the indemnifying
party shall be bound by the result obtained with respect thereto by the
indemnified party. At any time after the commencement of the defense of any
Claim, the indemnifying party may request the indemnified party to agree in
writing to the abandonment of such contest or to the payment or compromise by
the indemnified party of the asserted Claim, whereupon such action shall be
taken unless the indemnified party determines that the contest should be
continued, and so notifies the indemnifying party in writing within 15 days of
such request from the indemnifying party. If the indemnified party determines
that the contest should be continued, the indemnifying party shall be liable
hereunder only to the extent of the amount that the other party to the contested
Claim had agreed unconditionally to accept in payment or compromise as of the
time the indemnifying party made its request therefor to the indemnified party.
11.6 COOPERATION. If requested by the indemnifying party, the
indemnified party agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim that the indemnifying party elects to contest
or, if appropriate, in making any counterclaim against the person asserting the
Claim, or any cross-complaint against any person, and the indemnifying party
will
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reimburse the indemnified party for any expenses incurred by it in so
cooperating. At no cost or expense to the indemnified party, the indemnifying
party shall cooperate with the indemnified party and its counsel in contesting
any Claim.
11.7 RIGHT TO PARTICIPATE. The indemnified party agrees to afford the
indemnifying party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including governmental
authorities, asserting any Claim against the indemnified party or conferences
with representatives of or counsel for such persons.
11.8 PAYMENT OF DAMAGES. The indemnifying party shall pay to the
indemnified party in immediately available funds any amounts to which the
indemnified party may become entitled by reason of the provisions of this
Agreement, such payment to be made within five days after any such amounts are
finally determined either by mutual agreement of the parties hereto or pursuant
to the final unappealable judgment of a court of competent jurisdiction.
ARTICLE XII
MISCELLANEOUS
12.1 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules) set forth the entire understanding of the parties with respect to the
subject matter hereof. Any previous agreements or understandings (whether oral
or written) between the parties regarding the subject matter hereof are merged
into and superseded by this Agreement.
12.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors of
the parties hereto; provided that this Agreement, including the representations
and warranties herein, may not be assigned by Seller or the Shareholder without
the prior written consent of Purchaser or by Purchaser to any Person without the
prior written consent of Seller.
12.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
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12.4 HEADINGS. The headings of the Articles, Sections and paragraphs of
this Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12.5 MODIFICATION AND WAIVER. No amendment, modification or alteration
of the terms or provisions of this Agreement shall be binding unless the same
shall be in writing and duly executed by the parties hereto, except that any of
the terms or provisions of this Agreement may be waived in writing at any time
by the party which is entitled to the benefits of such waived terms or
provisions. No waiver of any of the provisions of this Agreement shall be deemed
to or shall constitute a waiver of any other provision hereof (whether or not
similar). No delay on the part of either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof.
12.6 NO THIRD PARTY BENEFICIARY RIGHTS. This Agreement is not intended
to and shall not be construed to give any Person (other than the parties
signatory hereto any interest or rights (including, without limitation, any
third party beneficiary rights) with respect to or in connection with any
agreement or provision contained herein or contemplated hereby.
12.7 SALES AND TRANSFER TAXES. Purchaser shall be responsible for and
pay all applicable sales, stamp, transfer, documentary, use, registration,
filing and other taxes and fees (including any penalties and interest) that may
become due or payable in connection with this Agreement and the transactions
contemplated hereby.
12.8 EXPENSES. Except as otherwise provided in this Agreement, Seller,
the Shareholder and Purchaser shall each pay all costs and expenses incurred by
them or on their behalf in connection with this Agreement and the transactions
contemplated hereby.
12.9 NOTICE. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party shall be sufficiently
given if delivered in person or sent by telecopier or registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
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if to Purchaser, to:
Castle Dental Centers of Louisiana, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
if to Castle, to
Castle Dental Centers, Inc.
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056-3021
with a copy to:
Mr. William D. Gutermuth
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana, Suite 2900
Houston, Texas 77002-2856
if to Seller or the Shareholder to:
Dr. Tom Harris
United Dental Care Tom Harris D.D.S. & Associates
4700 West Commercial, Suite A
North Little Rock, Louisiana 72116
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with a copy to:
Ms. Paula J. Storeygard
Hilburn, Calhoon, Harper, Pruniski & Calhoun, Ltd.
One Riverfront Place
Suite 850
North Little Rock, Louisiana 72114
or at such other address for a party as shall be specified by like notice, and
such notice or communication shall be deemed to have been duly given as of the
date so delivered, mailed or sent by telecopier.
12.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Louisiana without regards to
conflict of law rules thereof.
12.11 CONFIDENTIALITY; PUBLICITY. The terms and conditions of this
Agreement shall not be disclosed by any party hereto without the prior written
consent of the other parties; provided, however, that Purchaser may disclose
such information as is required to comply with the requirements of its lenders
and investors and to comply with applicable securities laws. No party hereto
shall issue any press release or make any other public statement, in each case
relating to or connected with or arising out of this Agreement or the matters
contained herein, without obtaining the prior approval of the other party hereto
to the contents and the manner of presentation and publication thereof.
12.12 CONSENT TO JURISDICTION. Any judicial proceeding brought against
any of the parties to this Agreement on any dispute arising out of this
Agreement or any matter related hereto shall be brought in any federal or state
court located in Shreveport, Louisiana, and, by execution and delivery of this
Agreement, each of the parties to this Agreement accepts for itself the
exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
12.13 SEVERABILITY. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
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Upon such determination that any provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled.
12.14 ENFORCEMENT. The parties hereto agree that the remedy at law for
any breach of this Agreement is inadequate and that should any dispute arise
concerning the sale of the Assets or any other matter hereunder, this Agreement
shall be enforceable in a court of equity by an injunction or a decree of
specific performance. Such remedies shall, however, be cumulative and
nonexclusive, and shall be in addition to any other remedies which the parties
hereto may have.
[The remainder of this page has been intentionally left blank.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf as of the date first above written.
CASTLE DENTAL CENTERS OF LOUISIANA,
INC.
By:_____________________________
Name: Jack H. Castle, Jr.
Title: Chief Executive Officer
CASTLE DENTAL CENTERS, INC.
By:______________________________
Name: Jack H. Castle, Jr.
Title: President
UNITED DENTAL CARE TOM HARRIS D.D.S. &
ASSOCIATES
By:_____________________________
Name: Tom Harris
Title: President
--------------------------------
Tom Harris
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EXHIBIT 10.49
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF MAY 31, 1996
BETWEEN
CASTLE DENTAL CENTERS, INC.
AS BORROWER
AND
NATIONSBANK OF TEXAS, N.A.
AS LENDER
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
Definitions and Accounting Matters
Section 1.01 TERMS DEFINED ABOVE..............................................1
Section 1.02 CERTAIN DEFINED TERMS............................................1
Section 1.03 ACCOUNTING TERMS AND DETERMINATIONS.............................18
ARTICLE II
Commitments
Section 2.01 LOANS...........................................................19
Section 2.02 BORROWINGS, CONTINUATIONS AND CONVERSIONS.......................19
Section 2.03 CHANGES OF REVOLVING CREDIT COMMITMENT..........................21
Section 2.04 FEES............................................................21
Section 2.05 LENDING OFFICES.................................................22
Section 2.06 NOTES...........................................................22
Section 2.07 PREPAYMENTS.....................................................23
Section 2.08 CHANGES OF ADVANCING TERM COMMITMENT............................24
ARTICLE III
Payments of Principal and Interest
Section 3.01 REPAYMENT OF LOANS..............................................24
Section 3.02 INTEREST........................................................24
ARTICLE IV
Payments; Computations; Etc.
Section 4.01 PAYMENTS........................................................25
Section 4.02 COMPUTATIONS....................................................25
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Section 4.03 SET-OFF.........................................................25
Section 4.04 TAXES...........................................................26
ARTICLE V
Yield Protection and Illegality
Section 5.01 EURODOLLAR REGULATIONS, ETC.....................................27
Section 5.02 LIMITATION ON EURODOLLAR LOANS..................................29
Section 5.03 ILLEGALITY......................................................29
Section 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND 5.03........29
Section 5.05 COMPENSATION....................................................29
ARTICLE VI
Conditions Precedent
Section 6.01 INITIAL FUNDING.................................................30
Section 6.02 INITIAL AND SUBSEQUENT LOANS....................................32
Section 6.03 ADVANCING TERM LOANS............................................33
Section 6.04 POST CLOSING CONDITIONS.........................................33
ARTICLE VII
Representations and Warranties
Section 7.01 CORPORATE EXISTENCE.............................................35
Section 7.02 FINANCIAL CONDITION.............................................35
Section 7.03 LITIGATION......................................................36
Section 7.04 NO BREACH.......................................................36
Section 7.05 AUTHORITY.......................................................36
Section 7.06 APPROVALS.......................................................36
Section 7.07 USE OF LOANS....................................................36
Section 7.08 ERISA...........................................................37
Section 7.09 TAXES...........................................................38
Section 7.10 TITLES, ETC.....................................................38
Section 7.11 NO MATERIAL MISSTATEMENTS.......................................38
Section 7.12 INVESTMENT COMPANY ACT..........................................39
Section 7.13 PUBLIC UTILITY HOLDING COMPANY ACT..............................39
Section 7.14 SUBSIDIARIES AND PARTNERSHIPS...................................39
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Section 7.15 LOCATION OF BUSINESS AND OFFICES................................39
Section 7.16 DEFAULTS........................................................39
Section 7.17 ENVIRONMENTAL MATTERS...........................................39
Section 7.18 COMPLIANCE WITH THE LAW.........................................39
Section 7.19 INSURANCE.......................................................40
Section 7.20 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS
RECEIVABLE PURCHASE AGREEMENTS..................................40
Section 7.21 DESIGNATED CONTRACTS............................................41
Section 7.22 ASSIGNMENT ACCOUNT PARTIES......................................41
Section 7.23 RESTRICTION ON LIENS............................................41
Section 7.24 MATERIAL AGREEMENTS.............................................41
Section 7.25 HEDGING AGREEMENTS..............................................41
ARTICLE VIII
Affirmative Covenants
Section 8.01 FINANCIAL STATEMENTS............................................42
Section 8.02 LITIGATION......................................................44
Section 8.03 MAINTENANCE, ETC................................................44
Section 8.04 ENVIRONMENTAL MATTERS...........................................45
Section 8.05 FURTHER ASSURANCES..............................................45
Section 8.06 PERFORMANCE OF OBLIGATIONS......................................46
Section 8.07 ERISA INFORMATION AND COMPLIANCE................................46
Section 8.08 KEY MAN LIFE INSURANCE POLICY...................................46
Section 8.09 DESIGNATED CONTRACTS............................................46
Section 8.10 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS
RECEIVABLE PURCHASE AGREEMENTS..................................47
Section 8.11 ASSIGNMENT NOTICE LETTERS.......................................47
Section 8.12 WIND UP OF DDS..................................................47
Section 8.13 GUARANTEE BY NEW PC.............................................47
ARTICLE IX
Negative Covenants
Section 9.01 DEBT............................................................48
Section 9.02 LIENS...........................................................48
Section 9.03 INVESTMENTS, LOANS AND ADVANCES.................................49
Section 9.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS........................50
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Section 9.05 SALES AND LEASEBACKS............................................50
Section 9.06 NATURE OF BUSINESS..............................................50
Section 9.07 MERGERS, ETC....................................................50
Section 9.08 PROCEEDS OF NOTES...............................................51
Section 9.09 ERISA COMPLIANCE................................................51
Section 9.10 SALE OR DISCOUNT OF RECEIVABLES.................................52
Section 9.11 CAPITAL EXPENDITURES............................................52
Section 9.12 CURRENT RATIO...................................................52
Section 9.13 RATIO OF INTANGIBLES TO NET WORTH...............................52
Section 9.14 NET WORTH.......................................................52
Section 9.15 LEVERAGE RATIO..................................................53
Section 9.16 FIXED CHARGE COVERAGE RATIO.....................................53
Section 9.17 ENVIRONMENTAL MATTERS...........................................53
Section 9.18 TRANSACTIONS WITH AFFILIATES....................................54
Section 9.19 SUBSIDIARIES AND PARTNERSHIPS...................................54
Section 9.20 NEGATIVE PLEDGE AGREEMENTS......................................54
Section 9.21 OTHER AGREEMENTS................................................54
Section 9.22 NEW PC..........................................................54
Section 9.23 DDS.............................................................54
Section 9.24 SUBORDINATE DEBT AND DEFERRED COMPENSATION AGREEMENT............55
ARTICLE X
Events of Default; Remedies
Section 10.01 EVENTS OF DEFAULT..............................................55
Section 10.02 REMEDIES.......................................................57
ARTICLE XI
Miscellaneous
Section 11.01 WAIVER.........................................................58
Section 11.02 NOTICES........................................................58
Section 11.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC..........................58
Section 11.04 AMENDMENTS, ETC................................................60
Section 11.05 SUCCESSORS AND ASSIGNS.........................................60
Section 11.06 ASSIGNMENTS AND PARTICIPATIONS.................................61
Section 11.07 INVALIDITY.....................................................62
Section 11.08 COUNTERPARTS...................................................62
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Section 11.09 REFERENCES.....................................................62
Section 11.10 SURVIVAL.......................................................62
Section 11.11 CAPTIONS.......................................................63
Section 11.12 NO ORAL AGREEMENTS.............................................63
Section 11.13 GOVERNING LAW; SUBMISSION TO JURISDICTION......................63
Section 11.14 INTEREST.......................................................64
Section 11.15 EFFECTIVENESS..................................................65
Section 11.16 BINDING ARBITRATION............................................65
Section 11.18 EXCULPATION PROVISIONS.........................................66
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Term Note
Exhibit A-3 - Form of Advancing Term Note
Exhibit B - Form of Borrowing, Continuation and Conversion Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Legal Opinion of Bracewell & Patterson, L.L.P.
Exhibit E - List of Security Instruments
Exhibit F - Form of Borrowing Base Report
Exhibit G - Designated Contracts
Exhibit H - List of Insurance Companies
Exhibit I - Form of Assignment Notice Letter
Exhibit J - Form of Advancing Term Loan Borrowing Base Report
Exhibit K - List of Due Diligence Items
Exhibit L - Form of Officer's Certificate
Exhibit M - List of Outstanding UCC-1 Financing Statements
Schedule 7.02 - Liabilities
Schedule 7.03 - Litigation
Schedule 7.09 - Taxes
Schedule 7.10 - Titles, etc.
Schedule 7.14 - Subsidiaries and Partnerships
Schedule 7.17 - Environmental Matters
Schedule 7.19 - Insurance
Schedule 7.24 - Material Agreements
Schedule 7.25 - Hedging Agreements
Schedule 9.01 - Debt
Schedule 9.02 - Liens
Schedule 9.03 - Investments, Loans and Advances
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THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 31,
1996 is between: CASTLE DENTAL CENTERS, INC., a corporation formed under the
laws of the State of Delaware (the "BORROWER") and NATIONSBANK OF TEXAS, N.A., a
national banking association (the "LENDER").
RECITALS
A. The parties hereto originally executed that certain Credit Agreement
dated as of December 19, 1996 (the "ORIGINAL AGREEMENT") whereby, pursuant to
the terms and conditions contained therein, the Lender agreed to make certain
loans to the Borrower.
B. The Borrower and the Lender have agreed to amend the Original
Agreement and restate the Original Agreement in its entirety in this Amended and
Restated Credit Agreement (which is hereinafter referred to as the "AGREEMENT").
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to, the parties
hereto agree as follows:
ARTICLE I
Definitions and Accounting Matters
Section 1.01 TERMS DEFINED ABOVE. As used in this Agreement, the terms
"BORROWER" and "LENDER" shall have the meanings indicated above.
Section 1.02 CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the following meanings (all terms defined in this Article I or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and VICE VERSA):
"ACCEPTABLE CONTROLLING PERSON" means (i) with respect to the Borrower,
Jack Castle, Jr., Dr. Jack Castle, Loretta Castle, Lisa Castle Donnel, Castle
Interests, Ltd. (a limited partnership comprised solely of the members of the
immediate family of Dr. Jack Castle), or the members of the immediate family of
any of such persons or a trust the beneficiaries of which are exclusively any of
such persons or the immediate family of any of such persons, or the estate of
any of such persons the executor or executors of which are exclusively any of
such persons provided, that "Acceptable Controlling Person" shall exclude Castle
Interests, Ltd. if such entity is not beneficially owned exclusively by members
of the immediate family of any of such persons, and (ii) with respect to New PC,
any person designated by the Company pursuant to any PC Stock Option Agreement
or any successor agreement.
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"ACCOUNTS RECEIVABLE PURCHASE AGREEMENTS" shall mean the Accounts
Receivable Purchase Agreement dated as of December 19, 1995 between the Borrower
and the JHC PC, the Accounts Receivable Purchase Agreement dated as of May 19,
1996, between Castle of Florida and Castle 1st Dental Care, P.A., and the
Accounts Receivable Purchase Agreement dated as of May 31, 1996, between Castle
of Tennessee and Castle Mid-South Dental Centers, P.C., and such future Accounts
Receivable Purchase Agreements entered into by Borrower or any Subsidiary in
form and substance satisfactory to Lender, in connection with New Acquisitions
approved by Lender.
"ADDITIONAL COSTS" shall have the meaning assigned such term in Section
5.01(a).
"ADVANCING TERM NOTE" shall mean the promissory note or notes (whether
one or more) of the Borrower described in Section 2.06 hereof and being in the
form of Exhibit A-3 hereof, together with any and all renewals, extensions for
any period, increases, rearrangements, substitutions or modifications thereof.
"ADVANCING TERM COMMITMENT" shall mean the amount determined by Section
2.08 hereof.
"ADVANCING TERM LOAN" shall mean the term loan made pursuant to Section
2.01(c) hereof.
"ADVANCING TERM LOAN BORROWING BASE" shall mean 2.5 times EBITDA of
Borrower as of the end of any fiscal quarter (calculated on a rolling four
quarter basis). For the purposes of this definition, for any calculation period
which would include one or more quarters prior to the Stock Purchase or Asset
Purchase or other future acquisition of an entity, the "rolling four quarters"
shall include "pro forma" the EBITDA of any applicable Old PC for such prior
periods adjusted to reflect costs and expenses which such applicable Old PC
would have included had a Management Services Agreement between Borrower and/or
any Subsidiary and such Old PC been in effect (adding back appropriate executive
salaries and non-cash charge offs relating to such transaction), PLUS, for
fiscal years 1996 and 1997 only, one-time, start-up and acquisition costs
incurred by Borrower for New Acquisitions up to a maximum of $500,000 per annum.
"ADVANCING TERM LOAN TERMINATION DATE" shall mean, unless the Advancing
Term Note is sooner prepaid pursuant to Section 2.07 hereunder, June 30, 2001.
"AFFECTED LOANS" shall have the meaning assigned such term in Section
5.04.
"AFFILIATE" of any Person shall mean (i) any Person directly or
indirectly controlled by, controlling or under common control with such first
Person, (ii) any director or officer of such first Person or of any Person
referred to in clause (i) above and (iii) if any Person in clause (i) above is
an individual, any member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal beneficiary is such
individual or one
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or more members of such immediate family and any Person who is controlled by any
such member or trust. As used in this definition, "CONTROL" (including, with its
correlative meanings, "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") shall
mean any Person which owns directly or indirectly 50% or more of the securities
having ordinary voting power for the election of directors or other governing
body of a corporation or 50% or more of the partnership or other ownership
interests of any other Person (other than as a limited partner of such other
Person) will be deemed to control such corporation or other Person.
"AGREEMENT" shall mean this Amended and Restated Credit Agreement, as
the same may from time to time be amended or supplemented.
"APPLICABLE LENDING OFFICE" shall mean for each Type of Loan, the
lending office of the Lender (or an Affiliate of the Lender) designated for such
Type of Loan on the signature pages hereof or such other offices of the Lender
(or of an Affiliate of the Lender) as the Lender may from time to time specify
to the Borrower as the office by which Loans of such Type are to be made and
maintained.
"APPLICABLE MARGIN" :
(a) for the Term Loan shall mean for the period from the Closing Date
of the Original Agreement until receipt of the first Compliance
Certificate under Section 8.01 hereof, .5% per annum with respect
to Base Rate Loans and 2.75% per annum with respect to Eurodollar
Loans. Thereafter, for each calendar quarter the Applicable
Margin for the Term Loan shall mean the applicable percentage
determined on the first day of the month following the receipt of
the quarterly or annual Compliance Certificate.
FUNDED DEBT TO EBITDA PRIME + (PER ANNUM) LIBOR + (PER ANNUM)
======================================= ================== ==================
Greater than or = 2.00 1% 3.50%
Greater than or = 1.50 but less than 2.00 .5% 2.75%
Greater than or = 1.00 but less than 1.50 0% 2.25%
Less than 1.00 0% 2.00%
======================================= ================== ==================
(b) for Revolving Credit Loans shall mean 1/2 of 1% per annum; and
(c) for the Advancing Term Loan shall mean for the period from the
Closing Date until receipt of the first Compliance Certificate
under Section 8.01 hereof, 1% per annum with respect to Base Rate
Loans and 3.50% per annum with respect to
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Eurodollar Loans. Thereafter, for each calendar quarter the
Applicable Margin for the Advancing Term Loan shall mean the
applicable percentage determined on the first day of the month
following the receipt of the quarterly or annual Compliance
Certificate.
FUNDED DEBT TO EBITDA PRIME + (PER ANNUM) LIBOR + (PER ANNUM)
======================================= ================== ==================
Greater than or = 2.00 1% 3.50%
Greater than or = 1.50 but 2.00 .5% 2.75%
Greater than or = 1.00 but 1.50 0% 2.25%
Less than 1.00 0% 2.00%
======================================= ================== ==================
"ASSET PURCHASE" shall mean those certain acquisitions of all or
substantially all of the assets of any Old PC by Borrower or any Subsidiary
pursuant to an Asset Purchase Agreement.
"ASSET PURCHASE AGREEMENTS" shall mean that certain Asset Purchase
Agreement dated as of April 29, 1996 by and among Castle of Tennessee, Mid-South
Dental Center, P.C. and G. Powell Bilyeu, D.D.S.; and that certain Asset
Purchase Agreement dated as of May 31, 1996, by and among Castle of Florida, 1st
Dental Care, Inc., Hernando Dental Center, Lester B. Greenberg, D.D.S., P.A.,
M&B Dental Lab, Inc., and Lester B. Greenberg, D.D.S. and Elisa Greenberg, and
such future Asset Purchase Agreements entered into by Borrower or any
Subsidiary, in form and substance satisfactory to Lender, in connection with New
Acquisitions approved by Lenders.
"BASE RATE" shall mean, with respect to any Base Rate Loan, for any day,
the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii)
the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates based
upon the Base Rate.
"BORROWING BASE" shall mean at any time 100% of the value of all
Eligible Accounts.
"BUSINESS DAY" shall mean any day other than a day on which commercial
banks are authorized or required to close in Houston, Texas, and, where such
term is used in the definition of "Quarterly Date" or if such day relates to a
borrowing or continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period for, a
Eurodollar Loan or a notice by the Borrower with respect to any such borrowing
or
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continuation, payment, prepayment, conversion or Interest Period, any day which
is also a day on which dealings in Dollar deposits are carried out in the London
interbank market.
"CASTLE OF FLORIDA" shall mean Castle Dental Centers of Florida, Inc., a
Florida corporation and a wholly owned Subsidiary of the Borrower.
"CASTLE OF TENNESSEE" shall mean Castle Dental Centers of Tennessee,
Inc., a Tennessee corporation and a wholly owned Subsidiary of the Borrower.
"CHANGE OF CONTROL" shall mean at any time,
(a) the acquisition or holding by
(i) any person (as such term is used in section 13(d)
and section 14(d)(2) of the United States
Securities Exchange Act of 1934, as amended
("Exchange Act") as in effect on the Closing Date
of the Original Agreement) other than an Acceptable
Controlling Person,
(ii) related Persons constituting a group (as such term
is used in Rule 13d-5 under the Exchange Act as in
effect on the Closing Date of the Original
Agreement) other than related Acceptable
Controlling Persons constituting such a group,
of legal and/or beneficial ownership of more than
twenty-five percent (25%) of the capital stock of the
Borrower or JHC PC outstanding at such time (excluding for
such purpose persons who own shares through any employee
benefit plan of the Borrower in connection therewith),
provided, however, it shall be deemed a Change of Control in the
event that any one or more investor, in the aggregate, under the
Securities Purchase Agreement owns or controls legal or
beneficial ownership of more than 40% of the Borrower or JHC PC;
(b) all or substantially all of the assets of the Borrower or
JHC PC are sold or otherwise transferred, in a single
transaction or in a series of related transactions, to any
other Person;
(c) any merger, consolidation or other similar transaction of,
or in respect of, the Borrower or JHC PC which results in
the failure by the owners of capital stock (or, in the
case of JHC PC, capital stock of JHC PC) on the Closing
Date of the Original Agreement to, directly or indirectly
in the aggregate, maintain beneficial ownership and voting
control of at least fifty
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percent (50%) of the outstanding capital stock of the
surviving entity in such merger, consolidation or similar
transaction; or
(d) any liquidation or dissolution of the Borrower, or action
taken by the board of directors of the Borrower to
authorize any such liquidation or dissolution.
"CLOSING DATE" shall mean May 31, 1996.
"CLOSING DATE OF THE ORIGINAL AGREEMENT" shall mean December 19, 1995.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time and any successor statute.
"COMMITMENT" shall mean the Lender's obligation to make the Loans
pursuant to Section 2.01. Commitment shall equal the sum of the Revolving Credit
Commitment, the Term Commitment, and the Advancing Term Commitment.
"CONSOLIDATED NET INCOME" shall mean with respect to the Borrower and
its Consolidated Subsidiaries, for any period, the aggregate of the net income
(or loss) of the Borrower and its Consolidated Subsidiaries after allowances for
taxes for such period, determined on a consolidated basis in accordance with
GAAP; PROVIDED that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (i) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and its Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in such period by such other Person to the Borrower
or to a Consolidated Subsidiary, as the case may be; (ii) the net income (but
not loss) of any Consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions or transfers or loans by that
Consolidated Subsidiary is not at the time permitted by operation of the terms
of its charter or any agreement, instrument or Governmental Requirement
applicable to such Consolidated Subsidiary, or is otherwise restricted or
prohibited in each case determined in accordance with GAAP, (iii) the net income
(or loss) of any Person acquired in a pooling-of-interests transaction for any
period prior to the date of such transaction, (iv) any extraordinary gains or
losses, including gains or losses attributable to Property sales not in the
ordinary course of business and (v) the cumulative effect of a change in
accounting principles and any gains or losses attributable to writeups or
writedowns of assets.
"CONSOLIDATED SUBSIDIARIES" shall mean each Subsidiary of the Borrower
(whether now existing or hereafter created or acquired) the financial statements
of which shall be (or should have been) consolidated with the financial
statements of the Borrower in accordance with GAAP.
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"DDS" shall mean JHCDDS, Inc., a Texas corporation.
"DEBT" shall mean, for any Person the sum of the following (without
duplication): (i) all obligations of such Person for borrowed money or evidenced
by bonds, debentures, notes or other similar instruments (including principal,
interest, fees and charges); (ii) all obligations of such Person (whether
contingent or otherwise) in respect of bankers' acceptances, letters of credit,
surety or other bonds and similar instruments; (iii) all obligations of such
Person to pay the deferred purchase price of Property or services (other than
for borrowed money); (iv) all obligations under leases which shall have been, or
should have been, in accordance with GAAP, recorded as capital leases in respect
of which such Person is liable (whether contingent or otherwise); (v) all
obligations under leases which require such Person or its Affiliate to make
payments over the term of such lease, including payments at termination, which
are substantially equal to at least eighty percent (80%) of the purchase price
of the Property subject to such lease plus interest as an imputed rate of
interest; (vi) all Debt and other obligations of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person; (vii)
all Debt (as described in the other clauses of this definition) and other
obligations of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the Debtor or obligations of
others; (viii) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (ix) obligations to deliver goods or
services in consideration of advance payments; and (x) all obligations of such
Person under Hedging Agreements.
"DEFAULT" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"DEFERRED COMPENSATION AGREEMENT" shall mean the Deferred Compensation
Agreement dated as of December 19, 1995, among the Borrower and Jack H. Castle,
D.D.S.
"DESIGNATED CONTRACTS" shall mean all those insurance and managed care
contracts between any New PC and managed care organizations, insurance companies
and other third party payors for (x) payment of dental care costs incurred by
such account debtors' insureds or (y) the advance purchase of dental care needs
of subscribing patients (for example, capitation and other non-fee for service
arrangement), including, without limitation, those listed on Exhibit G hereof
and any other similar contracts hereafter entered into by any New PC and other
PCs under future management contract with Borrower.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, for any period, the sum of Consolidated Net Income
for such period plus the following expenses or charges to the extent deducted
from Consolidated Net Income in such period: interest, taxes, depreciation,
depletion and amortization.
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"EFFECTIVE DATE" shall have the meaning assigned such term in Section
11.16.
"ELIGIBLE ACCOUNTS" shall mean at any time an amount equal to the sum of
(i) 80% of receivables payable by managed care organizations, insurance
companies and other third party payors for (x) payment of dental care costs
incurred by such account debtors' insureds or (y) the advance purchase of dental
care needs of subscribing patients (for example, capitation and other non-fee
for service arrangement) which have been outstanding less than 151 days from the
date of invoice and (ii) 25% of individual payor or guarantor receivables
outstanding less than 91 days from the date of invoice, owing to the Borrower,
for services rendered in the ordinary course of business. Eligible Accounts
shall not include Medicare and Medicaid receivables. To qualify as an Eligible
Account, each of the following statements must be accurate and complete (and the
Borrower by including such account in any computation of the Borrowing Base
shall be deemed to represent and warrant to the Lender the accuracy and
completeness of such statements):
(a) Borrower owns all right, title and interest in said account.
(b) Said account is a binding and valid obligation of the obligor thereon
in full force and effect;
(c) Said account is genuine as appearing on its face or as represented in
the books and records of the Borrower;
(d) Said account is free from claims regarding rescission, cancellation
or avoidance, whether by operation of law or otherwise;
(e) Said account is net of concessions, offset or understandings with the
obligor thereon of any kind;
(f) Said account is, and at all times will be, free and clear of all
Liens, except in favor of the Lender, and the Lender has a first priority,
perfected security interest in such account;
(g) Said account is derived from services rendered to the obligor or the
obligor's insured in the ordinary course of the Borrower's or any New PC's
business or purchased pursuant to any Accounts Receivable Purchase Agreement;
(h) The amount of all such accounts owing by obligors which have 50% or
more of their accounts owing to the Borrower longer than the number of days
provided above for Eligible Accounts.
(i) The account debtor has been sent an invoice within 20 days after said
account has been entered on the financial records of the provider of this
service;
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(j) All consents, licenses, approvals or authorizations of, or
registrations or declarations with, any Governmental Authority required to be
obtained, effected or given in connection with the execution, delivery and
performance of said account by each party obligated thereunder have been duly
obtained, effected or given and are in full force and effect if the effect of
not obtaining, effecting or giving the same is to cause the Borrower to be
unable to collect such account on a timely basis in the ordinary course of
business;
(k) The obligor on said account (i) is not the subject of any bankruptcy
or insolvency proceeding, has not had a trustee or receiver appointed for all or
a substantial part of its property, has not made an assignment for the benefit
of creditors, admitted its inability to pay its debts as they mature or
suspended its business, and (ii) is not affiliated, directly or indirectly, with
the Borrower;
(l) The obligor on said account is not the United States of America or
any branch or agency thereof; and
(m) Said account has not been otherwise determined by the Lender, in its
good faith discretion, to be unacceptable in accordance with its customary
practices for facilities of this nature.
"ENVIRONMENTAL LAWS" shall mean any and all Governmental Requirements
pertaining to health or the environment in effect in any and all jurisdictions
in which the Borrower or any Subsidiary is conducting or at any time has
conducted business, or where any Property of the Borrower or any Subsidiary is
located, including without limitation, the Oil Pollution Act of 1990 ("OPA"),
the Clean Air Act, as amended, the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal
Water Pollution Control Act, as amended, the Occupational Safety and Health Act
of 1970, as amended, the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended,
and other environmental conservation or protection laws. The term "oil" shall
have the meaning specified in OPA, the terms "hazardous substance" and "release"
(or "threatened release") have the meanings specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings specified in
RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby, such broader
meaning shall apply subsequent to the effective date of such amendment and (ii)
to the extent the laws of the state in which any Property of the Borrower or any
Subsidiary is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Borrower or any Subsidiary would be deemed
to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
"ERISA EVENT" shall mean (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of the
Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv)
the institution of proceedings to terminate a Plan by the PBGC or (v) any other
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"EURODOLLAR LOANS" shall mean Loans the interest rates on which are
determined on the basis of rates referred to in the definition of "Fixed
Eurodollar Rate".
"EVENT OF DEFAULT" shall have the meaning assigned such term in Section
10.01.
"EXCEPTED LIENS" shall mean: (i) Liens for taxes, assessments or other
governmental charges or levies not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have been
maintained; (ii) Liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public liability
obligations not yet due or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or other like
Liens arising by operation of law in the ordinary course of business or
statutory landlord's liens, each of which is in respect of obligations that have
not been outstanding more than 90 days or which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
maintained in accordance with GAAP; (iv) encumbrances (other than to secure the
payment of borrowed money or the deferred purchase price of Property or
services), easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any rights of way or other Property of the
Borrower or any Subsidiary for the purpose of roads, pipelines, transmission
lines, transportation lines, distribution lines for the removal of gas, oil,
coal or other minerals or timber, and other like purposes, or for the joint or
common use of real estate, rights of way, facilities and equipment, and defects,
irregularities, zoning restrictions and deficiencies in title of any rights of
way or other Property which in the aggregate do not materially impair the use of
such rights of way or other Property for the purposes of which such rights of
way and other Property are held by the Borrower or any
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Subsidiary or materially impair the value of such Property subject thereto; and
(v) Liens permitted by the Security Instruments.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with a member of the
Federal Reserve System arranged by federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if the date for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate charged to the Lender on such day on such transactions.
"FINAL MATURITY DATE" shall mean, unless the Term Note is sooner prepaid
pursuant to Section 2.07 hereof, June 15, 2001.
"FINANCIAL STATEMENTS" shall mean the financial statement or statements
of the Borrower and its Consolidated Subsidiaries described or referred to in
Section 7.02.
"FIXED EURODOLLAR RATE" shall mean, with respect to any Eurodollar Loan,
the rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
quoted by the Lender at approximately 11:00 a.m. London time (or as soon
thereafter as practicable) two (2) Business Days prior to the first day of the
Interest Period for such Loan for the offering by the Lender to leading lenders
in the London interbank market of Dollar deposits having a term comparable to
such Interest Period and in an amount comparable to the principal amount of the
Eurodollar Loan to be made by the Lender for such Interest Period.
"FIXED RATE" shall mean, with respect to any Eurodollar Loan, a rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
the Lender to be equal to the quotient of (i) the Fixed Eurodollar Rate for such
Loan for the Interest Period for such Loan divided by (ii) 1 minus the Reserve
Requirement for such Loan for such Interest Period.
"FUNDED DEBT" shall mean, at any date and with respect to any Person, all
Debt of such Person for borrowed money, any capital lease obligations of such
Person and any guaranty of such Person with respect to Funded Debt of another
person.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall include the country, the state, county,
city and political subdivisions in which any Person or such Person's Property is
located or which exercises valid jurisdiction over any such Person or such
Person's Property, and any court, agency, department,
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commission, board, bureau or instrumentality of any of them including monetary
authorities which exercises valid jurisdiction over any such Person or such
Person's Property. Unless otherwise specified, all references to Governmental
Authority herein shall mean a Governmental Authority having jurisdiction over,
where applicable, the Borrower, its Subsidiaries or any of their Property or the
Lender or any Applicable Lending Office.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement
(whether or not having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
"GUARANTORS" shall mean Jack H. Castle, Jr. and each Subsidiary which may
execute a Guaranty Agreement pursuant to Section 9.19.
"GUARANTY AGREEMENT" shall mean an agreement executed by the Guarantors
in form and substance satisfactory to the Lender guarantying, unconditionally,
payment of the Indebtedness, as the same may be amended, modified or
supplemented from time to time.
"HEDGING AGREEMENTS" shall mean any commodity, interest rate or currency
swap, rate cap, rate floor, rate collar, forward agreement or other exchange or
rate protection agreements or any option with respect to any such transaction.
"HIGHEST LAWFUL RATE" shall mean the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on other Indebtedness under laws
applicable to the Lender which are presently in effect or, to the extent allowed
by law, under such applicable laws which may hereafter be in effect and which
allow a higher maximum nonusurious interest rate than applicable laws now allow.
"INDEBTEDNESS" shall mean any and all amounts owing or to be owing by the
Borrower or any Subsidiary to the Lender in connection with the Loan Documents,
and any Hedging Agreements now or hereafter entered into between the Borrower
and the Lender or any Affiliate of the Lender, and all renewals, extensions
and/or rearrangements of any of the above.
"INDEMNIFIED PARTIES" shall have the meaning assigned such term in
Section 11.03(b).
"INDEMNITY MATTERS" shall mean any and all actions, suits, proceedings
(including any investigations, litigation or inquiries), claims, demands and
causes of action made or threatened against a Person and, in connection
therewith, all losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any kind or nature
whatsoever incurred by such Person whether caused by the sole or concurrent
negligence of such Person seeking indemnification.
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"INITIAL FUNDING" shall mean the funding of the initial Loans pursuant to
Section 6.01 hereof.
"INTEREST PERIOD" shall mean, with respect to any Eurodollar Loan, the
period commencing on the date such Eurodollar Loan is made and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter, as the Borrower may select as provided in Section 2.02 (or
such longer period as may be requested by the Borrower and agreed to by the
Lender), except that each Interest Period which commences on the last Business
Day of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may commence before
and end after the Revolving Credit Termination Date with respect to any
Revolving Credit Loan, the Final Maturity Date with respect to the Term Loan and
the Advancing Term Loan Termination Date with respect to any Advancing Term
Loan; (ii) no Interest Period for any Eurodollar Loan may end after the due date
of any installment, if any, provided for in Section 3.01 hereof to the extent
that such Eurodollar Loan would need to be prepaid prior to the end of such
Interest Period in order for such installment to be paid when due; (iii) each
Interest Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iv) no Interest Period shall have a duration of less than
one month and, if the Interest Period for any Eurodollar Loans would otherwise
be for a shorter period, such Loans shall not be available hereunder.
"JHC PC" shall mean Jack H. Castle, D.D.S., P.C., a Texas professional
corporation.
"LIEN" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and whether such
obligation or claim is fixed or contingent, and including but not limited to (i)
the lien or security interest arising from a mortgage, encumbrance, pledge,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes. The term "LIEN" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
Property. For the purposes of this Agreement, the Borrower or any Subsidiary
shall be deemed to be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, or leases under a financing lease or
other arrangement pursuant to which title to the Property has been retained by
or vested in some other Person in a transaction intended to create a financing.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes and the Security
Instruments.
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"LOANS" shall mean the loans as provided for by Section 2.01(a), (b) and
(c). "Loans" shall include the Revolving Credit Loan, the Term Loan and the
Advancing Term Loan.
"MANAGEMENT SERVICES AGREEMENTS" shall mean the Management Services
Agreement between the Borrower and JHC PC, dated effective December 19, 1995,
the Management Services Agreement between Castle of Florida and Castle 1st
Dental Care, P.A., effective May 19, 1996, the Management Services Agreement
between Castle of Tennessee and Castle Mid-South Dental Centers, P.C., effective
May 31, 1996, and all such future Management Service Agreements hereafter
entered into by Borrower or any Subsidiary, in form and substance satisfactory
to Lender, in connection with New Acquisitions approved by Lender.
"MATERIAL ADVERSE EFFECT" shall mean any material and adverse effect on
(i) the assets, liabilities, financial condition, business, operations or
affairs of the Borrower different from those reflected in the Financial
Statements or from the facts represented or warranted in this Agreement or any
Security Instrument, or (ii) the ability of the Borrower or the Guarantors to
carry out its business as at the Closing Date of the Original Agreement or as
proposed as of the Closing Date of the Original Agreement to be conducted or
meet their obligations under the Loan Documents on a timely basis.
"MAXIMUM CREDIT AMOUNT" at any time shall equal $3,000,000.00 as the same
may be reduced pursuant to Section 2.03(b).
"MORTGAGED PROPERTY" shall mean the Property owned by the Borrower and
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
"MULTIEMPLOYER PLAN" shall mean a Plan defined as such in Section 3(37)
or 4001(a)(3) of ERISA.
"NEW ACQUISITION" shall mean the acquisition or start up of dental
practices and/or management service organizations using proceeds of the
Advancing Term Loan as permitted by the Agreement.
"NEW PC" shall mean JHC PC, and all such new professional corporations or
professional associations which hereafter become a party to future Management
Services Agreements and Accounts Receivable Purchase Agreements with Borrower or
any Subsidiary pursuant to New Acquisitions approved by Lender.
"NOTES" shall mean the Notes provided for by Section 2.06, together with
any and all renewals, extensions for any period, increases, rearrangements,
substitutions or modifications thereof. The "Notes" shall include the Revolving
Credit Note, the Term Note, and the Advancing Term Note.
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"OLD PC" shall mean DDS, 1st Dental Care, Inc. Mid-South Dental Centers,
P.C., and all entities whose assets hereafter are acquired during New
Acquisitions.
"ORIGINAL AGREEMENT" shall mean that certain Credit Agreement dated as of
December 19, 1996, executed by Borrower and Lender.
"OTHER TAXES" shall have the meaning assigned such term in Section
4.04(b).
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions.
"PC STOCK OPTION AGREEMENT" shall mean the Stock Option Agreement between
Jack H. Castle, D.D.S. and the Borrower dated as of December 19, 1995, relating
to the shares of capital stock of JHC PC, the Option Agreement between Castle of
Florida and Lester B. Greenberg, D.D.S., dated as of May 19, 1996, relating to
the shares of capital stock of Castle 1st Dental Care P.A., the Option Agreement
between Castle of Tennessee and G. Powell Bilyeu, dated as of May 31, 1996,
relating to the shares of capital stock of Castle Mid-South Dental Centers,
P.C., and such future stock option agreements entered into by Borrower or any
Subsidiary, in form and substance satisfactory to Lender, in connection with the
New Acquisitions approved by Lender.
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, unincorporated organization or
government or any agency, instrumentality or political subdivision thereof, or
any other form of entity.
"PLAN" shall mean any employee pension benefit plan, as defined in
Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained
or contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii)
was at any time during the preceding six calendar years, sponsored, maintained
or contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any Loan
or any other amount payable by the Borrower under this Agreement or the Notes
which is not paid when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum during the period commencing on the due date until
such amount is paid in full or the default is cured or waived equal to 2% per
annum above the Base Rate as in effect from time to time plus the Applicable
Margin (if any), but in no event to exceed the Highest Lawful Rate provided
that, if such amount in default is principal of a Eurodollar Loan, the
"Post-Default Rate" for such principal shall be, for the period commencing on
the due date and ending on the last day of the Interest Period therefor, 3% per
annum above the interest rate for such Loan as provided in Section 3.02(b), but
in no event to exceed the Highest Lawful Rate.
"PRIME RATE" shall mean the rate of interest from time to time announced
publicly by the Lender at the Principal Office as its prime commercial lending
rate. Such rate is set by the
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Lender as a general reference rate of interest, taking into account such factors
as the Lender may deem appropriate, it being understood that many of the
Lender's commercial or other loans are priced in relation to such rate, that it
is not necessarily the lowest or best rate actually charged to any customer and
that the Lender may make various commercial or other loans at rates of interest
having no relationship to such rate.
"PRINCIPAL OFFICE" shall mean the principal office of the Lender,
presently located at 700 Louisiana, Houston, Harris County, Texas 77002.
"PRIOR REVOLVING CREDIT NOTE" shall mean that certain promissory note
dated December 19, 1995, in the face amount of $3,000,000, executed by Borrower
and payable to the order of Lender as therein provided, which Prior Revolving
Credit Note was issued by Borrower under and pursuant to the Original Agreement.
"PRIOR TERM NOTE" shall mean that certain promissory note dated December
19, 1995, in the face amount of $6,000,000, executed by the Borrower and payable
to the order of Lender as therein provided, which Prior Term Note was issued by
Borrower under and pursuant to the Original Agreement.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"QUARTERLY DATES" shall mean the fifteenth day of each March, June,
September, and December, in each year, the first of which shall be March 15,
1996; provided, however, that if any such day is not a Business Day, such
Quarterly Date shall be the next succeeding Business Day.
"REGULATION D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"REGULATORY CHANGE" shall mean any change after the Closing Date of the
Original Agreement in any Governmental Requirement (including Regulation D) or
the adoption or making after such date of any interpretations, directives or
requests applying to a class of lenders (including the Lender or its Applicable
Lending Office) of or under any Governmental Requirement (whether or not having
the force of law) by any Governmental Authority charged with the interpretation
or administration thereof.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York City with deposits exceeding one billion Dollars
against "Eurocurrency liabilities" (as such term is used in Regulation D).
Without
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limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
Regulatory Change against (i) any category of liabilities which includes
deposits by reference to which the Fixed Eurodollar Rate for Eurodollar Loans is
to be determined as provided in the definition of "Fixed Eurodollar Rate" or
(ii) any category of extensions of credit or other assets which include a
Eurodollar Loan.
"RESPONSIBLE OFFICER" shall mean, as to any Person, the Chief Executive
Officer, the President or any Vice President of such Person and, with respect to
financial matters, the term "Responsible Officer" shall include the Chief
Financial Officer and Treasurer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a Responsible Officer of
the Borrower.
"REVOLVING CREDIT COMMITMENT" shall mean the amount determined by Section
2.03(a).
"REVOLVING CREDIT LOAN" shall mean Loans made pursuant to Section 2.01(a)
hereof.
"REVOLVING CREDIT NOTE" shall mean the promissory note or notes (whether
one or more) of the Borrower described in Section 2.06 hereof and being in the
form of Exhibit A-1 hereto, together with any and all renewals, extensions for
any period, increases, rearrangements, substitutions or modifications thereof.
"REVOLVING CREDIT PERIOD" shall mean the period from the Closing Date to
and ending on the Revolving Credit Termination Date.
"REVOLVING CREDIT TERMINATION DATE" shall mean, unless the Commitment is
sooner terminated pursuant to Sections 2.03(b) or 10.02 hereof, June 30, 1997.
"SEC" shall mean the Securities and Exchange Commission or any successor
Governmental Authority.
"SECURITY INSTRUMENTS" shall mean the agreements or instruments described
or referred to in Exhibit E, and any and all other agreements or instruments now
or hereafter executed and delivered by the Borrower or any other Person (other
than participation or similar agreements between the Lender and any other lender
or creditor with respect to any Indebtedness pursuant to this Agreement) in
connection with, or as security for the payment or performance of the Notes, or
this Agreement, as such agreements may be amended, supplemented or restated from
time to time.
"SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase
Agreement dated as of December 19, 1995 among the Borrower and each of the
investors signatory thereto.
"SENIOR FUNDED DEBT" shall mean all Funded Debt except Subordinated Debt.
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"STOCK PURCHASE" shall mean that certain acquisition of all capital
stock of any Old PC by Borrower pursuant to a Stock Purchase Agreement.
"STOCK PURCHASE AGREEMENT" shall mean that certain Stock Purchase
Agreement dated as of December 19, 1995, between the Borrower and Jack H.
Castle, D.D.S., and such future Stock Purchase Agreements entered into by
Borrower or any Subsidiary, in form and substance satisfactory to Lender, in
connection with New Acquisitions approved by Lenders.
"SUBORDINATED DEBT" shall mean such Debt of the Borrower incurred
pursuant to the Securities Purchase Agreement in the amount of $7,500,000.00
subordinated to the Indebtedness.
"SUBSIDIARY" shall mean any corporation of which at least a majority of
the outstanding shares of stock having by the terms thereof ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or
controlled by the Borrower or one or more of its Subsidiaries or by the Borrower
and one or more of its Subsidiaries.
"TAXES" shall have the meaning assigned such term in Section 4.04(a).
"TERM COMMITMENT" shall mean $6,000,000.00.
"TERM LOAN" shall mean the term loan made pursuant to Section 2.01(b)
hereof.
"TERM NOTE" shall mean the promissory note or notes (whether one or more)
of the Borrower described in Section 2.06 hereof and being in the form of
Exhibit A-2 hereto, together with any and all renewals, extensions for any
period, increases, rearrangements, substitutions or modifications thereof.
"TYPE" shall mean, with respect to any Loan, a Base Rate Loan or a
Eurodollar Loan.
"WHOLLY-OWNED SUBSIDIARY" shall mean, as to the Borrower, any Subsidiary
of which all of the outstanding shares of stock having by the terms thereof
ordinary voting power to elect the board of directors of such corporation, other
than directors' qualifying shares, are owned or controlled by the Borrower or
one or more of the Wholly-Owned Subsidiaries or by the Borrower and one or more
of the Wholly-Owned Subsidiaries.
Section 1.03 ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Lender hereunder shall be prepared, in
accordance with GAAP, applied on a basis consistent with the audited financial
statements of the
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Borrower referred to in Section 7.02 (except for changes concurred with by the
Borrower's independent public accountants).
ARTICLE II
Commitments
Section 2.01 LOANS.
(a) REVOLVING CREDIT LOANS. The Lender agrees, on the terms of this
Agreement, to make Loans to the Borrower during the period from and including
the Closing Date to and up to, but excluding, the Revolving Credit Termination
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Revolving Credit Commitment as then in effect.
Subject to the terms of this Agreement, during the period from the Closing Date
to and up to, but excluding, the Revolving Credit Termination Date, the Borrower
may borrow, repay and reborrow the amount described in this Section 2.01(a). The
initial advance hereunder will be a rearrangement and continuation of the
balance outstanding on the Revolving Credit Loans under the Original Agreement.
(b) TERM LOAN. The Lender agrees, subject to the terms and conditions of
this Agreement, to make a Term Loan to the Borrower not to exceed $6,000,000.00
(the principal balance outstanding on the Term Loan under the Original
Agreement). Such Term Loan shall be made by way of a rearrangement and
continuation of the balance outstanding on the Term Loan under the Original
Agreement.
(c) ADVANCING TERM LOAN. The Lender agrees to make an Advancing Term
Loan, subject to the terms and conditions of this Agreement, available in
multiple advances, to the Borrower not to exceed the Advancing Term Commitment.
Such Advancing Term Loan shall be made by way of multiple advances (which, as to
any individual advance, once repaid, may not be reborrowed) from time to time
during the period from the Closing Date to and up to but excluding June 30,
1997, in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Advancing Term Commitment as then in effect.
(d) LIMITATION ON TYPES OF LOANS. Subject to the other terms and
provisions of this Agreement, at the option of the Borrower, the Loans may be
Base Rate Loans or Eurodollar Loans; provided that no more than ten (10)
Eurodollar Loans may be outstanding at any time.
Section 2.02 BORROWINGS, CONTINUATIONS AND CONVERSIONS.
(a) BORROWINGS. The Borrower shall give the Lender advance notice as
hereinafter provided of each borrowing hereunder, which shall specify the
aggregate amount of such
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borrowing, the Type and the date (which shall be a Business Day) of the Loans to
be borrowed and (in the case of Eurodollar Loans) the duration of the Interest
Period therefor.
(b) MINIMUM AMOUNTS. All Base Rate Loan borrowings shall be in amounts
of at least $10,000 or the remaining balance of the Revolving Credit Commitment,
if less, and all Eurodollar Loans shall be in amounts of at least $100,000.
(c) NOTICES. All borrowings, continuations and conversions shall require
advance written notice to the Lender in the form of Exhibit B hereto (or
telephonic notice promptly confirmed by such a written notice), which in each
case shall be irrevocable, from the Borrower to be received by the Lender not
later than 11:00 a.m. Houston, Texas, time at least one Business Day prior to
the date of each Base Rate Loan borrowing and three Business Days prior to the
date of each Eurodollar Loan borrowing, continuation or conversion. Without in
any way limiting the Borrower's obligation to confirm in writing any telephonic
notice, the Lender may act without liability upon the basis of telephonic notice
believed by the Lender in good faith to be from the Borrower prior to receipt of
written confirmation. In each such case, the Borrower hereby waives the right to
dispute the Lender's record of the terms of such telephonic notice except in the
case of gross negligence or willful misconduct by the Lender.
(d) CONTINUATION OPTIONS. Subject to the provisions made in this Section
2.02(d), the Borrower may elect to continue all or any part of any Eurodollar
Loan beyond the expiration of the then current Interest Period relating thereto
by giving advance notice as provided in Section 2.02(c) to the Lender of such
election, specifying the amount of such Loan to be continued and the Interest
Period therefor. In the absence of such a timely and proper election, the
Borrower shall be deemed to have elected to convert such Eurodollar Loan to a
Base Rate Loan pursuant to Section 2.02(e). All or any part of any Eurodollar
Loan may be continued as provided herein, provided that (i) any continuation of
any such Loan shall be (as to each Loan as continued for an applicable Interest
Period) in amounts of at least $100,000 and (ii) no Default shall have occurred
and be continuing. If a Default shall have occurred and be continuing, each
Eurodollar Loan shall be converted to a Base Rate Loan on the last day of the
Interest Period applicable thereto.
(e) CONVERSION OPTIONS. The Borrower may elect to convert all or any
part of any Eurodollar Loan on the last day of the then current Interest Period
relating thereto to a Base Rate Loan by giving advance notice to the Lender of
such election. Subject to the provisions made in this Section 2.02(e), the
Borrower may elect to convert all or any part of any Base Rate Loan at any time
and from time to time to a Eurodollar Loan by giving advance notice as provided
in Section 2.02(c) to the Lender of such election. All or any part of any
outstanding Loan may be converted as provided herein, provided that (i) any
conversion of any Base Rate Loan into a Eurodollar Loan shall be (as to each
such Loan into which there is a conversion for an applicable Interest Period) in
amounts of at least $100,000 and (ii) no Default shall have occurred and be
continuing. If no Default shall have occurred and be continuing, each Base Rate
Loan may be converted into a Eurodollar Loan.
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(f) ADVANCES. Not later than 11:00 a.m. Houston, Texas, time on the date
specified for each borrowing hereunder, the Lender shall make available the
amount of the Loans to be made on such date in immediately available funds, for
the account of the Borrower. The amount shall, subject to the terms and
conditions of this Agreement, be made available to the Borrower by transferring
the same, in immediately available funds, to an account of the Borrower,
designated by the Borrower and maintained at the Principal Office.
Section 2.03 CHANGES OF REVOLVING CREDIT COMMITMENT.
(a) The Revolving Credit Commitment shall at all times be equal to the
lesser of (i) the Maximum Credit Amount after adjustments resulting from
reductions pursuant to Section 2.03(b) hereof or (ii) the Borrowing Base as
determined from time to time.
(b) The Borrower shall have the right to terminate or to reduce the
amount of the Maximum Credit Amount at any time or from time to time upon not
less than three (3) Business Days' prior notice to the Lender of each such
termination or reduction, which notice shall specify the effective date thereof
and the amount of any such reduction (which shall not be less than $100,000 or
any whole multiple of $100,000 in excess thereof) and shall be irrevocable and
effective only upon receipt by the Lender.
(c) The Maximum Credit Amount once terminated or reduced may not be
reinstated.
Section 2.04 FEES.
(a) FACILITY FEE. Borrower will pay Lender, on the Closing Date, a
facility fee equal to $86,000.
(b) COMMITMENT FEE. The Borrower shall pay to the Lender a commitment
fee on the daily average unused amount of the Revolving Credit Commitment for
the period from and includ ing the Closing Date up to but excluding the earlier
of the date the Revolving Credit Commitment is terminated or the Revolving
Credit Termination Date, at the applicable percentage based on the ratio of
Funded Debt to EBITDA.
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FUNDED DEBT TO EBITDA UNUSED FEE (PER
ANNUM)
============================================ ==================
Greater than or = 2.00 .5%
Greater than or = 1.50 but less than 2.00 .375%
Greater than or = 1.00 but less than 1.50 .375%
Less than 1.00 .25%
============================================ ==================
Accrued commitment fees shall be determined and adjusted on the same
dates as Applicable Margin is determined and shall be payable on each Quarterly
Date and on the earlier of the date the Revolving Credit Commitment is
terminated or the Revolving Credit Termination Date. Until receipt of the first
Compliance Certificate under Section 8.01, the unused fee shall be .375%.
(c) SUCCESS FEE. (i) Borrower shall pay Lender a success fee based on
(A) 2% of the amount of the Term Loan prepaid if the Term Loan is prepaid within
twelve (12) months from the Closing Date of the Original Agreement and (B) 1% of
the amount of the Term Loan prepaid if the Term Loan is prepaid within the first
twenty-four (24) months, but after the first twelve (12) months from the Closing
Date of the Original Agreement; and (ii) Borrower shall pay Lender a success fee
based on (A) 2% of the amount of the Advancing Term Loan prepaid if the
Advancing Term Loan is prepaid within twelve (12) months from the Closing Date
and (B) 1% of the amount of the Advancing Term Loan prepaid if the Advancing
Term Loan is prepaid within the first twenty-four (24) months, but after the
first twelve (12) months from the Closing Date.
Section 2.05 LENDING OFFICES. The Loans of each Type shall be made and
maintained at the Lender's Applicable Lending Office for Loans of such Type.
Section 2.06 NOTES. The Term Loan shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A-2 hereto,
dated as of the Closing Date, payable to the order of the Lender and otherwise
duly completed. The Revolving Credit Loans shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A-1 hereto,
dated the Closing Date, payable to the order of the Lender in a principal amount
equal to the Revolving Credit Commitment and otherwise duly completed. The
Advancing Term Loan shall be evidenced by a single promissory note of the
Borrower in substantially the form of Exhibit A-3 hereto, dated the Closing
Date, payable to the order of the Lender and otherwise duly completed. The date,
amount, Type, interest rate and Interest Period of each Loan and all payments
made on account of the principal thereof, shall be recorded by the Lender on its
books for the Notes, and, prior to any transfer, endorsed by the Lender on the
schedule attached to such
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Notes or any continuation thereof. Such records shall be deemed conclusive
absent manifest error.
Section 2.07 PREPAYMENTS.
(a) The Borrower may prepay the Base Rate Loans upon not less than one
(1) Business Day's prior notice to the Lender, which notice shall specify the
prepayment date (which shall be a Business Day) and the amount of the prepayment
(which shall be at least $10,000 or the remaining principal balance outstanding
on the subject Note) and shall be irrevocable and effective only upon receipt by
the Lender, provided that interest on the principal prepaid, accrued to the
prepayment date, shall be paid on the prepayment date. The Borrower may prepay
Eurodollar Loans on the same condition as Base Rate Loans and in addition such
prepayments of Eurodollar Loans shall be subject to the terms of Section 5.05
and shall be in an amount equal to all of the Eurodollar Loans for the Interest
Period being prepaid.
(b) If, after giving effect to any termination or reduction of the
Revolving Credit Commitment pursuant to Section 2.03(b), the outstanding
aggregate principal amount of the Loans exceeds the Revolving Credit Commitment,
the Borrower shall prepay the Loans on the date of such termination or reduction
in an aggregate principal amount equal to the excess, together with interest on
the principal amount paid accrued to the date of such prepayment.
(c) Upon any redetermination of the amount of the Borrowing Base if the
redetermined Borrowing Base is less than the aggregate outstanding principal
amount of the Revolving Credit Loans, then the Borrower shall within thirty (30)
days of receipt of written notice thereof: prepay the Revolving Credit Loans in
an aggregate principal amount equal to such excess, together with interest on
the principal amount paid accrued to the date of such prepayment.
(d) Prepayments permitted or required under this Section 2.07 shall be
without premium or penalty, except as required under Section 2.04(c) for
prepayment of the Term Loan and the Advancing Term Loan and under Section 5.05
for prepayment of Eurodollar Loans. Any prepayments on the Revolving Credit Loan
may be reborrowed subject to the then effective Revolving Credit Commitment. Any
prepayments on the Term Loan may not be reborrowed and shall be applied to
installments on the Term Note in the inverse order of maturity. Any prepayments
on the Advancing Term Loan may not be reborrowed and shall be applied to
installments on the Advancing Term Loan in the inverse order of maturity.
(e) Upon any redetermination of the amount of the Advancing Term Loan
Borrowing Base if the redetermined Advancing Term Loan Borrowing Base is less
than the aggregate outstanding principal amount of the Advancing Term Loan, then
the Borrower shall within thirty (30) days of receipt of written notice thereof,
prepay the Advancing Term Loan in an aggregate principal amount equal to such
excess, together with interest on the principal amount paid accrued to the date
of such prepayment.
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Section 2.08 CHANGES OF ADVANCING TERM COMMITMENT. The Advancing Term
Commitment shall at all times be equal to the lesser of (i) $10,000,000 or (ii)
the Advancing Term Loan Borrowing Base as determined from time to time.
ARTICLE III
Payments of Principal and Interest
Section 3.01 REPAYMENT OF LOANS. The Borrower will pay to the Lender,
the principal payments required by this Section 3.01. On the Revolving Credit
Termination Date the Borrower shall repay the outstanding principal amount of
the Revolving Credit Note. Commencing on June 15, 1996, and on each Quarterly
Date thereafter, the principal amount of the Term Note shall be payable in
twenty (20) installments in the principal amount of $300,000 each, with final
payment of the remaining principal balance on the Term Note due on the Final
Maturity Date. For the purposes of the repayments of the Advancing Term Loan,
each advance (an "ADVANCING TERM LOAN ADVANCE") made hereunder shall be
repayable in a separately determined repayment schedule. Each such Advancing
Term Loan Advance shall be repayable in installments equal to 1/20th of the
amount of the Advancing Term Loan Advance commencing on September 15, 1996 and
continuing on each Quarterly Date thereafter; provided, however, that all
Advancing Term Loan Advances not previously repaid shall be due and payable on
the Advancing Term Loan Termination Date.
Section 3.02 INTEREST. The Borrower will pay to the Lender interest on
the unpaid principal amount of each Loan for the period commencing on the date
such Loan is made to but excluding the date such Loan shall be paid in full, at
the following rates per annum:
(i) if such a Loan is a Base Rate Loan, the Base Rate (as in effect from
time to time) plus the Applicable Margin, but in no event to exceed the Highest
Lawful Rate; and
(ii) if such a Loan is a Eurodollar Loan, for each Interest Period
relating thereto, the Fixed Rate for such Loan plus the Applicable Margin, but
in no event to exceed the Highest Lawful Rate.
Notwithstanding the foregoing, the Borrower will pay to the Lender interest at
the applicable Post- Default Rate on any principal of any Loan, and (to the
fullest extent permitted by law) on any other amount payable by the Borrower
hereunder, under any Security Instrument or under the Notes which shall not be
paid in full when due (whether at stated maturity, by acceleration or
otherwise), for the period commencing on the due date thereof until the same is
paid in full.
Accrued interest on the Base Rate Loans shall be payable quarterly commencing on
March 15, 1996, and on each Quarterly Date thereafter and accrued interest on
each Eurodollar Loan shall
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be payable on the last day of the Interest Period therefor and, if such Interest
Period is longer than three months at three-month intervals following the first
day of such Interest Period and interest on any Eurodollar Loan that is
converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on
the date of conversion (but only to the extent so converted).
Promptly after the determination of any interest rate provided for herein or any
change therein, the Lender shall notify the Borrower thereof. Each determination
by the Lender of an interest rate or fee hereunder shall, except in cases of
manifest error, be final, conclusive and binding on the parties.
ARTICLE IV
Payments; Computations; Etc.
Section 4.01 PAYMENTS. Except to the extent otherwise provided herein,
all payments of principal, interest and other amounts to be made by the Borrower
under this Agreement and the Notes shall be made in Dollars, in immediately
available funds, to the Lender at such account as the Lender shall specify by
notice to the Borrower from time to time, not later than 11:00 a.m. Houston,
Texas, time on the date on which such payments shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day). Such payments shall be made without (to the
fullest extent permitted by applicable law) defense, set-off or counterclaim.
Each payment to be made to the Lender under this Agreement or the Notes shall be
paid promptly to the Lender, in immediately available funds. If the due date of
any payment under this Agreement or the Notes would otherwise fall on a day
which is not a Business Day such date shall be extended to the next succeeding
Business Day and interest shall be payable for any principal so extended for the
period of such extension. At the time of each payment of any principal of or
interest on any borrowing to the Lender, the Borrower shall notify the Lender of
the Loans to which such payment shall apply. In the absence of such notice the
Lender may specify the Loans to which such payment shall apply, but to the
extent possible such payment or prepayment will be applied first to the Loans
comprised of Base Rate Loans.
Section 4.02 COMPUTATIONS. Interest on all Loans and fees shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable, unless such calculation would exceed the Highest Lawful Rate, in which
case interest shall be calculated on the per annum basis of a year of 365 or 366
days, as the case may be.
Section 4.03 SET-OFF. The Borrower agrees that, in addition to (and
without limitation of) any right of set-off, bankers' lien or counterclaim the
Lender may otherwise have, the Lender shall have the right and be entitled, at
its option, to offset balances held by it or by any of its
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Affiliates for account of the Borrower or any Subsidiary at any of its offices,
in Dollars or in any other currency, against any principal of or interest on any
of the Loans or any other amount payable to the Lender hereunder, which is not
paid when due (regardless of whether such balances are then due to the
Borrower), in which case it shall promptly notify the Borrower thereof, provided
that Lender's failure to give such notice shall not affect the validity thereof.
Section 4.04 TAXES.
(a) PAYMENTS FREE AND CLEAR. Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 4.01, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING, taxes imposed on its income, and franchise or similar taxes imposed
on it, by (i) any jurisdiction (or political subdivision thereof) of which the
Lender, is a citizen or resident or in which the Lender has an Applicable
Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in
which the Lender is organized, or (iii) any jurisdiction (or political
subdivision thereof) in which the Lender is presently doing business which taxes
are imposed solely as a result of doing business in such jurisdiction (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lender (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 4.04) the Lender shall
receive an amount equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and (iii) the Borrower
shall pay the full amount deducted to the relevant taxing authority or other
Governmental Authority in accordance with applicable law.
(b) OTHER TAXES. In addition, to the fullest extent permitted by
applicable law, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
Security Instrument (hereinafter referred to as "OTHER TAXES").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE BORROWER WILL INDEMNIFY THE LENDER FOR THE FULL AMOUNT OF TAXES AND OTHER
TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.04) PAID BY THE
LENDER, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING
THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE
CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY
OR LEGALLY ASSERTED AND THE LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS
THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT
TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE THE
LENDER MAKES WRITTEN DEMAND
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THEREFOR. IF THE LENDER RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR
OTHER TAXES FOR WHICH THE LENDER HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL
PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT
HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A
REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED
APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO
SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO
REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE REQUEST OF THE
LENDER, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR
OTHER CHARGES) TO THE LENDER IN THE EVENT THE LENDER IS REQUIRED TO REPAY SUCH
REFUND OR CREDIT.
ARTICLE V
Yield Protection and Illegality
Section 5.01 EURODOLLAR REGULATIONS, ETC.
(a) EURODOLLAR REGULATIONS, ETC. The Borrower shall pay directly to
Lender from time to time such amounts as the Lender may determine to be
necessary to compensate the Lender for any costs which it determines are
attributable to its making or maintaining of any Eurodollar Loans hereunder or
its obligation to make any Eurodollar Loans hereunder, or any reduction in any
amount receivable by the Lender hereunder in respect of any of such Eurodollar
Loans or such obligation (such increases in costs and reductions in amounts
receivable being herein called "ADDITIONAL COSTS"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to the Lender under this Agreement or the Notes in respect of any of
such Eurodollar Loans (other than taxes imposed on the overall net income of the
Lender or of its Applicable Lending Office for any of such Eurodollar Loans by
the jurisdiction of the Principal Office or Applicable Lending Office); or (ii)
imposes or modifies any reserve, special deposit, minimum capital, capital ratio
or similar requirements (other than the Reserve Requirement utilized in the
determination of the Fixed Rate for such Loan) relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of the
Lender (including any of such Eurodollar Loans or any deposits referred to in
the definition of "Fixed Eurodollar Rate" in Section 1.02 hereof), or the
Commitment or the Eurodollar interbank market; or (iii) imposes any other
condition affecting this Agreement or the Notes (or any of such extensions of
credit or liabilities) or the Commitment. The Lender will notify the Borrower of
any event occurring after the Closing Date which will entitle the Lender to
compensation pursuant to this Section 5.01(a) as promptly as practicable after
it obtains knowledge thereof and determines to request such compensation, and
will designate a different Applicable Lending Office for the Loans affected by
such event if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of the Lender, be
disadvantageous to it, provided that it shall have no obligation to so designate
an Applicable Lending Office located in the United States. If the Lender
requests compensation from the Borrower under this Section
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5.01(a), the Borrower may, by notice to the Lender, suspend the obligation of
the Lender to make additional Loans of the Type with respect to which such
compensation is requested until the Regulatory Change giving rise to such
request ceases to be in effect (in which case the provisions of Section 5.04
shall be applicable).
(b) REGULATORY CHANGE. Without limiting the effect of the provisions of
Section 5.01(a), in the event that, by reason of any Regulatory Change or any
other circumstances arising after the Closing Date affecting the Lender, the
Eurodollar interbank market or the Lender's position in such market, the Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
the Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of the Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if the Lender so elects by
notice to the Borrower, the obligation of the Lender to make additional
Eurodollar Loans shall be suspended until such Regulatory Change or other
circumstances ceases to be in effect (in which case the provisions of Section
5.04 shall be applicable).
(c) CAPITAL ADEQUACY. Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the Borrower shall
pay directly to the Lender from time to time on request such amounts as the
Lender may reasonably determine to be necessary to compensate it or its parent
or holding company for any costs which it determines are attributable to the
maintenance by it or its parent or holding company (or any Applicable Lending
Office), pursuant to any Governmental Requirement following any Regulatory
Change, of capital in respect of the Commitment, the Notes, the Loans (such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of the Lender or its parent or holding
company (or any Applicable Lending Office) to a level below that which the
Lender or its parent or holding company (or any Applicable Lending Office) could
have achieved but for such Governmental Requirement). The Lender will notify the
Borrower that it is entitled to compensation pursuant to this Section 5.01(c) as
promptly as practicable after it determines to request such compensation.
(d) COMPENSATION PROCEDURE. If Lender notifies the Borrower of the
incurrence of additional costs under this Section 5.01, such notice to the
Borrower shall set forth the basis and amount of its request for compensation.
Determinations and allocations by the Lender for purposes of this Section 5.01
of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of
the effect of capital maintained pursuant to Section 5.01(c)(a), on its costs or
rate of return of maintaining Loans or its obligation to make Loans or on
amounts receivable by it in respect of Loans and of the amounts required to
compensate the Lender under this Section 5.01, shall be conclusive and binding
for all purposes, provided that such determinations and allocations are made on
a reasonable basis. Any request for additional compensation under this Section
5.01
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shall be paid by the Borrower within thirty (30) days of the receipt by the
Borrower of the notice described in this Section 5.01(d)(c).
Section 5.02 LIMITATION ON EURODOLLAR LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Fixed
Eurodollar Rate for any Interest Period:
(i) the Lender determines (which determination shall be conclusive
absent manifest error) that quotations of interest rates for the relevant
deposits referred to in the definition of "Fixed Eurodollar Rate" in Section
1.02 are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar Loans as
provided herein; or
(ii) the Lender determines (which determination shall be conclusive
absent manifest error) that the relevant rates of interest referred to in the
definition of "Fixed Eurodollar Rate" in Section 1.02 upon the basis of which
the rate of interest for Eurodollar Loans for such Interest Period is to be
determined are not likely to adequately cover the cost to the Lender of making
or maintaining Eurodollar Loans;
then the Lender shall give the Borrower prompt notice thereof, and so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Eurodollar Loans.
Section 5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the Lender or its
Applicable Lending Office to honor its obligation to make or maintain Eurodollar
Loans hereunder, then the Lender shall promptly notify the Borrower thereof and
the Lender's obligation to make Eurodollar Loans shall be suspended until such
time as the Lender may again make and maintain Eurodollar Loans (in which case
the provisions of Section 5.04 shall be applicable).
Section 5.04 BASE RATE LOANS PURSUANT TO SECTIONS 5.01, 5.02 AND 5.03.
If the obligation of the Lender to make Eurodollar Loans shall be suspended
pursuant to Sections 5.01, 5.02 or 5.03 ("AFFECTED LOANS"), all Affected Loans
which would otherwise be made by the Lender shall be made instead as Base Rate
Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has
occurred and the Lender so requests by notice to the Borrower, all Affected
Loans then outstanding shall be automatically converted into Base Rate Loans on
the date specified by the Lender in such notice) and, to the extent that
Affected Loans are so made as (or converted into) Base Rate Loans, all payments
of principal which would otherwise be applied to the Affected Loans shall be
applied instead to Base Rate Loans.
Section 5.05 COMPENSATION. The Borrower shall pay to the Lender within
thirty (30) days of receipt of written request of Lender (which request shall
set forth, in reasonable detail, the basis for requesting such amounts and which
shall be conclusive and binding for all purposes
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provided that such determinations are made on a reasonable basis), such amount
or amounts as shall compensate it for any loss, cost, expense or liability which
the Lender reasonably determines are attributable to:
(i) any payment, prepayment or conversion of a Eurodollar Loan properly
made by the Lender or the Borrower for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 10.01) on a date
other than the last day of the Interest Period for such Loan; or
(ii) any failure by the Borrower for any reason (including but not
limited to, the failure of any of the conditions precedent specified in Article
VI to be satisfied) to borrow, continue or convert a Eurodollar Loan on the date
for such borrowing, continuation or conversion specified in the relevant notice
given pursuant to Section 2.02(c).
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the principal amount so paid, prepaid or converted
or not borrowed for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
which would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
interest component of the amount the Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts comparable to
such principal amount and with maturities comparable to such period (as
reasonably determined by the Lender).
ARTICLE VI
Conditions Precedent
Section 6.01 INITIAL FUNDING.
The obligation of the Lender to make the Initial Funding is subject to
its receipt by the Lender of all fees due and payable pursuant to Section 2.04
on or before the Closing Date and the receipt by the Lender of the following
documents and satisfaction of the other conditions provided in this Section
6.01, each of which shall be satisfactory to the Lender in form and substance:
(a) A certificate of the Secretary or an Assistant Secretary of the
Borrower setting forth (i) resolutions of its board of directors with respect to
the authorization of the Borrower to execute and deliver the Loan Documents to
which it is a party and to enter into the transactions contemplated in those
documents, (ii) the officers of the Borrower (y) who are authorized to sign
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the Loan Documents to which Borrower is a party and (z) who will, until replaced
by another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of the authorized officers, and
(iv) the articles or certificate of incorporation and bylaws of the Borrower,
certified as being true and complete. The Lender may conclusively rely on such
certificate until it receives notice in writing from the Borrower to the
contrary.
(b) A certificate of the Secretary or an Assistant Secretary of each
Subsidiary setting forth (i) resolutions of its board of directors with respect
to the authorization of such Subsidiary to execute and deliver the Loan
Documents to which it is a party and to enter into the transactions contemplated
in those documents, (ii) the officers of such Subsidiary (y) who are authorized
to sign the Loan Documents to which such Subsidiary is a party and (z) who will,
until replaced by another officer or officers duly authorized for that purpose,
act as its representative for the purposes of signing documents and giving
notices and other communications in connection with this Agreement and the
transactions contemplated hereby, (iii) specimen signatures of the authorized
officers, and (iv) the articles or certificate of incorporation and bylaws of
such Subsidiary, certified as being true and complete. The Lender may
conclusively rely on such certificate until it receives notice in writing from
the Borrower to the contrary.
(c) Certificates of the appropriate state agencies with respect to the
existence, qualification and good standing of the Borrower and Subsidiaries.
(d) A compliance certificate which shall be substantially in the form of
Exhibit C, duly and properly executed by a Responsible Officer and dated as of
the date of the Initial Funding.
(e) The Notes, duly completed and executed.
(f) The Security Instruments described on Exhibit E, duly completed and
executed in sufficient number of counterparts for recording, if necessary.
(g) An opinion of Bracewell & Patterson, L.L.P., special counsel to the
Borrower, substantially in the form of Exhibit D hereto.
(h) A certificate of insurance coverage of the Borrower evidencing that
the Borrower is carrying insurance in accordance with Section 7.19 hereof.
(i) The Lender shall have been furnished with appropriate UCC search
certificates reflecting no prior liens or security interests, except as listed
on Exhibit M or otherwise permitted under the Agreement.
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(j) Such other documents as the Lender or special counsel to the Lender
may reasonably request.
(k) The Securities Purchase Agreement in form and substance satisfactory
to the Lender shall have been amended to state that the Subordinated Debt is
subordinate to the payment of the Loans, including the Advancing Term Loan.
(l) The Deferred Compensation Agreement in form and substance
satisfactory to the Lender shall have been amended to state that any payments
due under the Deferred Compensation Agreement is subordinate to the payment of
the Loans, including the Advancing Term Loan.
(m) Management Services Agreements, with respect to Castle of Florida
and Castle of Tennessee, in form and substance satisfactory to the Lender, shall
have been executed and delivered by the parties thereto and be in full force and
effect.
(n) Accounts Receivable Purchase Agreements, with respect to Castle of
Florida and Castle of Tennessee, in form and substance satisfactory to the
Lender, shall have been executed and delivered by the parties thereto and be in
full force and effect.
(o) Pro forma balance sheet as of the Closing Date.
(p) Castle of Florida shall have acquired all of the assets of 1st
Dental Care, Inc. pursuant to an Asset Purchase Agreement.
(q) Castle of Tennessee shall have acquired all of the assets of
Mid-South Dental Center, P.C. pursuant to an Asset Purchase Agreement.
(r) The First Amendment and Supplement to Deferred Compensation
Agreement shall have been executed and delivered by the parties thereto and be
in full force and effect.
(s) The Waiver and Amendment to Securities Purchase Agreement shall have
been executed and delivered by the parties thereto and be in full force and
effect.
Section 6.02 INITIAL AND SUBSEQUENT LOANS. The obligation of the Lender
to make Loans to the Borrower upon the occasion of each borrowing hereunder
(including the Initial Funding) is subject to the further conditions precedent
that, as of the date of such Loans and after giving effect thereto: (i) no
Default shall have occurred and be continuing; (ii) no Material Adverse Effect
shall have occurred; and (iii) the representations and warranties made by the
Borrower in Article VII and in the Security Instruments shall be true on and as
of the date of the making of such Loans with the same force and effect as if
made on and as of such date and following such new borrowing, except to the
extent such representations and warranties are expressly limited to
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an earlier date or the Lender may expressly consent in writing to the contrary.
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Borrower otherwise notifies
the Lender prior to the date of and immediately following such borrowing as of
the date thereof).
Section 6.03 ADVANCING TERM LOANS. The obligation of the Lender to make
Advancing Term Loans to the Borrower upon the occasion of each borrowing
hereunder (excluding the Initial Funding) is subject to the following further
conditions:
(a) Borrower or Subsidiary shall have entered into a Management
Services Agreement and an Accounts Receivable Purchase Agreement with a
New PC in form and substance satisfactory to Lender;
(b) Borrower shall have submitted updated Exhibits G and H and
Schedules 7.14, 7.19 and 7.24 to Lender as required pursuant to this
Agreement;
(c) Borrower shall have passed corporate resolutions approving
such New Acquisition;
(d) Lender shall have received legal opinion regarding any New
Acquisition in form and substance satisfactory to Lender;
(e) Lender shall have received risk analysis letters regarding
any New Acquisition in form and substance satisfactory to Lender.
(f) Lender shall have received an officer's certificate,
substantially in the form of Exhibit L attached hereto, certifying the
representations and warranties made by the Borrower in Article VII and
in the Security Instruments, including those Security Instruments
obtained in connection with any New Acquisition, shall be true on and as
of the date of the Advancing Term Loan;
(g) Lender shall have received a borrowing base report in the
form of Exhibit J attached hereto; and
(h) Borrower shall have complied with Section 9.03(g) hereof.
Section 6.04 POST CLOSING CONDITIONS. The obligation of the Lender to
make Advancing Term Loans to the Borrower upon the occasion of each borrowing
hereunder (excluding the Initial Funding) is subject to the following further
conditions:
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(a) within ten (10) Business Days of the Closing Date, the Lender
shall have received a legal opinion from McFarlane, Ausley, Ferguson &
McMullen in form and substance satisfactory to Lender;
(b) within ten (10) Business Days of the Closing Date, the Lender
shall have received a legal opinion from Waller, Landsen, Dortch & Davis
in form and substance satisfactory to Lender;
(c) within ten (10) Business Days of the Closing Date, the Lender
shall have received a legal opinion from Smith, Hulsey & Busey in form
and substance satisfactory to Lender;
(d) within ten (10) Business Days of the Closing Date, the Lender
shall have received a legal opinion from Sherrard & Roe PLC in form and
substance satisfactory to Lender;
(e) within ten (10) Business Days of the Closing Date, the Lender
shall have received a risk-analysis letter from Smith, Hulsey & Busey in
form and substance satisfactory to Lender;
(f) within ten (10) Business Days of the Closing Date, the Lender
shall have received a risk-analysis letter from Waller, Landsen, Dortch
& Davis in form and substance satisfactory to Lender;
(g) within sixty (60) days of the Closing Date, the Lender shall
have received an instrument or instruments duly completed and executed
by the appropriate parties, which shall fully release and discharge all
rights, titles, interests, liens and security interests as reflected on
Exhibit M;
(h) within thirty (30) days of the Closing Date, the Lender
shall have received Exhibit H;
(i) within thirty (30) days of the Closing Date, the Lender
shall have received Exhibit G; and
(j) The Borrower shall have entered into interest rate hedges to
cover the interest rate risk exposure on the outstanding principal
amount of the Term Loan on terms and conditions satisfactory to Lender
within 90 days of the Closing Date.
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ARTICLE VII
Representations and Warranties
The Borrower represents and warrants to the Lender that (each
representation and warranty herein is given as of the Closing Date and assuming
the consummation of the transactions contemplated thereby, including, without
limitation, Section 6.01(n) and shall be deemed repeated and reaffirmed on the
dates of each borrowing as provided in Section 6.02):
Section 7.01 CORPORATE EXISTENCE. Each of the Borrower and each
Subsidiary: (i) is a corporation duly organized, legally existing and in good
standing under the laws of the jurisdiction of its incorporation; (ii) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (iii) is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify would have a Material Adverse Effect.
Section 7.02 FINANCIAL CONDITION. The audited consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries as at December 31, 1995 and
the related consolidated statement of income, stockholders' equity and cash flow
of the Borrower and its Consolidated Subsidiaries for the fiscal year ended on
said date, with the opinion thereon of Coopers & Lybrand heretofore furnished to
the Lender and the unaudited consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as at March 31, 1996 and their related consolidated
statements of income of the Borrower and its Consolidated Subsidiaries for the
3-month period ended on such date heretofore furnished to the Lender, are
complete and correct and fairly present the consolidated financial condition of
the Borrower and its Consolidated Subsidiaries as at said dates and the results
of its operations for the fiscal year and the 3-month period on said dates, all
in accordance with GAAP, as applied on a consistent basis (subject, in the case
of the interim financial statements, to normal year-end adjustments). Neither
the Borrower nor any Subsidiary has on the Closing Date and assuming the
consummation of the transactions contemplated thereby, including, without
limitation, Sections 6.01(p) and (q) any material Debt, contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in the Financial Statements or in Schedule 7.02. Since
March 30, 1996, there has been no change or event having a Material Adverse
Effect. Since the date of the Financial Statements, neither the business nor the
Properties of the Borrower or any Subsidiary have been materially and adversely
affected as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of Property or cancellation of contracts, permits or concessions by any
Governmental Authority, riot, activities of armed forces or acts of God or of
any public enemy. The unaudited pro forma projected consolidated balance sheet
of the Borrower and its Consolidated Subsidiaries at the Closing Date, including
the acquisition of the assets of the Old PCs listed in Sections 6.01(p) to (q),
and the unaudited pro forma projected consolidated statement of income of the
Borrower and its Consolidated Subsidiaries as of the
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Closing Date, heretofore furnished to the Lender, fairly present the pro forma
projected consolidated financial condition of the Borrower and its Consolidated
Subsidiaries as at the Closing Date and assuming the consummation of the
transactions contemplated thereby, including, without limitation, Sections
6.01(p) and (q).
Section 7.03 LITIGATION. Except as disclosed to the Lender in Schedule
7.03 hereto, at the Closing Date and assuming the consummation of the
transactions contemplated thereby, including, without limitation, Sections
6.01(p) and (q) there is no litigation, legal, administrative or arbitral
proceeding, investigation or other action of any nature pending or, to the
knowledge of the Borrower threatened against or affecting the Borrower or any
Subsidiary which involves the possibility of any judgment or liability against
the Borrower or any Subsidiary not fully covered by insurance (except for normal
deductibles), and which would have a Material Adverse Effect.
Section 7.04 NO BREACH. Neither the execution and delivery of the Loan
Documents, nor compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent which has not been
obtained as of the Closing Date under, the respective charter or by-laws of the
Borrower or any Subsidiary, or any Governmental Requirement or any material
agreement or instrument to which the Borrower or any Subsidiary is a party or by
which it is bound or to which it or its Properties are subject, or constitute a
default under any such material agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of the
Borrower or any Subsidiary pursuant to the terms of any such material agreement
or instrument other than the Liens created by the Loan Documents.
Section 7.05 AUTHORITY. The Borrower and each Subsidiary have all
necessary corporate power and authority to execute, deliver and perform their
obligations under the Loan Documents to which they are respectively a party; and
the execution, delivery and performance by the Borrower and each Subsidiary of
the Loan Documents to which they are respectively a party, have been duly
authorized by all necessary corporate action on their part; and the Loan
Documents constitute the legal, valid and binding obligations of the Borrower
and each Subsidiary, enforce able in accordance with their terms.
Section 7.06 APPROVALS. No authorizations, approvals or consents of, and
no filings or registrations with, any Governmental Authority are necessary for
the execution, delivery or performance by the Borrower or any Subsidiary of the
Loan Documents to which it is a party or for the validity or enforceability
thereof, except for the recording and filing of the Security Instruments as
required by this Agreement.
Section 7.07 USE OF LOANS. The proceeds of the Term Loan shall be used
to partially recapitalize the Borrower and to purchase 100% of the capital stock
of DDS. The proceeds of the Advancing Term Loan shall be used to provide
financing for New Acquisitions. The proceeds of the Revolving Credit Loan shall
be used for the Borrower's general working capital needs. Borrower is not
engaged principally, or as one of its important activities, in the business of
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extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying margin stock (within the meaning of Regulation G, U or X of
the Board of Governors of the Federal Reserve System) and no part of the
proceeds of any Loan hereunder will be used to buy or carry any margin stock.
Section 7.08 ERISA.
(a) The Borrower, each Subsidiary and each ERISA Affiliate have complied
in all material respects with ERISA and, where applicable, the Code regarding
each Plan.
(b) Each Plan is, and has been, maintained in substantial compliance
with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under
section 409 of ERISA.
(d) No Plan (other than a defined contribution plan) or any trust
created under any such Plan has been terminated since September 2, 1974. No
liability to the PBGC (other than for the payment of current premiums which are
not past due) by the Borrower, any Subsidiary or any ERISA Affiliate has been or
is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be
incurred with respect to any Plan. No ERISA Event with respect to any Plan has
occurred.
(e) Full payment when due has been made of all amounts which the
Borrower, any Subsidiary or any ERISA Affiliate is required under the terms of
each Plan or applicable law to have paid as contributions to such Plan, and no
accumulated funding deficiency (as defined in section 302 of ERISA and section
412 of the Code), whether or not waived, exists with respect to any Plan.
(f) The actuarial present value of the benefit liabilities under each
Plan which is subject to Title IV of ERISA does not, as of the end of the
Borrower's most recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial
present value of the benefit liabilities" shall have the meaning specified in
section 4041 of ERISA.
(g) None of the Borrower, any Subsidiary or any ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such plan
maintained to provide benefits to former employees of such entities, that may
not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its
sole discretion at any time without any material liability.
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(h) None of the Borrower, any Subsidiary or any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the preceding six
calendar years sponsored, maintained or contributed to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA Affiliate is
required to provide security under section 401(a)(29) of the Code due to a Plan
amendment that results in an increase in current liability for the Plan.
Section 7.09 TAXES. Except as set out in Schedule 7.09, each of the
Borrower and its Subsidiaries has filed all United States Federal income tax
returns and all other tax returns which are required to be filed by them and
have paid all material taxes due pursuant to such returns or pursuant to any
assessment received by the Borrower or any Subsidiary. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Borrower, adequate. No
tax lien has been filed and, to the knowledge of the Borrower, no claim is being
asserted with respect to any such tax, fee or other charge.
Section 7.10 TITLES, ETC.
(a) Except as set out in Schedule 7.10, the Borrower and its
Subsidiaries and each New PC have good and defensible title to its material
(individually or in the aggregate) Properties, free and clear of all Liens
except Liens permitted by Section 9.02.
(b) All leases and agreements necessary for the conduct of the business
of the Borrower and its Subsidiaries and each New PC are valid and subsisting,
in full force and effect and there exists no default or event or circumstance
which with the giving of notice or the passage of time or both would give rise
to a default under any such lease or leases, which would affect in any material
respect the conduct of the business of the Borrower and its Subsidiaries.
(c) The licenses, rights, properties and other assets presently owned,
leased or licensed by each New PC, include all licenses, rights, Properties and
other assets necessary to permit each New PC to conduct its business in all
material respects in the same manner as its business has been conducted prior to
the Closing Date by the applicable Old PC.
(d) All of the assets and Properties of the Borrower and its
Subsidiaries and each New PC which are reasonably necessary for the operation of
each of their respective business are in good working condition and are
maintained in accordance with prudent business standards.
Section 7.11 NO MATERIAL MISSTATEMENTS. No written information,
statement, exhibit, certificate, document or report furnished to the Lender by
the Borrower or any Subsidiary in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statement contained therein not
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materially misleading in the light of the circumstances in which made and with
respect to the Borrower and its Subsidiaries taken as a whole. There is no fact
peculiar to the Borrower or any Subsidiary which has a Material Adverse Effect
or in the future is reasonably likely to have (so far as the Borrower can now
foresee) a Material Adverse Effect and which has not been set forth in this
Agreement or the other documents, certificates and statements furnished to the
Lender by or on behalf of the Borrower or any Subsidiary prior to, or on, the
Closing Date in connection with the transactions contemplated hereby.
Section 7.12 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
Section 7.13 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
Section 7.14 SUBSIDIARIES AND PARTNERSHIPS. Except as set forth on
Schedule 7.14, the Borrower has no Subsidiaries and has no interest in any
partnerships. In the event that a new Subsidiary is formed and an advance is
requested under the Advancing Term Loan, and Lender approves such advance,
Borrower will provide Lender with a new, updated Schedule 7.14.
Section 7.15 LOCATION OF BUSINESS AND OFFICES. The Borrower's principal
place of business and chief executive offices are located at the address stated
on the signature page of this Agreement. The principal place of business and
chief executive office of each Subsidiary are located at the addresses stated on
Schedule 7.14.
Section 7.16 DEFAULTS. Neither the Borrower nor any Subsidiary is in
default nor has any event or circumstance occurred which, but for the expiration
of any applicable grace period or the giving of notice, or both, would
constitute a default under any material agreement or instrument to which the
Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary
is bound which default would have a Material Adverse Effect. No Default
hereunder has occurred and is continuing.
Section 7.17 ENVIRONMENTAL MATTERS. Except (i) as provided in Schedule
7.17 or (ii) as would not have a Material Adverse Effect, neither any Property
of the Borrower or any Subsidiary nor the operations conducted thereon violate
any law, order or requirement of any court or Governmental Authority or any
Environmental Laws.
Section 7.18 COMPLIANCE WITH THE LAW. Neither any New PC, the Borrower
nor any Subsidiary has violated any Governmental Requirement or failed to obtain
any license, permit,
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franchise or other governmental authorization necessary for the ownership of any
of its Properties or the conduct of its business, which violation or failure
would have (in the event such violation or failure were asserted by any Person
through appropriate action) a Material Adverse Effect.
Section 7.19 INSURANCE. Schedule 7.19 attached hereto contains an
accurate and complete description of all material policies of fire, liability,
workmen's compensation and other forms of insurance owned or held by the
Borrower and each Subsidiary. All such policies are in full force and effect,
all premiums with respect thereto covering all periods up to and including the
date of the closing have been paid, and no notice of cancellation or termination
has been received with respect to any such policy. Such policies are sufficient
for compliance with all requirements of law and of all agreements to which the
Borrower or any Subsidiary is a party; are valid, outstanding and enforceable
policies; provide adequate insurance coverage in at least such amounts and
against at least such risks (but including in any event public liability) as are
usually insured against in the same general area by companies engaged in the
same or a similar business for the assets and operations of the Borrower and
each Subsidiary; will remain in full force and effect through the respective
dates set forth in Schedule 7.19 without the payment of additional premiums; and
will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Schedule 7.19 identifies all
material risks, if any, which the Borrower and its Subsidiaries and their
respective Board of Directors or officers have designated as being self insured.
Neither the Borrower nor any Subsidiary has been refused any insurance with
respect to its assets or operations, nor has its coverage been limited below
usual and customary policy limits, by an insurance carrier to which it has
applied for any such insurance or with which it has carried insurance during the
last three years. In the event that a new Subsidiary is formed and an advance is
requested under the Advancing Term Loan, and Lender approves such advance,
Borrower will provide Lender with a new, updated Schedule 7.19.
Section 7.20 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS RECEIVABLE
PURCHASE AGREEMENTS. The copies of the executed Management Services Agreements
and the Accounts Receivable Purchase Agreements previously delivered by the
Borrower to the Lender are complete and accurate and have not been amended or
modified in any manner. The Management Services Agreements and the Accounts
Receivable Purchase Agreements are valid, binding and enforceable against the
parties thereto and the Borrower has the right to grant a Lien and has granted a
Lien on the Borrower's right to receive proceeds under the Management Services
Agreements and the receivables purchased under the Accounts Receivable Purchase
Agreements pursuant to the Security Instruments, and the Lender may enforce its
remedies contained in the Security Instruments against such collateral. The
Borrower has obtained all consents from Governmental Authorities necessary to
perform under the Management Services Agreements. In the event that a new
Subsidiary is formed, any Management Services Agreements and Accounts Receivable
Purchase Agreements binding such Subsidiary shall be included within the terms
of this representation and warranty.
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Section 7.21 DESIGNATED CONTRACTS. All Designated Contracts which any
New PC is a party to as of the Closing Date to are listed on Exhibit G attached
hereto and all revenues payable to such New PCs pursuant to such contracts will
be assigned to the Borrower within thirty (30) days after the Closing Date. In
the event that a new Subsidiary is formed and an advance is requested under the
Advancing Term Loan, if Lender approves such advance, Borrower will provide
Lender with a new, updated Exhibit G within thirty (30) days of such advance.
Section 7.22 ASSIGNMENT ACCOUNT PARTIES. Exhibit H attached hereto is a
list of all insurance companies (including, without limitation, Blue Cross/Blue
Shield), managed care organizations and other third party payors or financial
intermediaries who have insured patients of each Old PC and have accounts of
$10,000 or more with the Borrower in any twelve month period of the Borrower,
unpaid claims against which have been assigned to each Old PC by Old PC
patients. In the event that a new Subsidiary is formed and an advance is
requested under the Advancing Term Loan, if Lender approves such advance,
Borrower will provide Lender with a new, updated Exhibit H within thirty (30)
days of the such advance.
Section 7.23 RESTRICTION ON LIENS. Except as provided in the Securities
Purchase Agreement, neither the Borrower nor any of its Subsidiaries is a party
to any agreement or arrangement (other than this Agreement and the Security
Instruments), or subject to any order, judgment, writ or decree, which either
restricts or purports to restrict its ability to grant Liens to other Persons on
or in respect of their respective assets of Properties except for Property
subject to Liens permitted under Section 9.02.
Section 7.24 MATERIAL AGREEMENTS. Set forth on Schedule 7.24 hereto is a
complete and correct list of all material credit agreements, indentures,
purchase agreements, obligations in respect of letters of credit, guarantees,
joint venture agreements, and other instruments in effect or to be in effect as
of the Closing Date providing for, evidencing, securing or otherwise relating to
any Debt of the Borrower or any of (other than Hedging Agreements) its
Subsidiaries, and all obligations of the Borrower or any of its Subsidiaries to
issuers of surety or appeal bonds issued for account of the Borrower or any such
Subsidiary, and such list correctly sets forth the names of the debtor or lessee
and creditor or lessor with respect to the Debt or lease obligations outstanding
or to be outstanding and the property subject to any Lien securing such Debt or
lease obligation. In the event that a new Subsidiary is formed and an advance is
requested under the Advancing Term Loan, if Lender approves such advance,
Borrower will provide Lender with a new, updated Schedule 7.24.
Section 7.25 HEDGING AGREEMENTS. Schedule 7.25 sets forth, as of the
Closing Date, a true and complete list of all Hedging Agreements of the
Borrower, the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark to market value
thereof, all credit support agreements relating thereto (including any margin
required or supplied), and the counterparty to each such agreement.
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ARTICLE VIII
Affirmative Covenants
The Borrower covenants and agrees that, so long as the Commitment is in
effect and until payment in full of all Loans hereunder, all interest thereon
and all other amounts payable by the Borrower hereunder:
Section 8.01 FINANCIAL STATEMENTS. The Borrower shall deliver, or shall
cause to be delivered, to the Lender:
(a) As soon as available and in any event within 120 days after the end
of each fiscal year of the Borrower, the audited consolidated and unaudited
consolidating statements of income, stockholders' equity, changes in financial
position and cash flow of the Borrower and its Consolidated Subsidiaries for
such fiscal year, and the related consolidated and consolidating balance sheets
of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal
year, and setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, and accompanied by the related opinion of
independent public accountants of recognized national standing acceptable to the
Lender which opinion shall state that said financial statements fairly present
the consolidated and consolidating financial condition and results of operations
of the Borrower and its Consolidated Subsidiaries as at the end of, and for,
such fiscal year and that such financial statements have been prepared in
accordance with GAAP except for such changes in such principles with which the
independent public accountants shall have concurred and such opinion shall not
contain a "going concern" or like qualification or exception and a certificate
of such accountants stating that, in making the examination necessary for their
opinion, they obtained no knowledge, except as specifically stated, of any
Default.
(b) As soon as available and in any event within 45 days after the end
of each of the first three fiscal quarterly periods of each fiscal year of the
Borrower, consolidated and consolidating statements of income, stockholders'
equity, changes in financial position and cash flow of the Borrower and its
Consolidated Subsidiaries for such period and for the period from the beginning
of the respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such period, and
setting forth in each case in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, accompanied by the
certificate of a Responsible Officer, which certificate shall state that said
financial statements fairly present the consolidated and consolidating financial
condition and results of operations of the Borrower and its Consolidated
Subsidiaries in accordance with GAAP, as at the end of, and for, such period
(subject to normal year-end audit adjustments).
(c) As soon as practicable and in any event by the end of each fiscal
year of the Borrower, a budget for the Borrower and its Consolidated
Subsidiaries, as approved by the board of directors of the Borrower, for the
following fiscal year setting forth in comparative form
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corresponding figures from the preceding fiscal year, in reasonable detail and
certified as to its good-faith preparation by a Responsible Officer.
(d) Promptly after the Borrower knows that any Default or any Material
Adverse Effect has occurred, a notice of such Default or Material Adverse
Effect, describing the same in reasonable detail and the action the Borrower
proposes to take with respect thereto.
(e) Promptly upon receipt thereof, a copy of each other material report
or letter submitted to the Borrower or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Borrower and its Subsidiaries and a copy of any response by the
Borrower or any Subsidiary or the Board of Directors of the Borrower or any
Subsidiary to such letter or report.
(f) Promptly upon its becoming available, each financial statement,
report, notice or proxy statement sent by the Borrower to stockholders generally
and each regular or periodic report and any registration statement, prospectus
or written communication (other than transmittal letters) in respect thereof
filed by the Borrower with or received by the Borrower in connection therewith
from any securities exchange or the SEC or any successor agency.
(g) Promptly after the furnishing thereof, copies of any material
statement, report or notice furnished to or any Person pursuant to the terms of
any indenture, loan or credit or other similar agreement, other than this
Agreement and not otherwise required to be furnished to the Lender pursuant to
any other provision of this Section 8.01.
(h) Promptly upon becoming available and in any event within 45 days
after the end of each calendar month, a borrowing base, which shall contain
supporting schedules and being otherwise in substantially the form of Exhibit F
attached hereto, and an accounts receivable aging report in form and substance
acceptable to the Lender.
(i) As soon as available and in any event within 120 days after the end
of each fiscal year of the Borrower, a report prepared by the Borrower for each
dental center setting forth the revenues, expenses and contributions to profit
of such dental center in form and substance acceptable to the Lender.
(j) Beginning June 15, 1996, as soon as available and in any event
within 45 days after the end of each of the first three fiscal quarterly periods
of each fiscal year of the Borrower, a report by the Borrower for each dental
center setting forth the revenues, expenses and contributions to profit of such
dental center in form and substance acceptable to the Lender.
(k) From time to time such other information regarding the business,
affairs or financial condition of the Borrower or any Subsidiary (including,
without limitation, any Plan or
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Multiemployer Plan and any reports or other information required to be filed
under ERISA) as the Lender may reasonably request.
(l) Promptly upon becoming available and in any event within 45 days
after the end of each calendar month, a borrowing base report, which shall
contain supporting schedules and being otherwise in substantially the form of
Exhibit J.
(m) As soon as available and in any event within ten (10) Business Days
after the last day of each calendar quarter, a report, in form and substance
satisfactory to the Lender, setting forth as of the last Business Day of such
calendar quarter a true and complete list of all Hedging Agreements of the
Borrower, the material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark to market value
therefor, any new credit support agreements relating thereto not listed on
Schedule 7.25, any margin required or supplied under any credit support
document, and the counterparty to each such agreement.
The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate
substantially in the form of Exhibit C hereto executed by a Responsible Officer
(i) certifying as to the matters set forth therein and stating that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail), and (ii) setting forth in
reasonable detail the computations necessary to determine the Borrower's Funded
Debt and EBITDA and whether the Borrower is in compliance with Sections 9.12,
9.14, 9.15, 9.16 and 9.17 as of the end of the respective fiscal quarter or
fiscal year.
Section 8.02 LITIGATION. The Borrower shall promptly give to the Lender
notice of: (i) all legal or arbitral proceedings, and of all proceedings before
any Governmental Authority affecting any New PC, the Borrower or any Subsidiary,
except proceedings which, if adversely determined, would not have a Material
Adverse Effect, and (ii) of any litigation or proceeding against or adversely
affecting any New PC, the Borrower or any Subsidiary in which the amount
involved is not covered in full by insurance (subject to normal and customary
deductibles and for which the insurer has not assumed the defense), or in which
injunctive or similar relief is sought. The Borrower will, and will cause each
of its Subsidiaries to, promptly notify the Lender of any claim, judgment, Lien
or other encumbrance affecting any Property of any New PC the Borrower or any
Subsidiary if the value of the claim, judgment, Lien, or other encumbrance
affecting such Property shall exceed $250,000.
Section 8.03 MAINTENANCE, ETC.
(a) The Borrower shall and shall cause each Subsidiary to: preserve and
maintain its corporate existence and all of its material rights, privileges and
franchises; keep books of record and account in which full, true and correct
entries will be made of all dealings or transactions in relation to its business
and activities; comply with all Governmental Requirements if failure to
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comply with such requirements will have a Material Adverse Effect; pay and
discharge all taxes, assessments and governmental charges or levies imposed on
it or on its income or profits or on any of its Property prior to the date on
which penalties attach thereto, except for any such tax, assessment, charge or
levy the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained; upon
reasonable notice, permit representatives of the Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to inspect
its Properties, and to discuss its business and affairs with its officers, all
to the extent reasonably requested by the Lender; and keep, or cause to be kept,
insured by financially sound and reputable insurers all Property of a character
usually insured by Persons engaged in the same or similar business similarly
situated against loss or damage of the kinds and in the amounts customarily
insured against by such Persons and carry such other insurance as is usually
carried by such Persons including, without limitation, environmental risk
insurance to the extent reasonably available.
(b) Contemporaneously with the delivery of the financial statements
required by Section 8.01(a) to be delivered for each year, the Borrower will
furnish or cause to be furnished to the Lender a certificate of insurance
coverage from the insurer in form and substance satisfactory to the Lender and,
if requested, will furnish the Lender copies of the applicable policies.
(c) The Borrower will and will cause each Subsidiary to operate its
Properties or cause such Properties to be operated in a careful and efficient
manner in accordance with the practices of the industry and in compliance with
all applicable contracts and agreements and in compliance in all material
respects with all Governmental Requirements.
Section 8.04 ENVIRONMENTAL MATTERS.
(a) The Borrower will and will cause each Subsidiary to establish and
implement such procedures as may be reasonably necessary to continuously
determine and assure that all Property of the Borrower and its Subsidiaries and
the operations conducted thereon and other activities of the Borrower and its
Subsidiaries are in compliance with and do not violate the requirements of any
Environmental Laws, and failure to do so does not have a Material Adverse
Effect.
(b) The Borrower will promptly notify the Lender in writing of any
threatened action, investigation or inquiry by any Governmental Authority of
which the Borrower has knowledge in connection with any Environmental Laws,
excluding routine testing and corrective action.
Section 8.05 FURTHER ASSURANCES. The Borrower will and will cause each
Subsidiary to cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the Security Instruments and this
Agreement. The Borrower at its expense will and will cause each Subsidiary to
promptly execute and deliver to the Lender upon request all such other
documents, agreements and instruments to comply with or accomplish the covenants
and agreements of the Borrower or any Subsidiary in the Security Instruments and
this Agreement,
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or to further evidence and more fully describe the collateral intended as
security for the Notes, or to correct any omissions in the Security Instruments,
or state more fully the security obligations set out herein or in any of the
Security Instruments, or to perfect, protect or preserve any Liens created
pursuant to any of the Security Instruments, or to make any recordings, to file
any notices, or obtain any consents, all as may be necessary or reasonably
appropriate in connection therewith.
Section 8.06 PERFORMANCE OF OBLIGATIONS. The Borrower will pay the Notes
according to the reading, tenor and effect thereof; and the Borrower will and
will cause each Subsidiary to do and perform every act and discharge all of the
obligations provided to be performed and discharged by them under the Security
Instruments and this Agreement, at the time or times and in the manner
specified.
Section 8.07 ERISA INFORMATION AND COMPLIANCE. The Borrower will
promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to
promptly furnish to the Lender (i) promptly after the filing thereof with the
United States Secretary of Labor, the Internal Revenue Service or the PBGC,
copies of each annual and other report with respect to each Plan or any trust
created thereunder, (ii) immediately upon becoming aware of the occurrence of
any ERISA Event or of any "prohibited transaction," as described in section 406
of ERISA or in section 4975 of the Code, in connection with any Plan or any
trust created thereunder, a written notice signed by a Responsible Officer
specifying the nature thereof, what action the Borrower, the Subsidiary or the
ERISA Affiliate is taking or proposes to take with respect thereto, and, when
known, any action taken or proposed by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, and (iii) immediately upon
receipt thereof, copies of any notice of the PBGC's intention to terminate or to
have a trustee appointed to administer any Plan. With respect to each Plan
(other than a Multiemployer Plan), the Borrower will, and will cause each
Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner,
without incurring any late payment or underpayment charge or penalty and without
giving rise to any lien, all of the contribution and funding requirements of
section 412 of the Code (determined without regard to subsections (d), (e), (f)
and (k) thereof) and of section 302 of ERISA (determined without regard to
sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the
PBGC in a timely manner, without incurring any late payment or underpayment
charge or penalty, all premiums required pursuant to sections 4006 and 4007 of
ERISA.
Section 8.08 KEY MAN LIFE INSURANCE POLICY. The Borrower shall pay all
premiums and otherwise do all things necessary to maintain and keep in full
force and effect a separate key man life insurance policy on Jack Castle, Jr. in
the amount of $1,000,000 and same shall be assigned to the Lender pursuant to
the Assignment of Key Man Life Insurance Policy referred to on Exhibit E.
Section 8.09 DESIGNATED CONTRACTS. The Borrower shall assign to the
Lender on form satisfactory to the Lender the proceeds to be paid under and
pursuant to all present and future
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Designated Contracts. Upon entering into any future Designated Contract,
Borrower will update Exhibit G.
Section 8.10 MANAGEMENT SERVICES AGREEMENTS AND ACCOUNTS RECEIVABLE
PURCHASE AGREEMENTS. The Borrower will do all things necessary to maintain and
keep in full force and effect and to enforce compliance with the Management
Services Agreements and the Accounts Receivable Purchase Agreements. In the
event that a new Subsidiary is formed, any Management Services Agreements and
Accounts Receivable Purchase Agreements binding such Subsidiary shall be
included within the terms of this affirmative covenant.
Section 8.11 ASSIGNMENT NOTICE LETTERS. The Borrower covenants and
agrees that within sixty (60) days of the date hereof, the Borrower and each New
PC shall have executed and delivered to the Lender numerous Assignment Notice
Letters in the form attached hereto as Exhibit I with respect to accounts
assigned by each New PC to Borrower or applicable Subsidiary which represent
claims assigned to the New PC by its patients against Blue Cross/Blue Shield,
insurance companies, managed care organizations and other third party payors or
financial intermediaries as listed on Exhibit H (each an "account party"). The
Borrower agrees that it will and it will cause each New PC to execute and
deliver such additional Assignment Notice Letters from time to time as may be
required to include substantially all account parties under coverage of such
Assignment Notice Letters. Borrower agrees to update Exhibit H from time to
time, as requested by Lender, to include insurance companies (including, without
limitation, Blue Cross/Blue Shield), managed care organizations and other third
party payors or financial intermediaries who have insured patients of each New
PC and have accounts with the Borrower in any twelve month period of the
Borrower.
Section 8.12 WIND UP OF DDS. Borrower covenants and agrees that it has
acquired all of the stock of DDS and that it will promptly wind up the affairs
of DDS and effect its dissolution, sell its assets or sell the outstanding
shares of DDS, and not render any professional service in compliance with The
Texas Professional Corporation Act (32 TEX. REV. CIV. STAT. ANN. Art. 15.28(e)).
Section 8.13 GUARANTEE BY NEW PC. In connection with Borrower's purchase
of all the outstanding stock of any New PC pursuant to any PC Stock Option
Agreement, upon the request of the Lender at any time thereafter, the Borrower
will cause such New PC to guarantee the Indebtedness upon terms satisfactory to
the Lender and in such event such New PC may also guarantee the Subordinated
Debt provided such guarantee is subordinated to such New PC's guarantee of the
Indebtedness upon terms satisfactory to the Lender.
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ARTICLE IX
Negative Covenants
The Borrower covenants and agrees that, so long as the Commitment is in
effect and until payment in full of all Loans hereunder, all interest thereon
and all other amounts payable by the Borrower hereunder, without the prior
written consent of the Lender:
Section 9.01 DEBT. Neither the Borrower nor any Subsidiary will incur,
create, assume or suffer to exist any Debt, except:
(a) the Notes or other Indebtedness or any guaranty of or suretyship
arrangement for the Notes or other Indebtedness;
(b) Debt of the Borrower existing on the Closing Date which is reflected
in the Financial Statements or is disclosed in Schedule 9.01, and any renewals
or extensions (but not increases) thereof;
(c) accounts payable (for the deferred purchase price of Property or
services) from time to time incurred in the ordinary course of business which,
if greater than 90 days past the invoice or billing date, are being contested in
good faith by appropriate proceedings if reserves adequate under GAAP shall have
been established therefor;
(d) Debt under capital leases (as required to be reported on the
financial statements of the Borrower pursuant to GAAP);
(e) purchase money debt not to exceed the principal amount of $1,000,000
at any one time outstanding;
(f) Debt under the Deferred Compensation Agreement;
(g) Subordinated Debt;
(h) Subordinated debt incurred in connection with purchases of dental
centers as permitted by Section 9.03(g), provided that the subordination of such
debt is on terms satisfactory to the Lender; and
(i) Debt of the Borrower under Hedging Agreements with the Lender or
otherwise approved by the Lender.
Section 9.02 LIENS. Neither the Borrower nor any Subsidiary will create,
incur, assume or permit to exist any Lien on any of its Properties (now owned or
hereafter acquired), except:
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(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens securing capital leases allowed under Section 9.01(d) but only
on the Property under capital leases;
(d) Liens securing purchase money debt allowed under Section 9.01(e) but
only on the Property purchased with such purchase money debt (and proceeds
thereof); and
(e) Liens disclosed on Schedule 9.02.
Section 9.03 INVESTMENTS, LOANS AND ADVANCES. Neither the Borrower nor
any Subsidiary will make or permit to remain outstanding any loans or advances
to or investments in any Person, except that the foregoing restriction shall not
apply to:
(a) investments, loans or advances reflected in the Financial Statements
or which are disclosed to the Lender in Schedule 9.03;
(b) accounts receivable arising in the ordinary course of business;
(c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof;
(d) commercial paper maturing within one year from the date of creation
thereof rated in the highest grade by Standard & Poors Corporation or Moody's
Investors Service, Inc.;
(e) deposits maturing within one year from the date of creation thereof
with, including certificates of deposit issued by, the Lender or any office
located in the United States of any other bank or trust company which is
organized under the laws of the United States or any state thereof, has capital,
surplus and undivided profits aggregating at least $100,000,000.00 (as of the
date of the Lender's or bank or trust company's most recent financial reports)
and has a short term deposit rating of no lower than A2 or P2, as such rating is
set forth from time to time, by Standard & Poors Corporation or Moody's
Investors Service, Inc., respectively;
(f) deposits in money market funds investing exclusively in investments
described in Section 9.03(c), 9.03(d) or 9.03(e); and
(g) additional investments not to exceed $3,000,000.00 in the aggregate
for Borrower and its Subsidiaries in any fiscal year in purchases of dental
practices which may be maintained in Subsidiaries, provided (i) (A) any
investment in excess of $1,000,000.00 in any one dental
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practice, (B) any investment in any dental practice which has incurred a net
income loss calculated after adding back any adjustments for any owner's
compensation as though the dental practice had been owned by the Borrower
throughout the relevant pre-purchase period, for any of its last three fiscal
years, or (C) any investment in any dental practice which has a total purchase
price in excess of five (5) times EBITDA, shall require prior approval of the
Lender; (ii) the purchase shall have been all or substantially all of the assets
of such dental practice or, if for stock or other equity interest in such dental
practice, it shall be for the entire equity interest therein, which shall be
merged with and into Borrower and a Subsidiary of Borrower, provided, however,
such Subsidiary shall execute a Guaranty Agreement pursuant to Section 9.19
hereof and execute a security agreement in favor of Lender in form and substance
satisfactory to Lender; and (iii) Borrower shall have delivered to Lender, ten
(10) Business Days prior to closing the purchase of a dental practice with a
total purchase price in excess of $500,000, (A) pro forma financial statements
demonstrating continued compliance with all covenants in this Agreement
following the inclusion of the target in Borrower's consolidated enterprise, (B)
completed due diligence consisting of the information listed on Exhibit K, as
approved by the Lender, (C) due diligence review conducted by Claymore Partners
Ltd., and (D) audited or review financial statements of the dental practice to
be acquired for the last three (3) years and interim period or, in lieu thereof,
confirmation of profits, cash flows and accounts receivable of such dental
practice by Claymore Partners Ltd.
Section 9.04 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. The Borrower will
not declare or pay any dividend, purchase, redeem or otherwise acquire for value
any of its stock now or hereafter outstanding, return any capital to its
stockholders or make any distribution of its assets to its stockholders, except
as permitted in the Securities Purchase Agreement.
Section 9.05 SALES AND LEASEBACKS. Neither the Borrower nor any
Subsidiary will enter into any arrangement, directly or indirectly, with any
Person whereby the Borrower or any Subsidiary shall sell or transfer any of its
Property, whether now owned or hereafter acquired, and whereby the Borrower or
any Subsidiary shall then or thereafter rent or lease as lessee such Property or
any part thereof or other Property which the Borrower or any Subsidiary intends
to use for substantially the same purpose or purposes as the Property sold or
transferred.
Section 9.06 NATURE OF BUSINESS. Neither the Borrower nor any Subsidiary
will allow any material change to be made in the character of its business.
Section 9.07 MERGERS, ETC. Neither the Borrower nor any Subsidiary will
merge into or with or consolidate with any other Person, or sell, lease or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its Property or assets to any other Person other
than the merger of DDS into the Borrower, another Subsidiary or in connection
with Section 9.03(g).
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Section 9.08 PROCEEDS OF NOTES. The Borrower will not permit the
proceeds of the Notes to be used for any purpose other than those permitted by
Section 7.07. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulation G, U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect.
Section 9.09 ERISA COMPLIANCE. The Borrower will not at any time:
(a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage in,
any transaction in connection with which the Borrower, any Subsidiary or any
ERISA Affiliate could be subjected to either a civil penalty assessed pursuant
to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of
Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA Affiliate to terminate,
any Plan in a manner, or take any other action with respect to any Plan, which
could result in any liability to the Borrower, any Subsidiary or any ERISA
Affiliate to the PBGC;
(c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail to
make, full payment when due of all amounts which, under the provisions of any
Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary
or any ERISA Affiliate is required to pay as contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to
permit to exist, any accumulated funding deficiency within the meaning of
Section 302 of ERISA or section 412 of the Code, whether or not waived, with
respect to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the
actuarial present value of the benefit liabilities under any Plan maintained by
the Borrower, any Subsidiary or any ERISA Affiliate which is regulated under
Title IV of ERISA to exceed the current value of the assets (computed on a plan
termination basis in accordance with Title IV of ERISA) of such Plan allocable
to such benefit liabilities. The term "actuarial present value of the benefit
liabilities" shall have the meaning specified in section 4041 of ERISA;
(f) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to
contribute to, any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an
interest in any Person that causes such Person to become an ERISA Affiliate with
respect to the Borrower, any Subsidiary or any ERISA Affiliate if such Person
sponsors, maintains or contributes to, or at any
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time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan
that is subject to Title IV of ERISA under which the actuarial present value of
the benefit liabilities under such Plan exceeds the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a
liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201
or 4204 of ERISA;
(i) Contribute to or assume an obligation to contribute to, or permit
any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to
contribute to, any employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by
such entities in their sole discretion at any time without any material
liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan
resulting in an increase in current liability such that the Borrower, any
Subsidiary or any ERISA Affiliate is required to provide security to such Plan
under section 401(a)(29) of the Code.
Section 9.10 SALE OR DISCOUNT OF RECEIVABLES. Neither the Borrower nor
any Subsidiary will discount or sell (with or without recourse) any of its notes
receivable or accounts receivable.
Section 9.11 CAPITAL EXPENDITURES. The Borrower will not make any
expenditures for fixed or capital assets if, after giving effect thereto, the
aggregate of all such expenditures would exceed the amount applicable for the
fiscal years indicated below:
PERIOD AMOUNT
========================= ========================
1996 $3,500,000
1997 $3,000,000
1998 and thereafter $2,500,000
========================= ========================
Section 9.12 CURRENT RATIO. The Borrower will not permit its ratio of
(i) consolidated current assets to (ii) consolidated current liabilities
(excluding the current maturities of long-term debt) to be less than 1.5 to 1.0
at any time.
Section 9.13 RATIO OF INTANGIBLES TO NET WORTH. Intentionally omitted.
Section 9.14 NET WORTH. The Borrower will not permit its net worth to be
less than $3,219,000 at any time, with such minimum amount being permanently
increased by an amount
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equal to 75% of positive net income the Borrower during each fiscal quarter
beginning with the fiscal quarter ended March 31, 1996, and 100% of equity
capital raised by the Borrower, provided, such minimum amount shall not be
decreased as a result of any losses or negative earnings. As used in this
Section 9.14, "NET WORTH" shall mean Borrower's net worth plus Subordinated Debt
and subordinated debt.
Section 9.15 LEVERAGE RATIO. The Borrower will not permit its Leverage
Ratio as of the end of any fiscal quarter (calculated on a rolling four quarter
basis) to be greater than 2.5 to 1.0. For any calculation period which would
include one or more quarters prior to any Stock Purchase or any Asset Purchase
or any other future acquisition of an entity, the "rolling four quarters" shall
include "pro forma" the EBITDA of the applicable Old PC for such prior periods
adjusted to reflect costs and expenses which such Old PC would have included had
the Management Services Agreements between Borrower and/or any Subsidiary and
such Old PC been in effect (adding back appropriate executive salaries and
non-cash charge offs relating to this transaction). As used in this Section
9.15, "LEVERAGE RATIO" shall mean the ratio of (i) Senior Funded Debt plus
capital leases to (ii) EBITDA PLUS, for fiscal years 1996 and 1997 only,
one-time start-up and acquisition costs incurred by Borrower for New
Acquisitions up to a maximum of $500,000 per annum.
Section 9.16 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit
its Fixed Charge Coverage Ratio as of the end of any fiscal quarter (calculated
on a rolling four quarter basis) to be less than 1.10 to 1.0 through December
30, 1997, nor less than 1.25 to 1.0 thereafter. For any calculation period which
would include one or more quarters prior to the Stock Purchase or Asset Purchase
or any other future acquisition of an entity, the "rolling four quarters" shall
include (i) "pro forma" the EBITDA of the applicable Old PC for such prior
periods adjusted to reflect costs and expenses which such Old PC would have
included had a Management Services Agreement between Borrower and/or any
Subsidiary and such Old PC been in effect (adding back appropriate executive
salaries and non-cash charge offs relating to such transaction) and (ii)
deferred compensation and current maturities on long-term debt and capital lease
payments assumed for such prior periods on the same basis as in effect during
the most current quarterly period. For purposes of this Section 9.16, "Fixed
Charge Coverage Ratio" shall mean the ratio for the relevant period of (i)
EBITDA plus lease and rental expense PLUS deferred compensation pursuant to the
Deferred Compensation Agreement PLUS, for fiscal years 1996 and 1997 only,
one-time, start-up and acquisition costs incurred by Borrower for New
Acquisitions up to a maximum of $500,000 per annum to (ii) interest PLUS lease
and rental expense PLUS deferred compensation pursuant to Deferred Compensation
Agreement PLUS current maturities on long-term debt and capital leases.
Section 9.17 ENVIRONMENTAL MATTERS. Neither the Borrower nor any
Subsidiary will cause or permit any of its Property to be in violation of, or do
anything or permit anything to be done which will subject any such Property to
any remedial obligations under any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts, conditions and
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circumstances, if any, pertaining to such Property where such violations or
remedial obligations would have a Material Adverse Effect.
Section 9.18 TRANSACTIONS WITH AFFILIATES. Except pursuant to Management
Services Agreements and the Accounts Receivable Purchase Agreements, neither the
Borrower nor any Subsidiary will enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate unless such transactions are otherwise
permitted under this Agreement, are in the ordinary course of its business and
are upon fair and reasonable terms no less favorable to it than it would obtain
in a comparable arm's length transaction with a Person not an Affiliate.
Section 9.19 SUBSIDIARIES AND PARTNERSHIPS. The Borrower shall not
create any additional Subsidiaries or partnerships or permit any Subsidiary to
do so without prior written approval of the Lender. In every such case, each new
Subsidiary shall forthwith execute and deliver a Guaranty Agreement in favor of
the Lender. The Borrower shall not and shall not permit any Subsidiary to sell
or to issue any stock of a Subsidiary or any interest in a partnership. The
Borrower shall not permit any Subsidiary to issue any stock except to the
Borrower or any Guarantors and except in compliance with Section 9.03.
Section 9.20 NEGATIVE PLEDGE AGREEMENTS. Except as provided in the
Securities Purchase Agreement, neither the Borrower nor any Subsidiary will
create, incur, assume or suffer to exist any contract, agreement or
understanding (other than this Agreement and the Security Instruments) which in
any way prohibits or restricts the granting, conveying, creation or imposition
of any Lien on any of its Property or restricts any Subsidiary from paying
dividends to the Borrower, or which requires the consent of or notice to other
Persons in connection therewith.
Section 9.21 OTHER AGREEMENTS. The Borrower shall not make or permit any
amendment or modification of the Management Services Agreements, the Accounts
Receivables Purchase Agreements or the Deferred Compensation Agreement, except
for those modifications required to comply with Government Requirements.
Section 9.22 NEW PC. Notwithstanding anything to the contrary contained
herein, the Borrower will not permit any New PC to create, incur, assume or
permit to exist any Debt (other than the Indebtedness) or Lien (other than the
Lien securing the payment of the Indebtedness), make any loans, advances or
investments in any persons, or sell or transfer any of its property, whether now
owned or hereafter acquired except for Debt and Liens in favor of the Borrower
and Excepted Liens and Liens required or permitted by Section 8.13.
Section 9.23 DDS. Notwithstanding anything to the contrary contained
herein, the Borrower will not permit any DDS, whether existing now or in the
future, to create, incur, assume or permit to exist any Debt (other than the
Indebtedness) or Lien (other than the Lien
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securing the payment of the Indebtedness), make any loans, advances or
investments in any persons, or sell or transfer any of its property, whether now
owned or hereafter acquired.
Section 9.24 SUBORDINATE DEBT AND DEFERRED COMPENSATION AGREEMENT. The
Borrower shall not make any principal or interest payments in the Subordinated
Debt or payments under the Deferred Compensation Agreement until ten (10) days
after Borrower has submitted a certificate substantially in the form of Exhibit
C, in accordance with Section 8.01, which certificate shall represent that
Borrower is in compliance with all financial covenants set forth therein.
ARTICLE X
Events of Default; Remedies
Section 10.01 EVENTS OF DEFAULT. One or more of the following events
shall constitute an "EVENT OF DEFAULT":
(a) the Borrower shall default in the payment or prepayment when due of
any principal of or interest on any Loan, or any fees or other amount payable by
it hereunder or under any Security Instrument; PROVIDED, HOWEVER, if such
default is a default on a payment of fees (other than fees under Section 2.04),
shall continue unremedied for a period of 30 days; or
(b) the Borrower or any Subsidiary shall default in the payment when due
of any principal of or interest on any of its other Debt aggregating $250,000 or
more, or any event specified in any note, agreement, indenture or other document
evidencing or relating to any such Debt shall occur if the effect of such event
is to cause, or (with the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Debt (or a trustee or agent on behalf of
such holder or holders) to cause, such Debt to become due prior to its stated
maturity; or
(c) any representation, warranty or certification made or deemed made
herein or in any Security Instrument by the Borrower or any Subsidiary, or any
certificate furnished to the Lender pursuant to the provisions hereof or any
Security Instrument, shall prove to have been materially false or misleading as
of the time made or furnished in any material respect; or
(d) the Borrower shall default in the performance of any of its
obligations under Article IX or any other Article of this Agreement other than
under Article VIII; or the Borrower shall default in the performance of any of
its obligations under Article VIII or any Security Instrument (other than the
payment of amounts due which shall be governed by Section 10.01(a)) and such
default shall continue unremedied for a period of thirty (30) days after the
earlier to occur of (i) notice thereof to the Borrower by the Lender or (ii) the
Borrower otherwise becoming aware of such default; or
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(e) the Borrower shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) the Borrower shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganiza tion, winding-up, liquidation or composition or
readjustment of debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) a proceeding or case shall be commenced, without the application or
consent of the Borrower, in any court of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower of all or any substantial part
of its assets, or (iii) similar relief in respect of the Borrower under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 days; or (iv)
an order for relief against the Borrower shall be entered in an involuntary case
under the Federal Bankruptcy Code; or
(h) a judgment or judgments for the payment of money in excess of
$250,000 in the aggregate shall be rendered by a court against the Borrower or
any Subsidiary and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be (i) fully
covered by insurance owned or held by the Borrower or such Subsidiary, as
applicable, under a policy or policies which are in full force and effect, or
(ii) procured, within thirty (30) days from the date of entry thereof and the
Borrower or such Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal; or
(i) the Security Instruments after delivery thereof shall for any
reason, except to the extent permitted by the terms thereof, cease to be in full
force and effect and valid, binding and enforceable in accordance with their
terms, or cease to create a valid and perfected Lien of the priority required
thereby on any of the collateral purported to be covered thereby, except to the
extent permitted by the terms of this Agreement, or the Borrower shall so state
in writing; or
(j) the Borrower discontinues its usual business or suffers to exist any
material change in its ownership, control or management; or
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(k) Guarantors takes, suffers or permits to exist any of the events or
conditions referred to in paragraphs (e), (f), (g) or (h) hereof or if any
provision of any guaranty agreement related thereto shall for any reason cease
to be valid and binding on Guarantors or if Guarantors shall so state in
writing; or
(l) Any New PC or any Subsidiary takes, suffers or permits to exist any
of the events or conditions referred to in paragraphs (e), (f), (g) or (h)
hereof; or
(m) Any Management Services Agreements, any Accounts Receivable Purchase
Agreements or the Deferred Compensation Agreement terminates or a default occurs
thereunder;
(n) any modification or amendment of any Management Services Agreements,
any Accounts Receivable Purchase Agreements or the Deferred Compensation
Agreement without the prior written consent of Lender; or
(o) A Change of Control occurs.
Section 10.02 REMEDIES.
(a) In the case of an Event of Default other than one referred to in
clauses (e), (f) or (g) of Section 10.01 or in clauses (k) and (l) to the extent
it relates to clauses (e), (f) or (g), the Lender may, by notice to the
Borrower, cancel the Commitment and/or declare the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the Notes to be forthwith due and
payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
(b) In the case of the occurrence of an Event of Default referred to in
clauses (e), (f) or (g) of Section 10.01 or in clauses (k) and (l) to the extent
it relates to clauses (e), (f) or (g), the Commitment shall be automatically
cancelled and the principal amount then outstanding of, and the accrued interest
on, the Loans and all other amounts payable by the Borrower hereunder and under
the Notes shall become automatically immediately due and payable without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
(c) All proceeds received after maturity of the Notes, whether by
acceleration or otherwise shall be applied first to reimbursement of expenses
and indemnities provided for in this Agreement and the Security Instruments;
second to accrued interest on the Notes; third to fees; fourth to principal
outstanding on the Notes and other Indebtedness; and, to the extent of any
excess, to the Borrower or as otherwise required by any Governmental
Requirement.
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ARTICLE XI
Miscellaneous
Section 11.01 WAIVER. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any of the Loan Documents shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under any of the Loan Documents preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
Section 11.02 NOTICES. All notices and other communications provided for
herein and in the other Loan Documents (including, without limitation, any
modifications of, or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in
writing and telexed, telecopied, mailed or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof or in the Loan Documents or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement or in the other Loan Documents, all such
communications shall be deemed to have been duly given when transmitted, if
transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next
succeeding Business Day) by telex or telecopier and evidence or confirmation of
receipt is obtained, or personally delivered or, in the case of a mailed notice,
three (3) Business Days after the date deposited in the mails, postage prepaid,
in each case given or addressed as aforesaid.
Section 11.03 PAYMENT OF EXPENSES, INDEMNITIES, ETC. The Borrower
agrees:
(a) whether or not the transactions hereby contemplated are consummated,
to pay all reasonable expenses of the Lender in the administration (both before
and after the execution hereof and including advice of counsel as to the rights
and duties of the Lender with respect thereto) of, and in connection with the
negotiation, syndication, investigation, preparation, execution and delivery of,
recording or filing of, preservation of rights under, enforcement of, and
refinancing, renegotiation or restructuring of, the Loan Documents and any
amendment, waiver or consent relating thereto (including, without limitation,
travel, photocopy, mailing, courier, telephone and other similar expenses of the
Lender, the cost of environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel and other outside
consultants for the Lender and, in the case of enforcement, the reasonable fees
and disbursements of counsel for the Lender); and promptly reimburse the Lender
for all amounts expended, advanced or incurred by the Lender to satisfy any
obligation of the Borrower under this Agreement or any Security Instrument,
including without limitation, all costs and expenses of foreclosure;
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(b) TO INDEMNIFY THE LENDER AND ITS AFFILIATES AND EACH OF THEIR
OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS
AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND
PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS
WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR
NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR
IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE
PROCEEDS OF ANY OF THE LOANS, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF
THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS
SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH
THE TERMS OF ANY SECURITY INSTRUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OF THE BORROWER OR ANY GUARANTORS SET FORTH IN ANY OF THE LOAN
DOCUMENTS, (VI) ANY ASSERTION THAT THE LENDER WAS NOT ENTITLED TO RECEIVE THE
PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (VII) ANY OTHER ASPECT
OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT,
PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND
INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF
ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY
REASON OF CLAIMS OF THE LENDER'S SHAREHOLDERS AGAINST THE LENDER OR BY REASON OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY;
AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED
PARTY FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS,
ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE
BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT
LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR
PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR
ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY
OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY,
(IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS
SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR
ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 11.03(C) IN RESPECT OF ANY PROPERTY FOR ANY
OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE LENDER DURING THE PERIOD
AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED
POSSESSION OF SUCH PROPERTY (WHETHER BY
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FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR
OTHERWISE).
(d) No Indemnified Party may settle any claim to be indemnified without
the consent of the indemnitor, such consent not to be unreasonably withheld;
provided, that the indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the indemnitor does not have
the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including the maximum potential claims
against the Indemnified Party to be indemnified pursuant to this Section 11.03.
(e) In the case of any indemnification hereunder, the Lender shall give
notice to the Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the non-exclusive right to join in
the defense against any such claim or demand provided that if the Borrower
provides a defense, the Indemnified Party shall bear its own cost of defense
unless there is a conflict between the Borrower and such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES
NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER
WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON
ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED
PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT
SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY
REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
INDEMNIFIED PARTY.
(g) The Borrower's obligations under this Section 11.03 shall survive
any termination of this Agreement and the payment of the Notes and shall
continue thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this Section 11.03
within thirty (30) days of the receipt by the Borrower of notice of the amount
due.
Section 11.04 AMENDMENTS, ETC. Any provision of this Agreement or any
Security Instrument may be amended, modified or waived with the Borrower's and
the Lender's prior written consent.
Section 11.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
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Section 11.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Borrower may not assign its rights or obligations hereunder or
under the Notes without the prior consent of the Lender.
(b) The Lender may, upon the written consent of the Borrower (which
consent shall not be unreasonably withheld) assign to one or more assignees all
or a portion of its rights and obligations under this Agreement. Any assignment
will become effective upon the execution and delivery of the assignment to the
Borrower. Upon receipt and acceptance of such executed assignment, the Borrower,
will, at its own expense, execute and deliver new Notes to the assignor and/or
assignee, as appropriate, in accordance with their respective interests as they
appear. Upon the effectiveness of any assignment pursuant to this Section
11.06(b), the assignee will become a "Lender," if not already a "Lender," for
all purposes of this Agreement and the Security Instruments. The assignor shall
be relieved of its obligations hereunder to the extent of such assignment (and
if the assigning Lender no longer holds any rights or obligations under this
Agreement, such assigning Lender shall cease to be a "Lender" hereunder except
that its rights under Sections 4.04, 5.01, 5.05 and 11.03 shall not be
affected).
(c) The Lender may transfer, grant or assign participations in all or
any part of its interests hereunder pursuant to this Section 11.06(c) to any
Person, PROVIDED that: (i) the Lender shall remain the "Lender" for all purposes
of this Agreement and the transferee of such participation shall not constitute
a "Lender" hereunder; and (ii) no participant under any such participation shall
have rights to approve any amendment to or waiver of any of the Loan Documents
except to the extent such amendment or waiver would (v) extend the Revolving
Credit Termination Date, (w) extend the Final Maturity Date, (x) extend the
Advancing Term Loan Termination Date, (y) reduce the interest rate (other than
as a result of waiving the applicability of any post-default increases in
interest rates) or fees applicable to any of the Commitment or Loans in which
such participant is participating, or postpone the payment of any thereof, or
(z) release all or substantially all of the collateral (except as expressly
provided in the Security Instruments) supporting any of the Commitment or Loans
in which such participant is participating. In the case of any such
participation, the participant shall not have any rights under this Agreement or
any of the Security Instruments (the participant's rights against the Lender in
respect of such participation to be those set forth in the agreement creating
such participation), and all amounts payable by the Borrower hereunder shall be
determined as if the Lender had not sold such participation, PROVIDED that such
participant shall be entitled to receive additional amounts under Article V on
the same basis as if it were a Lender and be indemnified under Section 11.03 as
if it were a Lender.
(d) The Lender may furnish any information concerning the Borrower in
its possession from time to time to assignees and participants (including
prospective assignees and participants).
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(e) Notwithstanding anything in this Section 11.06 to the contrary, the
Lender may assign and pledge the Notes to any Federal Reserve Bank or the United
States Treasury as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve System and/or such Federal Reserve Bank. No such assignment
and/or pledge shall release the Lender from its obligations hereunder.
(f) Notwithstanding any other provisions of this Section 11.06, no
transfer or assignment of the interests or obligations of the Lender or any
grant of participations therein shall be permitted if such transfer, assignment
or grant would require the Borrower to file a registration statement with the
SEC or to qualify the Loans under the "Blue Sky" laws of any state.
Section 11.07 INVALIDITY. In the event that any one or more of the
provisions contained in any of the Loan Documents or shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of any of
the other Loan Documents.
Section 11.08 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 11.09 REFERENCES. The words "herein," "hereof," "hereunder" and
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit or schedule shall be deemed to refer to the applicable exhibit or
schedule attached hereto unless otherwise stated herein.
Section 11.10 SURVIVAL. The obligations of the parties under Section
4.04, Article V, and Section 11.03 shall survive the repayment of the Loans and
the termination of the Commitment. To the extent that any payments on the
Indebtedness or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver or other Person under any bankruptcy
law, common law or equitable cause, then to such extent, the Indebtedness so
satisfied shall be revived and continue as if such payment or proceeds had not
been received and the Lender's Liens, security interests, rights, powers and
remedies under this Agreement and each Security Instrument shall continue in
full force and effect. In such event, each Security Instrument shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Lender to effect such reinstatement.
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Section 11.11 CAPTIONS. Captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
Section 11.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 11.13 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED
STATES FEDERAL LAW PERMITS THE LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY
THE LAWS OF THE STATE WHERE THE LENDER IS LOCATED. TEX. REV. CIV. STAT. ANN.
ART. 5069, CH. 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS
SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT
PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOR OW HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT
PRECLUDE THE LENDER FROM OBTAINING JURISDICTION OVER THE BORROWER IN ANY COURT
OTHERWISE HAVING JURISDICTION.
(c) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER OR ANY HOLDER OF
THE NOTES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER
JURISDICTION.
(d) EACH OF THE BORROWER AND THE LENDER HEREBY (I) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY SECURITY
INSTRUMENT
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AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE SECURITY
INSTRUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 11.13.
Section 11.14 INTEREST. It is the intention of the parties hereto that
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to the Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in the
Loan Documents or any agreement entered into in connection with or as security
for the Notes, it is agreed as follows: (i) the aggregate of all consideration
which constitutes interest under law applicable to the Lender that is contracted
for, taken, reserved, charged or received by the Lender any of the Loan
Documents or agreements or otherwise in connection with the Notes shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be cancelled automatically and if theretofore paid shall be
credited by the Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by the Lender to the Borrower); and (ii) in
the event that the maturity of the Notes is accelerated by reason of an election
of the holder thereof resulting from any Event of Default under this Agreement
or otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to the Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
cancelled automatically by the Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by the Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by the Lender to the Borrower). All sums paid or agreed to be paid to
the Lender for the use, forbearance or detention of sums due hereunder shall, to
the extent permitted by law applicable to the Lender, be amortized, prorated,
allocated and spread throughout the full term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of interest on account of
any Loans hereunder does not exceed the maximum amount allowed by such
applicable law. If at any time and from time to time (i) the amount of interest
payable to the Lender on any date shall be computed at the Highest Lawful Rate
applicable to the Lender pursuant to this Section 11.14 and (ii) in respect of
any subsequent interest computation period the amount of interest otherwise
payable to the Lender would be less than the amount of interest payable to the
-64-
Lender computed at the Highest Lawful Rate applicable to the Lender, then the
amount of interest payable to the Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to the Lender until the total amount of interest payable to the
Lender shall equal the total amount of interest which would have been payable to
the Lender if the total amount of interest had been computed without giving
effect to this Section 11.14. To the extent that Article 5069-1.04 of the Texas
Revised Civil Statutes is relevant for the purpose of determining the Highest
Lawful Rate, the Lender elects to determine the applicable rate ceiling under
such Article by the indicated weekly rate ceiling from time to time in effect.
Section 11.15 EFFECTIVENESS. This Agreement shall be effective on the
Closing Date (the "EFFECTIVE DATE").
Section 11.16 BINDING ARBITRATION.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO,
INCLUDING BUT NOT LIMITED TO, THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES OR THE SECURITY INSTRUMENTS, INCLUDING ANY CLAIM OR
CONTROVERSY OF ANY KIND BASED ON OR ARISING IN TORT, SHALL BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OR JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. ("J.A.M.S."), AND THE RULES SET FORTH IN SECTION 11.17(B) BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE RULES SET FORTH IN SECTION 11.17(B) BELOW
SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT
HAVING JURISDICTION. ANY PARTY TO THE NOTES OR ANY OTHER SECURITY INSTRUMENT MAY
BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OR ANY CONTROVERSY OR CLAIM TO WHICH EITHER THE NOTES, THIS
AGREEMENT OR ANY OTHER SECURITY INSTRUMENT APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
(b) THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF HOUSTON, TEXAS AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR. IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION, AND THE ARBITRATOR SHALL, ONLY
UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARINGS FOR AN ADDITIONAL 60 DAYS.
(c) NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (I) LIMIT THE
APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE OR
ANY WAIVERS CONTAINED IN THIS AGREEMENT, THE NOTES, THE GUARANTY AGREEMENT OR
THE OTHER SECURITY INSTRUMENTS; (II) BE A WAIVER BY ANY BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SS.91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR
(III) LIMIT THE RIGHT OF THE LENDER TO (A) EXERCISE SELF HELP REMEDIES SUCH AS,
BUT NOT LIMITED TO, SETOFF, (B) FORECLOSE AGAINST
-65-
ANY COLLATERAL, WHETHER REAL OR PERSONAL PROPERTY, OR (C) OBTAIN FROM A COURT
PROVISIONAL OR ANCILLARY REMEDIES SUCH AS, BUT NOT LIMITED, INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE LENDER MAY EXERCISE
SUCH SELF HELP RIGHTS, FORECLOSE UPON COLLATERAL, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THE NOTES, THIS AGREEMENT OR THE OTHER SECURITY
INSTRUMENTS. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING THE
RESORT TO SUCH REMEDIES.
(d) THE PROVISIONS OF THIS SECTION 11.17 SHALL SURVIVE ANY TERMINATION,
AMENDMENT, OR EXPIRATION OF THE SECURITY INSTRUMENTS. EACH PARTY AGREES TO KEEP
ALL DISPUTES AND ARBITRATION PROCEEDINGS STRICTLY CONFIDENTIAL, EXCEPT FOR
DISCLOSURES OF INFORMATION REQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS OR BY
APPLICABLE LAW OR REGULATION.
(e) NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO LIMIT THE RIGHT OF THE
BORROWER TO OBTAIN INJUNCTIVE RELIEF AGAINST THE LENDER PRIOR TO OR DURING THE
PENDENCY OF ANY ARBITRATION PROCEEDING BASED ON VIOLATIONS BY THE LENDER OF THE
LENDER'S AGREEMENTS WITH THE BORROWER, SO LONG AS THE INJUNCTIVE RELIEF IS
LIMITED TO RESTRAINING THE LENDER FROM EXERCISING ITS RIGHTS AND REMEDIES UNTIL
THE ARBITRATION PROCEEDING (IN PROCESS OR INITIATED BY THE BORROWER OR THE
LENDER IN CONJUNCTION WITH THE REQUEST FOR SUCH INJUNCTIVE RELIEF) HAS BEEN
COMPLETED AND ARBITRATION AWARD HAS BEEN MADE.
Section 11.18 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE SECURITY
INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE SECURITY
INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
-66-
The parties hereto have caused this Agreement to be duly executed
as of the day and year first above written.
BORROWER: CASTLE DENTAL CENTERS, INC.
By:__________________________
Name: Jack H. Castle, Jr.
Title: President
Address for Notices:
1360 Post Oak Boulevard
Suite 1300
Houston, Texas 77056
Telecopier No.:(713) 513-1401
Telephone No.: (713) 513-1400
Attention:Jack H. Castle, Jr.
-67-
LENDER: NATIONSBANK OF TEXAS, N.A.
By:__________________________
Name: Jan Chism Wright
Title: Vice President
Lending Office for Base Rate Loans:
700 Louisiana Street
7th Floor
Houston, Texas 77002
Lending Office for Eurodollar Loans
700 Louisiana Street
7th Floor
Houston, Texas 77002
Address for Notices:
700 Louisiana Street
7th Floor
Houston, Texas 77002
Telecopier No.: (713) 247-7175
Telephone No.: (713) 247-6056
Attention: Jan Chism Wright
-68-
EXHIBIT A-1
FORM OF REVOLVING CREDIT NOTE
$3,000,000.00 May 31, 1996
FOR VALUE RECEIVED, CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "BORROWER") hereby promises to pay to the order of NATIONSBANK OF TEXAS,
N.A. (the "LENDER"), at its Principal Office at 700 Louisiana, Houston, Texas
77002, the principal sum of Three Million and No/100 Dollars ($3,000,000.00) (or
such lesser amount as shall equal the aggregate unpaid principal amount of the
Revolving Credit Loans made by the Lender to the Borrower under the Credit
Agreement, as hereinafter defined), in lawful money of the United States of
America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Revolving Credit Loan, at such office, in like
money and funds, for the period commencing on the date of such Revolving Credit
Loan until such Revolving Credit Loan shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate, Interest Period and maturity of
each Revolving Credit Loan made by the Lender to the Borrower, and each payment
made on account of the principal thereof, shall be recorded by the Lender on its
books and, prior to any transfer of this Revolving Credit Note, endorsed by the
Lender on the scheduleS attached hereto or any continuation thereof.
This Revolving Credit Note is one of the Notes referred to in the Amended
and Restated Credit Agreement dated as of May 31, 1996, between the Borrower and
the Lender and evidences Revolving Credit Loans made by the Lender thereunder
(such Amended and Restated Credit Agreement as the same may be amended or
supplemented from time to time, the "CREDIT AGREEMENT"). Capitalized terms used
in this Revolving Credit Note have the respective meanings assigned to them in
the Credit Agreement.
This Revolving Credit Note represents a renewal, extension, rearrangement
and modification of the Prior Revolving Credit Note.
This Revolving Credit Note is issued pursuant to the Credit Agreement and
is entitled to the benefits provided for in the Credit Agreement and the
Security Instruments. The Credit Agreement provides for the acceleration of the
maturity of this Revolving Credit Note upon the occurrence of certain events,
for prepayments of Loans upon the terms and conditions specified therein and
other provisions relevant to this Revolving Credit Note.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
A-1-1
EXHIBIT A-2
FORM OF TERM NOTE
$6,000,000.00 May 31, 1996
FOR VALUE RECEIVED, CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "BORROWER") hereby promises to pay to the order of NATIONSBANK OF TEXAS,
N.A. (the "LENDER"), at its Principal Office at 700 Louisiana, Houston, Texas
77002, the principal sum of Six Million and No/100 Dollars ($6,000,000.00) in
lawful money of the United States of America and in immediately available funds,
on the dates and in the principal amounts provided in the Credit Agreement, and
to pay interest at such office, in like money and funds, at the rates per annum
and on the dates provided in the Credit Agreement.
Each payment made on account of the principal and interest hereof, shall
be recorded by the Lender on its books.
This Term Note is one of the Notes referred to in the Amended and
Restated Credit Agreement dated as of May 31, 1996, between the Borrower and the
Lender and evidences the Term Loan made by the Lender thereunder (such Amended
and Restated Credit Agreement as the same may be amended or supplemented from
time to time, the "CREDIT AGREEMENT"). Capitalized terms used in this Term Note
have the respective meanings assigned to them in the Credit Agreement.
This Term Note represents a renewal, extension, rearrangement and
modification of the Prior Term Note.
This Term Note is issued pursuant to the Credit Agreement and is entitled
to the benefits provided for in the Credit Agreement and the Security
Instruments. The Credit Agreement provides for the acceleration of the maturity
of this Term Note upon the occurrence of certain events, for prepayments of
Loans upon the terms and conditions specified therein and other provisions
relevant to the Term Note.
THIS TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
A-2-1
EXHIBIT A-3
ADVANCING TERM NOTE
$10,000,000.00 May 31, 1996
FOR VALUE RECEIVED, CASTLE DENTAL CENTERS, INC., a Delaware corporation
(the "BORROWER") hereby promises to pay to the order of NATIONSBANK OF TEXAS,
N.A. (the "LENDER"), at its Principal Office at 700 Louisiana, Houston, Texas
77002, the principal sum of Ten Million and No/100 Dollars ($10,000,000.00) in
lawful money of the United States of America and in immediately available funds,
on the dates and in the principal amounts provided in the Credit Agreement, and
to pay interest at such office, in like money and funds, at the rates per annum
and on the dates provided in the Credit Agreement.
Each payment made on account of the principal and interest hereof, shall
be recorded by the Lender on its books.
This Advancing Term Note is one of the Notes referred to in the Amended
and Restated Credit Agreement dated as of May 31, 1996, between the Borrower and
the Lender and evidences the Advancing Term Loan made by the Lender thereunder
(such Amended and Restated Credit Agreement as the same may be amended or
supplemented from time to time, the "CREDIT AGREEMENT"). Capitalized terms used
in this Advancing Term Note have the respective meanings assigned to them in the
Credit Agreement.
This Advancing Term Note is issued pursuant to the Credit Agreement and
is entitled to the benefits provided for in the Credit Agreement and the
Security Instruments. The Credit Agreement provides for the acceleration of the
maturity of this Advancing Term Note upon the occurrence of certain events, for
prepayments of Loans upon the terms and conditions specified therein and other
provisions relevant to the Advancing Term Note.
THIS ADVANCING TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
CASTLE DENTAL CENTERS, INC.
By:_________________________________
Jack H. Castle, Jr.
President
A-3-1
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
The undersigned hereby certifies that he is the ________________ of
CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "BORROWER") and that as
such he is authorized to execute this certificate on behalf of the Borrower.
With reference to the Amended and Restated Credit Agreement dated as of May 31,
1996 (together with all amendments or supplements thereto being the "AGREEMENT")
between the Borrower and NATIONSBANK OF TEXAS, N.A. (the "LENDER"), the
undersigned represents and warrants as follows (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise
specified):
(a) The representations and warranties of the Borrower contained
in Article VII of the Agreement and in the Security Instruments and
otherwise made in writing by or on behalf of the Borrower pursuant to the
Agreement and the Security Instruments were true and correct when made,
and are repeated at and as of the time of delivery hereof and are true
and correct at and as of the time of delivery hereof, except as such
representations and warranties are modified to give effect to the
transactions expressly permitted by the Agreement.
(b) The Borrower has performed and complied with all agreements
and conditions contained in the Agreement and in the Security Instruments
required to be performed or complied with by it prior to or at the time
of delivery hereof.
(c) Neither the Borrower nor any Subsidiary has incurred any
material liabilities, direct or contingent, since _________________,
except those set forth in Schedule 9.01 to the Agreement and except those
allowed by the terms of the Agreement or consented to by the Lender in
writing.
(d) Since __________________, no change has occurred, either in
any case or in the aggregate, in the condition, financial or otherwise,
of the Borrower or any Subsidiary which would have a Material Adverse
Effect.
(e) There exists, and, after giving effect to the loan or loans
with respect to which this certificate is being delivered, will exist, no
Default under the Agreement or any event or circumstance which
constitutes, or with notice or lapse of time (or both) would constitute,
an event of default under any loan or credit agreement, indenture, deed
of trust, security agreement or other agreement or instrument evidencing
or pertaining to any Debt of the Borrower or any Subsidiary, or under any
material agreement or instrument to which the Borrower or any Subsidiary
is a party or by which the Borrower or any Subsidiary is bound.
B-1
(f) The following computations reflect compliance with the
following Sections of the Agreement:
Section 9.11 Capital Expenditures
Section 9.12 Current Ratio
Section 9.14 Net Worth
Section 9.15 Leverage Ratio
Section 9.16 Fixed Charge Coverage Ratio
Section 9.17 Environmental Matters
B-2
EXECUTED AND DELIVERED this ____ day of ______________.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
B-3
EXHIBIT E
1. Amended and Restated Security Agreement from Borrower
2. Amended and Restated Security Agreement from JHCDDS, Inc., formerly
known as Jack H. Castle D.D.S., Inc. ("JHC")
3. Security Agreement from Castle Dental Centers of Tennessee, Inc.
("Tennessee Castle")
4. Financing Statement relating to Document No. 3
5. Security Agreement from Castle Dental Centers of Florida, Inc. ("Florida
Castle")
6. Financing Statement relating to Document No. 5
7. Amended and Restated Security Agreement (Stock Pledge) from Borrower
8. UCC-3 Financing Statement relating to Document No. 7
9. Assignment Separate from Stock Certificate
(a) Tennessee Castle
(b) Florida Castle
10. Accounts Receivable Purchase Agreement
(a) Tennessee Castle
(b) Florida Castle
11. Financing Statement relating to Document No. 10, naming Lender as
Assignee.
(a) Tennessee Castle
(b) Florida Castle
12. Guaranty Agreement
(a) JHC
(b) Jack H. Castle, Jr.
(c) Tennessee Castle
(d) Florida Castle
13. Assignment of Life Insurance Policy
E-1
EXHIBIT F
FORM OF BORROWING BASE REPORT
The undersigned hereby certifies that he is the ______________________ of CASTLE
DENTAL CENTERS, INC., a Delaware corporation (the "BORROWER"), and that as such
he is authorized to execute this certificate on behalf of the Borrower. With
reference to the Amended and Restated Credit Agreement dated May 31, 1996
(together with all amendments, supplements, restatements, or other modifications
thereto, herein called the "Agreement"), by and between the Borrower and
NationsBank of Texas, N.A., the undersigned hereby certifies, represents and
warrants as follows (each capitalized term used herein having the same meaning
given to it in the Agreement unless otherwise specified):
1. Receivables payable by managed care organizations, $_______________
insurance companies and other third party payors for (x) payment of
dental care costs incurred by such account debtors' insureds or (y) the
advance purchase of dental care needs of subscribing patients which have
been outstanding less than 151 days from the date of invoice.
2. Private payor receivables outstanding less than 91 $_______________
days from the date of invoice.
3. 80% of line 1. $_______________
4. 25% of line 2. $_______________
5. Eligible Accounts (the sum of lines 3 and 4 to the $_______________
extent they otherwise meet the definition of Eligible Accounts).
6. Outstanding Balance of Revolving Credit Loans. $_______________
7. Available for further advances ((A) lesser of (i) $______________
3,000,000 and (ii) line 5 minus (B) line 6).
Executed and delivered on this the ____ day of _______________.
CASTLE DENTAL CENTERS, INC.
By:________________________________
Name:
Title:
F-1
EXHIBIT L
FORM OF OFFICER'S CERTIFICATE
The undersigned hereby certifies that he is the ________________ of
CASTLE DENTAL CENTERS, INC., a Delaware corporation (the "BORROWER") and that as
such he is authorized to execute this certificate on behalf of the Borrower.
With reference to the Amended and Restated Credit Agreement dated as of May 31,
1996 (together with all amendments or supplements thereto being the "AGREEMENT")
between the Borrower and NATIONSBANK OF TEXAS, N.A. (the "LENDER"), the
undersigned represents and warrants as follows (each capitalized term used
herein having the same meaning given to it in the Agreement unless otherwise
specified):
(a) The representations and warranties of the Borrower contained
in Article VII of the Agreement and in the Security Instruments and
otherwise made in writing by or on behalf of the Borrower pursuant to the
Agreement and the Security Instruments were true and correct when made,
and are repeated at and as of the time of delivery hereof and are true
and correct at and as of the time of delivery hereof, except as such
representations and warranties are modified to give effect to the
transactions expressly permitted by the Agreement.
(b) The Borrower has performed and complied with all agreements
and conditions contained in the Agreement and in the Security Instruments
required to be performed or complied with by it prior to or at the time
of delivery hereof.
(c) Neither the Borrower nor any Subsidiary has incurred any
material liabilities, direct or contingent, since _________________,
except those set forth in Schedule 9.01 to the Agreement and except those
allowed by the terms of the Agreement or consented to by the Lender in
writing.
(d) Since __________________, no change has occurred, either in
any case or in the aggregate, in the condition, financial or otherwise,
of the Borrower or any Subsidiary which would have a Material Adverse
Effect.
(e) There exists, and, after giving effect to the loan or loans
with respect to which this certificate is being delivered, will exist, no
Default under the Agreement or any event or circumstance which
constitutes, or with notice or lapse of time (or both) would constitute,
an event of default under any loan or credit agreement, indenture, deed
of trust, security agreement or other agreement or instrument evidencing
or pertaining to any Debt of the Borrower or any Subsidiary, or under any
material agreement or instrument to which the Borrower or any Subsidiary
is a party or by which the Borrower or any Subsidiary is bound.
(f) Following a New Acquisition, all representations and
warranties of the Borrower contained in Article VII of the Agreement and
in the Security Instruments and otherwise made in writing by or on behalf
of the Borrower pursuant to the Agreement
L-1
and the Security Instruments will be true and correct considering the
[new Subsidiary, New PC, and Old PC] as a party referred to in such
representations and warranties. EXECUTED AND DELIVERED this ____ day of
______________.
CASTLE DENTAL CENTERS, INC.
By:
Name:
Title:
L-2
EXHIBIT J
FORM OF ADVANCING TERM LOAN BORROWING BASE REPORT
The undersigned hereby certifies that he is the ______________________ of CASTLE
DENTAL CENTERS, INC., a Delaware corporation (the "BORROWER"), and that as such
he is authorized to execute this certificate on behalf of the Borrower. With
reference to the Amended and Restated Credit Agreement dated May 31, 1996
(together with all amendments, supplements, restatements, or other modifications
thereto, herein called the "Agreement"), by and between the Borrower and
NationsBank of Texas, N.A., the undersigned hereby certifies, represents and
warrants as follows (each capitalized term used herein having the same meaning
given to it in the Agreement unless otherwise specified):
Borrower Consolidated Net Income ______________
Plus Interest +_____________
Depreciation & Amortization +_____________
Taxes +_____________
Consolidated EBITDA ______________
Plus acquisition EBITDA* +_____________
Adjusted Consolidated EBITDA ______________
Plus the following if included in Net Income
Non-recurring start-up and
acquisition costs up to $500,000
through 1996 and 1997 +_____________
Available EBITDA ______________
X 2.5
Total Availability ______________
Less Sr. Funded Debt + Cap. Leases -_____________
Available to Borrow ______________
(up to $10,000,000 less advances to date)
*FOR ANY CALCULATION PERIOD WHICH WOULD INCLUDE ONE OR MORE QUARTERS PRIOR TO
THE STOCK PURCHASE OR ASSET PURCHASE OR FUTURE ACQUISITION OF AN ENTITY, THE
ROLLING FOUR QUARTERS SHALL INCLUDE "PRO-FORMA" THE EBITDA OF ANY APPLICABLE OLD
PC FOR SUCH PRIOR PERIODS ADJUSTED TO REFLECT COSTS AND EXPENSES WHICH SUCH
APPLICABLE OLD PC WOULD HAVE INCLUDED HAD THE MANAGEMENT SERVICES AGREEMENT
BETWEEN BORROWER AND/OR ANY SUBSIDIARY AND SUCH OLD PC BEEN IN EFFECT (ADDING
BACK APPROPRIATE EXECUTIVE SALARIES AND NON-CASH CHARGE-OFFS RELATING TO SUCH
TRANSACTION).
J-1
Executed and delivered on this the ____ day of _______________.
CASTLE DENTAL CENTERS, INC.
By:________________________________
Name:
Title:
J-2
EXHIBIT K
DUE DILIGENCE ITEMS
A. OPERATIONS AND MATERIAL AGREEMENTS
E-13 List of all surviving subsidiaries and affiliated entities,
including jurisdiction of incorporation.
B. FACILITIES
E-1 Most recent appraisals and environmental site assessments for
all properties.
E-2 Agreements providing for options or other rights to purchase,
lease or sell facilities.
E-3 Listing by offices of size, number of chairs, etc.
E-4 Projection of required capital expenditures to get facilities to
status needed for expected orthodontic and dental volume.
C. MANAGEMENT
E-1 Agreements with offices regarding employment, compensation,
indemnification, severance or any other matter.
E-2 Resumes or background information on key officers/managers.
D. EMPLOYEES AND INDEPENDENT CONTRACTORS
E-1 Listing of licenses held by all dentists and other licensed
professionals and number of years in practice.
E-2 Dentist/Provider turnover in last 3 years.
E. INSURANCE
E-1 Description of insurance covering facilities (including name of
carrier, plan and/or policy number, type of coverage, amounts of
coverage (per occurrence and total), amounts of deductibles (per
occurrence and aggregate), annual premium, status of premium
payment for current year, expiration date, etc.
E-2 Listing of all pending insurance claims or series of claims in
excess of $10,000.
K-1
E-3 Documents showing medical/dental malpractice insurance coverages
held by parent, subsidiaries and dentists.
E-4 Listing of all pending and historical malpractice claims for
last 3 years.
F. LEGAL PROCEEDINGS AND AUDITOR'S REPORTS
E-1 Description of existing and unsatisfied judgments, consent
decrees, other decrees or orders, settlement agreements or other
agreements requiring or prohibiting any future activities
(including title of proceeding, names of parties, nature of
dispute, details of judgment, and any other relevant
information).
E-2 Description of historical and pending lawsuits, other legal
proceedings, arbitration proceedings or administrative
proceedings or governmental investigations or inquiries
(including title of proceedings, names of parties, amount in
controversy, nature of dispute, status of proceeding, and name,
address and telephone number of counsel) in last 3 years.
E-3 Description of threatened or anticipated lawsuits, other legal
proceedings, arbitration proceedings or administrative
proceedings or governmental investigations or inquiries
(including names of parties, amount in controversy, nature of
dispute, and any other relevant information).
E-4 Attorneys' letters to auditors describing legal proceedings for
the last three years and any opinions or other assessments of
attorneys as to any pending or threatened legal proceedings,
lawsuits, arbitration proceedings, administrative proceedings or
governmental investigations or inquiries.
E-5 All letters from independent public accountants regarding
control systems, methods of accounting, etc. and any management
responses thereto.
E-6 State dental board investigations on parent, subsidiaries and
individual providers.
G. INDEBTEDNESS
E-1 Listing of all indebtedness and liens identified as to be paid
off or to be assumed.
H. FINANCIAL MATTERS
E-1 Consolidated and consolidating Financial statements (with any
reports thereon) for the last five fiscal years, showing
individual performance of labs, each office and subsidiaries.
E-2 Most recent balance sheet, consolidated and consolidating.
K-2
E-3 Consolidated and consolidating Income statement for current
year-to-date and most recent quarterly period with comparable
prior year, quarterly and year-to-date periods.
E-4 Accountants' management letters for the last three fiscal years.
Copy of accountants' Peer Review.
E-5 Aging of accounts payable as of latest practicable date with
explanation of aging, reserving and chart-off methodologies.
E-6 List of trade accounts payable as of latest practicable date.
E-7 Advertising expenditures by locales for latest fiscal year.
E-8 Breakdown of revenues by dental, orthodontics, etc. for past
three years, consolidated and consolidating.
E-9 Analysis of net receipts to gross patent charges. Breakdown of
revenues between fee for services, managed case.
E-10 List of amounts owed to/due from shareholder and executive
officers and other employees.
E-11 Description of all compensation, direct or indirect, including
fringe benefits prerequisites, leases, lease overrides paid to
Dr. Bilyeu.
E-12 Provide documentation related to accounting and dental software
systems presently in use. Provide access to procedures manuals.
I. MISCELLANEOUS
E-1 Banking references, DMO references, managed care references.
E-2 Market demographics:
o Other multi-location providers/competitors
o major employers
o DMO penetration
K-3
A-1-4
Exhibit 10.50
REVOLVING CREDIT NOTE
$3,000,000.00 May 31, 1996
FOR VALUE RECEIVED, CASTLE DENTAL CENTERS, INC., a Delaware
corporation (the "BORROWER") hereby promises to pay to the order of NATIONSBANK
OF TEXAS, N.A. (the "LENDER"), at its Principal Office at 700 Louisiana,
Houston, Texas 77002, the principal sum of Three Million and No/100 Dollars
($3,000,000.00) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Revolving Credit Loans made by the Lender to the
Borrower under the Credit Agreement, as hereinafter defined), in lawful money of
the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Revolving Credit Loan, at
such office, in like money and funds, for the period commencing on the date of
such Revolving Credit Loan until such Revolving Credit Loan shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate, Interest Period and maturity
of each Revolving Credit Loan made by the Lender to the Borrower, and each
payment made on account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of this Revolving Credit Note,
endorsed by the Lender on the scheduleS attached hereto or any continuation
thereof.
This Revolving Credit Note is one of the Notes referred to in the
Amended and Restated Credit Agreement dated as of May 31, 1996, between the
Borrower and the Lender and evidences Revolving Credit Loans made by the Lender
thereunder (such Amended and Restated Credit Agreement as the same may be
amended or supplemented from time to time, the "CREDIT AGREEMENT"). Capitalized
terms used in this Revolving Credit Note have the respective meanings assigned
to them in the Credit Agreement.
This Revolving Credit Note represents a renewal, extension,
rearrangement and modification of the Prior Revolving Credit Note.
This Revolving Credit Note is issued pursuant to the Credit Agreement
and is entitled to the benefits provided for in the Credit Agreement and the
Security Instruments. The Credit Agreement provides for the acceleration of the
maturity of this Revolving Credit Note upon the occurrence of certain events,
for prepayments of Loans upon the terms and conditions specified therein and
other provisions relevant to this Revolving Credit Note.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
CASTLE DENTAL CENTERS, INC.
By:
Name: Jack H. Castle, Jr.
Title: President
Page 1 of 1 Page
Exhibit 10.50
REVOLVING CREDIT NOTE
$3,000,000.00 May 31, 1996
FOR VALUE RECEIVED, CASTLE DENTAL CENTERS, INC., a Delaware
corporation (the "BORROWER") hereby promises to pay to the order of NATIONSBANK
OF TEXAS, N.A. (the "LENDER"), at its Principal Office at 700 Louisiana,
Houston, Texas 77002, the principal sum of Three Million and No/100 Dollars
($3,000,000.00) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Revolving Credit Loans made by the Lender to the
Borrower under the Credit Agreement, as hereinafter defined), in lawful money of
the United States of America and in immediately available funds, on the dates
and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Revolving Credit Loan, at
such office, in like money and funds, for the period commencing on the date of
such Revolving Credit Loan until such Revolving Credit Loan shall be paid in
full, at the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate, Interest Period and maturity
of each Revolving Credit Loan made by the Lender to the Borrower, and each
payment made on account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of this Revolving Credit Note,
endorsed by the Lender on the scheduleS attached hereto or any continuation
thereof.
This Revolving Credit Note is one of the Notes referred to in the
Amended and Restated Credit Agreement dated as of May 31, 1996, between the
Borrower and the Lender and evidences Revolving Credit Loans made by the Lender
thereunder (such Amended and Restated Credit Agreement as the same may be
amended or supplemented from time to time, the "CREDIT AGREEMENT"). Capitalized
terms used in this Revolving Credit Note have the respective meanings assigned
to them in the Credit Agreement.
This Revolving Credit Note represents a renewal, extension,
rearrangement and modification of the Prior Revolving Credit Note.
This Revolving Credit Note is issued pursuant to the Credit Agreement
and is entitled to the benefits provided for in the Credit Agreement and the
Security Instruments. The Credit Agreement provides for the acceleration of the
maturity of this Revolving Credit Note upon the occurrence of certain events,
for prepayments of Loans upon the terms and conditions specified therein and
other provisions relevant to this Revolving Credit Note.
THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
CASTLE DENTAL CENTERS, INC.
By:
Name: Jack H. Castle, Jr.
Title: President
Page 1 of 1 Page
Exhibit 10.52
ADVANCING TERM NOTE
$10,000,000.00 May 31, 1996
FOR VALUE RECEIVED, CASTLE DENTAL CENTERS, INC., a Delaware
corporation (the "BORROWER") hereby promises to pay to the order of NATIONSBANK
OF TEXAS, N.A. (the "LENDER"), at its Principal Office at 700 Louisiana,
Houston, Texas 77002, the principal sum of Ten Million and No/100 Dollars
($10,000,000.00) in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest at such office, in like money and
funds, at the rates per annum and on the dates provided in the Credit Agreement.
Each payment made on account of the principal and interest hereof,
shall be recorded by the Lender on its books.
This Advancing Term Note is one of the Notes referred to in the
Amended and Restated Credit Agreement dated as of May 31, 1996, between the
Borrower and the Lender and evidences the Advancing Term Loan made by the Lender
thereunder (such Amended and Restated Credit Agreement as the same may be
amended or supplemented from time to time, the "CREDIT AGREEMENT"). Capitalized
terms used in this Advancing Term Note have the respective meanings assigned to
them in the Credit Agreement.
This Advancing Term Note is issued pursuant to the Credit Agreement
and is entitled to the benefits provided for in the Credit Agreement and the
Security Instruments. The Credit Agreement provides for the acceleration of the
maturity of this Advancing Term Note upon the occurrence of certain events, for
prepayments of Loans upon the terms and conditions specified therein and other
provisions relevant to the Advancing Term Note.
THIS ADVANCING TERM NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
CASTLE DENTAL CENTERS, INC.
By:
Name: Jack H. Castle, Jr.
Title: President
Page 1 of 1 Page
Exhibit 10.53
AMENDED AND RESTATED SECURITY AGREEMENT
(STOCK, BONDS AND OTHER SECURITIES)
BETWEEN
CASTLE DENTAL CENTERS, INC.
AND
NATIONSBANK OF TEXAS, N.A.
MAY 31, 1996
<PAGE>
AMENDED AND RESTATED SECURITY AGREEMENT
STOCK, BONDS AND OTHER SECURITIES
THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "AGREEMENT") is made
as of May 31, 1996, between CASTLE DENTAL CENTERS, INC., a Delaware corporation
with principal offices at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas
77056 ("PLEDGOR"); and NATIONSBANK OF TEXAS, N.A., a national banking
association with offices at 700 Louisiana, Houston, Texas 77002 ("SECURED
PARTY").
RECITALS
A. Pledgor and Secured Party entered into that certain Credit Agreement
dated as of December 19, 1995 (the "Prior Credit Agreement") whereby pursuant to
which, upon the terms and conditions stated therein, Secured Party agreed to
make loans to Pledgor.
B. Pledgor executed that certain Security Agreement dated as of December
19, 1995, in favor of Secured Party, securing the payment of all indebtedness,
obligations and liabilities of Pledgor to Secured Party under the Prior Credit
Agreement (the "PRIOR SECURITY AGREEMENT").
C. On even date herewith, Pledgor and Secured Party are amending and
restating the Prior Credit Agreement in its entirety by entering into that
certain Amended and Restated Credit Agreement of even date herewith by and
between Pledgor and Secured Party (as the same may from time to time be amended,
modified or supplemented, the "CREDIT Agreement"), pursuant to which upon the
terms and conditions stated therein, Secured Party agrees to make loans to
Pledgor.
D. Secured Party has conditioned its obligations under the Credit
Agreement upon the execution and delivery by Pledgor of this Agreement, and
Pledgor has agreed to enter into this Agreement.
E. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
ARTICLE 1
SECURITY INTEREST
Section 1.01 PLEDGE. Pledgor hereby pledges, assigns and grants to
Secured Party a security interest in and right of set-off against the assets
referred to in Section 1.02 (the "COLLATERAL") to secure the prompt payment and
performance of the "OBLIGATIONS" (as defined in Section 2.02) and the
performance by Pledgor of this Agreement.
Section 1.02 COLLATERAL. The Collateral consists of the following types
or items of property:
(a) The securities described or referred to in Exhibit A attached
hereto and made a part hereof.
(b) (i) the certificates or instruments, if any, representing
such securities, (ii) all dividends (cash, stock or otherwise), cash,
instruments, rights to subscribe, purchase or sell and all other rights
and property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
securities, (iii) all replacements, additions to and substitutions for
any of the property referred to in this Section 1.02, including, without
limitation, claims against third parties, (iv) the proceeds, interest,
profits and other income of or on any of the property referred to in
this Section 1.02 and (v) all books and records relating to any of the
property referred to in this Section 1.02.
It is expressly contemplated that additional securities or other property may
from time to time be pledged, assigned or granted to Secured Party as additional
security for the Obligations, and the term "COLLATERAL" as used herein shall be
deemed for all purposes hereof to include all such additional securities and
property, together with all other property of the types described above related
thereto.
Section 1.03 TRANSFER OF COLLATERAL. All certificates or instruments
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant hereto by Secured Party or a Person designated by Secured Party and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, or (in the case of
either certificated or uncertificated securities) Secured Party shall have been
provided with evidence that the Pledged Securities have been otherwise
transferred to Secured Party in accordance with Section 8.301 of the Code, all
in form and substance satisfactory to Secured Party. Notwithstanding the
preceding sentence, at Secured Party's discretion, all Pledged Securities must
be delivered or transferred in such manner as to permit Secured Party to be a
"protected purchaser" to the extent of its security interest as provided in
Section 8.303 of the Code. Secured Party shall have the right, at any time in
its discretion and without notice to Pledgor, to transfer to or to register in
the name of Secured Party or any of its nominees any or all of the Pledged
Securities, subject only to the revocable rights specified in Section 6.06. In
addition, Secured Party shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Securities for
certificates or instruments of smaller or larger denominations.
-2-
ARTICLE 2
DEFINITIONS
Section 2.01 TERMS DEFINED ABOVE OR IN THE CREDIT AGREEMENT. As used in
this Agreement, the terms defined above shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall have the same meanings as
defined in the Credit Agreement.
Section 2.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings respectively assigned to them. Other
capitalized terms which are defined in the Credit Agreement but which are not
defined herein shall have the meanings as defined in the Credit Agreement.
"AGREEMENT" means this Security Agreement, as the same may from
time to time be amended or supplemented.
"CODE" means the Uniform Commercial Code as presently in effect
in the State of Texas, Business and Commerce Code, Chapters 1 through 9.
Unless otherwise indicated by the context herein, all uncapitalized
terms which are defined in the Code shall have their respective meanings
as used in Chapters 8 and 9 of the Code.
"EVENT OF DEFAULT" means any event specified in Section 6.01.
"OBLIGATIONS" means all the Indebtedness and obligations of
Pledgor to Secured Party now or hereafter existing under or in
connection with the Credit Agreement or the Notes issued by the Pledgor.
The Obligations shall also include all interest, charges, expenses,
attorneys' or other fees and any other sums payable to or incurred by
Secured Party in connection with the execution, administration or
enforcement of Secured Party's rights and remedies hereunder or any
other agreement with Pledgor.
"OBLIGOR" means any Person, other than Pledgor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker,
endorser, guarantor, accommodation party, general partner or otherwise.
"PLEDGED SECURITIES" means all of the securities and other
property (whether or not the same constitutes a "security" under the
Code) referred to in Section 1.02 and all additional securities (as that
term is defined in the Code), if any, constituting Collateral under this
Agreement.
-3-
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement, Pledgor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 OWNERSHIP OF COLLATERAL; ENCUMBRANCES. Pledgor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Agreement, and Pledgor has full right, power
and authority to pledge, assign and grant a security interest in the Collateral
to Secured Party.
Section 3.02 NO REQUIRED CONSENT. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for (i) the due execution, delivery and performance
by Pledgor of this Agreement, (ii) the grant by Pledgor of the security interest
granted by this Agreement, (iii) the perfection of such security interest or
(iv) the exercise by Secured Party of its rights and remedies under this
Agreement.
Section 3.03 PLEDGED SECURITIES. The Pledged Securities have been duly
authorized and validly issued, and are fully paid and non-assessable. The
Pledged Securities constitute 100% of the issued and outstanding shares of
capital stock of the issuer thereof.
Section 3.04 FIRST PRIORITY SECURITY INTEREST. The pledge of Pledged
Securities pursuant to this Agreement creates a valid and perfected first
priority security interest in the Collateral, enforceable against Pledgor and
all third parties and securing payment of the Obligations.
Section 3.05 COLLATERAL. All statements or other information provided by
Pledgor to Secured Party describing or with respect to the Collateral is or (in
the case of subsequently furnished information) will be when provided correct
and complete in all material respects. The delivery at any time by Pledgor to
Secured Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Pledgor to Secured
Party hereunder that the representations and warranties of this Article 3 are
correct insofar as they would pertain to such Collateral or the descriptions
thereof.
-4-
ARTICLE 4
COVENANTS AND AGREEMENTS
Pledgor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Pledgor
will not in any way encumber any of the Collateral (or permit or suffer any of
the Collateral to be encumbered) or sell, pledge, assign, lend or otherwise
dispose of or transfer any of the Collateral to or in favor of any Person other
than Secured Party.
Section 4.02 DIVIDENDS OR DISTRIBUTIONS. So long as no Event of Default
shall have occurred and be continuing: Pledgor shall be entitled to receive and
retain any and all dividends and interest paid in respect of the Collateral,
provided, however, that any and all
(a) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for (including,
without limitation, any certificate or share purchased or exchanged in
connection with a tender offer or merger agreement), any Collateral,
(b) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in surplus, or reclassification, and
(c) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Pledgor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with any necessary indorsement).
Section 4.03 RECORDS AND INFORMATION. Pledgor shall keep accurate and
complete records of the Collateral (including proceeds, payments, distributions,
income and profits). Secured Party may at any time have access to, examine,
audit, make extracts from and inspect without hindrance or delay Pledgor's
records, files and the Collateral. Pledgor will promptly provide written notice
to Secured Party of all information which in any way relates to or affects the
filing of any financing statement or other public notices or recordings, or the
delivery and possession of items of Collateral for the purpose of perfecting a
security interest in the Collateral. Pledgor will also promptly furnish such
information as Secured Party may from time to time reasonably request regarding
(i) the
-5-
business, affairs or financial condition of Pledgor or (ii) the Collateral or
Secured Party's rights or remedies with respect thereto.
Section 4.04 REIMBURSEMENT OF EXPENSES. Pledgor agrees to indemnify and
hold Secured Party harmless from and against and covenants to defend Secured
Party against any and all losses, damages, claims, costs, penalties, liabilities
and expenses, including, without limitation, court costs and attorneys' fees,
incurred because of, incident to, or with respect to the Collateral (including,
without limitation, any exercise of rights or remedies in connection therewith).
All amounts for which Pledgor is liable pursuant to this Section 4.04 shall be
due and payable by Pledgor to Secured Party upon demand. If Pledgor fails to
make such payment upon demand (or if demand is not made due to an injunction or
stay arising from bankruptcy or other proceedings) and Secured Party pays such
amount, the same shall be due and payable by Pledgor to Secured Party, plus
interest thereon from the date of Secured Party's demand (or from the date of
Secured Party's payment if demand is not made due to such proceedings) at the
Post-Default Rate.
Section 4.05 FURTHER ASSURANCES. Upon the request of Secured Party,
Pledgor shall (at Pledgor's expense) execute and deliver all such assignments,
certificates, instruments, securities, financing statements, notifications to
financial intermediaries, clearing corporations, issuers of securities or other
third parties or other documents and give further assurances and do all other
acts and things as Secured Party may reasonably request to perfect Secured
Party's interest in the Collateral or to protect, enforce or otherwise effect
Secured Party's rights and remedies hereunder.
Section 4.06 STOCK POWERS. Pledgor shall furnish to Secured Party such
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Collateral when and as often as may be requested by
Secured Party.
Section 4.07 RIGHTS TO SELL. Pursuant to Section 6, if Secured Party
shall determine to exercise its rights to sell all or any of the Collateral
pursuant to its rights hereunder, Pledgor agrees that, upon request of Secured
Party, Pledgor will, at its own expense:
(a) execute and deliver, and use its best efforts to cause each
issuer of the Collateral contemplated to be sold and the directors and
officers thereof to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts and things, as
may be necessary or, in the opinion of Secured Party, advisable to
register such Collateral under the provisions of the Securities Act of
1933, as from time to time amended (the "Securities Act"), if such
registration is, in the opinion of Secured Party, necessary or advisable
to effect a public distribution of the Collateral, and to cause the
registration statement relating thereto to become effective and to
remain effective for such period as prospectuses are required by law to
be furnished, and to make all amendments and supplements thereto and to
the related prospectus which, in the opinion of Secured Party, are
-6-
necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and
Exchange Commission applicable thereto;
(b) use its best efforts to qualify the Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by
Secured Party;
(c) use its best efforts to cause each such issuer to make
available to its security holders, as soon as practicable, an earnings
statement which will satisfy the provisions of Section 11(a) of the
Securities Act; and
(d) use its best efforts to do or cause to be done all such
others acts and things as may be necessary to make such sale of the
Collateral or any part thereof valid and binding and in compliance with
applicable law.
Pledgor further acknowledges the impossibility of ascertaining the amount of
damages which would be suffered by Secured Party by reason of the failure by
Pledgor to perform any of the covenants contained in this Section 4.07 and
consequently agrees that if Pledgor shall fail to perform any of such covenants,
it shall pay, as liquidated damages, and not as penalty, an amount equal to the
value of the Collateral on the date the Secured Party shall demand compliance
with this Section 4.07.
Section 4.08 VOTING AND OTHER CONSENSUAL RIGHTS. Except to the extent
otherwise provided in subsection 6.06(d), Pledgor shall be entitled to exercise
any and all voting and other consensual rights pertaining to the Collateral or
any part thereof for any purpose not inconsistent with the terms of this
Agreement; provided however, that Pledgor shall not exercise or refrain from
exercising any such right if such action would have a material adverse effect on
the value of the Collateral or any part thereof, and, provided, further, that
upon request of Secured Party at any time or from time to time, Pledgor shall
give Secured Party prompt written notice of the manner in which Pledgor has
exercised, or the reasons for refraining from exercising, any such right.
Section 4.09 PLEDGED SECURITIES PERCENTAGE. The Pledged Securities will
at all times constitute at least 100% of the issued and outstanding shares of
capital stock of the issuer thereof.
ARTICLE 5
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
-7-
Section 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral. Pledgor agrees to reimburse Secured Party
upon demand for any payment so made, plus interest thereon from the date of
Secured Party's demand at the Post-Default Rate.
Section 5.02 TRANSFER OF COLLATERAL. Secured Party may transfer any or
all of the Obligations, and upon any such transfer Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall be, and is hereby, subrogated to all
the rights, titles, interests and liens securing the debt so renewed, extended,
rearranged or paid.
Section 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers. Pledgor hereby agrees that Secured
Party shall not be liable for, nor shall the indebtedness evidenced by the
Obligations be diminished by, Secured Party's delay or failure to collect upon,
foreclose, sell, take possession of or otherwise obtain value for the
Collateral.
(b) Secured Party shall be under no duty whatsoever to make or give any
presentment, notice of dishonor, protest, demand for performance, notice of
non-performance, notice of intent to accelerate, notice of acceleration, or
other notice or demand in connection with any Collateral or the Obligations, or
to take any steps necessary to preserve any rights against any Obligor or other
Person. Pledgor waives any right of marshaling in respect of any and all
Collateral, and waives any right to require Secured Party to proceed against any
Obligor or other Person, exhaust any Collateral or enforce any other remedy
which Secured Party now has or may hereafter have against any Obligor or other
Person.
Section 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Pledgor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor by reason of
disability, lack of authorization, cessation of the liability of any Obligor or
for any other reason. Pledgor authorizes Secured Party, without notice or demand
and without
-8-
any reservation of rights against Pledgor and without affecting Pledgor's
liability hereunder or on the Obligations, from time to time to (x) take and
hold other property, other than the Collateral, as security for the Obligations,
and exchange, enforce, waive and release any or all of the Collateral, (y) apply
the Collateral in the manner permitted by this Agreement and (z) renew, extend
for any period, accelerate, amend or modify, supplement, enforce, compromise,
settle, waive or release the obligations of any Obligor or any instrument or
agreement of such other Person with respect to any or all of the Obligations or
Collateral.
Section 5.06 CUSTODY AND PRESERVATION OF THE COLLATERAL. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which comparable secured parties accord
comparable collateral, it being understood and agreed, however, that Secured
Party shall not have responsibility for (i) ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether or not Secured Party has or is deemed to
have knowledge of such matters, or (ii) taking any necessary steps to preserve
rights against Persons or entities with respect to any Collateral.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Credit
Agreement.
Section 6.02 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Pledgor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same
by Pledgor or any Obligor.
(b) Sell, in one or more sales and in one or more parcels, or
otherwise dispose of any or all of the Collateral in any commercially
reasonable manner as Secured Party may elect, in a public or private
transaction, at any location as deemed reasonable by Secured Party
either for cash or credit or for future delivery at such price as
Secured Party may deem fair, and (unless prohibited by the Code, as
adopted in any applicable jurisdiction) Secured Party may be the
purchaser of any or all Collateral so sold and may apply upon the
purchase price therefor any Obligations secured hereby. Any such sale or
transfer by Secured Party either to itself or to any other Person shall
be absolutely free from any claim of right by Pledgor, including any
equity or right of redemption, stay or appraisal which Pledgor has or
may have under any rule of law, regulation or statute now existing or
hereafter adopted.
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Upon any such sale or transfer, Secured Party shall have the right to
deliver, assign and transfer to the purchaser or transferee thereof the
Collateral so sold or transferred. If Secured Party deems it advisable
to do so, it may restrict the bidders or purchasers of any such sale or
transfer to Persons or entities who will represent and agree that they
are purchasing the Collateral for their own account and not with the
view to the distribution or resale of any of the Collateral. Secured
Party may, at its discretion, provide for a public sale, and any such
public sale shall be held at such time or times within ordinary business
hours and at such place or places as Secured Party may fix in the notice
of such sale. Secured Party shall not be obligated to make any sale
pursuant to any such notice. Secured Party may, without notice or
publication, adjourn any public or private sale by announcement at any
time and place fixed for such sale, and such sale may be made at any
time or place to which the same may be so adjourned. In the event any
sale or transfer hereunder is not completed or is defective in the
opinion of Secured Party, such sale or transfer shall not exhaust the
rights of Secured Party hereunder, and Secured Party shall have the
right to cause one or more subsequent sales or transfers to be made
hereunder. If only part of the Collateral is sold or transferred such
that the Obligations remain outstanding (in whole or in part), Secured
Party's rights and remedies hereunder shall not be exhausted, waived or
modified, and Secured Party is specifically empowered to make one or
more successive sales or transfers until all the Collateral shall be
sold or transferred and all the Obligations are paid. In the event that
Secured Party elects not to sell the Collateral, Secured Party retains
its rights to dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and
to apply the proceeds of the same towards payment of the Obligations.
Each and every method of disposition of the Collateral described in this
subsection or in subsection (d) shall constitute disposition in a
commercially reasonable manner.
(c) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable attorneys' fees and legal
expenses incurred by Secured Party.
(d) Appoint any Person as agent to perform any act or acts
necessary or incident to any sale or transfer by Secured Party of the
Collateral.
(e) Receive, change the address for delivery, open and dispose of
mail addressed to Pledgor, and to execute, assign and endorse negotiable
and other instruments for the payment of money, documents of title or
other evidences of payment, shipment or storage for any form of
Collateral on behalf of and in the name of Pledgor.
(f) Exercise all other rights and remedies permitted by law or
in equity.
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Section 6.03 ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints
Secured Party as Pledgor's attorney-in-fact, with full authority in the place
and stead of Pledgor and in the name of Pledgor or otherwise, from time to time
in Secured Party's discretion upon the occurrence and during the continuance of
an Event of Default, but at Pledgor's cost and expense and without notice to
Pledgor, to take any action and to execute any assignment, certificate,
financing statement, stock power, notification, document or instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation, to receive, endorse and collect all
instruments made payable to Pledgor representing any dividend, interest payment
or other distribution in respect of the Collateral or any part thereof and to
give full discharge for the same.
Section 6.04 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party hereunder
results in reduction of the Obligations, such action will not release Pledgor
from its liability to Secured Party for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.05 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party to give reasonable notice of any sale or disposition or
other action, Pledgor hereby agrees that five days' prior written notice shall
constitute reasonable notice thereof. Such notice, in the case of public sale,
shall state the time and place fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.
Section 6.06 PLEDGED SECURITIES. Upon the occurrence and during the
continuance of an Event of Default:
(a) All rights of Pledgor to receive the dividends and interest
payments which it would otherwise be authorized to receive and retain
pursuant to Section 4.02 shall cease, and all such rights shall
thereupon become vested in Secured Party who shall thereupon have the
sole right to receive and hold as Collateral such dividends and interest
payments, but Secured Party shall have no duty to receive and hold such
dividends and interest payments and shall not be responsible for any
failure to do so or delay in so doing.
(b) All dividends and interest payments which are received by
Pledgor contrary to the provisions of this Section 6.06 shall be
received in trust for the benefit of Secured Party, shall be segregated
from other funds of Pledgor and shall be forthwith paid over to Secured
Party as Collateral in the same form as so received (with any necessary
indorsement).
(c) Secured Party may exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged
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Securities as if it were the absolute owner thereof, including without
limitation, the right to exchange at its discretion, any and all of the
Pledged Securities upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of such Pledged
Securities or upon the exercise by any such issuer or Secured Party of
any right, privilege or option pertaining to any of the Pledged
Securities, and in connection therewith, to deposit and deliver any and
all of the Pledged Securities with any committee, depository, transfer
agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability except to account
for property actually received by it, but Secured Party shall have no
duty to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so doing.
(d) If the issuer of any Pledged Securities is the subject of
bankruptcy, insolvency, receivership, custodianship or other proceedings
under the supervision of any court or governmental agency or
instrumentality, then all rights of Pledgor to exercise the voting and
other consensual rights which Pledgor would otherwise be entitled to
exercise pursuant to Section 4.08 with respect to the Pledged Securities
issued by such issuer shall cease, and all such rights shall thereupon
become vested in Secured Party who shall thereupon have the sole right
to exercise such voting and other consensual rights, but Secured Party
shall have no duty to exercise any such voting or other consensual
rights and shall not be responsible for any failure to do so or delay in
so doing.
Section 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Pledgor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 NOTICES. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Credit Agreement.
Section 7.02 AMENDMENTS AND WAIVERS. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Pledgor or any Obligor, or of any right, power or
remedy of Secured Party; and no partial exercise of any right, power or remedy
shall preclude any other or further exercise thereof. Secured Party may remedy
any Event of Default hereunder or in connection with the Obligations without
waiving the Event of Default so remedied. Pledgor hereby agrees that if Secured
Party agrees to a waiver of any provision hereunder, or an exchange of or
release of the Collateral, or the addition or release of any Obligor or other
Person,
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any such action shall not constitute a waiver of any of Secured Party's other
rights or of Pledgor's obligations hereunder. This Agreement may be amended only
by an instrument in writing executed jointly by Pledgor and Secured Party and
may be supplemented only by documents delivered or to be delivered in accordance
with the express terms hereof.
Section 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Agreement may be delivered by Pledgor or Secured Party to
any financial intermediary or other third party for the purpose of transferring
or perfecting any or all of the Pledged Securities to Secured Party or its
designee or assignee.
Section 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Pledgor such excess proceeds in a commercially
reasonable time; provided, however, that Secured Party shall not be liable for
any interest, cost or expense in connection with any delay in delivering such
proceeds to Pledgor.
Section 7.06 GOVERNING LAW; JURISDICTION. This Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby).
Section 7.07 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off.
Section 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9.505 of
the Code, no action taken or omission to act by Secured Party hereunder,
including, without limitation, any exercise of voting or consensual rights
pursuant to Section 4.08 or any other action taken or inaction pursuant to
Section 6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
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(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, and Secured Party's security interests, rights, powers and
remedies hereunder shall continue in full force and effect. In such event, this
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.09.
Section 7.09 TERMINATION. The grant of a security interest hereunder and
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until Secured Party has (i) retransferred and
delivered all Collateral in its possession to Pledgor, and (ii) executed a
written release or termination statement and reassigned to Pledgor without
recourse or warranty any remaining Collateral and all rights conveyed hereby.
Upon the complete payment of the Obligations and the compliance by Pledgor with
all covenants and agreements hereof, Secured Party, at the written request and
expense of Pledgor, will release, reassign and transfer the Collateral to
Pledgor and declare this Agreement to be of no further force or effect.
Notwithstanding the foregoing, the reimbursement and indemnification provisions
of Section 4.04 and the provisions of subsection 7.07(b) shall survive the
termination of this Agreement.
Section 7.10 PRIOR SECURITY AGREEMENT. This Agreement carries over,
restates and supersedes the Prior Security Agreement.
Section 7.11 NO ORAL AGREEMENTS. THIS AGREEMENT EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDES ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Section 7.12 COUNTERPARTS, EFFECTIVENESS. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together
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constitute one and the same instrument. This Agreement becomes effective upon
the execution hereof by Pledgor and delivery of the same to Secured Party, and
it is not necessary for Secured Party to execute any acceptance hereof or
otherwise signify or express its acceptance hereof.
PLEDGOR: CASTLE DENTAL CENTERS, INC.
By:
Name: Jack H. Castle, Jr.
Title: President
<PAGE>
EXHIBIT A
PLEDGED SECURITIES
Number
of
State of Description Pledged Certificate
Issuer Incorporation of Stock Shares Number
------ ------------- -------- ------ ------
JHCDDS, Inc. Texas Common Stock 1,000 1
Castle Dental Centers of
Florida, Inc. Florida Common Stock 100 1
Castle Dental Centers of
Tennessee, Inc. Tennessee Common Stock 1,000 1
Exhibit 10.54
AMENDED AND RESTATED SECURITY AGREEMENT
(Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles and Other Property)
Between
CASTLE DENTAL CENTERS, INC.
and
NATIONSBANK OF TEXAS, N.A.
May 31, 1996
<PAGE>
AMENDED AND RESTATED SECURITY AGREEMENT
Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles And Other Property
---------------------------------------------------
THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "AGREEMENT") is made
as of May 31, 1996, between CASTLE DENTAL CENTERS, INC., a Delaware corporation
with principal offices at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas
77056 ("DEBTOR"); and NATIONSBANK OF TEXAS, N.A., a national banking association
with offices at 700 Louisiana, Houston, Texas 77002 ("SECURED PARTY").
RECITALS
A. Debtor and Secured Party entered into that certain Credit Agreement
dated as of December 19, 1995 (the "Prior Credit Agreement") whereby pursuant to
which, upon the terms and conditions stated therein, Secured Party agreed to
make loans to Debtor.
B. Debtor executed that certain Security Agreement dated as of December
19, 1995, in favor of Secured Party, securing the payment of all indebtedness,
obligations and liabilities of Debtor to Secured Party under the Prior Credit
Agreement (the "PRIOR SECURITY AGREEMENT").
C. On even date herewith, Debtor and Secured Party are amending and
restating the Prior Credit Agreement in its entirety by entering into that
certain Amended and Restated Credit Agreement of even date herewith by and
between Debtor and Secured Party (as the same may from time to time be amended,
modified or supplemented, the "CREDIT AGREEMENT"), pursuant to which upon the
terms and conditions stated therein, Secured Party agrees to make loans to
Debtor.
D. Secured Party has conditioned its obligations under the Credit
Agreement upon the execution and delivery by Debtor of this Agreement, and
Debtor has agreed to enter into this Agreement.
E. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby agrees with Secured
Party as follows:
ARTICLE 1
SECURITY INTEREST
Section 1.01 GRANT OF SECURITY INTEREST. Debtor hereby assigns and
grants to Secured Party a security interest in and right of set-off against the
assets referred to in Section 1.02 (the "COLLATERAL") to secure the prompt
payment and performance of the "OBLIGATIONS" (as defined in Section 2.02) and
the performance by Debtor of this Agreement.
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Section 1.02 COLLATERAL. The Collateral consists of the following types
or items of property (including property hereafter acquired by Debtor as well as
property which Debtor now owns or in which Debtor has rights):
(a) All of Debtor's accounts, inventory, equipment, chattel
paper, documents, instruments and general intangibles, including,
without limitation, any of the foregoing which may be more specifically
indicated in the remainder of this Section 1.02.
(b) All Debtor's present and future accounts receivable, chattel
paper, instruments, general intangibles, and other rights to payment
generated by Debtor or an Original Account Party (as defined in Section
3.09 hereof) for dental services performed or to be provided in the
future and claims for reimbursement or indemnification from Blue
Cross/Blue Shield, insurance companies, managed care organizations and
other third party payors or fiscal intermediaries.
(c) (i) Any related or additional property from time to time
delivered to or deposited with Secured Party by or for the account of
Debtor; (ii) all certificates of title or other documents evidencing
ownership or possession of or otherwise relating to any property
referred to in this Section 1.02; (iii) all property used or usable in
connection with any property referred to in this Section 1.02; (iv) all
policies of insurance (whether or not required by Secured Party)
covering any property referred to in this Section 1.02; (v) all goods
which were at any time included in the Collateral and which are returned
to or for the account of Debtor following their sale, lease or other
disposition; (vi) all proceeds, products, replacements, additions to,
substitutions for, accessions of, and property necessary for the
operation of any of the property referred to in this Section 1.02,
including, without limitation, insurance payable as a result of loss or
damage to any of the property referred to in this Section 1.02, refunds
of unearned premiums of any such insurance policy and claims against
third parties; and (vii) all books and records related to any of the
property referred to in this Section 1.02, including, without
limitation, any and all books of account, customer lists and other
records relating in any way to the accounts, chattel paper, instruments
or inventory referred to in this Section 1.02.
(d) All present and future general intangibles related to any
property referred to in this Section 1.02, including, without
limitation, all (i) insurance and managed care policies and contracts,
letters of credit, bonds, guaranties, purchase or sales agreements and
other contractual rights, rights to performance, and claims for damages,
refunds (including tax refunds) or other monies due or to become due;
(ii) all contracts pursuant to which Debtor has purchased any accounts,
including, without limitation the Accounts Receivable Purchase Agreement
(the "ACCOUNTS RECEIVABLE PURCHASE AGREEMENT") dated as of December 19,
1995, between Jack H. Castle, D.D.S., P.C., a Texas professional
corporation ("NEW PC") and Debtor; (iii) that certain Management
Services Agreement dated December 19, 1995 by and between Debtor and New
PC; (iv) orders, franchises, permits, certificates, licenses, consents,
exemptions, variances, authorizations or other
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approvals by any governmental agency or court; (v) consulting,
engineering and technological information and specifications, design
data, patent rights, trade secrets, literary rights, copyrights,
trademarks, labels, trade names and other intellectual property; (vi)
business records, computer tapes and computer software; (vii) goodwill;
and (viii) other intangible personal property, whether similar or
dissimilar to the property referred to in this Section 1.02.
It is expressly contemplated that additional property may from time to time be
pledged, assigned or granted to Secured Party as additional security for the
Obligations, and the term "COLLATERAL" as used herein shall be deemed for all
purposes hereof to include all such additional property, together with all other
property of the types described above related thereto.
Section 1.03 LOCATION OF COLLATERAL. The Collateral is located or
(except as otherwise permitted by Section 4.01) shall be located only in the
following places (provided that the Collateral shall be subject to the security
interest created by this Agreement irrespective of whether or not the Collateral
is located in the following places): as listed on Exhibit A.
ARTICLE 2
DEFINITIONS
Section 2.01 TERMS DEFINED ABOVE OR IN THE CREDIT AGREEMENT. As used in
this Agreement, the terms defined above shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall have the same meanings as
defined in the Credit Agreement.
Section 2.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"ACCOUNTS" means all accounts, chattel paper and instruments (as
such terms are defined in the Code) and any other receivables described
in Section 1.02 at any time included in the Collateral.
"ACCOUNT DEBTOR" means any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of
any obligations included in the Collateral, whether as an account debtor
(as defined in the Code), obligor on a contract or an instrument, issuer
of documents or securities, guarantor or otherwise.
"AGREEMENT" means this Security Agreement, as the same may from
time to time be amended or supplemented.
"CODE" means the Uniform Commercial Code as presently in effect
in the State of Texas, Business and Commerce Code, Chapters 1 through 9.
Unless otherwise indicated
-3-
by the context herein, all uncapitalized terms which are defined in the
Code shall have their respective meanings as used in Chapter 9 of the
Code.
"EVENT OF DEFAULT" means any event specified in Section 6.01.
"INVENTORY" means all inventory (as defined in the Code) at any
time included in the Collateral.
"OBLIGATIONS" means all the Indebtedness and obligations of
Debtor to Secured Party now or hereafter existing under or in connection
with the Credit Agreement or the Notes issued by Debtor. The Obligations
shall also include all interest, charges, expenses, attorneys' or other
fees and any other sums payable to or incurred by Secured Party in
connection with the execution, administration or enforcement of Secured
Party's rights and remedies hereunder or any other agreement with
Debtor.
"OBLIGOR" means any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker,
endorser, guarantor, accommodation party, general partner or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement, Debtor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 OWNERSHIP OF COLLATERAL; ENCUMBRANCES. Debtor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Agreement and those permitted under the Credit
Agreement, and Debtor has full right, power and authority to assign and grant a
security interest in the Collateral to Secured Party.
Section 3.02 NO REQUIRED CONSENT. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
-4-
Section 3.03 GOVERNMENTAL REGULATIONS. Debtor is organized and operating
in compliance with state and federal law including, but not limited to, the
Dental Practice Act and S.S.A. ss.1877, codified at 42 U.S.C. 3595nn.
Section 3.04 FIRST PRIORITY SECURITY INTEREST. Except for Collateral
subject to Liens permitted under the Credit Agreement, the grant of the security
interest in the Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Collateral subject to Excepted
Liens, enforceable against Debtor and all third parties and securing payment of
the Obligations, except for security interest as to which the perfection is
governed by the appropriate statutory provisions governing perfection on United
States patents, trademarks, copyrights and other intellectual property rights,
receivables involving the United States government or motor vehicles.
Section 3.05 NO FILINGS BY THIRD PARTIES. Except as permitted under the
Credit Agreement, no financing statement or other public notice or recording
covering the Collateral is on file in any public office (other than any
financing statement or other public notice or recording naming Secured Party as
the secured party therein), and Debtor will not execute any such financing
statement or other public notice or recording so long as any of the Obligations
are outstanding, except in connection with Liens permitted under the Credit
Agreement.
Section 3.06 NO NAME CHANGES. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein, except for Family Dental Centers and
Family Dental Services of Texas.
Section 3.07 LOCATION OF DEBTOR AND COLLATERAL. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth in the opening paragraph hereof. The Collateral is located
at Debtor's address set forth in the opening paragraph hereof or at the
location(s), if any, specified in Section 1.02 or 1.03. Any Collateral not at
such location(s) nevertheless remains subject to Secured Party's security
interest.
Section 3.08 COLLATERAL. All statements or other information provided by
Debtor to Secured Party describing or with respect to the Collateral is or (in
the case of subsequently furnished information) will be when provided correct
and complete in all material respects. The delivery at any time by Debtor to
Secured Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Debtor to Secured
Party hereunder that the representations and warranties of this Article 3 are
correct insofar as they would pertain to such Collateral or the descriptions
thereof.
Section 3.09 ACCOUNTS.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition of
goods or services or the
-5-
agreement to render service in the future by Debtor, JHC DDS, Inc. or New PC or
any other party from whom Debtor may have purchased such Account (the "Original
Account Party") and, except in the ordinary course of business, is not and will
not be subject to contra accounts, set-offs, defenses, counterclaims, allowances
or adjustments (other than discounts for prompt payment shown on the invoice),
or objections or complaints by the Account Debtor concerning its liability on
the Account; and any goods, the sale of which gave rise to an Account, have not
been returned or rejected by the Account Debtor or lost or damaged prior to
receipt by the Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be
the true and undisputed amount owing and unpaid thereon. Each Account arose or
shall have arisen in the ordinary course of Debtor's or the Original Account
Party's business; provided, however, that any Accounts which arose or hereafter
arise outside the ordinary course of Debtor's or the Original Account Party's
business shall nevertheless be included as part of the Collateral. Debtor has no
knowledge of any bankruptcy, insolvency or other action affecting creditors'
rights with respect to any Account Debtor.
ARTICLE 4
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 CHANGE IN LOCATION OF COLLATERAL OR DEBTOR. Debtor will
notify Secured Party on or before the date of any change in location of the
Collateral other than to a location listed on Exhibit A and except for temporary
changes on location in the ordinary course of business. Debtor will not, without
Secured Party's prior written consent, change the location of the Collateral to
any state, county or other jurisdiction in which Secured Party has not already
filed a financing statement or taken other necessary steps to perfect its
security interests in the Collateral or to maintain such perfection. Debtor will
give Secured Party 30 days' prior written notice of (i) the opening or closing
of any place of Debtor's business or (ii) any change in the location of Debtor's
chief executive office or address.
Section 4.02 CHANGE IN DEBTOR'S NAME OR CORPORATE STRUCTURE. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
Section 4.03 DOCUMENTS; COLLATERAL IN POSSESSION OF THIRD PARTIES. If
certificates of title or other documents evidencing ownership or possession of
the Collateral (excluding vehicles) are
-6-
issued or outstanding, Debtor will cause the interest of Secured Party to be
properly noted thereon and will, forthwith upon receipt, deliver same to Secured
Party. If any Collateral is at any time in the possession or control of any
warehouseman, bailee, agent or independent contractor, Debtor shall notify such
Person of Secured Party's security interest in such Collateral. Upon Secured
Party's request, Debtor shall instruct any such Person to hold all such
Collateral for Secured Party's account subject to Debtor's instructions, or, if
an Event of Default shall have occurred, subject to Secured Party's
instructions.
Section 4.04 DELIVERY OF LETTERS OF CREDIT AND INSTRUMENTS. Debtor will
deliver each letter of credit, if any, included in the Collateral to Secured
Party, in each case forthwith upon receipt by or for the account of Debtor. If
any Account becomes evidenced by a promissory note or any other instrument for
the payment of money (other than checks or drafts in payment of Accounts
collected by Debtor in the ordinary course of business prior to notification by
Secured Party under Section 6.02(h)), Debtor will immediately deliver such
instrument to Secured Party appropriately endorsed and, regardless of the form
of presentment, demand, notice of dishonor, protest and notice of protest with
respect thereto, Debtor will remain liable thereon until such instrument is paid
in full.
Section 4.05 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Except as
permitted by Section 4.10, the Credit Agreement, or with Secured Party's prior
written consent, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.06 PROCEEDS OF COLLATERAL. If chattel paper, documents or
instruments are received as proceeds, which are required to be delivered to
Secured Party, they will be, immediately upon receipt, properly endorsed or
assigned and delivered to Secured Party as Collateral.
Section 4.07 RECORDS AND INFORMATION. Debtor shall keep accurate and
complete records of the Collateral (including proceeds). These records shall
reflect complete and accurate stock records of the Inventory, contracts and
other general intangibles concerning each Account. Secured Party may at
reasonable times upon reasonable notice have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral. Debtor will promptly provide written notice to Secured Party of
all information which in any way relates to or affects the filing of any
financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral. Debtor will also promptly furnish such information
as Secured Party may from time to time reasonably request regarding (i) the
business, affairs or financial condition of Debtor or (ii) the Collateral or
Secured Party's rights or remedies with respect thereto.
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Section 4.08 REIMBURSEMENT OF EXPENSES. Debtor hereby assumes all
liability for the Collateral, the security interests created hereunder and any
use, possession, maintenance, management, enforcement or collection of any or
all of the Collateral. Debtor agrees to indemnify and hold Secured Party
harmless from and against and covenants to defend Secured Party against any and
all losses, damages, claims, costs, penalties, liabilities and expenses,
including, without limitation, court costs and attorneys' fees, incurred because
of, incident to, or with respect to the Collateral (including, without
limitation, any use, possession, maintenance or management thereof, or any
injuries to or deaths of persons or damage to property). All amounts for which
Debtor is liable pursuant to this Section 4.08 shall be due and payable by
Debtor to Secured Party upon demand. If Debtor fails to make such payment upon
demand (or if demand is not made due to an injunction or stay arising from
bankruptcy or other proceedings) and Secured Party pays such amount, the same
shall be due and payable by Debtor to Secured Party, plus interest thereon from
the date of Secured Party's demand (or from the date of Secured Party's payment
if demand is not made due to such proceedings) at the Post-Default Rate.
Section 4.09 FURTHER ASSURANCES. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.10 INVENTORY. Until an Event of Default occurs hereunder,
Debtor may use the Inventory in any lawful manner not inconsistent with this
Agreement and with the terms of insurance thereon and may sell, lease or
otherwise dispose of its Inventory for cash or terms in the ordinary course of
business, and Debtor may retain the proceeds of such sales, leases or other
dispositions (subject to Section 4.04 and subsection 4.11(a)); provided,
however, the Inventory shall remain in Debtor's possession and control at all
times prior to sale, lease or other disposition at Debtor's address set forth in
the opening paragraph hereof or at such other location(s) as may be specified in
Section 1.02 or 1.03. Debtor shall bear any risk of loss of the Inventory.
Debtor shall not use any item of Inventory in a manner inconsistent with the
holding thereof for sale, lease or other disposition in the ordinary course of
business or in contravention of the terms of any agreement. A sale, lease or
disposition in the ordinary course of business does not include the exchange of
Inventory for services or goods in kind or transfers of Inventory for the
satisfaction of obligations to suppliers or other indebtedness. Upon an Event of
Default, Debtor will not sell, lease or otherwise dispose of any of the
Inventory without the prior written consent of Secured Party, and Debtor shall
immediately deliver to Secured Party any checks, cash or other forms of payment
which Debtor receives in connection with any Inventory, appropriately endorsed.
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Section 4.11 ACCOUNTS.
(a) Prior to notification by Secured Party under Section 6.02(h), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.04).
(b) Debtor will not modify, extend or substitute any contract, the terms
of which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry. Debtor shall not adjust, settle, discount
or compromise any of the Accounts, except in the ordinary course of business or
with the prior written consent of Secured Party.
(c) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
(d) Debtor will maintain and keep the Accounts Receivable Purchase
Agreement in full force and effect and take all appropriate action to cause New
PC to promptly perform as required under such Contract.
Section 4.12 CONDITION OF COLLATERAL. Debtor will maintain all the
Collateral in good condition, repair and working order, and in accordance with
any manufacturer's manual. Debtor will not misuse, abuse, waste, destroy or
endanger the Collateral or allow it to deteriorate, except for ordinary wear and
tear from its intended use. Debtor will repair, replace or otherwise improve the
Collateral as may be necessary. Debtor will not use any Collateral in violation
in any material respect of any law, statute, ordinance, regulation or
administrative order, or suffer it to be so used.
Section 4.13 COLLATERAL ATTACHED TO OTHER PROPERTY. In the event that
the Collateral is to be attached or affixed to any real property, Debtor hereby
agrees that this Agreement may be filed for record in any appropriate real
estate records as a financing statement which is a fixture filing. In connection
therewith, Debtor will take whatever action is required by Section 4.09. If
Debtor is not the record owner of such real property, Debtor will provide
Secured Party with any additional security agreements or financing statements
necessary for the perfection of Secured Party's security interest in the
Collateral. If the Collateral is wholly or partly affixed to real estate or
installed in or affixed to other goods, Debtor will, on demand of Secured Party,
furnish Secured Party with a disclaimer (including landlord's or other lien
waivers or releases, if applicable), signed by all Persons or entities having an
interest in the real estate or other goods to which the Collateral may have
become affixed, of any prior interest to Secured Party's interest in the
Collateral.
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Section 4.14 COLLATERAL SEPARATE AND DISTINCT. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other property.
ARTICLE 5
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
Section 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral.
Section 5.02 TRANSFER OF COLLATERAL. Secured Party may transfer any or
all of the Obligations, and upon any such transfer Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall be, and is hereby, subrogated to all
the rights, titles, interests and liens securing the debt so renewed, extended,
rearranged or paid.
Section 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers. Debtor hereby agrees that Secured
Party shall not be liable for, nor shall the indebtedness evidenced by the
Obligations be diminished by, Secured Party's delay or failure to collect upon,
foreclose, sell, take possession of or otherwise obtain value for the
Collateral.
(b) Except as provided for in the Credit Agreement, Secured Party shall
be under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person. Debtor
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waives any right of marshaling in respect of any and all Collateral, and waives
any right to require Secured Party to proceed against any Obligor, Account
Debtor or other Person, exhaust any Collateral or enforce any other remedy which
Secured Party now has or may hereafter have against any Obligor or other Person.
Section 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor or Original
Account Party (other than the Obligor) by reason of disability, lack of
authorization, cessation of the liability of any Obligor or for any other
reason. Debtor authorizes Secured Party, without notice or demand and without
any reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Obligations, from time to time to (x) take and
hold other property of any Obligor, other than the Collateral, as security for
the Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Agreement
and (z) renew, extend for any period, accelerate, amend or modify, supplement,
enforce, compromise, settle, waive or release the obligations of any Obligor or
any Original Account Party (other than the Debtor) or any instrument or
agreement of such other Person with respect to any or all of the Obligations or
Collateral.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Credit
Agreement.
Section 6.02 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same
by Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's
request Debtor shall, at Debtor's cost, assemble the Collateral and make
it available at a location to be specified by Secured Party which is
reasonably convenient to Debtor and Secured Party. Secured Party may, at
its option, render any equipment unusable that may be included in the
Collateral, or, at Secured Party's request, Debtor will render it
unusable. In any event, Debtor shall bear the risk of accidental loss or
damage to or diminution in value of the Collateral, and Secured Party
shall have no liability whatsoever for failure to obtain or maintain
insurance, nor to determine whether any insurance ever in force is
adequate as to amount or as to risk insured.
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(c) Sell or lease, in one or more sales or leases and in one or
more parcels, or otherwise dispose of any or all of the Collateral in
its then condition or in any other commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any
location as deemed reasonable by Secured Party (including, without
limitation, Debtor's premises), either for cash or credit or for future
delivery at such price as Secured Party may deem fair, and (unless
prohibited by the Code, as adopted in any applicable jurisdiction)
Secured Party may be the purchaser of any or all Collateral so sold and
may apply upon the purchase price therefor any Obligations secured
hereby. Any such sale or transfer by Secured Party either to itself or
to any other Person shall be absolutely free from any claim of right by
Debtor, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law, regulation or
statute now existing or hereafter adopted. Upon any such sale or
transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold
or transferred. It shall not be necessary that the Collateral or any
part thereof be present at the location of any such sale or transfer.
Secured Party may, at its discretion, provide for a public sale, and any
such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in
the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice
or publication, adjourn any public or private sale by announcement at
any time and place fixed for such sale, and such sale may be made at any
time or place to which the same may be so adjourned. In the event any
sale or transfer hereunder is not completed or is defective in the
opinion of Secured Party, such sale or transfer shall not exhaust the
rights of Secured Party hereunder, and Secured Party shall have the
right to cause one or more subsequent sales or transfers to be made
hereunder. In the event that any of the Collateral is sold or
transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or
transferred may be retained by Secured Party until the purchase price or
other consideration is paid by the purchaser or transferee thereof, but
in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, Secured
Party shall incur no liability in connection therewith. If only part of
the Collateral is sold or transferred such that the Obligations remain
outstanding (in whole or in part), Secured Party's rights and remedies
hereunder shall not be exhausted, waived or modified, and Secured Party
is specifically empowered to make one or more successive sales or
transfers until all the Collateral shall be sold or transferred and all
the Obligations are paid. In the event that Secured Party elects not to
sell the Collateral, Secured Party retains its rights to lease or
otherwise dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and
to apply the proceeds of the same towards payment of the Obligations.
Each and every method of disposition of the Collateral described in this
subsection or in subsection (f) shall constitute disposition in a
commercially reasonable manner.
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(d) Take possession of all books and records of Debtor pertaining
to the Collateral. Secured Party shall have the authority to enter upon
any real property or improvements thereon in order to obtain any such
books or records, or any Collateral located thereon, and remove the same
therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable expenses of retaking,
holding, preparing for sale or other disposition, and the reasonable
attorneys' fees and legal expenses incurred by Secured Party.
(f) Appoint any Person as agent to perform any act or acts
necessary or incident to any sale or transfer by Secured Party of the
Collateral. Additionally, any sale or transfer hereunder may be
conducted by an auctioneer or any officer or agent of Secured Party.
(g) Receive, change the address for delivery, open and dispose of
mail addressed to Debtor, and to execute, assign and endorse negotiable
and other instruments for the payment of money, documents of title or
other evidences of payment, shipment or storage for any form of
Collateral on behalf of and in the name of Debtor.
(h) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account
Debtors to make payments on the Accounts directly to Secured Party. To
the extent Secured Party does not so elect, Debtor shall continue to
collect the Accounts. Secured Party or its designee shall also have the
right, in its own name or in the name of Debtor, to do any of the
following: (i) to demand, collect, receipt for, settle, compromise any
amounts due, give acquittances for, prosecute or defend any action which
may be in relation to any monies due or to become due by virtue of, the
Accounts; (ii) to sell, transfer or assign or otherwise deal in the
Accounts or the proceeds thereof or the related goods, as fully and
effectively as if Secured Party were the absolute owner thereof; (iii)
to extend the time of payment of any of the Accounts, to grant waivers
and make any allowance or other adjustment with reference thereto; (iv)
to endorse the name of Debtor on notes, checks or other evidences of
payments on Collateral that may come into possession of Secured Party;
(v) to take control of cash and other proceeds of any Collateral; (vi)
to sign the name of Debtor on any invoice or bill of lading relating to
any Collateral, or any drafts against Account Debtors or other persons
making payment with respect to Collateral; (vii) to send a request for
verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this
Agreement.
(i) Exercise all other rights and remedies permitted by law or
in equity.
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Section 6.03 ATTORNEY-IN-FACT. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion upon the occurrence and during the continuance of an
Event of Default, but at Debtor's cost and expense and without notice to Debtor:
(a) To obtain, adjust, sell and cancel any insurance with respect
to the Collateral, and endorse any draft drawn by insurers of the
Collateral. Secured Party may apply any proceeds or unearned premiums of
such insurance to the Obligations (whether or not due).
(b) To take any action and to execute any assignment,
certificate, financing statement, notification, document or instrument
which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to Debtor representing
any payment or other distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
Section 6.04 ACCOUNT DEBTORS. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
Section 6.05 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party hereunder
results in reduction of the Obligations, such action will not release Debtor
from its liability to Secured Party for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.06 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party to give reasonable notice of any sale or disposition or
other action, Debtor hereby agrees that five days' prior written notice shall
constitute reasonable notice thereof. Such notice, in the case of public sale,
shall state the time and place fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.
Section 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Debtor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
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ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 NOTICES. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Credit Agreement.
Section 7.02 AMENDMENTS AND WAIVERS. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Debtor or any Obligor, or of any right, power or
remedy of Secured Party; and no partial exercise of any right, power or remedy
shall preclude any other or further exercise thereof. Secured Party may remedy
any Event of Default hereunder or in connection with the Obligations without
waiving the Event of Default so remedied. Debtor hereby agrees that if Secured
Party agrees to a waiver of any provision hereunder, or an exchange of or
release of the Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of Secured Party's
other rights or of Debtor's obligations hereunder. This Agreement may be amended
only by an instrument in writing executed jointly by Debtor and Secured Party
and may be supplemented only by documents delivered or to be delivered in
accordance with the express terms hereof.
Section 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that Secured Party shall not be liable for
any interest, cost or expense in connection with any delay in delivering such
proceeds to Debtor.
Section 7.06 GOVERNING LAW; JURISDICTION. This Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby).
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Section 7.07 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off.
Section 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9.505 of
the Code, no action taken or omission to act by Secured Party hereunder,
including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, and Secured Party's security interests, rights, powers and
remedies hereunder shall continue in full force and effect. In such event, this
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.09.
Section 7.09 TERMINATION. The grant of a security interest hereunder and
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until Secured Party has retransferred and
delivered all Collateral in its possession to Debtor, and executed a written
release or termination statement and reassigned to Debtor without recourse or
warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations and the compliance by Debtor with all
covenants and agreements hereof, Secured Party, at the written request and
expense of Debtor, will release, reassign and transfer the Collateral to Debtor
and declare this Agreement to be of no further force or effect. Notwithstanding
the foregoing, the reimbursement and indemnification provisions of Section 4.08
and the provisions of subsection 7.07(b) shall survive the termination of this
Agreement.
Section 7.10 CONFLICTS. In the event of a conflict between (a) this
Agreement and the Credit Agreement, the terms of the Credit Agreement shall
control or (b) this Agreement and any
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notice delivered to account debtors pursuant to the Accounts Receivable Purchase
Agreement, the terms of this Agreement shall control.
Section 7.11 PRIOR SECURITY AGREEMENT. This Agreement carries over,
restates and supersedes the Prior Security Agreement.
Section 7.12 NO ORAL AGREEMENTS. THIS AGREEMENT EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDES ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Section 7.13 COUNTERPARTS, EFFECTIVENESS. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together constitute one and the same instrument. This
Agreement becomes effective upon the execution hereof by Debtor and delivery of
the same to Secured Party, and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.
DEBTOR: CASTLE DENTAL CENTERS, INC.
By:________________________________
Name: Jack H. Castle, Jr.
Title: President
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EXHIBIT A
A-1
Exhibit 10.55
AMENDED AND RESTATED GUARANTY AGREEMENT
1. GUARANTY. The undersigned JACK H. CASTLE, JR. (hereinafter called the
"Guarantor") for value received, the receipt and sufficiency of which is hereby
acknowledged, and to induce NATIONSBANK OF TEXAS, N.A., a national banking
association having banking quarters at 700 Louisiana, Houston, Harris County,
Texas 77002 (hereinafter called the "Bank"), at its option, at any time or from
time to time to loan monies, with or without security to or for the account of
CASTLE DENTAL CENTERS, INC. (hereinafter called the "Borrower"), and at the
special insistence and request of the Bank, the Guarantor hereby unconditionally
guarantees the prompt payment at maturity and the prompt performance when due of
the following (hereinafter called the "Indebtedness"):
All Indebtedness and other indebtedness, obligations and liabilities of
any kind of the Borrower to the Bank or any Affiliate (as defined in the
Credit Agreement) of the Bank (and also to others to the extent of
participation granted them by the Bank), now outstanding or owing or
which may hereafter be existing or incurred under or in connection with
the Amended and Restated Credit Agreement dated as of May 31, 1996 (the
"Credit Agreement"), among the Borrower and the Bank, the Notes (as
defined in the Credit Agreement), and the Security Instruments (as
defined in the Credit Agreement), as such documents may hereafter be
amended, modified, supplemented or restated, and any rearrangements,
extensions, refinancings or replacements thereof.
2. NATURE OF GUARANTY. This Guaranty Agreement is an absolute, completed and
continuing one, and no notice of the Indebtedness or of any extension of credit
already or hereafter contracted by or extended to the Borrower need be given to
the Guarantor. The Borrower and the Bank may rearrange, extend for any period
and/or renew from time to time any Indebtedness without notice to the Guarantor,
and in such event the Guarantor will remain fully bound hereunder on such
Indebtedness. This Guaranty Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the
Indebtedness is rescinded or must otherwise be returned by the Bank upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as
though such payment had not been made. The Guarantor hereby expressly waives
presentment, demand, protest and notice of protest and dishonor on any and all
forms of the Indebtedness, and also notice of acceptance of this Guaranty
Agreement, acceptance on the part of the Bank being conclusively presumed by its
request for this Guaranty Agreement and delivery of the same to it.
3. BANK'S RIGHTS. The Guarantor authorizes the Bank, without notice or demand
and without affecting the Guarantor's liability hereunder, to (i) take and hold
security for the payment of this Guaranty Agreement and/or any of the
Indebtedness, and exchange, enforce, waive and release any such security; (ii)
apply such security and direct the order or manner of sale thereof as the Bank
in its discretion may determine; and (iii) obtain a guaranty of any of the
Indebtedness from any one or more persons, corporations or entities whomsoever
and at any time or times to enforce, waive, rearrange, modify, limit or release
such other persons, corporations or entities from their obligations under such
guaranties.
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4. GUARANTOR'S WAIVERS. The Guarantor waives any right to require the Bank to
(i) proceed against the Borrower, (ii) proceed against or exhaust any security
held from the Borrower or others, (iii) have the Borrower joined with the
Guarantor in any suit arising out of this Guaranty Agreement and/or any of the
Indebtedness, or (iv) pursue any other remedy in the Bank's power whatsoever.
The Guarantor waives any defense arising by reason of any disability, lack of
corporate authority or power, or other defense of the Borrower or any other
guarantor of any of the Indebtedness, and the Guarantor shall remain liable
hereon regardless of whether the Borrower or any other guarantor be found not
liable thereon for any reason. Until all the Indebtedness shall have been paid
in full, the Guarantor shall have no right of subrogation and waives any right
to enforce any remedy which the Bank now has or may hereafter have against the
Borrower, and the Guarantor waives any benefit of and any right to participate
in any security now or hereafter held by the Bank.
5. MATURITY, PAYMENT. The Guarantor agrees that if the maturity of any
Indebtedness is accelerated by bankruptcy or otherwise, such maturity shall also
be deemed accelerated for the purpose of this Guaranty Agreement without demand
or notice to the Guarantor. The Guarantor will, forthwith upon notice from the
Bank of the Borrower's failure to pay any Indebtedness at maturity, pay to the
Bank at the Bank's banking quarters specified in the opening clause of this
Guaranty Agreement the amount due and unpaid by the Borrower and guaranteed
hereby. The failure of the Bank to give this notice shall not in any way release
the Guarantor hereunder.
6. EXPENSES, INTEREST. If the Guarantor fails to pay the Indebtedness after
notice from the Bank of the Borrower's failure to pay any Indebtedness at
maturity, and if the Bank obtains the services of an attorney for collection of
amounts owing by the Guarantor hereunder, or if suit is filed to enforce this
Guaranty Agreement, or if proceedings are had in any bankruptcy, probate,
receivership or other judicial proceedings for the establishment or collection
of any amount owing by the Guarantor hereunder, or if any amount owing by the
Guarantor hereunder is collected through such proceedings, the Guarantor agrees
to pay to the Bank at the Bank's banking quarters the Bank's reasonable
attorneys' fees. The Guarantor further agrees to pay interest on the amount of
any judgment at the interest rate provided for in the instrument creating or
evidencing any of the Indebtedness or, if such rate cannot be charged to the
Guarantor, at the Post-Default Rate (as defined in the Credit Agreement).
7. PRIMARY LIABILITY. It is expressly agreed that the liability of the Guarantor
for the payment of the Indebtedness guaranteed hereby shall be primary and not
secondary.
8. FINANCIAL REPRESENTATIONS. The financial statements of the Guarantor, which
have been delivered to the Bank and certified by the Guarantor to be true and
correct, dated October 20, 1995, fairly present the financial condition of the
Guarantor as at such date, and were prepared in a manner consistent with past
practices and since October 20, 1995, there has been no material adverse change
in such condition.
9. FINANCIAL INFORMATION. The Guarantor will furnish to the Bank annually by
April 31 of each year, current financial statements of the Guarantor, in such
detail and containing such information relating to the financial condition of
the Guarantor as the Bank may reasonably request, certified by the Guarantor to
be true and correct and in form and substance satisfactory to the Bank.
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10. RIGHT OF SET-OFF. Upon the Borrower's failure to pay any of the Indebtedness
guaranteed hereby, the Bank is hereby authorized to then, or at any time
thereafter and from time to time, without notice to the Guarantor (any such
notice being expressly waived by the Guarantor), apply and set-off (i) any and
all deposits (general or special, time or demand, provisional or final) of the
Guarantor at any time held by the Bank; (ii) any and all other claims of the
Guarantor against the Bank, now or hereafter existing; (iii) any and all other
indebtedness at any time owing by the Bank to or for the account of the
Guarantor; (iv) any and all money, instruments, securities, documents, chattel
papers, credits, claims demands and other property, rights or interests of the
Guarantor which at any time shall come into the possession or custody or under
the control of the Bank, or any of its agents or affiliates, for any purpose;
and (v) the proceeds of any of the foregoing (all of which is collectively
called the "Security") against the obligations of the Guarantor hereunder. The
Guarantor hereby grants to the Bank a security interest in the Security as
security for such obligations. The Bank shall have the right to so set-off and
apply the Security against the obligations of the Guarantor hereunder regardless
of whether or not the Bank shall have made any demand for payment of the
Indebtedness guaranteed hereby or shall have given any other notice. The Bank
agrees to promptly notify the Guarantor after any such set-off and application;
provided, however, the failure of the Bank to give any such notice shall not
affect the validity of such set-off and application. The Bank shall be deemed to
have possession of any of the Security in transit to or set apart for it or any
of its agents or affiliates. The right is expressly granted to the Bank, at its
discretion, to file one or more financing statements or a copy of this Guaranty
Agreement under the Uniform Commercial Code naming the Guarantor as Debtor and
the Bank as Secured Party and indicating therein the types or describing the
items of Security herein specified. The Bank shall not be required to take any
steps necessary to preserve any rights against prior parties to any of the
Security.
11. CUMULATIVE RIGHTS. The rights of the Bank under paragraph 10 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) which the Bank may have. Without limiting the generality of the
foregoing, the Bank may sell or cause to be sold in the county in which its
banking quarters are located, or elsewhere, in one or more sales or parcels, at
such price as the Bank may deem best, and for cash or on credit or for future
delivery, without assumption of any credit risk, all or any of the Security at
any broker's board or at public or private sale, without demand for performance
or notice of intention to sell or of the time or place of sale (except such
notice as is required by applicable statute and cannot be waived), and the Bank
or anyone else may be the purchaser of any or all of the Security so sold and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any equity of redemption, of the Guarantor, any such demand,
notice or right and equity being hereby expressly waived and released.
12. ABSOLUTE OBLIGATIONS. The grant of the above security interest and lien
shall not in anywise limit or be construed as limiting the Bank to collect
payment of the Guarantor's obligations hereunder only out of the Security, but
it is expressly understood and provided that all such obligations shall
constitute the absolute and unconditional obligations of the Guarantor.
13. SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and shall be in every
particular available to the successors and assigns of the Bank and is and shall
always be fully binding upon the heirs, legal representatives, successors and
assigns of the Guarantor, notwithstanding that some or all of the
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monies, the repayment of which this Guaranty Agreement applies, may be actually
advanced after any bankruptcy, receivership, or other event affecting the
Guarantor.
14. NOTICES. Any notice or demand to the Guarantor under or in connection with
this Guaranty Agreement may be given and shall conclusively be deemed and
considered to have been given and received upon the deposit thereof, in writing,
duly stamped and addressed to the Guarantor at the address of the Guarantor
appearing on the records of the Bank, in the United States mail, but actual
notice, however given or received, shall always be effective.
15. NO ORAL AGREEMENTS. THIS GUARANTY AGREEMENT EMBODIES THE ENTIRE AGREEMENT
AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDES ALL OTHER AGREEMENTS AND
UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND
THEREOF. THIS GUARANTY AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
16. GOVERNING LAW. This Guaranty Agreement is a contract made under and shall be
construed in accordance with and governed by the laws of the State of Texas, and
of the United States of America.
WITNESS THE EXECUTION HEREOF, as of the __th day of May, 1996, in Harris
County, Texas.
-------------------------------------
JACK H. CASTLE, JR.
Address:
c/o Castle Dental Centers, Inc.
1360 Post Oak Boulevard, Suite 1300
Houston, Texas 77002
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Exhibit 10.56
GUARANTY AGREEMENT
BY
JHCDDS, INC.
IN FAVOR OF
NATIONSBANK OF TEXAS, N.A.
MAY 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE......................................1
Section 1.2 CERTAIN DEFINITIONS......................................1
Section 1.3 CREDIT AGREEMENT DEFINITIONS.............................3
ARTICLE 2
THE GUARANTY
Section 2.1 LIABILITIES GUARANTEED...................................3
Section 2.2 NATURE OF GUARANTY.......................................4
Section 2.3 LENDER'S RIGHTS..........................................4
Section 2.4 GUARANTOR'S WAIVERS......................................4
Section 2.5 MATURITY OF LIABILITIES; PAYMENT.........................5
Section 2.6 LENDER'S EXPENSES........................................5
Section 2.7 LIABILITY................................................5
Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS..................................5
Section 2.9 RIGHT OF SUBROGATION AND CONTRIBUTION....................8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 BY GUARANTOR.............................................8
Section 3.2 NO REPRESENTATION BY LENDER..............................9
Section 3.3 INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS,
WARRANTIES AND COVENANTS.................................9
ARTICLE 4
SUBORDINATION OF INDEBTEDNESS
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Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS....................9
Section 4.2 CLAIMS IN BANKRUPTCY....................................10
Section 4.3 PAYMENTS HELD IN TRUST..................................10
Section 4.4 LIENS SUBORDINATE.......................................10
Section 4.5 NOTATION OF RECORDS.....................................11
ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS..................................11
Section 5.2 NOTICES.................................................11
Section 5.3 BUSINESS AND FINANCIAL INFORMATION......................11
Section 5.4 CONSTRUCTION............................................11
Section 5.5 INVALIDITY..............................................12
Section 5.6 ENTIRE AGREEMENT........................................12
-ii-
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by JHCDDS, INC. (hereinafter called
"GUARANTOR"), is in favor of NATIONSBANK OF TEXAS, N.A. (the "LENDER").
WITNESSETH:
WHEREAS, on even date herewith, Castle Dental Centers, Inc., a Delaware
corporation (hereinafter called "BORROWER"), and the Lender have entered into
that certain Amended and Restated Credit Agreement (as the same may be amended
from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, one of the terms and conditions stated in the Credit Agreement
for the making of the loans described therein is the execution and delivery to
the Lender of this Guaranty Agreement;
NOW, THEREFORE, (i) in order to comply with the terms and conditions of
the Credit Agreement, (ii) to induce the Lender, at any time or from time to
time, to loan monies, with or without security to or for the account of Borrower
in accordance with the terms of the Credit Agreement, (iii) at the special
insistence and request of the Lender, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Guarantor hereby agrees as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE. As used in this Guaranty Agreement, the
terms "Borrower", "Guarantor", "Credit Agreement" and "Lender" shall have the
meanings indicated above.
Section 1.2 CERTAIN DEFINITIONS. As used in this Guaranty Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"COLLATERAL" shall have the meaning indicated in Section 4.1 hereof.
"CONTRIBUTION OBLIGATION" shall mean an amount equal, at any time and
from time to time and for each respective Subsidiary Guarantor, to the
product of (i) its Contribution Percentage times (ii) the sum of all
payments made previous to or at the time of calculation by all
Subsidiary Guarantors in respect of the Liabilities, as a Subsidiary
Guarantor (less the amount of any such payments previously returned to
any Subsidiary Guarantor by operation of law or otherwise, but not
including payments received by any Subsidiary Guarantor by way of its
rights of subrogation and contribution under Section 2.9 of the other
Guaranty Agreements), provided, however, such Contribution Obligation
for any Subsidiary Guarantor
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shall in no event exceed such Subsidiary Guarantor's Maximum Guaranteed
Amount, as defined in the respective Guaranty Agreement of such
Subsidiary Guarantor.
"CONTRIBUTION PERCENTAGE" shall mean for any Subsidiary Guarantor for
any applicable date as of which such percentage is being determined, an
amount equal to the quotient of (i) the Net Worth of such Subsidiary
Guarantor as of such date, divided by (ii) the sum of the Net Worth of
all the Subsidiary Guarantors as of such date.
"GUARANTOR CLAIMS" shall have the meaning indicated in Section 5.1
hereof.
"GUARANTY AGREEMENT" shall mean this Guaranty Agreement, and where the
context indicates, the Guaranty Agreement of any other Subsidiary
Guarantor, as the same may from time to time be amended or supplemented.
"LIABILITIES" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement, including
without limitation, the unpaid principal of and interest on the Notes,
including without limitation, interest accruing subsequent to the filing
of a petition or other action concerning bankruptcy or other similar
proceeding; (b) any additional loans made by the Lender to the Borrower;
(c) payment of and performance of any and all present or future
obligations of the Borrower according to the terms of any present or
future interest or currency rate swap, rate cap, rate floor, rate
collar, exchange transaction, forward rate agreement or other exchange
or rate protection agreements or any option with respect to any such
transaction now existing or hereafter entered into between the Borrower
and the Lender; (d) any and all other indebtedness, obligations and
liabilities of any kind of the Borrower to the Lender, now or hereafter
existing, arising directly between the Borrower and the Lender or
acquired outright, as a participation, conditionally or as collateral
security from another by the Lender, absolute or contingent, joint
and/or several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect, including
indebtedness, obligations and liabilities to the Lender of the Borrower
as a member of any partnership, syndicate, association or other group,
and whether incurred by the Borrower as principal, surety, endorser,
guarantor, accommodation party or otherwise and (e) all renewals,
rearrangements, increases, extensions for any period, amendments or
supplement in whole or in part of the Notes or any documents evidencing
the above.
"LOAN DOCUMENTS" shall mean the Credit Agreement, the Notes and the
Security Instruments.
"MAXIMUM GUARANTEED AMOUNT" shall mean, for the Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by the Guarantor in exchange for the
obligation incurred hereunder, within the meaning of any applicable
state or federal fraudulent conveyance or transfer laws;
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or (ii) the lesser of (A) the maximum amount that will not render the
Guarantor insolvent, or (B) the maximum amount that will not leave the
Guarantor with any property deemed an unreasonably small capital.
Clauses (A) and (B) are and shall be determined pursuant to and as of
the appropriate date mandated by such applicable state or federal
fraudulent conveyance or transfer laws and to the extent allowed by law
take into account the rights to contribution and subrogation under
Section 2.9 in each Guaranty Agreement so as to provide for the largest
Maximum Guaranteed Amount possible.
"NET PAYMENTS" shall mean an amount equal, at any time and from time to
time and for each respective Subsidiary Guarantor, to the difference of
(i) the sum of all payments made previous to or at the time of
calculation by such Subsidiary Guarantor in respect to the Liabilities,
as a Subsidiary Guarantor, and in respect of its obligations contained
in this Guaranty Agreement, less (ii) the sum of all such payments
previously returned to such Subsidiary Guarantor by operation of law or
otherwise and including payments received by such Subsidiary Guarantor
by way of its rights of subrogation and contribution under Section 2.9
of the other Guaranty Agreements.
"NET WORTH" shall mean for any Subsidiary Guarantor, calculated on and
as of any applicable date on which such amount is being determined, the
difference between (i) the sum of all such Subsidiary Guarantor's
property, at a fair valuation and as of such date, minus (ii) the sum of
all such Subsidiary Guarantor's debts, at a fair valuation and as of
such date, excluding the Liabilities.
"SUBSIDIARY GUARANTORS" shall mean the Guarantors as defined in the
Credit Agreement, including the Guarantor.
Section 1.3 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
ARTICLE 2
THE GUARANTY
Section 2.1 LIABILITIES GUARANTEED. Guarantor hereby irrevocably and
unconditionally guarantees the prompt payment of the Liabilities when due,
whether at maturity or otherwise, provided, however, that, notwithstanding
anything herein or in any other Loan Document to the contrary, the maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.
Section 2.2 NATURE OF GUARANTY. This Guaranty Agreement is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of
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the Liabilities or any extension of credit already or hereafter contracted by or
extended to Borrower need be given to Guarantor. This Guaranty Agreement may not
be revoked by Guarantor and shall continue to be effective with respect to debt
under the Liabilities arising or created after any attempted revocation by
Guarantor and shall remain in full force and effect until the Liabilities are
paid in full, notwithstanding that from time to time prior thereto no
Liabilities may be outstanding. Borrower and the Lender may modify, alter,
rearrange, extend for any period and/or renew from time to time, the
Liabilities, and the Lender may waive any Default or Events of Default without
notice to the Guarantor and in such event Guarantor will remain fully bound
hereunder on the Liabilities. This Guaranty Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Liabilities is rescinded or must otherwise be returned by any of the Lender
upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all
as though such payment had not been made. This Guaranty Agreement may be
enforced by the Lender and any subsequent holder of any of the Liabilities and
shall not be discharged by the assignment or negotiation of all or part of the
Liabilities. Guarantor hereby expressly waives presentment, demand, notice of
non-payment, protest and notice of protest and dishonor, notice of Default or
Event of Default, notice of intent to accelerate the maturity and notice of
acceleration of the maturity and any other notice in connection with the
Liabilities, and also notice of acceptance of this Guaranty Agreement,
acceptance on the part of the Lender being conclusively presumed by the Lender's
request for this Guaranty Agreement and delivery of the same to the Lender.
Section 2.3 LENDER'S RIGHTS. Guarantor authorizes the Lender, without
notice or demand and without affecting Guarantor's liability hereunder, to take
and hold security for the payment of this Guaranty Agreement and/or the
Liabilities, and exchange, enforce, waive and release any such security; and to
apply such security and direct the order or manner of sale thereof as the Lender
in its discretion may determine; and to obtain a guaranty of the Liabilities
from any one or more Persons and at any time or times to enforce, waive,
rearrange, modify, limit or release any of such other Persons from their
obligations under such guaranties.
Section 2.4 GUARANTOR'S WAIVERS.
(a) GENERAL. Guarantor waives any right to require any of the
Lender to (i) proceed against Borrower or any other person liable on the
Liabilities, (ii) enforce any of their rights against any other
guarantor of the Liabilities (iii) proceed or enforce any of their
rights against or exhaust any security given to secure the Liabilities
(iv) have Borrower joined with Guarantor in any suit arising out of this
Guaranty Agreement and/or the Liabilities, or (v) pursue any other
remedy in the Lender's powers whatsoever. The Lender shall not be
required to mitigate damages or take any action to reduce, collect or
enforce the Liabilities. Guarantor waives any defense arising by reason
of any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of the Liabilities, and shall
remain liable hereon regardless of whether Borrower or any other
guarantor be found not liable thereon for any reason. Whether and when
to exercise any of the remedies of the Lender under any of the Loan
Documents shall be in the sole and absolute discretion of the Lender,
and no delay by the Lender in enforcing any remedy, including delay in
conducting a foreclosure sale, shall be a defense to the Guarantor's
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liability under this Guaranty Agreement. To the extent allowed by
applicable law, the Guarantor hereby waives any good faith duty on the
part of the Lender in exercising any remedies provided in the Loan
Documents.
(b) SUBROGATION. Until the Liabilities have been paid in full,
the Guarantor waives all rights of subrogation or reimbursement against
the Borrower, whether arising by contract or operation of law
(including, without limitation, any such right arising under any federal
or state bankruptcy or insolvency laws) and waives any right to enforce
any remedy which the Lender now have or may hereafter have against the
Borrower, and waives any benefit or any right to participate in any
security now or hereafter held by the Lender. The Guarantor further
agrees for the benefit of each of its creditors (including, without
limitation, the Lender) that any such payment by the Guarantor shall
constitute a contribution of capital by the Guarantor to the Borrower.
Section 2.5 MATURITY OF LIABILITIES; PAYMENT. Guarantor agrees that if
the maturity of any of the Liabilities is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to Guarantor. Guarantor will,
forthwith upon notice from the Lender, pay to the Lender the amount due and
unpaid by Borrower and guaranteed hereby. The failure of the Lender to give this
notice shall not in any way release Guarantor hereunder.
Section 2.6 LENDER'S EXPENSES. If Guarantor fails to pay the Liabilities
after notice from the Lender of Borrower's failure to pay any Liabilities at
maturity, and if the Lender obtains the services of an attorney for collection
of amounts owing by Guarantor hereunder, or obtaining advice of counsel in
respect of any of their rights under this Guaranty Agreement, or if suit is
filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, probate, receivership or other judicial proceedings for the
establishment or collection of any amount owing by Guarantor hereunder, or if
any amount owing by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay to the Lender the Lender's reasonable attorneys' fees.
Section 2.7 LIABILITY. It is expressly agreed that the liability of the
Guarantor for the payment of the Liabilities guaranteed hereby shall be primary
and not secondary.
Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS. Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) MODIFICATIONS, ETC. Any renewal, extension, modification,
increase, decrease, alteration or rearrangement of all or any part of
the Liabilities, or of the Notes, or the Credit Agreement or any
instrument executed in connection therewith,
-5-
or any contract or understanding between Borrower and any of the Lender,
or any other Person, pertaining to the Liabilities;
(b) ADJUSTMENT, ETC. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by any of the Lender to
Borrower or Guarantor or any Person liable on the Liabilities;
(c) CONDITION OF BORROWER OR GUARANTOR. The insolvency,
bankruptcy arrangement, adjustment, composition, liquidation,
disability, dissolution, death or lack of power of Borrower or Guarantor
or any other Person at any time liable for the payment of all or part of
the Liabilities; or any dissolution of Borrower or Guarantor, or any
sale, lease or transfer of any or all of the assets of Borrower or
Guarantor, or any changes in the shareholders, partners, or members of
Borrower or Guarantor; or any reorganization of Borrower or Guarantor;
(d) INVALIDITY OF LIABILITIES. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any document
or agreement executed in connection with the Liabilities, for any reason
whatsoever, including without limitation the fact that the Liabilities,
or any part thereof, exceed the amount permitted by law, the act of
creating the Liabilities or any part thereof is ULTRA VIRES, the
officers or representatives executing the documents or otherwise
creating the Liabilities acted in excess of their authority, the
Liabilities violate applicable usury laws, the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement)
which render the Liabilities wholly or partially uncollectible from
Borrower, the creation, performance or repayment of the Liabilities (or
the execution, delivery and performance of any document or instrument
representing part of the Liabilities or executed in connection with the
Liabilities, or given to secure the repayment of the Liabilities) is
illegal, uncollectible, legally impossible or unenforceable, or the
Credit Agreement or other documents or instruments pertaining to the
Liabilities have been forged or otherwise are irregular or not genuine
or authentic;
(e) RELEASE OF OBLIGORS. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof, of any
co-guarantors, or any other Person now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to
pay, perform, guarantee or assure the payment of the Liabilities or any
part thereof, it being recognized, acknowledged and agreed by Guarantor
that Guarantor may be required to pay the Liabilities in full without
assistance or support of any other Person, and Guarantor has not been
induced to enter into this Guaranty Agreement on the basis of a
contemplation, belief, understanding or agreement that other parties
other than the Borrower will be liable to perform the Liabilities, or
the Lender will look to other parties to perform the Liabilities.
-6-
(f) OTHER SECURITY. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all
or any part of the Liabilities;
(g) RELEASE OF COLLATERAL, ETC. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or unjustifiable
impairment) of any collateral, property or security, at any time
existing in connection with, or assuring or securing payment of, all or
any part of the Liabilities;
(h) CARE AND DILIGENCE. The failure of the Lender or any other
Person to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or
any part of such collateral, property or security;
(i) STATUS OF LIENS. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created
or granted as security for the repayment of the Liabilities shall not be
properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized
and agreed by Guarantor that Guarantor is not entering into this
Guaranty Agreement in reliance on, or in contemplation of the benefits
of, the validity, enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) PAYMENTS RESCINDED. Any payment by Borrower to the Lender is
held to constitute a preference under the bankruptcy laws, or for any
reason the Lender are required to refund such payment or pay such amount
to Borrower or someone else; or
(k) OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or
omitted to be taken with respect to the Credit Agreement, the
Liabilities, or the security and collateral therefor, whether or not
such action or omission prejudices Guarantor or increases the likelihood
that Guarantor will be required to pay the Liabilities pursuant to the
terms hereof; it being the unambiguous and unequivocal intention of
Guarantor that Guarantor shall be obligated to pay the Liabilities when
due, notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether contemplated or uncontemplated, and whether
or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Liabilities.
Section 2.9 RIGHT OF SUBROGATION AND CONTRIBUTION. If Guarantor makes a
payment in respect of the Liabilities, it shall be subrogated to the rights of
the Lender against the Borrower with respect to such payment and shall have the
rights of contribution against the other Subsidiary Guarantors set forth in
Section 2.9 of the Subsidiary Guarantors' Guaranty Agreements; provided that
Guarantor shall not enforce its rights to any payment by way of subrogation or
by exercising its
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rights of contribution or reimbursement or the right to participate in any
security now or hereafter held by or for the benefit of the Lender until the
Liabilities have been paid in full. The Guarantor agrees that after all the
Liabilities have been paid in full that if its then current Net Payments are
less than the amount of its then current Contribution Obligation, Guarantor
shall pay to the other Subsidiary Guarantors an amount (together with any
payments required of the other Subsidiary Guarantors by Section 2.9 of each
other Guaranty Agreement) such that the Net Payments made by all Subsidiary
Guarantors in respect of the Liabilities shall be shared among all of the
Subsidiary Guarantors in proportion to their respective Contribution Percentage.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 BY GUARANTOR. In order to induce the Lender to accept this
Guaranty Agreement, Guarantor represents and warrants to the Lender (which
representations and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:
(a) BENEFIT TO GUARANTOR. Guarantor's guaranty pursuant to this
Guaranty Agreement reasonably may be expected to benefit, directly or
indirectly, Guarantor.
(b) CORPORATE EXISTENCE. Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of the
State of ______________ and is duly qualified as a foreign corporation
in all jurisdictions wherein the property owned or the business
transacted by it makes such qualification necessary.
(c) CORPORATE POWER AND AUTHORIZATION. Guarantor is duly
authorized and empowered to execute, deliver and perform this Guaranty
Agreement and all corporate action on Guarantor's part requisite for the
due execution, delivery and performance of this Guaranty Agreement has
been duly and effectively taken.
(d) BINDING OBLIGATIONS. This Guaranty Agreement constitutes
valid and binding obligations of Guarantor, enforceable in accordance
with its terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights).
(e) NO LEGAL BAR OR RESULTANT LIEN. This Guaranty Agreement will
not violate any provisions of Guarantor's articles or certificate of
incorporation, bylaws, or any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Guarantor is
subject, or result in the creation or imposition of any Lien upon any
Properties of Guarantor.
(f) NO CONSENT. Guarantor's execution, delivery and performance
of this Guaranty Agreement does not require the consent or approval of
any other Person,
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including without limitation any regulatory authority or governmental
body of the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(g) SOLVENCY. The Guarantor hereby represents that (i) it is not
insolvent as of the date hereof and will not be rendered insolvent as a
result of this Guaranty Agreement, (ii) it is not engaged in business or
a transaction, or about to engage in a business or a transaction, for
which any property or assets remaining with such Guarantor is
unreasonably small capital, and (iii) it does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as
such debts mature.
Section 3.2 NO REPRESENTATION BY LENDER. Neither the Lender nor any
other Person has made any representation, warranty or statement to the Guarantor
in order to induce the Guarantor to execute this Guaranty Agreement.
Section 3.3 INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS,
WARRANTIES AND COVENANTS. The Guarantor hereby represents and warrants that the
matters contained in each of the applicable representations and warranties
contained in Article VII of the Credit Agreement pertaining to the Guarantor or
its Properties are true and correct as of the date of this Guaranty Agreement,
and covenants and agrees, so long as any of the Liabilities or Commitment
remains outstanding, to comply with the applicable covenants contained in
Articles VIII and IX of the Credit Agreement pertaining to the Guarantor or its
Properties. The guarantor hereby acknowledges that it has been furnished a copy
of the Credit Agreement and that it is thoroughly familiar with the
representations, warranties and covenants which are incorporated herein by
virtue of this Section 3.3.
ARTICLE 4
SUBORDINATION OF INDEBTEDNESS
Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligation of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor Claims shall include without limitation
all rights and claims of Guarantor against Borrower arising as a result of
subrogation or otherwise as a result of Guarantor's payment of all or a portion
of the Liabilities. Until the Liabilities shall be paid and satisfied in full
and Guarantor shall have performed all of its obligations hereunder, Guarantor
shall
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not receive or collect, directly or indirectly, from Borrower or any other party
any amount upon the Guarantor Claims.
Section 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Lender shall have the right to
prove their claim in any proceeding, so as to establish its rights hereunder and
receive directly from the receiver, trustee or other court custodian, dividends
and payments which would otherwise be payable upon Guarantor Claims. Guarantor
hereby assigns such dividends and payments to the Lender. Should the Lender
receive, for application upon the Liabilities, any such dividend or payment
which is otherwise payable to Guarantor, and which, as between Borrower and
Guarantor, shall constitute a credit upon the Guarantor Claims, then upon
payment in full of the Liabilities, Guarantor shall become subrogated to the
rights of the Lender to the extent that such payments to the Lender on the
Guarantor Claims have contributed toward the liquidation of the Liabilities, and
such subrogation shall be with respect to that proportion of the Liabilities
which would have been unpaid if the Lender had not received dividends or
payments upon the Guarantor Claims.
Section 4.3 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections, Guarantor agrees to hold
in trust for the Lender an amount equal to the amount of all funds, payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them promptly to the Lender, and Guarantor covenants promptly to pay the
same to the Lender.
Section 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security
interests, judgment liens, charges or other encumbrances upon Borrower's assets
securing payment of the Guarantor Claims shall be and remain inferior and
subordinate to any liens, security interests, judgment liens, charges or other
encumbrances upon Borrower's assets securing payment of the Liabilities,
regardless of whether such encumbrances in favor of Guarantor or the Lender
presently exist or are hereafter created or attach. Without the prior written
consent of the Lender, Guarantor shall not (a) exercise or enforce any
creditor's right it may have against the Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
Section 4.5 NOTATION OF RECORDS. All promissory notes, accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or held
by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
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ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and shall
be in every particular available to the successors and assigns of the Lender and
is and shall always be fully binding upon the legal representatives, heirs,
successors and assigns of Guarantor, notwithstanding that some or all of the
monies, the repayment of which this Guaranty Agreement applies, may be actually
advanced after any bankruptcy, receivership, reorganization, death, disability
or other event affecting Guarantor.
Section 5.2 NOTICES. Any notice or demand to Guarantor under or in
connection with this Guaranty Agreement may be given and shall conclusively be
deemed and considered to have been given and received in accordance with Section
11.02 of the Credit Agreement, addressed to Guarantor at the address on the
signature page hereof or at such other address provided to the Lender in
writing.
Section 5.3 BUSINESS AND FINANCIAL INFORMATION. The Guarantor will
promptly furnish to the Lender from time to time upon request such information
regarding the business and affairs and financial condition of the Guarantor and
its subsidiaries as the Lender may reasonably request.
Section 5.4 CONSTRUCTION. This Guaranty Agreement is a contract made
under and shall be construed in accordance with and governed by the laws of the
State of Texas.
Section 5.5 INVALIDITY. In the event that any one or more of the
provisions contained in this Guaranty Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Guaranty
Agreement.
Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT AND THE
OTHER SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE LENDER AND THE GUARANTOR AND SUPERSEDES
ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN GUARANTY AGREEMENT AND THE OTHER
SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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WITNESS THE EXECUTION HEREOF, as of this the 31st day of May, 1996.
JHCDDS, INC.
By:
Name: Jack H. Castle, D.D.S.
Title: President
Address:: 1360 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
Telecopier No.:: (713) 513-1401
Telephone No.:: (713) 513-1400
Attention:: Jack H. Castle, D.D.S.
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STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me on the 31st day of May, 1996,
by Jack H. Castle, D.D.S., President of JHCDDS, INC., a Texas corporation, on
behalf of such corporation.
_______________________________________
Notary Public in and for
The State of TEXAS
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EXHIBIT 10.57
AMENDED AND RESTATED SECURITY AGREEMENT
(Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles and Other Property)
Between
JHCDDS, INC.
and
NATIONSBANK OF TEXAS, N.A.
May 31, 1996
<PAGE>
AMENDED AND RESTATED SECURITY AGREEMENT
Accounts, Inventory, Equipment, Chattel Paper, Documents,
INSTRUMENTS, GENERAL INTANGIBLES AND OTHER PROPERTY
THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "AGREEMENT") is made
as of May 31, 1996, between JHCDDS, INC., a Texas corporation with principal
offices at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056 ("DEBTOR");
and NATIONSBANK OF TEXAS, N.A., a national banking association with offices at
700 Louisiana, Houston, Texas 77002 ("SECURED PARTY").
RECITALS
A. Castle Dental Centers, Inc. ("BORROWER") and Secured Party entered
into that certain Credit Agreement dated as of December 19, 1995 (the "PRIOR
CREDIT AGREEMENT") pursuant to which, upon the terms and conditions stated
therein, Secured Party agreed to make loans to Borrower.
B. Debtor executed that certain Security Agreement dated as of December
19, 1995, in favor of Secured Party, securing the payment of all indebtedness,
obligations and liabilities of Debtor to Secured Party under the Prior Credit
Agreement (the "PRIOR SECURITY AGREEMENT").
C. On even date herewith, Borrower and Secured Party are amending and
restating the Prior Credit Agreement in its entirety by entering into that
certain Amended and Restated Credit Agreement of even date herewith by and among
Borrower and Secured Party (as the same may from time to time be amended,
modified or supplemented, (the "CREDIT AGREEMENT"), pursuant to which, upon the
terms and conditions therein, Secured Party agrees to make loans to Borrower.
D. Pursuant to the terms of that certain Amended and Restated Guaranty
Agreement of even date herewith from Debtor to Secured Party in favor of Secured
Party (as the same may from time to time be amended or supplemented, the
"GUARANTY AGREEMENT"), Debtor has guaranteed the prompt payment and performance
of all indebtedness, obligations and liabilities of Borrower to Secured Party
under the Credit Agreement.
E. Secured Party has conditioned its obligations under the Credit
Agreement upon the execution and delivery by Debtor of this Agreement, and
Debtor has agreed to enter into this Agreement.
F. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby agrees with Secured
Party as follows:
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ARTICLE 1
SECURITY INTEREST
Section 1.01 GRANT OF SECURITY INTEREST. Debtor hereby assigns and
grants to Secured Party a security interest in and right of set-off against the
assets referred to in Section 1.02 (the "COLLATERAL") to secure the prompt
payment and performance of the "OBLIGATIONS" (as defined in Section 2.02) and
the performance by Debtor of this Agreement.
Section 1.02 COLLATERAL. The Collateral consists of the following types
or items of property (including property hereafter acquired by Debtor as well as
property which Debtor now owns or in which Debtor has rights):
(a) All of Debtor's accounts, inventory, equipment, chattel
paper, documents, instruments and general intangibles, including,
without limitation, any of the foregoing which may be more specifically
indicated in the remainder of this Section 1.02.
(b) All Debtor's present and future accounts receivable, chattel
paper, instruments, general intangibles, and other rights to payment
generated by Debtor or an Original Account Party (as defined in Section
3.09 hereof) for dental services performed or to be provided in the
future and claims for reimbursement or indemnification from Blue
Cross/Blue Shield, insurance companies, managed care organizations and
other third party payors or fiscal intermediaries.
(c) (i) Any related or additional property from time to time
delivered to or deposited with Secured Party by or for the account of
Debtor; (ii) all certificates of title or other documents evidencing
ownership or possession of or otherwise relating to any property
referred to in this Section 1.02; (iii) all property used or usable in
connection with any property referred to in this Section 1.02; (iv) all
policies of insurance (whether or not required by Secured Party)
covering any property referred to in this Section 1.02; (v) all goods
which were at any time included in the Collateral and which are returned
to or for the account of Debtor following their sale, lease or other
disposition; (vi) all proceeds, products, replacements, additions to,
substitutions for, accessions of, and property necessary for the
operation of any of the property referred to in this Section 1.02,
including, without limitation, insurance payable as a result of loss or
damage to any of the property referred to in this Section 1.02, refunds
of unearned premiums of any such insurance policy and claims against
third parties; and (vii) all books and records related to any of the
property referred to in this Section 1.02, including, without
limitation, any and all books of account, customer lists and other
records relating in any way to the accounts, chattel paper, instruments
or inventory referred to in this Section 1.02.
(d) All present and future general intangibles related to any
property referred to in this Section 1.02, including, without
limitation, all (i) insurance and managed care policies and contracts,
letters of credit, bonds, guaranties, purchase or sales agreements and
other contractual rights, rights to performance, and claims for damages,
refunds (including tax
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refunds) or other monies due or to become due; (ii) all contracts
pursuant to which Debtor has purchased any accounts;(iii) orders,
franchises, permits, certificates, licenses, consents, exemptions,
variances, authorizations or other approvals by any governmental agency
or court; (iv) consulting, engineering and technological information and
specifications, design data, patent rights, trade secrets, literary
rights, copyrights, trademarks, labels, trade names and other
intellectual property; (v) business records, computer tapes and computer
software; (vi) goodwill; and (vii) other intangible personal property,
whether similar or dissimilar to the property referred to in this
Section 1.02.
It is expressly contemplated that additional property may from time to time be
pledged, assigned or granted to Secured Party as additional security for the
Obligations, and the term "COLLATERAL" as used herein shall be deemed for all
purposes hereof to include all such additional property, together with all other
property of the types described above related thereto.
Section 1.03 LOCATION OF COLLATERAL. The Collateral is located or
(except as otherwise permitted by Section 4.01) shall be located only in the
following places (provided that the Collateral shall be subject to the security
interest created by this Agreement irrespective of whether or not the Collateral
is located in the following places): as listed on Exhibit A.
ARTICLE 2
DEFINITIONS
Section 2.01 TERMS DEFINED ABOVE OR IN THE CREDIT AGREEMENT. As used in
this Agreement, the terms defined above shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall have the same meanings as
defined in the Credit Agreement.
Section 2.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"ACCOUNTS" means all accounts, chattel paper and instruments (as
such terms are defined in the Code) and any other receivables described
in Section 1.02 at any time included in the Collateral.
"ACCOUNT DEBTOR" means any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of
any obligations included in the Collateral, whether as an account debtor
(as defined in the Code), obligor on a contract or an instrument, issuer
of documents or securities, guarantor or otherwise.
"AGREEMENT" means this Security Agreement, as the same may from
time to time be amended or supplemented.
"CODE" means the Uniform Commercial Code as presently in effect
in the State of Texas, Business and Commerce Code, Chapters 1 through 9.
Unless otherwise indicated by
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the context herein, all uncapitalized terms which are defined in the
Code shall have their respective meanings as used in Chapter 9 of the
Code.
"EVENT OF DEFAULT" means any event specified in Section 6.01.
"INVENTORY" means all inventory (as defined in the Code) at any
time included in the Collateral.
"OBLIGATIONS" means:
(a) the payment and performance of all indebtedness and
obligations of Debtor to Secured Party pursuant to or in connection with
the Guaranty Agreement;
(b) the payment and performance of all the Indebtedness and
obligations of Borrower to Secured Party now or hereafter existing under
or in connection with the Credit Agreement or the Notes issued by the
Borrower. The Obligations shall also include all interest, charges,
expenses, attorneys' or other fees and any other sums payable to or
incurred by Secured Party in connection with the execution,
administration or enforcement of Secured Party's rights and remedies
hereunder or any other agreement with Debtor.
"OBLIGOR" means any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker,
endorser, guarantor, accommodation party, general partner or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement, Debtor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 OWNERSHIP OF COLLATERAL; ENCUMBRANCES. Debtor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Agreement and those permitted under the Credit
Agreement, and Debtor has full right, power and authority to assign and grant a
security interest in the Collateral to Secured Party.
Section 3.02 NO REQUIRED CONSENT. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
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Section 3.03 GOVERNMENTAL REGULATIONS. Debtor is organized and operating
in compliance with state and federal law including, but not limited to, the
Dental Practice Act and S.S.A. ss.1877, codified at 42 U.S.C. 3595nn.
Section 3.04 FIRST PRIORITY SECURITY INTEREST. Except for Collateral
subject to Liens permitted under the Credit Agreement, the grant of the security
interest in the Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Collateral subject to Excepted
Liens, enforceable against Debtor and all third parties and securing payment of
the Obligations, except for security interest as to which the perfection is
governed by the appropriate statutory provisions governing perfection on United
States patents, trademarks, copyrights and other intellectual property rights,
receivables involving the United States government or motor vehicles.
Section 3.05 NO FILINGS BY THIRD PARTIES. Except as permitted under the
Credit Agreement, no financing statement or other public notice or recording
covering the Collateral is on file in any public office (other than any
financing statement or other public notice or recording naming Secured Party as
the secured party therein), and Debtor will not execute any such financing
statement or other public notice or recording so long as any of the Obligations
are outstanding, except in connection with Liens permitted under the Credit
Agreement.
Section 3.06 NO NAME CHANGES. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein, except for Jack H. Castle D.D.S.,
Inc..
Section 3.07 LOCATION OF DEBTOR AND COLLATERAL. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth in the opening paragraph hereof. The Collateral is located
at Debtor's address set forth in the opening paragraph hereof or at the
location(s), if any, specified in Section 1.02 or 1.03. Any Collateral not at
such location(s) nevertheless remains subject to Secured Party's security
interest.
Section 3.08 COLLATERAL. All statements or other information provided by
Debtor to Secured Party describing or with respect to the Collateral is or (in
the case of subsequently furnished information) will be when provided correct
and complete in all material respects. The delivery at any time by Debtor to
Secured Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Debtor to Secured
Party hereunder that the representations and warranties of this Article 3 are
correct insofar as they would pertain to such Collateral or the descriptions
thereof.
Section 3.09 ACCOUNTS.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition of
goods or services or the agreement to render service in the future by Debtor, or
any other party from whom Debtor may have purchased such Account (the "Original
Account Party") and, except in the ordinary course of business, is not and will
not be subject to contra accounts, set-offs, defenses, counterclaims, allowances
or
-5-
adjustments (other than discounts for prompt payment shown on the invoice), or
objections or complaints by the Account Debtor concerning its liability on the
Account; and any goods, the sale of which gave rise to an Account, have not been
returned or rejected by the Account Debtor or lost or damaged prior to receipt
by the Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be
the true and undisputed amount owing and unpaid thereon. Each Account arose or
shall have arisen in the ordinary course of Debtor's or the Original Account
Party's business; provided, however, that any Accounts which arose or hereafter
arise outside the ordinary course of Debtor's or the Original Account Party's
business shall nevertheless be included as part of the Collateral. Debtor has no
knowledge of any bankruptcy, insolvency or other action affecting creditors'
rights with respect to any Account Debtor.
ARTICLE 4
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 CHANGE IN LOCATION OF COLLATERAL OR DEBTOR. Debtor will
notify Secured Party on or before the date of any change in location of the
Collateral other than to a location listed on Exhibit A and except for temporary
changes on location in the ordinary course of business. Debtor will not, without
Secured Party's prior written consent, change the location of the Collateral to
any state, county or other jurisdiction in which Secured Party has not already
filed a financing statement or taken other necessary steps to perfect its
security interests in the Collateral or to maintain such perfection. Debtor will
give Secured Party 30 days' prior written notice of (i) the opening or closing
of any place of Debtor's business or (ii) any change in the location of Debtor's
chief executive office or address.
Section 4.02 CHANGE IN DEBTOR'S NAME OR CORPORATE STRUCTURE. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
Section 4.03 DOCUMENTS; COLLATERAL IN POSSESSION OF THIRD PARTIES. If
certificates of title or other documents evidencing ownership or possession of
the Collateral (excluding vehicles) are issued or outstanding, Debtor will cause
the interest of Secured Party to be properly noted thereon and will, forthwith
upon receipt, deliver same to Secured Party. If any Collateral is at any time in
the possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any such
Person to hold all such Collateral for Secured Party's account
-6-
subject to Debtor's instructions, or, if an Event of Default shall have
occurred, subject to Secured Party's instructions.
Section 4.04 DELIVERY OF LETTERS OF CREDIT AND INSTRUMENTS. Debtor will
deliver each letter of credit, if any, included in the Collateral to Secured
Party, in each case forthwith upon receipt by or for the account of Debtor. If
any Account becomes evidenced by a promissory note or any other instrument for
the payment of money (other than checks or drafts in payment of Accounts
collected by Debtor in the ordinary course of business prior to notification by
Secured Party under Section 6.02(h)), Debtor will immediately deliver such
instrument to Secured Party appropriately endorsed and, regardless of the form
of presentment, demand, notice of dishonor, protest and notice of protest with
respect thereto, Debtor will remain liable thereon until such instrument is paid
in full.
Section 4.05 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Except as
permitted by Section 4.10, the Credit Agreement, or with Secured Party's prior
written consent, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.06 PROCEEDS OF COLLATERAL. If chattel paper, documents or
instruments are received as proceeds, which are required to be delivered to
Secured Party, they will be, immediately upon receipt, properly endorsed or
assigned and delivered to Secured Party as Collateral.
Section 4.07 RECORDS AND INFORMATION. Debtor shall keep accurate and
complete records of the Collateral (including proceeds). These records shall
reflect complete and accurate stock records of the Inventory, contracts and
other general intangibles concerning each Account. Secured Party may at
reasonable times upon reasonable notice have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral. Debtor will promptly provide written notice to Secured Party of
all information which in any way relates to or affects the filing of any
financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral. Debtor will also promptly furnish such information
as Secured Party may from time to time reasonably request regarding (i) the
business, affairs or financial condition of Debtor or (ii) the Collateral or
Secured Party's rights or remedies with respect thereto.
Section 4.08 REIMBURSEMENT OF EXPENSES. Debtor hereby assumes all
liability for the Collateral, the security interests created hereunder and any
use, possession, maintenance, management, enforcement or collection of any or
all of the Collateral. Debtor agrees to indemnify and hold Secured Party
harmless from and against and covenants to defend Secured Party against any and
all losses, damages, claims, costs, penalties, liabilities and expenses,
including, without limitation, court costs and attorneys' fees, incurred because
of, incident to, or with respect to the Collateral (including, without
limitation, any use, possession, maintenance or management thereof, or any
injuries to or deaths of persons or damage to property). All amounts for which
Debtor is liable pursuant to this Section 4.08 shall be due and payable by
Debtor to Secured Party upon demand. If Debtor fails to make such payment upon
demand (or if demand is not made due to an injunction or stay arising from
bankruptcy or other proceedings) and Secured Party pays such amount, the same
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shall be due and payable by Debtor to Secured Party, plus interest thereon from
the date of Secured Party's demand (or from the date of Secured Party's payment
if demand is not made due to such proceedings) at the Post-Default Rate.
Section 4.09 FURTHER ASSURANCES. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.10 INVENTORY. Until an Event of Default occurs hereunder,
Debtor may use the Inventory in any lawful manner not inconsistent with this
Agreement and with the terms of insurance thereon and may sell, lease or
otherwise dispose of its Inventory for cash or terms in the ordinary course of
business, and Debtor may retain the proceeds of such sales, leases or other
dispositions (subject to Section 4.04 and subsection 4.11(a)); provided,
however, the Inventory shall remain in Debtor's possession and control at all
times prior to sale, lease or other disposition at Debtor's address set forth in
the opening paragraph hereof or at such other location(s) as may be specified in
Section 1.02 or 1.03. Debtor shall bear any risk of loss of the Inventory.
Debtor shall not use any item of Inventory in a manner inconsistent with the
holding thereof for sale, lease or other disposition in the ordinary course of
business or in contravention of the terms of any agreement. A sale, lease or
disposition in the ordinary course of business does not include the exchange of
Inventory for services or goods in kind or transfers of Inventory for the
satisfaction of obligations to suppliers or other indebtedness. Upon an Event of
Default, Debtor will not sell, lease or otherwise dispose of any of the
Inventory without the prior written consent of Secured Party, and Debtor shall
immediately deliver to Secured Party any checks, cash or other forms of payment
which Debtor receives in connection with any Inventory, appropriately endorsed.
Section 4.11 ACCOUNTS.
(a) Prior to notification by Secured Party under Section 6.02(h), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.04).
(b) Debtor will not modify, extend or substitute any contract, the terms
of which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry. Debtor shall not adjust, settle, discount
or compromise any of the Accounts, except in the ordinary course of business or
with the prior written consent of Secured Party.
(c) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
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Section 4.12 CONDITION OF COLLATERAL. Debtor will maintain all the
Collateral in good condition, repair and working order, and in accordance with
any manufacturer's manual. Debtor will not misuse, abuse, waste, destroy or
endanger the Collateral or allow it to deteriorate, except for ordinary wear and
tear from its intended use. Debtor will repair, replace or otherwise improve the
Collateral as may be necessary. Debtor will not use any Collateral in violation
in any material respect of any law, statute, ordinance, regulation or
administrative order, or suffer it to be so used.
Section 4.13 COLLATERAL ATTACHED TO OTHER PROPERTY. In the event that
the Collateral is to be attached or affixed to any real property, Debtor hereby
agrees that this Agreement may be filed for record in any appropriate real
estate records as a financing statement which is a fixture filing. In connection
therewith, Debtor will take whatever action is required by Section 4.09. If
Debtor is not the record owner of such real property, Debtor will provide
Secured Party with any additional security agreements or financing statements
necessary for the perfection of Secured Party's security interest in the
Collateral. If the Collateral is wholly or partly affixed to real estate or
installed in or affixed to other goods, Debtor will, on demand of Secured Party,
furnish Secured Party with a disclaimer (including landlord's or other lien
waivers or releases, if applicable), signed by all Persons or entities having an
interest in the real estate or other goods to which the Collateral may have
become affixed, of any prior interest to Secured Party's interest in the
Collateral.
Section 4.14 COLLATERAL SEPARATE AND DISTINCT. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other property.
ARTICLE 5
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
Section 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral.
Section 5.02 TRANSFER OF COLLATERAL. Secured Party may transfer any or
all of the Obligations, and upon any such transfer Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall be,
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and is hereby, subrogated to all the rights, titles, interests and liens
securing the debt so renewed, extended, rearranged or paid.
Section 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers. Debtor hereby agrees that Secured
Party shall not be liable for, nor shall the indebtedness evidenced by the
Obligations be diminished by, Secured Party's delay or failure to collect upon,
foreclose, sell, take possession of or otherwise obtain value for the
Collateral.
(b) Except as provided for in the Credit Agreement, Secured Party shall
be under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person. Debtor waives
any right of marshaling in respect of any and all Collateral, and waives any
right to require Secured Party to proceed against any Obligor, Account Debtor or
other Person, exhaust any Collateral or enforce any other remedy which Secured
Party now has or may hereafter have against any Obligor or other Person.
Section 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor or Original
Account Party (other than the Obligor) by reason of disability, lack of
authorization, cessation of the liability of any Obligor or for any other
reason. Debtor authorizes Secured Party, without notice or demand and without
any reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Obligations, from time to time to (x) take and
hold other property of any Obligor, other than the Collateral, as security for
the Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Agreement
and (z) renew, extend for any period, accelerate, amend or modify, supplement,
enforce, compromise, settle, waive or release the obligations of any Obligor or
any Original Account Party (other than the Debtor) or any instrument or
agreement of such other Person with respect to any or all of the Obligations or
Collateral.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Credit
Agreement.
Section 6.02 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Debtor:
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(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same
by Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's
request Debtor shall, at Debtor's cost, assemble the Collateral and make
it available at a location to be specified by Secured Party which is
reasonably convenient to Debtor and Secured Party. Secured Party may, at
its option, render any equipment unusable that may be included in the
Collateral, or, at Secured Party's request, Debtor will render it
unusable. In any event, Debtor shall bear the risk of accidental loss or
damage to or diminution in value of the Collateral, and Secured Party
shall have no liability whatsoever for failure to obtain or maintain
insurance, nor to determine whether any insurance ever in force is
adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or
more parcels, or otherwise dispose of any or all of the Collateral in
its then condition or in any other commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any
location as deemed reasonable by Secured Party (including, without
limitation, Debtor's premises), either for cash or credit or for future
delivery at such price as Secured Party may deem fair, and (unless
prohibited by the Code, as adopted in any applicable jurisdiction)
Secured Party may be the purchaser of any or all Collateral so sold and
may apply upon the purchase price therefor any Obligations secured
hereby. Any such sale or transfer by Secured Party either to itself or
to any other Person shall be absolutely free from any claim of right by
Debtor, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law, regulation or
statute now existing or hereafter adopted. Upon any such sale or
transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold
or transferred. It shall not be necessary that the Collateral or any
part thereof be present at the location of any such sale or transfer.
Secured Party may, at its discretion, provide for a public sale, and any
such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in
the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice
or publication, adjourn any public or private sale by announcement at
any time and place fixed for such sale, and such sale may be made at any
time or place to which the same may be so adjourned. In the event any
sale or transfer hereunder is not completed or is defective in the
opinion of Secured Party, such sale or transfer shall not exhaust the
rights of Secured Party hereunder, and Secured Party shall have the
right to cause one or more subsequent sales or transfers to be made
hereunder. In the event that any of the Collateral is sold or
transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or
transferred may be retained by Secured Party until the purchase price or
other consideration is paid by the purchaser or transferee thereof, but
in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, Secured
Party shall incur no liability in connection therewith. If only part of
the Collateral is sold or transferred such that the Obligations remain
outstanding (in whole or in part), Secured Party's rights and remedies
hereunder shall not be exhausted, waived or modified, and Secured Party
is specifically empowered to make one or more successive sales or
transfers until all the Collateral shall be sold or transferred and all
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the Obligations are paid. In the event that Secured Party elects not to
sell the Collateral, Secured Party retains its rights to lease or
otherwise dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and
to apply the proceeds of the same towards payment of the Obligations.
Each and every method of disposition of the Collateral described in this
subsection or in subsection (f) shall constitute disposition in a
commercially reasonable manner.
(d) Take possession of all books and records of Debtor pertaining
to the Collateral. Secured Party shall have the authority to enter upon
any real property or improvements thereon in order to obtain any such
books or records, or any Collateral located thereon, and remove the same
therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable expenses of retaking,
holding, preparing for sale or other disposition, and the reasonable
attorneys' fees and legal expenses incurred by Secured Party.
(f) Appoint any Person as agent to perform any act or acts
necessary or incident to any sale or transfer by Secured Party of the
Collateral. Additionally, any sale or transfer hereunder may be
conducted by an auctioneer or any officer or agent of Secured Party.
(g) Receive, change the address for delivery, open and dispose of
mail addressed to Debtor, and to execute, assign and endorse negotiable
and other instruments for the payment of money, documents of title or
other evidences of payment, shipment or storage for any form of
Collateral on behalf of and in the name of Debtor.
(h) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account
Debtors to make payments on the Accounts directly to Secured Party. To
the extent Secured Party does not so elect, Debtor shall continue to
collect the Accounts. Secured Party or its designee shall also have the
right, in its own name or in the name of Debtor, to do any of the
following: (i) to demand, collect, receipt for, settle, compromise any
amounts due, give acquittances for, prosecute or defend any action which
may be in relation to any monies due or to become due by virtue of, the
Accounts; (ii) to sell, transfer or assign or otherwise deal in the
Accounts or the proceeds thereof or the related goods, as fully and
effectively as if Secured Party were the absolute owner thereof; (iii)
to extend the time of payment of any of the Accounts, to grant waivers
and make any allowance or other adjustment with reference thereto; (iv)
to endorse the name of Debtor on notes, checks or other evidences of
payments on Collateral that may come into possession of Secured Party;
(v) to take control of cash and other proceeds of any Collateral; (vi)
to sign the name of Debtor on any invoice or bill of lading relating to
any Collateral, or any drafts against Account Debtors or other persons
making payment with respect to Collateral; (vii) to send a request for
verification of Accounts to any Account Debtor; and (viii) to do all
other acts and things necessary to carry out the intent of this
Agreement.
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(i) Exercise all other rights and remedies permitted by law or
in equity.
Section 6.03 ATTORNEY-IN-FACT. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion upon the occurrence and during the continuance of an
Event of Default, but at Debtor's cost and expense and without notice to Debtor:
(a) To obtain, adjust, sell and cancel any insurance with respect
to the Collateral, and endorse any draft drawn by insurers of the
Collateral. Secured Party may apply any proceeds or unearned premiums of
such insurance to the Obligations (whether or not due).
(b) To take any action and to execute any assignment,
certificate, financing statement, notification, document or instrument
which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to Debtor representing
any payment or other distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
Section 6.04 ACCOUNT DEBTORS. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
Section 6.05 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party hereunder
results in reduction of the Obligations, such action will not release Debtor
from its liability to Secured Party for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.06 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party to give reasonable notice of any sale or disposition or
other action, Debtor hereby agrees that five days' prior written notice shall
constitute reasonable notice thereof. Such notice, in the case of public sale,
shall state the time and place fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.
Section 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Debtor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
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ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 NOTICES. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Credit Agreement.
Section 7.02 AMENDMENTS AND WAIVERS. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Debtor or any Obligor, or of any right, power or
remedy of Secured Party; and no partial exercise of any right, power or remedy
shall preclude any other or further exercise thereof. Secured Party may remedy
any Event of Default hereunder or in connection with the Obligations without
waiving the Event of Default so remedied. Debtor hereby agrees that if Secured
Party agrees to a waiver of any provision hereunder, or an exchange of or
release of the Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of Secured Party's
other rights or of Debtor's obligations hereunder. This Agreement may be amended
only by an instrument in writing executed jointly by Debtor and Secured Party
and may be supplemented only by documents delivered or to be delivered in
accordance with the express terms hereof.
Section 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that Secured Party shall not be liable for
any interest, cost or expense in connection with any delay in delivering such
proceeds to Debtor.
Section 7.06 GOVERNING LAW; JURISDICTION. This Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby).
Section 7.07 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off.
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Section 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9.505 of
the Code, no action taken or omission to act by Secured Party hereunder,
including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, and Secured Party's security interests, rights, powers and
remedies hereunder shall continue in full force and effect. In such event, this
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.09.
Section 7.09 TERMINATION. The grant of a security interest hereunder and
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until Secured Party has retransferred and
delivered all Collateral in its possession to Debtor, and executed a written
release or termination statement and reassigned to Debtor without recourse or
warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations and the compliance by Debtor with all
covenants and agreements hereof, Secured Party, at the written request and
expense of Debtor, will release, reassign and transfer the Collateral to Debtor
and declare this Agreement to be of no further force or effect. Notwithstanding
the foregoing, the reimbursement and indemnification provisions of Section 4.08
and the provisions of subsection 7.07(b) shall survive the termination of this
Agreement.
Section 7.10 CONFLICTS. In the event of a conflict between (a) this
Agreement and the Credit Agreement, the terms of the Credit Agreement shall
control or (b) this Agreement and any notice
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delivered to account debtors pursuant to the Accounts Receivable Purchase
Agreement, the terms of this Agreement shall control.
Section 7.11 PRIOR SECURITY AGREEMENT. This Agreement carries over,
restates and supersedes the Prior Security Agreement.
Section 7.12 NO ORAL AGREEMENTS. THIS AGREEMENT EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDES ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Section 7.11 COUNTERPARTS, EFFECTIVENESS. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together constitute one and the same instrument. This
Agreement becomes effective upon the execution hereof by Debtor and delivery of
the same to Secured Party, and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.
DEBTOR: JHCDDS, INC., formerly known as Jack H. Castle
D.D.S., Inc.
By:________________________________
Name: Jack H. Castle, D.D.S.
Title: President
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EXHIBIT A
A-1
EXHIBIT 10.58
SECURITY AGREEMENT
(Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles and Other Property)
Between
CASTLE DENTAL CENTERS OF FLORIDA, INC.
and
NATIONSBANK OF TEXAS, N.A.
May 31, 1996
SECURITY AGREEMENT
Accounts, Inventory, Equipment, Chattel Paper, Documents,
INSTRUMENTS, GENERAL INTANGIBLES AND OTHER PROPERTY
THIS SECURITY AGREEMENT (this "AGREEMENT") is made as of May 31, 1996,
between CASTLE DENTAL CENTERS OF FLORIDA, INC., a Florida corporation with
principal offices at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056
("DEBTOR"); and NATIONSBANK OF TEXAS, N.A., a national banking association with
offices at 700 Louisiana, Houston, Texas 77002 ("SECURED PARTY").
RECITALS
A. On even date herewith, CASTLE DENTAL CENTERS, INC., a Delaware
corporation ("BORROWER") and Secured Party are executing an Amended and Restated
Credit Agreement (such agreement, as may from time to time be amended or
supplemented, being hereinafter called the "CREDIT AGREEMENT") pursuant to
which, upon the terms and conditions stated therein, Secured Party agrees to
make loans to Borrower.
B. Pursuant to the terms of that certain Guaranty Agreement of even date
herewith from Debtor in favor of Secured Party (as the same may from time to
time be amended or supplemented, the "GUARANTY AGREEMENT"), Debtor has
guaranteed the prompt payment and performance of all indebtedness, obligations
and liabilities of Borrower to Secured Party under the Credit Agreement.
C. Secured Party has conditioned its obligations under the Credit
Agreement upon the execution and delivery by Debtor of this Agreement, and
Debtor has agreed to enter into this Agreement.
D. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby agrees with Secured
Party as follows:
ARTICLE 1
SECURITY INTEREST
Section 1.01 GRANT OF SECURITY INTEREST. Debtor hereby assigns and
grants to Secured Party a security interest in and right of set-off against the
assets referred to in Section 1.02 (the
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"COLLATERAL") to secure the prompt payment and performance of the "OBLIGATIONS"
(as defined in Section 2.02) and the performance by Debtor of this Agreement.
Section 1.02 COLLATERAL. The Collateral consists of the following types
or items of property (including property hereafter acquired by Debtor as well as
property which Debtor now owns or in which Debtor has rights):
(a) All of Debtor's accounts, inventory, equipment, chattel
paper, documents, instruments and general intangibles, including,
without limitation, any of the foregoing which may be more specifically
indicated in the remainder of this Section 1.02.
(b) All Debtor's present and future accounts receivable, chattel
paper, instruments, general intangibles, and other rights to payment
generated by Debtor or an Original Account Party (as defined in Section
3.09 hereof) for dental services performed or to be provided in the
future and claims for reimbursement or indemnification from Blue
Cross/Blue Shield, insurance companies, managed care organizations and
other third party payors or fiscal intermediaries.
(c) (i) Any related or additional property from time to time
delivered to or deposited with Secured Party by or for the account of
Debtor; (ii) all certificates of title or other documents evidencing
ownership or possession of or otherwise relating to any property
referred to in this Section 1.02; (iii) all property used or usable in
connection with any property referred to in this Section 1.02; (iv) all
policies of insurance (whether or not required by Secured Party)
covering any property referred to in this Section 1.02; (v) all goods
which were at any time included in the Collateral and which are returned
to or for the account of Debtor following their sale, lease or other
disposition; (vi) all proceeds, products, replacements, additions to,
substitutions for, accessions of, and property necessary for the
operation of any of the property referred to in this Section 1.02,
including, without limitation, insurance payable as a result of loss or
damage to any of the property referred to in this Section 1.02, refunds
of unearned premiums of any such insurance policy and claims against
third parties; and (vii) all books and records related to any of the
property referred to in this Section 1.02, including, without
limitation, any and all books of account, customer lists and other
records relating in any way to the accounts, chattel paper, instruments
or inventory referred to in this Section 1.02.
(d) All present and future general intangibles related to any
property referred to in this Section 1.02, including, without
limitation, all (i) insurance and managed care policies and contracts,
letters of credit, bonds, guaranties, purchase or sales agreements and
other contractual rights, rights to performance, and claims for damages,
refunds (including tax refunds) or other monies due or to become due;
(ii) all contracts pursuant to which Debtor has purchased any accounts,
including without limitation the Accounts
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Receivable Purchase Agreement (the "ACCOUNTS RECEIVABLE PURCHASE
AGREEMENT") dated as of May 19, 1996, between Castle 1st Dental Care,
P.A. ("PA") and Debtor; (iii) the certain Management Services Agreement
dated May 19, 1996 by and between Debtor and PA; (iv) orders,
franchises, permits, certificates, licenses, consents, exemptions,
variances, authorizations or other approvals by any governmental agency
or court; (v) consulting, engineering and technological information and
specifications, design data, patent rights, trade secrets, literary
rights, copyrights, trademarks, labels, trade names and other
intellectual property; (vi) business records, computer tapes and
computer software; (vii) goodwill; and (viii) other intangible personal
property, whether similar or dissimilar to the property referred to in
this Section 1.02.
It is expressly contemplated that additional property may from time to time be
pledged, assigned or granted to Secured Party as additional security for the
Obligations, and the term "COLLATERAL" as used herein shall be deemed for all
purposes hereof to include all such additional property, together with all other
property of the types described above related thereto.
Section 1.03 LOCATION OF COLLATERAL. The Collateral is located or
(except as otherwise permitted by Section 4.01) shall be located only in the
following places (provided that the Collateral shall be subject to the security
interest created by this Agreement irrespective of whether or not the Collateral
is located in the following places): as listed on Exhibit A.
ARTICLE 2
DEFINITIONS
Section 2.01 TERMS DEFINED ABOVE OR IN THE CREDIT AGREEMENT. As used in
this Agreement, the terms defined above shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall have the same meanings as
defined in the Credit Agreement.
Section 2.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"ACCOUNTS" means all accounts, chattel paper and instruments (as
such terms are defined in the Code) and any other receivables described
in Section 1.02 at any time included in the Collateral.
"ACCOUNT DEBTOR" means any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of
any obligations included in the Collateral, whether as an account debtor
(as defined in the Code), obligor on a contract or an instrument, issuer
of documents or securities, guarantor or otherwise.
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"AGREEMENT" means this Security Agreement, as the same may from
time to time be amended or supplemented.
"CODE" means the Uniform Commercial Code as presently in effect
in the State of Texas, Business and Commerce Code, Chapters 1 through 9.
Unless otherwise indicated by the context herein, all uncapitalized
terms which are defined in the Code shall have their respective meanings
as used in Chapter 9 of the Code.
"EVENT OF DEFAULT" means any event specified in Section 6.01.
"INVENTORY" means all inventory (as defined in the Code) at any
time included in the Collateral.
"OBLIGATIONS" means:
(a) The payment and performance of all indebtedness and obligations of
Debtor to Secured Party pursuant to or in connection with the Guaranty
Agreement.
(b) The payment and performance of all the Indebtedness and obligations
of Borrower to Secured Party now or hereafter existing under or in
connection with the Credit Agreement or the Notes issued to the
Borrower. The Obligations shall also include all interest, charges,
expenses, attorneys' or other fees and any other sums payable to or
incurred by Secured Party in connection with the execution,
administration or enforcement of Secured Party's rights and remedies
hereunder or any Security Instruments with the Debtor.
"OBLIGOR" means any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker,
endorser, guarantor, accommodation party, general partner or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement, Debtor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 OWNERSHIP OF COLLATERAL; ENCUMBRANCES. Debtor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other
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charge or encumbrance except for the security interest created by this Agreement
and those permitted under the Credit Agreement, and Debtor has full right, power
and authority to assign and grant a security interest in the Collateral to
Secured Party.
Section 3.02 NO REQUIRED CONSENT. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
Section 3.03 GOVERNMENTAL REGULATIONS. Debtor is organized and operating
in compliance with state and federal law including, but not limited to, the
Dental Practice Act and S.S.A. ss. 1877, codified at 42 U.S.C. 3595nn.
Section 3.04 FIRST PRIORITY SECURITY INTEREST. Except for Collateral
subject to Liens permitted under the Credit Agreement, the grant of the security
interest in the Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Collateral subject to Excepted
Liens, enforceable against Debtor and all third parties and securing payment of
the Obligations, except for security interest as to which the perfection is
governed by the appropriate statutory provisions governing perfection on United
States patents, trademarks, copyrights and other intellectual property rights,
receivables involving the United States government or motor vehicles.
Section 3.05 NO FILINGS BY THIRD PARTIES. Except as permitted under the
Credit Agreement, no financing statement or other public notice or recording
covering the Collateral is on file in any public office (other than any
financing statement or other public notice or recording naming Secured Party as
the secured party therein), and Debtor will not execute any such financing
statement or other public notice or recording so long as any of the Obligations
are outstanding, except in connection with Liens permitted under the Credit
Agreement.
Section 3.06 NO NAME CHANGES. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein, except for 1st Dental Care.
Section 3.07 LOCATION OF DEBTOR AND COLLATERAL. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth in the opening paragraph hereof. The Collateral is located
at Debtor's address set forth in the opening paragraph hereof or at the
location(s), if any, specified in Section 1.02 or 1.03. Any Collateral not at
such location(s) nevertheless remains subject to Secured Party's security
interest.
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Section 3.08 COLLATERAL. All statements or other information provided by
Debtor to Secured Party describing or with respect to the Collateral is or (in
the case of subsequently furnished information) will be when provided correct
and complete in all material respects. The delivery at any time by Debtor to
Secured Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Debtor to Secured
Party hereunder that the representations and warranties of this Article 3 are
correct insofar as they would pertain to such Collateral or the descriptions
thereof.
Section 3.09 ACCOUNTS.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition of
goods or services or the agreement to render service in the future by Debtor,
1st Dental Care, Inc. or PA or any other party from whom Debtor may have
purchased such Account (the "Original Account Party") and, except in the
ordinary course of business, is not and will not be subject to contra accounts,
set-offs, defenses, counterclaims, allowances or adjustments (other than
discounts for prompt payment shown on the invoice), or objections or complaints
by the Account Debtor concerning its liability on the Account; and any goods,
the sale of which gave rise to an Account, have not been returned or rejected by
the Account Debtor or lost or damaged prior to receipt by the Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be
the true and undisputed amount owing and unpaid thereon. Each Account arose or
shall have arisen in the ordinary course of Debtor's or the Original Account
Party's business; provided, however, that any Accounts which arose or hereafter
arise outside the ordinary course of Debtor's or the Original Account Party's
business shall nevertheless be included as part of the Collateral. Debtor has no
knowledge of any bankruptcy, insolvency or other action affecting creditors'
rights with respect to any Account Debtor.
ARTICLE 4
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 CHANGE IN LOCATION OF COLLATERAL OR DEBTOR. Debtor will
notify Secured Party on or before the date of any change in location of the
Collateral other than to a location listed on Exhibit A and except for temporary
changes in location in the ordinary course of business. Debtor will not, without
Secured Party's prior written consent, change the location of the Collateral to
any state, county or other jurisdiction in which Secured Party has not already
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filed a financing statement or taken other necessary steps to perfect its
security interests in the Collateral or to maintain such perfection. Debtor will
give Secured Party 30 days' prior written notice of (i) the opening or closing
of any place of Debtor's business or (ii) any change in the location of Debtor's
chief executive office or address.
Section 4.02 CHANGE IN DEBTOR'S NAME OR CORPORATE STRUCTURE. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
Section 4.03 DOCUMENTS; COLLATERAL IN POSSESSION OF THIRD PARTIES. If
certificates of title or other documents evidencing ownership or possession of
the Collateral (excluding vehicles) are issued or outstanding, Debtor will cause
the interest of Secured Party to be properly noted thereon and will, forthwith
upon receipt, deliver same to Secured Party. If any Collateral is at any time in
the possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any such
Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.04 DELIVERY OF LETTERS OF CREDIT AND INSTRUMENTS. Debtor will
deliver each letter of credit, if any, included in the Collateral to Secured
Party, in each case forthwith upon receipt by or for the account of Debtor. If
any Account becomes evidenced by a promissory note or any other instrument for
the payment of money (other than checks or drafts in payment of Accounts
collected by Debtor in the ordinary course of business prior to notification by
Secured Party under Section 6.02(h)), Debtor will immediately deliver such
instrument to Secured Party appropriately endorsed and, regardless of the form
of presentment, demand, notice of dishonor, protest and notice of protest with
respect thereto, Debtor will remain liable thereon until such instrument is paid
in full.
Section 4.05 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Except as
permitted by Section 4.10, the Credit Agreement, or with Secured Party's prior
written consent, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.06 PROCEEDS OF COLLATERAL. If chattel paper, documents or
instruments are received as proceeds, which are required to be delivered to
Secured Party, they will be,
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immediately upon receipt, properly endorsed or assigned and delivered to Secured
Party as Collateral.
Section 4.07 RECORDS AND INFORMATION. Debtor shall keep accurate and
complete records of the Collateral (including proceeds). These records shall
reflect complete and accurate stock records of the Inventory, contracts and
other general intangibles concerning each Account. Secured Party may at
reasonable times upon reasonable notice have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral. Debtor will promptly provide written notice to Secured Party of
all information which in any way relates to or affects the filing of any
financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral. Debtor will also promptly furnish such information
as Secured Party may from time to time reasonably request regarding (i) the
business, affairs or financial condition of Debtor or (ii) the Collateral or
Secured Party's rights or remedies with respect thereto.
Section 4.08 REIMBURSEMENT OF EXPENSES. Debtor hereby assumes all
liability for the Collateral, the security interests created hereunder and any
use, possession, maintenance, management, enforcement or collection of any or
all of the Collateral. Debtor agrees to indemnify and hold Secured Party
harmless from and against and covenants to defend Secured Party against any and
all losses, damages, claims, costs, penalties, liabilities and expenses,
including, without limitation, court costs and attorneys' fees, incurred because
of, incident to, or with respect to the Collateral (including, without
limitation, any use, possession, maintenance or management thereof, or any
injuries to or deaths of persons or damage to property). All amounts for which
Debtor is liable pursuant to this Section 4.08 shall be due and payable by
Debtor to Secured Party upon demand. If Debtor fails to make such payment upon
demand (or if demand is not made due to an injunction or stay arising from
bankruptcy or other proceedings) and Secured Party pays such amount, the same
shall be due and payable by Debtor to Secured Party, plus interest thereon from
the date of Secured Party's demand (or from the date of Secured Party's payment
if demand is not made due to such proceedings) at the Post-Default Rate.
Section 4.09 FURTHER ASSURANCES. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.10 INVENTORY. Until an Event of Default occurs hereunder,
Debtor may use the Inventory in any lawful manner not inconsistent with this
Agreement and with the terms of insurance thereon and may sell, lease or
otherwise dispose of its Inventory for cash or terms in the ordinary course of
business, and Debtor may retain the proceeds of such sales, leases or other
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dispositions (subject to Section 4.04 and subsection 4.11(a)); provided,
however, the Inventory shall remain in Debtor's possession and control at all
times prior to sale, lease or other disposition at Debtor's address set forth in
the opening paragraph hereof or at such other location(s) as may be specified in
Section 1.02 or 1.03. Debtor shall bear any risk of loss of the Inventory.
Debtor shall not use any item of Inventory in a manner inconsistent with the
holding thereof for sale, lease or other disposition in the ordinary course of
business or in contravention of the terms of any agreement. A sale, lease or
disposition in the ordinary course of business does not include the exchange of
Inventory for services or goods in kind or transfers of Inventory for the
satisfaction of obligations to suppliers or other indebtedness. Upon an Event of
Default, Debtor will not sell, lease or otherwise dispose of any of the
Inventory without the prior written consent of Secured Party, and Debtor shall
immediately deliver to Secured Party any checks, cash or other forms of payment
which Debtor receives in connection with any Inventory, appropriately endorsed.
Section 4.11 ACCOUNTS.
(a) Prior to notification by Secured Party under Section 6.02(h), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.04).
(b) Debtor will not modify, extend or substitute any contract, the terms
of which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry. Debtor shall not adjust, settle, discount
or compromise any of the Accounts, except in the ordinary course of business or
with the prior written consent of Secured Party.
(c) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
(d) Debtor will maintain and keep the Accounts Receivable Purchase
Agreement in full force and effect and take all appropriate action to cause PA
to promptly perform as required under such Contract.
Section 4.12 CONDITION OF COLLATERAL. Debtor will maintain all the
Collateral in good condition, repair and working order, and in accordance with
any manufacturer's manual. Debtor will not misuse, abuse, waste, destroy or
endanger the Collateral or allow it to deteriorate, except for ordinary wear and
tear from its intended use. Debtor will repair, replace or otherwise improve the
Collateral as may be necessary. Debtor will not use any Collateral in violation
in any material respect of any law, statute, ordinance, regulation or
administrative order, or suffer it to be so used.
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Section 4.13 COLLATERAL ATTACHED TO OTHER PROPERTY. In the event that
the Collateral is to be attached or affixed to any real property, Debtor hereby
agrees that this Agreement may be filed for record in any appropriate real
estate records as a financing statement which is a fixture filing. In connection
therewith, Debtor will take whatever action is required by Section 4.09. If
Debtor is not the record owner of such real property, Debtor will provide
Secured Party with any additional security agreements or financing statements
necessary for the perfection of Secured Party's security interest in the
Collateral. If the Collateral is wholly or partly affixed to real estate or
installed in or affixed to other goods, Debtor will, on demand of Secured Party,
furnish Secured Party with a disclaimer (including landlord's or other lien
waivers or releases, if applicable), signed by all Persons or entities having an
interest in the real estate or other goods to which the Collateral may have
become affixed, of any prior interest to Secured Party's interest in the
Collateral.
Section 4.14 COLLATERAL SEPARATE AND DISTINCT. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other property.
ARTICLE 5
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
Section 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral.
Section 5.02 TRANSFER OF COLLATERAL. Secured Party may transfer any or
all of the Obligations, and upon any such transfer Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall
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be, and is hereby, subrogated to all the rights, titles, interests and liens
securing the debt so renewed, extended, rearranged or paid.
Section 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers. Debtor hereby agrees that Secured
Party shall not be liable for, nor shall the indebtedness evidenced by the
Obligations be diminished by, Secured Party's delay or failure to collect upon,
foreclose, sell, take possession of or otherwise obtain value for the
Collateral.
(b) Except as provided for in the Credit Agreement, Secured Party shall
be under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person. Debtor waives
any right of marshaling in respect of any and all Collateral, and waives any
right to require Secured Party to proceed against any Obligor, Account Debtor or
other Person, exhaust any Collateral or enforce any other remedy which Secured
Party now has or may hereafter have against any Obligor or other Person.
Section 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor or Original
Account Party (other than the Obligor) by reason of disability, lack of
authorization, cessation of the liability of any Obligor or for any other
reason. Debtor authorizes Secured Party, without notice or demand and without
any reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Obligations, from time to time to (x) take and
hold other property of any Obligor, other than the Collateral, as security for
the Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Agreement
and (z) renew, extend for any period, accelerate, amend or modify, supplement,
enforce, compromise, settle, waive or release the obligations of any Obligor or
any Original Account Party (other than the Debtor) or any instrument or
agreement of such other Person with respect to any or all of the Obligations or
Collateral.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Credit
Agreement.
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Section 6.02 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same
by Debtor or any Obligor.
(b) Take possession of the Collateral, or at Secured Party's
request Debtor shall, at Debtor's cost, assemble the Collateral and make
it available at a location to be specified by Secured Party which is
reasonably convenient to Debtor and Secured Party. Secured Party may, at
its option, render any equipment unusable that may be included in the
Collateral, or, at Secured Party's request, Debtor will render it
unusable. In any event, Debtor shall bear the risk of accidental loss or
damage to or diminution in value of the Collateral, and Secured Party
shall have no liability whatsoever for failure to obtain or maintain
insurance, nor to determine whether any insurance ever in force is
adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or
more parcels, or otherwise dispose of any or all of the Collateral in
its then condition or in any other commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any
location as deemed reasonable by Secured Party (including, without
limitation, Debtor's premises), either for cash or credit or for future
delivery at such price as Secured Party may deem fair, and (unless
prohibited by the Code, as adopted in any applicable jurisdiction)
Secured Party may be the purchaser of any or all Collateral so sold and
may apply upon the purchase price therefor any Obligations secured
hereby. Any such sale or transfer by Secured Party either to itself or
to any other Person shall be absolutely free from any claim of right by
Debtor, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law, regulation or
statute now existing or hereafter adopted. Upon any such sale or
transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold
or transferred. It shall not be necessary that the Collateral or any
part thereof be present at the location of any such sale or transfer.
Secured Party may, at its discretion, provide for a public sale, and any
such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in
the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice
or publication, adjourn any public or private sale by announcement at
any time and place fixed for such sale, and such sale may be made at any
time or place to which the same may be so adjourned. In the event any
sale or transfer hereunder is not completed or is defective in the
opinion of Secured Party, such sale or transfer shall not exhaust the
rights of Secured Party hereunder, and Secured Party shall have the
right to cause one or more subsequent sales or transfers to be
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made hereunder. In the event that any of the Collateral is sold or
transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or
transferred may be retained by Secured Party until the purchase price or
other consideration is paid by the purchaser or transferee thereof, but
in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, Secured
Party shall incur no liability in connection therewith. If only part of
the Collateral is sold or transferred such that the Obligations remain
outstanding (in whole or in part), Secured Party's rights and remedies
hereunder shall not be exhausted, waived or modified, and Secured Party
is specifically empowered to make one or more successive sales or
transfers until all the Collateral shall be sold or transferred and all
the Obligations are paid. In the event that Secured Party elects not to
sell the Collateral, Secured Party retains its rights to lease or
otherwise dispose of or utilize the Collateral or any part or parts
thereof in any manner authorized or permitted by law or in equity, and
to apply the proceeds of the same towards payment of the Obligations.
Each and every method of disposition of the Collateral described in this
subsection or in subsection (f) shall constitute disposition in a
commercially reasonable manner.
(d) Take possession of all books and records of Debtor pertaining
to the Collateral. Secured Party shall have the authority to enter upon
any real property or improvements thereon in order to obtain any such
books or records, or any Collateral located thereon, and remove the same
therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable expenses of retaking,
holding, preparing for sale or other disposition, and the reasonable
attorneys' fees and legal expenses incurred by Secured Party.
(f) Appoint any Person as agent to perform any act or acts
necessary or incident to any sale or transfer by Secured Party of the
Collateral. Additionally, any sale or transfer hereunder may be
conducted by an auctioneer or any officer or agent of Secured Party.
(g) Receive, change the address for delivery, open and dispose of
mail addressed to Debtor, and to execute, assign and endorse negotiable
and other instruments for the payment of money, documents of title or
other evidences of payment, shipment or storage for any form of
Collateral on behalf of and in the name of Debtor.
(h) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account
Debtors to make payments on the Accounts directly to Secured Party. To
the extent Secured Party does not so elect, Debtor
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shall continue to collect the Accounts. Secured Party or its designee
shall also have the right, in its own name or in the name of Debtor, to
do any of the following: (i) to demand, collect, receipt for, settle,
compromise any amounts due, give acquittances for, prosecute or defend
any action which may be in relation to any monies due or to become due
by virtue of, the Accounts; (ii) to sell, transfer or assign or
otherwise deal in the Accounts or the proceeds thereof or the related
goods, as fully and effectively as if Secured Party were the absolute
owner thereof; (iii) to extend the time of payment of any of the
Accounts, to grant waivers and make any allowance or other adjustment
with reference thereto; (iv) to endorse the name of Debtor on notes,
checks or other evidences of payments on Collateral that may come into
possession of Secured Party; (v) to take control of cash and other
proceeds of any Collateral; (vi) to sign the name of Debtor on any
invoice or bill of lading relating to any Collateral, or any drafts
against Account Debtors or other persons making payment with respect to
Collateral; (vii) to send a request for verification of Accounts to any
Account Debtor; and (viii) to do all other acts and things necessary to
carry out the intent of this Agreement.
(i) Exercise all other rights and remedies permitted by law or
in equity.
Section 6.03 ATTORNEY-IN-FACT. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion upon the occurrence and during the continuance of an
Event of Default, but at Debtor's cost and expense and without notice to Debtor:
(a) To obtain, adjust, sell and cancel any insurance with
respect to the Collateral, and endorse any draft drawn by insurers of
the Collateral. Secured Party may apply any proceeds or unearned
premiums of such insurance to the Obligations (whether or not due).
(b) To take any action and to execute any assignment,
certificate, financing statement, notification, document or instrument
which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to Debtor representing
any payment or other distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
Section 6.04 ACCOUNT DEBTORS. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the
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termination of this Agreement or the rights of Secured Party to act
hereunder, but shall be fully protected by Debtor in making payment
directly to Secured Party.
Section 6.05 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party hereunder
results in reduction of the Obligations, such action will not release Debtor
from its liability to Secured Party for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.06 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party to give reasonable notice of any sale or disposition or
other action, Debtor hereby agrees that five days' prior written notice shall
constitute reasonable notice thereof. Such notice, in the case of public sale,
shall state the time and place fixed for such sale and, in the case of private
sale, the time after which such sale is to be made.
Section 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Debtor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 NOTICES. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Credit Agreement.
Section 7.02 AMENDMENTS AND WAIVERS. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Debtor or any Obligor, or of any right, power or
remedy of Secured Party; and no partial exercise of any right, power or remedy
shall preclude any other or further exercise thereof. Secured Party may remedy
any Event of Default hereunder or in connection with the Obligations without
waiving the Event of Default so remedied. Debtor hereby agrees that if Secured
Party agrees to a waiver of any provision hereunder, or an exchange of or
release of the Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of Secured Party's
other rights or of Debtor's obligations hereunder. This Agreement may be amended
only by an instrument in writing executed jointly by Debtor and Secured Party
and may be supplemented only by documents delivered or to be delivered in
accordance with the express terms hereof.
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Section 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a commercially
reasonable time; provided, however, that Secured Party shall not be liable for
any interest, cost or expense in connection with any delay in delivering such
proceeds to Debtor.
Section 7.06 GOVERNING LAW; JURISDICTION. This Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby).
Section 7.07 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off.
Section 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9.505 of
the Code, no action taken or omission to act by Secured Party hereunder,
including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be
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repaid to a trustee, debtor in possession, receiver or other Person under
any bankruptcy law, common law or equitable cause, then to such extent the
Obligations so satisfied shall be revived and continue as if such payment or
proceeds had not been received by Secured Party, and Secured Party's security
interests, rights, powers and remedies hereunder shall continue in full force
and effect. In such event, this Agreement shall be automatically reinstated if
it shall theretofore have been terminated pursuant to Section 7.09.
Section 7.09 TERMINATION. The grant of a security interest hereunder and
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until Secured Party has retransferred and
delivered all Collateral in its possession to Debtor, and executed a written
release or termination statement and reassigned to Debtor without recourse or
warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations and the compliance by Debtor with all
covenants and agreements hereof, Secured Party, at the written request and
expense of Debtor, will release, reassign and transfer the Collateral to Debtor
and declare this Agreement to be of no further force or effect. Notwithstanding
the foregoing, the reimbursement and indemnification provisions of Section 4.08
and the provisions of subsection 7.07(b) shall survive the termination of this
Agreement.
Section 7.10 CONFLICTS. In the event of a conflict between (a) this
Agreement and the Credit Agreement, the terms of the Credit Agreement shall
control or (b) this Agreement and any notice delivered to account debtors
pursuant to the Accounts Receivable Purchase Agreement, the terms of this
Agreement shall control.
Section 7.11 NO ORAL AGREEMENTS. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all other
agreements and understandings between such parties relating to the subject
matter hereof and thereof. This Agreement represents the final agreement between
the parties and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties.
Section 7.12 COUNTERPARTS, EFFECTIVENESS. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together constitute one and the same instrument. This
Agreement becomes effective upon the execution hereof by Debtor and delivery of
the same to Secured Party, and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.
DEBTOR: CASTLE DENTAL CENTERS OF FLORIDA,
INC.
By:
Name: Jack H. Castle, Jr.
Title: Chairman and Chief
Executive Officer
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EXHIBIT A
LOCATION OF COLLATERAL
-18-
Exhibit 10.59
GUARANTY AGREEMENT
BY
CASTLE DENTAL CENTERS OF FLORIDA, INC.
IN FAVOR OF
NATIONSBANK OF TEXAS, N.A.
MAY 31, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE......................................1
Section 1.2 CERTAIN DEFINITIONS......................................1
Section 1.3 CREDIT AGREEMENT DEFINITIONS.............................3
ARTICLE 2
THE GUARANTY
Section 2.1 LIABILITIES GUARANTEED...................................3
Section 2.2 NATURE OF GUARANTY.......................................4
Section 2.3 LENDER'S RIGHTS..........................................4
Section 2.4 GUARANTOR'S WAIVERS......................................4
Section 2.5 MATURITY OF LIABILITIES; PAYMENT.........................5
Section 2.6 LENDER'S EXPENSES........................................5
Section 2.7 LIABILITY................................................5
Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR
DISCHARGING GUARANTOR'S OBLIGATIONS......................5
Section 2.9 RIGHT OF SUBROGATION AND CONTRIBUTION....................8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 BY GUARANTOR.............................................8
Section 3.2 NO REPRESENTATION BY LENDER..............................9
Section 3.3 INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS,
WARRANTIES AND COVENANTS.................................9
ARTICLE 4
SUBORDINATION OF INDEBTEDNESS
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Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS....................9
Section 4.2 CLAIMS IN BANKRUPTCY....................................10
Section 4.3 PAYMENTS HELD IN TRUST..................................10
Section 4.4 LIENS SUBORDINATE.......................................10
Section 4.5 NOTATION OF RECORDS.....................................11
ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS..................................11
Section 5.2 NOTICES.................................................11
Section 5.3 BUSINESS AND FINANCIAL INFORMATION......................11
Section 5.4 CONSTRUCTION............................................11
Section 5.5 INVALIDITY..............................................12
Section 5.6 ENTIRE AGREEMENT........................................12
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GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by CASTLE DENTAL CENTERS OF FLORIDA, INC.
(hereinafter called "GUARANTOR"), is in favor of NATIONSBANK OF TEXAS, N.A. (the
"LENDER").
WITNESSETH:
WHEREAS, on even date herewith, Castle Dental Centers, Inc., a Delaware
corporation (hereinafter called "BORROWER"), and the Lender have entered into
that certain Amended and Restated Credit Agreement (as the same may be amended
from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, one of the terms and conditions stated in the Credit Agreement
for the making of the loans described therein is the execution and delivery to
the Lender of this Guaranty Agreement;
NOW, THEREFORE, (i) in order to comply with the terms and conditions of
the Credit Agreement, (ii) to induce the Lender, at any time or from time to
time, to loan monies, with or without security to or for the account of Borrower
in accordance with the terms of the Credit Agreement, (iii) at the special
insistence and request of the Lender, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Guarantor hereby agrees as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE. As used in this Guaranty Agreement, the
terms "Borrower", "Guarantor", "Credit Agreement" and "Lender" shall have the
meanings indicated above.
Section 1.2 CERTAIN DEFINITIONS. As used in this Guaranty Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"COLLATERAL" shall have the meaning indicated in Section 4.1 hereof.
"CONTRIBUTION OBLIGATION" shall mean an amount equal, at any time and
from time to time and for each respective Subsidiary Guarantor, to the
product of (i) its Contribution Percentage times (ii) the sum of all
payments made previous to or at the time of calculation by all
Subsidiary Guarantors in respect of the Liabilities, as a Subsidiary
Guarantor (less the amount of any such payments previously returned to
any Subsidiary Guarantor by operation of law or otherwise, but not
including payments received by any Subsidiary Guarantor by way of its
rights of subrogation and contribution under Section 2.9 of the other
Guaranty Agreements), provided, however, such Contribution Obligation
for any Subsidiary Guarantor
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shall in no event exceed such Subsidiary Guarantor's Maximum Guaranteed
Amount, as defined in the respective Guaranty Agreement of such
Subsidiary Guarantor.
"CONTRIBUTION PERCENTAGE" shall mean for any Subsidiary Guarantor for
any applicable date as of which such percentage is being determined, an
amount equal to the quotient of (i) the Net Worth of such Subsidiary
Guarantor as of such date, divided by (ii) the sum of the Net Worth of
all the Subsidiary Guarantors as of such date.
"GUARANTOR CLAIMS" shall have the meaning indicated in Section 5.1
hereof.
"GUARANTY AGREEMENT" shall mean this Guaranty Agreement, and where the
context indicates, the Guaranty Agreement of any other Subsidiary
Guarantor, as the same may from time to time be amended or supplemented.
"LIABILITIES" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement, including
without limitation, the unpaid principal of and interest on the Notes,
including without limitation, interest accruing subsequent to the filing
of a petition or other action concerning bankruptcy or other similar
proceeding; (b) any additional loans made by the Lender to the Borrower;
(c) payment of and performance of any and all present or future
obligations of the Borrower according to the terms of any present or
future interest or currency rate swap, rate cap, rate floor, rate
collar, exchange transaction, forward rate agreement or other exchange
or rate protection agreements or any option with respect to any such
transaction now existing or hereafter entered into between the Borrower
and the Lender; (d) any and all other indebtedness, obligations and
liabilities of any kind of the Borrower to the Lender, now or hereafter
existing, arising directly between the Borrower and the Lender or
acquired outright, as a participation, conditionally or as collateral
security from another by the Lender, absolute or contingent, joint
and/or several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect, including
indebtedness, obligations and liabilities to the Lender of the Borrower
as a member of any partnership, syndicate, association or other group,
and whether incurred by the Borrower as principal, surety, endorser,
guarantor, accommodation party or otherwise and (e) all renewals,
rearrangements, increases, extensions for any period, amendments or
supplement in whole or in part of the Notes or any documents evidencing
the above.
"LOAN DOCUMENTS" shall mean the Credit Agreement, the Notes and the
Security Instruments.
"MAXIMUM GUARANTEED AMOUNT" shall mean, for the Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by the Guarantor in exchange for the
obligation incurred hereunder, within the meaning of any applicable
state or federal fraudulent conveyance or transfer laws;
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or (ii) the lesser of (A) the maximum amount that will not render the
Guarantor insolvent, or (B) the maximum amount that will not leave the
Guarantor with any property deemed an unreasonably small capital.
Clauses (A) and (B) are and shall be determined pursuant to and as of
the appropriate date mandated by such applicable state or federal
fraudulent conveyance or transfer laws and to the extent allowed by law
take into account the rights to contribution and subrogation under
Section 2.9 in each Guaranty Agreement so as to provide for the largest
Maximum Guaranteed Amount possible.
"NET PAYMENTS" shall mean an amount equal, at any time and from time to
time and for each respective Subsidiary Guarantor, to the difference of
(i) the sum of all payments made previous to or at the time of
calculation by such Subsidiary Guarantor in respect to the Liabilities,
as a Subsidiary Guarantor, and in respect of its obligations contained
in this Guaranty Agreement, less (ii) the sum of all such payments
previously returned to such Subsidiary Guarantor by operation of law or
otherwise and including payments received by such Subsidiary Guarantor
by way of its rights of subrogation and contribution under Section 2.9
of the other Guaranty Agreements.
"NET WORTH" shall mean for any Subsidiary Guarantor, calculated on and
as of any applicable date on which such amount is being determined, the
difference between (i) the sum of all such Subsidiary Guarantor's
property, at a fair valuation and as of such date, minus (ii) the sum of
all such Subsidiary Guarantor's debts, at a fair valuation and as of
such date, excluding the Liabilities.
"SUBSIDIARY GUARANTORS" shall mean the Guarantors as defined in the
Credit Agreement, including the Guarantor.
Section 1.3 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
ARTICLE 2
THE GUARANTY
Section 2.1 LIABILITIES GUARANTEED. Guarantor hereby irrevocably and
unconditionally guarantees the prompt payment of the Liabilities when due,
whether at maturity or otherwise, provided, however, that, notwithstanding
anything herein or in any other Loan Document to the contrary, the maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.
Section 2.2 NATURE OF GUARANTY. This Guaranty Agreement is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of
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the Liabilities or any extension of credit already or hereafter contracted by or
extended to Borrower need be given to Guarantor. This Guaranty Agreement may not
be revoked by Guarantor and shall continue to be effective with respect to debt
under the Liabilities arising or created after any attempted revocation by
Guarantor and shall remain in full force and effect until the Liabilities are
paid in full, notwithstanding that from time to time prior thereto no
Liabilities may be outstanding. Borrower and the Lender may modify, alter,
rearrange, extend for any period and/or renew from time to time, the
Liabilities, and the Lender may waive any Default or Events of Default without
notice to the Guarantor and in such event Guarantor will remain fully bound
hereunder on the Liabilities. This Guaranty Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Liabilities is rescinded or must otherwise be returned by any of the Lender
upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all
as though such payment had not been made. This Guaranty Agreement may be
enforced by the Lender and any subsequent holder of any of the Liabilities and
shall not be discharged by the assignment or negotiation of all or part of the
Liabilities. Guarantor hereby expressly waives presentment, demand, notice of
non-payment, protest and notice of protest and dishonor, notice of Default or
Event of Default, notice of intent to accelerate the maturity and notice of
acceleration of the maturity and any other notice in connection with the
Liabilities, and also notice of acceptance of this Guaranty Agreement,
acceptance on the part of the Lender being conclusively presumed by the Lender's
request for this Guaranty Agreement and delivery of the same to the Lender.
Section 2.3 LENDER'S RIGHTS. Guarantor authorizes the Lender, without
notice or demand and without affecting Guarantor's liability hereunder, to take
and hold security for the payment of this Guaranty Agreement and/or the
Liabilities, and exchange, enforce, waive and release any such security; and to
apply such security and direct the order or manner of sale thereof as the Lender
in its discretion may determine; and to obtain a guaranty of the Liabilities
from any one or more Persons and at any time or times to enforce, waive,
rearrange, modify, limit or release any of such other Persons from their
obligations under such guaranties.
Section 2.4 GUARANTOR'S WAIVERS.
(a) GENERAL. Guarantor waives any right to require any of the
Lender to (i) proceed against Borrower or any other person liable on the
Liabilities, (ii) enforce any of their rights against any other
guarantor of the Liabilities (iii) proceed or enforce any of their
rights against or exhaust any security given to secure the Liabilities
(iv) have Borrower joined with Guarantor in any suit arising out of this
Guaranty Agreement and/or the Liabilities, or (v) pursue any other
remedy in the Lender's powers whatsoever. The Lender shall not be
required to mitigate damages or take any action to reduce, collect or
enforce the Liabilities. Guarantor waives any defense arising by reason
of any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of the Liabilities, and shall
remain liable hereon regardless of whether Borrower or any other
guarantor be found not liable thereon for any reason. Whether and when
to exercise any of the remedies of the Lender under any of the Loan
Documents shall be in the sole and absolute discretion of the Lender,
and no delay by the Lender in enforcing any remedy, including delay in
conducting a foreclosure sale, shall be a defense to the Guarantor's
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liability under this Guaranty Agreement. To the extent allowed by
applicable law, the Guarantor hereby waives any good faith duty on the
part of the Lender in exercising any remedies provided in the Loan
Documents.
(b) SUBROGATION. Until the Liabilities have been paid in full,
the Guarantor waives all rights of subrogation or reimbursement against
the Borrower, whether arising by contract or operation of law
(including, without limitation, any such right arising under any federal
or state bankruptcy or insolvency laws) and waives any right to enforce
any remedy which the Lender now have or may hereafter have against the
Borrower, and waives any benefit or any right to participate in any
security now or hereafter held by the Lender. The Guarantor further
agrees for the benefit of each of its creditors (including, without
limitation, the Lender) that any such payment by the Guarantor shall
constitute a contribution of capital by the Guarantor to the Borrower.
Section 2.5 MATURITY OF LIABILITIES; PAYMENT. Guarantor agrees that if
the maturity of any of the Liabilities is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to Guarantor. Guarantor will,
forthwith upon notice from the Lender, pay to the Lender the amount due and
unpaid by Borrower and guaranteed hereby. The failure of the Lender to give this
notice shall not in any way release Guarantor hereunder.
Section 2.6 LENDER'S EXPENSES. If Guarantor fails to pay the Liabilities
after notice from the Lender of Borrower's failure to pay any Liabilities at
maturity, and if the Lender obtains the services of an attorney for collection
of amounts owing by Guarantor hereunder, or obtaining advice of counsel in
respect of any of their rights under this Guaranty Agreement, or if suit is
filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, probate, receivership or other judicial proceedings for the
establishment or collection of any amount owing by Guarantor hereunder, or if
any amount owing by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay to the Lender the Lender's reasonable attorneys' fees.
Section 2.7 LIABILITY. It is expressly agreed that the liability of the
Guarantor for the payment of the Liabilities guaranteed hereby shall be primary
and not secondary.
Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS. Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) MODIFICATIONS, ETC. Any renewal, extension, modification,
increase, decrease, alteration or rearrangement of all or any part of
the Liabilities, or of the Notes, or the Credit Agreement or any
instrument executed in connection therewith,
-5-
or any contract or understanding between Borrower and any of the Lender,
or any other Person, pertaining to the Liabilities;
(b) ADJUSTMENT, ETC. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by any of the Lender to
Borrower or Guarantor or any Person liable on the Liabilities;
(c) CONDITION OF BORROWER OR GUARANTOR. The insolvency,
bankruptcy arrangement, adjustment, composition, liquidation,
disability, dissolution, death or lack of power of Borrower or Guarantor
or any other Person at any time liable for the payment of all or part of
the Liabilities; or any dissolution of Borrower or Guarantor, or any
sale, lease or transfer of any or all of the assets of Borrower or
Guarantor, or any changes in the shareholders, partners, or members of
Borrower or Guarantor; or any reorganization of Borrower or Guarantor;
(d) INVALIDITY OF LIABILITIES. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any document
or agreement executed in connection with the Liabilities, for any reason
whatsoever, including without limitation the fact that the Liabilities,
or any part thereof, exceed the amount permitted by law, the act of
creating the Liabilities or any part thereof is ULTRA VIRES, the
officers or representatives executing the documents or otherwise
creating the Liabilities acted in excess of their authority, the
Liabilities violate applicable usury laws, the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement)
which render the Liabilities wholly or partially uncollectible from
Borrower, the creation, performance or repayment of the Liabilities (or
the execution, delivery and performance of any document or instrument
representing part of the Liabilities or executed in connection with the
Liabilities, or given to secure the repayment of the Liabilities) is
illegal, uncollectible, legally impossible or unenforceable, or the
Credit Agreement or other documents or instruments pertaining to the
Liabilities have been forged or otherwise are irregular or not genuine
or authentic;
(e) RELEASE OF OBLIGORS. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof, of any
co-guarantors, or any other Person now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to
pay, perform, guarantee or assure the payment of the Liabilities or any
part thereof, it being recognized, acknowledged and agreed by Guarantor
that Guarantor may be required to pay the Liabilities in full without
assistance or support of any other Person, and Guarantor has not been
induced to enter into this Guaranty Agreement on the basis of a
contemplation, belief, understanding or agreement that other parties
other than the Borrower will be liable to perform the Liabilities, or
the Lender will look to other parties to perform the Liabilities.
-6-
(f) OTHER SECURITY. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all
or any part of the Liabilities;
(g) RELEASE OF COLLATERAL, ETC. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or unjustifiable
impairment) of any collateral, property or security, at any time
existing in connection with, or assuring or securing payment of, all or
any part of the Liabilities;
(h) CARE AND DILIGENCE. The failure of the Lender or any other
Person to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or
any part of such collateral, property or security;
(i) STATUS OF LIENS. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created
or granted as security for the repayment of the Liabilities shall not be
properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized
and agreed by Guarantor that Guarantor is not entering into this
Guaranty Agreement in reliance on, or in contemplation of the benefits
of, the validity, enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) PAYMENTS RESCINDED. Any payment by Borrower to the Lender is
held to constitute a preference under the bankruptcy laws, or for any
reason the Lender are required to refund such payment or pay such amount
to Borrower or someone else; or
(k) OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or
omitted to be taken with respect to the Credit Agreement, the
Liabilities, or the security and collateral therefor, whether or not
such action or omission prejudices Guarantor or increases the likelihood
that Guarantor will be required to pay the Liabilities pursuant to the
terms hereof; it being the unambiguous and unequivocal intention of
Guarantor that Guarantor shall be obligated to pay the Liabilities when
due, notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether contemplated or uncontemplated, and whether
or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Liabilities.
Section 2.9 RIGHT OF SUBROGATION AND CONTRIBUTION. If Guarantor makes a
payment in respect of the Liabilities, it shall be subrogated to the rights of
the Lender against the Borrower with respect to such payment and shall have the
rights of contribution against the other Subsidiary Guarantors set forth in
Section 2.9 of the Subsidiary Guarantors' Guaranty Agreements; provided that
Guarantor shall not enforce its rights to any payment by way of subrogation or
by exercising its
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rights of contribution or reimbursement or the right to participate in any
security now or hereafter held by or for the benefit of the Lender until the
Liabilities have been paid in full. The Guarantor agrees that after all the
Liabilities have been paid in full that if its then current Net Payments are
less than the amount of its then current Contribution Obligation, Guarantor
shall pay to the other Subsidiary Guarantors an amount (together with any
payments required of the other Subsidiary Guarantors by Section 2.9 of each
other Guaranty Agreement) such that the Net Payments made by all Subsidiary
Guarantors in respect of the Liabilities shall be shared among all of the
Subsidiary Guarantors in proportion to their respective Contribution Percentage.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 BY GUARANTOR. In order to induce the Lender to accept this
Guaranty Agreement, Guarantor represents and warrants to the Lender (which
representations and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:
(a) BENEFIT TO GUARANTOR. Guarantor's guaranty pursuant to this
Guaranty Agreement reasonably may be expected to benefit, directly or
indirectly, Guarantor.
(b) CORPORATE EXISTENCE. Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of the
State of Florida and is duly qualified as a foreign corporation in all
jurisdictions wherein the property owned or the business transacted by
it makes such qualification necessary.
(c) CORPORATE POWER AND AUTHORIZATION. Guarantor is duly
authorized and empowered to execute, deliver and perform this Guaranty
Agreement and all corporate action on Guarantor's part requisite for the
due execution, delivery and performance of this Guaranty Agreement has
been duly and effectively taken.
(d) BINDING OBLIGATIONS. This Guaranty Agreement constitutes
valid and binding obligations of Guarantor, enforceable in accordance
with its terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights).
(e) NO LEGAL BAR OR RESULTANT LIEN. This Guaranty Agreement will
not violate any provisions of Guarantor's articles or certificate of
incorporation, bylaws, or any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Guarantor is
subject, or result in the creation or imposition of any Lien upon any
Properties of Guarantor.
(f) NO CONSENT. Guarantor's execution, delivery and performance
of this Guaranty Agreement does not require the consent or approval of
any other Person,
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including without limitation any regulatory authority or governmental
body of the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(g) SOLVENCY. The Guarantor hereby represents that (i) it is not
insolvent as of the date hereof and will not be rendered insolvent as a
result of this Guaranty Agreement, (ii) it is not engaged in business or
a transaction, or about to engage in a business or a transaction, for
which any property or assets remaining with such Guarantor is
unreasonably small capital, and (iii) it does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as
such debts mature.
Section 3.2 NO REPRESENTATION BY LENDER. Neither the Lender nor any
other Person has made any representation, warranty or statement to the Guarantor
in order to induce the Guarantor to execute this Guaranty Agreement.
Section 3.3 INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS,
WARRANTIES AND COVENANTS. The Guarantor hereby represents and warrants that the
matters contained in each of the applicable representations and warranties
contained in Article VII of the Credit Agreement pertaining to the Guarantor or
its Properties are true and correct as of the date of this Guaranty Agreement,
and covenants and agrees, so long as any of the Liabilities or Commitment
remains outstanding, to comply with the applicable covenants contained in
Articles VIII and IX of the Credit Agreement pertaining to the Guarantor or its
Properties. The guarantor hereby acknowledges that it has been furnished a copy
of the Credit Agreement and that it is thoroughly familiar with the
representations, warranties and covenants which are incorporated herein by
virtue of this Section 3.3.
ARTICLE 4
SUBORDINATION OF INDEBTEDNESS
Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligation of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor Claims shall include without limitation
all rights and claims of Guarantor against Borrower arising as a result of
subrogation or otherwise as a result of Guarantor's payment of all or a portion
of the Liabilities. Until the Liabilities shall be paid and satisfied in full
and Guarantor shall have performed all of its obligations hereunder, Guarantor
shall
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not receive or collect, directly or indirectly, from Borrower or any other party
any amount upon the Guarantor Claims.
Section 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Lender shall have the right to
prove their claim in any proceeding, so as to establish its rights hereunder and
receive directly from the receiver, trustee or other court custodian, dividends
and payments which would otherwise be payable upon Guarantor Claims. Guarantor
hereby assigns such dividends and payments to the Lender. Should the Lender
receive, for application upon the Liabilities, any such dividend or payment
which is otherwise payable to Guarantor, and which, as between Borrower and
Guarantor, shall constitute a credit upon the Guarantor Claims, then upon
payment in full of the Liabilities, Guarantor shall become subrogated to the
rights of the Lender to the extent that such payments to the Lender on the
Guarantor Claims have contributed toward the liquidation of the Liabilities, and
such subrogation shall be with respect to that proportion of the Liabilities
which would have been unpaid if the Lender had not received dividends or
payments upon the Guarantor Claims.
Section 4.3 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections, Guarantor agrees to hold
in trust for the Lender an amount equal to the amount of all funds, payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them promptly to the Lender, and Guarantor covenants promptly to pay the
same to the Lender.
Section 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security
interests, judgment liens, charges or other encumbrances upon Borrower's assets
securing payment of the Guarantor Claims shall be and remain inferior and
subordinate to any liens, security interests, judgment liens, charges or other
encumbrances upon Borrower's assets securing payment of the Liabilities,
regardless of whether such encumbrances in favor of Guarantor or the Lender
presently exist or are hereafter created or attach. Without the prior written
consent of the Lender, Guarantor shall not (a) exercise or enforce any
creditor's right it may have against the Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
Section 4.5 NOTATION OF RECORDS. All promissory notes, accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or held
by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
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ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and shall
be in every particular available to the successors and assigns of the Lender and
is and shall always be fully binding upon the legal representatives, heirs,
successors and assigns of Guarantor, notwithstanding that some or all of the
monies, the repayment of which this Guaranty Agreement applies, may be actually
advanced after any bankruptcy, receivership, reorganization, death, disability
or other event affecting Guarantor.
Section 5.2 NOTICES. Any notice or demand to Guarantor under or in
connection with this Guaranty Agreement may be given and shall conclusively be
deemed and considered to have been given and received in accordance with Section
11.02 of the Credit Agreement, addressed to Guarantor at the address on the
signature page hereof or at such other address provided to the Lender in
writing.
Section 5.3 BUSINESS AND FINANCIAL INFORMATION. The Guarantor will
promptly furnish to the Lender from time to time upon request such information
regarding the business and affairs and financial condition of the Guarantor and
its subsidiaries as the Lender may reasonably request.
Section 5.4 CONSTRUCTION. This Guaranty Agreement is a contract made
under and shall be construed in accordance with and governed by the laws of the
State of Texas.
Section 5.5 INVALIDITY. In the event that any one or more of the
provisions contained in this Guaranty Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Guaranty
Agreement.
Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT AND THE
OTHER SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE LENDER AND THE GUARANTOR AND SUPERSEDES
ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN GUARANTY AGREEMENT AND THE OTHER
SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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WITNESS THE EXECUTION HEREOF, as of this the 31st day of May, 1996.
CASTLE DENTAL CENTERS OF FLORIDA, INC.
By:
Name: Jack H. Castle, Jr.
Title: Chairman and Chief Executive Officer
Address:: 1360 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
Telecopier No.:: (713) 513-1401
Telephone No.:: (713) 513-1400
Attention:: Jack H. Castle, Jr.
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STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me on the 31st day of May, 1996,
by Jack H. Castle, Jr., Chairman and Chief Executive Officer of CASTLE DENTAL
CENTERS OF FLORIDA, INC., a Florida corporation, on behalf of such corporation.
_____________________________
Notary Public in and for
The State of TEXAS
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EXHIBIT 10.60
SECURITY AGREEMENT
(Accounts, Inventory, Equipment, Chattel Paper, Documents,
Instruments, General Intangibles and Other Property)
Between
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
and
NATIONSBANK OF TEXAS, N.A.
May 31, 1996
SECURITY AGREEMENT
Accounts, Inventory, Equipment, Chattel Paper, Documents,
INSTRUMENTS, GENERAL INTANGIBLES AND OTHER PROPERTY
THIS SECURITY AGREEMENT (this "AGREEMENT") is made as of May 31, 1996,
between CASTLE DENTAL CENTERS OF TENNESSEE, INC., a Tennessee corporation with
principal offices at 1360 Post Oak Boulevard, Suite 1300, Houston, Texas 77056
("DEBTOR"); and NATIONSBANK OF TEXAS, N.A., a national banking association with
offices at 700 Louisiana, Houston, Texas 77002 ("SECURED PARTY").
RECITALS
A. On even date herewith, CASTLE DENTAL CENTERS, INC., a Delaware
corporation ("BORROWER") and Secured Party are executing an Amended and Restated
Credit Agreement (such agreement, as may from time to time be amended or
supplemented, being hereinafter called the "CREDIT AGREEMENT") pursuant to
which, upon the terms and conditions stated therein, Secured Party agrees to
make loans to Borrower.
B. Pursuant to the terms of that certain Guaranty Agreement of even date
herewith from Debtor in favor of Secured Party (as the same may from time to
time be amended or supplemented, the "GUARANTY AGREEMENT"), Debtor has
guaranteed the prompt payment and performance of all indebtedness, obligations
and liabilities of Borrower to Secured Party under the Credit Agreement.
C. Secured Party has conditioned its obligations under the Credit
Agreement upon the execution and delivery by Debtor of this Agreement, and
Debtor has agreed to enter into this Agreement.
D. Therefore, in order to comply with the terms and conditions of the
Credit Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor hereby agrees with Secured
Party as follows:
ARTICLE 1
SECURITY INTEREST
Section 1.01 GRANT OF SECURITY INTEREST. Debtor hereby assigns and
grants to Secured Party a security interest in and right of set-off against the
assets referred to in Section 1.02 (the "COLLATERAL") to secure the prompt
payment and performance of the "OBLIGATIONS" (as defined in Section 2.02) and
the performance by Debtor of this Agreement.
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Section 1.02 COLLATERAL. The Collateral consists of the following types
or items of property (including property hereafter acquired by Debtor as well as
property which Debtor now owns or in which Debtor has rights):
(a) All of Debtor's accounts, inventory, equipment, chattel
paper, documents, instruments and general intangibles, including,
without limitation, any of the foregoing which may be more specifically
indicated in the remainder of this Section 1.02.
(b) All Debtor's present and future accounts receivable, chattel
paper, instruments, general intangibles, and other rights to payment
generated by Debtor or an Original Account Party (as defined in Section
3.09 hereof) for dental services performed or to be provided in the
future and claims for reimbursement or indemnification from Blue
Cross/Blue Shield, insurance companies, managed care organizations and
other third party payors or fiscal intermediaries.
(c) (i) Any related or additional property from time to time
delivered to or deposited with Secured Party by or for the account of
Debtor; (ii) all certificates of title or other documents evidencing
ownership or possession of or otherwise relating to any property
referred to in this Section 1.02; (iii) all property used or usable in
connection with any property referred to in this Section 1.02; (iv) all
policies of insurance (whether or not required by Secured Party)
covering any property referred to in this Section 1.02; (v) all goods
which were at any time included in the Collateral and which are returned
to or for the account of Debtor following their sale, lease or other
disposition; (vi) all proceeds, products, replacements, additions to,
substitutions for, accessions of, and property necessary for the
operation of any of the property referred to in this Section 1.02,
including, without limitation, insurance payable as a result of loss or
damage to any of the property referred to in this Section 1.02, refunds
of unearned premiums of any such insurance policy and claims against
third parties; and (vii) all books and records related to any of the
property referred to in this Section 1.02, including, without
limitation, any and all books of account, customer lists and other
records relating in any way to the accounts, chattel paper, instruments
or inventory referred to in this Section 1.02.
(d) All present and future general intangibles related to any
property referred to in this Section 1.02, including, without
limitation, all (i) insurance and managed care policies and contracts,
letters of credit, bonds, guaranties, purchase or sales agreements and
other contractual rights, rights to performance, and claims for damages,
refunds (including tax refunds) or other monies due or to become due;
(ii) all contracts pursuant to which Debtor has purchased any accounts,
including without limitation the Accounts Receivable Purchase Agreement
(the "ACCOUNTS RECEIVABLE PURCHASE AGREEMENT") dated as of May 31, 1996,
between Mid-South Dental Centers, P.C. ("PC") and Debtor; (iii) the
certain Management Services Agreement dated May 31, 1996 by and between
Debtor and PC; (iv) orders,
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franchises, permits, certificates, licenses, consents, exemptions,
variances, authorizations or other approvals by any governmental agency
or court; (v) consulting, engineering and technological information and
specifications, design data, patent rights, trade secrets, literary
rights, copyrights, trademarks, labels, trade names and other
intellectual property; (vi) business records, computer tapes and
computer software; (vii) goodwill; and (viii) other intangible personal
property, whether similar or dissimilar to the property referred to in
this Section 1.02.
It is expressly contemplated that additional property may from time to time be
pledged, assigned or granted to Secured Party as additional security for the
Obligations, and the term "COLLATERAL" as used herein shall be deemed for all
purposes hereof to include all such additional property, together with all other
property of the types described above related thereto.
Section 1.03 LOCATION OF COLLATERAL. The Collateral is located or
(except as otherwise permitted by Section 4.01) shall be located only in the
following places (provided that the Collateral shall be subject to the security
interest created by this Agreement irrespective of whether or not the Collateral
is located in the following places): as listed on Exhibit A.
ARTICLE 2
DEFINITIONS
Section 2.01 TERMS DEFINED ABOVE OR IN THE CREDIT AGREEMENT. As used in
this Agreement, the terms defined above shall have the meanings respectively
assigned to them. Other capitalized terms which are defined in the Credit
Agreement but which are not defined herein shall have the same meanings as
defined in the Credit Agreement.
Section 2.02 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"ACCOUNTS" means all accounts, chattel paper and instruments (as
such terms are defined in the Code) and any other receivables described
in Section 1.02 at any time included in the Collateral.
"ACCOUNT DEBTOR" means any Person liable (whether directly or
indirectly, primarily or secondarily) for the payment or performance of
any obligations included in the Collateral, whether as an account debtor
(as defined in the Code), obligor on a contract or an instrument, issuer
of documents or securities, guarantor or otherwise.
"AGREEMENT" means this Security Agreement, as the same may from
time to time be amended or supplemented.
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"CODE" means the Uniform Commercial Code as presently in effect
in the State of Texas, Business and Commerce Code, Chapters 1 through 9.
Unless otherwise indicated by the context herein, all uncapitalized
terms which are defined in the Code shall have their respective meanings
as used in Chapter 9 of the Code.
"EVENT OF DEFAULT" means any event specified in Section 6.01.
"INVENTORY" means all inventory (as defined in the Code) at any
time included in the Collateral.
"OBLIGATIONS" means:
(a) The payment and performance of all indebtedness and obligations of
Debtor to Secured Party pursuant to or in connection with the Guaranty
Agreement.
(b) The payment and performance of all the Indebtedness and obligations
of Borrower to Secured Party now or hereafter existing under or in
connection with the Credit Agreement or the Notes issued to the
Borrower. The Obligations shall also include all interest, charges,
expenses, attorneys' or other fees and any other sums payable to or
incurred by Secured Party in connection with the execution,
administration or enforcement of Secured Party's rights and remedies
hereunder or any Security Instruments with the Debtor.
"OBLIGOR" means any Person, other than Debtor, liable (whether
directly or indirectly, primarily or secondarily) for the payment or
performance of any of the Obligations whether as maker, co-maker,
endorser, guarantor, accommodation party, general partner or otherwise.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Agreement, Debtor
represents and warrants to Secured Party (which representations and warranties
will survive the creation and payment of the Obligations) that:
Section 3.01 OWNERSHIP OF COLLATERAL; ENCUMBRANCES. Debtor is the legal
and beneficial owner of the Collateral free and clear of any adverse claim,
lien, security interest, option or other charge or encumbrance except for the
security interest created by this Agreement and those permitted under the Credit
Agreement, and Debtor has full right, power and authority to assign and grant a
security interest in the Collateral to Secured Party.
-4-
Section 3.02 NO REQUIRED CONSENT. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body (other than the filing of financing statements) is required for
(i) the due execution, delivery and performance by Debtor of this Agreement,
(ii) the grant by Debtor of the security interest granted by this Agreement,
(iii) the perfection of such security interest or (iv) the exercise by Secured
Party of its rights and remedies under this Agreement.
Section 3.03 GOVERNMENTAL REGULATIONS. Debtor is organized and operating
in compliance with state and federal law including, but not limited to, the
Dental Practice Act and S.S.A. ss. 1877, codified at 42 U.S.C. 3595nn.
Section 3.04 FIRST PRIORITY SECURITY INTEREST. Except for Collateral
subject to Liens permitted under the Credit Agreement, the grant of the security
interest in the Collateral pursuant to this Agreement creates a valid and
perfected first priority security interest in the Collateral subject to Excepted
Liens, enforceable against Debtor and all third parties and securing payment of
the Obligations, except for security interest as to which the perfection is
governed by the appropriate statutory provisions governing perfection on United
States patents, trademarks, copyrights and other intellectual property rights,
receivables involving the United States government or motor vehicles.
Section 3.05 NO FILINGS BY THIRD PARTIES. Except as permitted under the
Credit Agreement, no financing statement or other public notice or recording
covering the Collateral is on file in any public office (other than any
financing statement or other public notice or recording naming Secured Party as
the secured party therein), and Debtor will not execute any such financing
statement or other public notice or recording so long as any of the Obligations
are outstanding, except in connection with Liens permitted under the Credit
Agreement.
Section 3.06 NO NAME CHANGES. Debtor has not, during the preceding five
years, entered into any contract, agreement, security instrument or other
document using a name other than, or been known by or otherwise used any name
other than, the name used by Debtor herein, except for Mid- South Dental
Centers.
Section 3.07 LOCATION OF DEBTOR AND COLLATERAL. Debtor's chief executive
office and Debtor's records concerning the Collateral are located at the address
or location set forth in the opening paragraph hereof. The Collateral is located
at Debtor's address set forth in the opening paragraph hereof or at the
location(s), if any, specified in Section 1.02 or 1.03. Any Collateral not at
such location(s) nevertheless remains subject to Secured Party's security
interest.
-5-
Section 3.08 COLLATERAL. All statements or other information provided by
Debtor to Secured Party describing or with respect to the Collateral is or (in
the case of subsequently furnished information) will be when provided correct
and complete in all material respects. The delivery at any time by Debtor to
Secured Party of additional Collateral or of additional descriptions of
Collateral shall constitute a representation and warranty by Debtor to Secured
Party hereunder that the representations and warranties of this Article 3 are
correct insofar as they would pertain to such Collateral or the descriptions
thereof.
Section 3.09 ACCOUNTS.
(a) Each Account represents the genuine, valid and legally enforceable
indebtedness of an Account Debtor arising from the sale, lease or rendition of
goods or services or the agreement to render service in the future by Debtor,
Mid-South Dental Centers, P.C. or PC or any other party from whom Debtor may
have purchased such Account (the "Original Account Party") and, except in the
ordinary course of business, is not and will not be subject to contra accounts,
set-offs, defenses, counterclaims, allowances or adjustments (other than
discounts for prompt payment shown on the invoice), or objections or complaints
by the Account Debtor concerning its liability on the Account; and any goods,
the sale of which gave rise to an Account, have not been returned or rejected by
the Account Debtor or lost or damaged prior to receipt by the Account Debtor.
(b) The amount shown as to each Account on Debtor's books is or will be
the true and undisputed amount owing and unpaid thereon. Each Account arose or
shall have arisen in the ordinary course of Debtor's or the Original Account
Party's business; provided, however, that any Accounts which arose or hereafter
arise outside the ordinary course of Debtor's or the Original Account Party's
business shall nevertheless be included as part of the Collateral. Debtor has no
knowledge of any bankruptcy, insolvency or other action affecting creditors'
rights with respect to any Account Debtor.
ARTICLE 4
COVENANTS AND AGREEMENTS
Debtor will at all times comply with the covenants and agreements
contained in this Article 4, from the date hereof and for so long as any part of
the Obligations are outstanding.
Section 4.01 CHANGE IN LOCATION OF COLLATERAL OR DEBTOR. Debtor will
notify Secured Party on or before the date of any change in location of the
Collateral other than to a location listed on Exhibit A and except for temporary
changes in location in the ordinary course of business. Debtor will not, without
Secured Party's prior written consent, change the location of the Collateral to
any state, county or other jurisdiction in which Secured Party has not already
filed a financing statement or taken other necessary steps to perfect its
security interests in the Collateral or to maintain such
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perfection. Debtor will give Secured Party 30 days' prior written notice of (i)
the opening or closing of any place of Debtor's business or (ii) any change in
the location of Debtor's chief executive office or address.
Section 4.02 CHANGE IN DEBTOR'S NAME OR CORPORATE STRUCTURE. Debtor will
not change its name, identity or corporate structure (including, without
limitation, any merger, consolidation or sale of substantially all of its
assets) without notifying Secured Party of such change in writing at least 30
days prior to the effective date of such change. Without the express written
consent of Secured Party, however, Debtor will not engage in any other business
or transaction under any name other than Debtor's name hereunder.
Section 4.03 DOCUMENTS; COLLATERAL IN POSSESSION OF THIRD PARTIES. If
certificates of title or other documents evidencing ownership or possession of
the Collateral (excluding vehicles) are issued or outstanding, Debtor will cause
the interest of Secured Party to be properly noted thereon and will, forthwith
upon receipt, deliver same to Secured Party. If any Collateral is at any time in
the possession or control of any warehouseman, bailee, agent or independent
contractor, Debtor shall notify such Person of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any such
Person to hold all such Collateral for Secured Party's account subject to
Debtor's instructions, or, if an Event of Default shall have occurred, subject
to Secured Party's instructions.
Section 4.04 DELIVERY OF LETTERS OF CREDIT AND INSTRUMENTS. Debtor will
deliver each letter of credit, if any, included in the Collateral to Secured
Party, in each case forthwith upon receipt by or for the account of Debtor. If
any Account becomes evidenced by a promissory note or any other instrument for
the payment of money (other than checks or drafts in payment of Accounts
collected by Debtor in the ordinary course of business prior to notification by
Secured Party under Section 6.02(h)), Debtor will immediately deliver such
instrument to Secured Party appropriately endorsed and, regardless of the form
of presentment, demand, notice of dishonor, protest and notice of protest with
respect thereto, Debtor will remain liable thereon until such instrument is paid
in full.
Section 4.05 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Except as
permitted by Section 4.10, the Credit Agreement, or with Secured Party's prior
written consent, Debtor will not in any way encumber any of the Collateral (or
permit or suffer any of the Collateral to be encumbered) or sell, assign, lend,
rent, lease or otherwise dispose of or transfer any of the Collateral to or in
favor of any Person other than Secured Party.
Section 4.06 PROCEEDS OF COLLATERAL. If chattel paper, documents or
instruments are received as proceeds, which are required to be delivered to
Secured Party, they will be, immediately upon receipt, properly endorsed or
assigned and delivered to Secured Party as Collateral.
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Section 4.07 RECORDS AND INFORMATION. Debtor shall keep accurate and
complete records of the Collateral (including proceeds). These records shall
reflect complete and accurate stock records of the Inventory, contracts and
other general intangibles concerning each Account. Secured Party may at
reasonable times upon reasonable notice have access to, examine, audit, make
extracts from and inspect without hindrance or delay Debtor's records, files and
the Collateral. Debtor will promptly provide written notice to Secured Party of
all information which in any way relates to or affects the filing of any
financing statement or other public notices or recordings, or the delivery and
possession of items of Collateral for the purpose of perfecting a security
interest in the Collateral. Debtor will also promptly furnish such information
as Secured Party may from time to time reasonably request regarding (i) the
business, affairs or financial condition of Debtor or (ii) the Collateral or
Secured Party's rights or remedies with respect thereto.
Section 4.08 REIMBURSEMENT OF EXPENSES. Debtor hereby assumes all
liability for the Collateral, the security interests created hereunder and any
use, possession, maintenance, management, enforcement or collection of any or
all of the Collateral. Debtor agrees to indemnify and hold Secured Party
harmless from and against and covenants to defend Secured Party against any and
all losses, damages, claims, costs, penalties, liabilities and expenses,
including, without limitation, court costs and attorneys' fees, incurred because
of, incident to, or with respect to the Collateral (including, without
limitation, any use, possession, maintenance or management thereof, or any
injuries to or deaths of persons or damage to property). All amounts for which
Debtor is liable pursuant to this Section 4.08 shall be due and payable by
Debtor to Secured Party upon demand. If Debtor fails to make such payment upon
demand (or if demand is not made due to an injunction or stay arising from
bankruptcy or other proceedings) and Secured Party pays such amount, the same
shall be due and payable by Debtor to Secured Party, plus interest thereon from
the date of Secured Party's demand (or from the date of Secured Party's payment
if demand is not made due to such proceedings) at the Post-Default Rate.
Section 4.09 FURTHER ASSURANCES. Upon the request of Secured Party,
Debtor shall (at Debtor's expense) execute and deliver all such assignments,
certificates, financing statements or other documents and give further
assurances and do all other acts and things as Secured Party may reasonably
request to perfect Secured Party's interest in the Collateral or to protect,
enforce or otherwise effect Secured Party's rights and remedies hereunder.
Section 4.10 INVENTORY. Until an Event of Default occurs hereunder,
Debtor may use the Inventory in any lawful manner not inconsistent with this
Agreement and with the terms of insurance thereon and may sell, lease or
otherwise dispose of its Inventory for cash or terms in the ordinary course of
business, and Debtor may retain the proceeds of such sales, leases or other
dispositions (subject to Section 4.04 and subsection 4.11(a)); provided,
however, the Inventory shall remain in Debtor's possession and control at all
times prior to sale, lease or other disposition at Debtor's address set forth in
the opening paragraph hereof or at such other location(s) as may be specified in
Section 1.02 or 1.03. Debtor shall bear any risk of loss of the Inventory.
Debtor shall not use any
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item of Inventory in a manner inconsistent with the holding thereof for sale,
lease or other disposition in the ordinary course of business or in
contravention of the terms of any agreement. A sale, lease or disposition in the
ordinary course of business does not include the exchange of Inventory for
services or goods in kind or transfers of Inventory for the satisfaction of
obligations to suppliers or other indebtedness. Upon an Event of Default, Debtor
will not sell, lease or otherwise dispose of any of the Inventory without the
prior written consent of Secured Party, and Debtor shall immediately deliver to
Secured Party any checks, cash or other forms of payment which Debtor receives
in connection with any Inventory, appropriately endorsed.
Section 4.11 ACCOUNTS.
(a) Prior to notification by Secured Party under Section 6.02(h), Debtor
will collect the Accounts in the ordinary course of its business and may retain
the proceeds of such collections (subject to Section 4.04).
(b) Debtor will not modify, extend or substitute any contract, the terms
of which shall at any time have given rise to an Account, except in the ordinary
course of business or with the prior written consent of Secured Party. Debtor
will not re-date any invoice or sale or make sales with an extended payment date
beyond that customary in the industry. Debtor shall not adjust, settle, discount
or compromise any of the Accounts, except in the ordinary course of business or
with the prior written consent of Secured Party.
(c) Debtor will duly perform or cause to be performed all of Debtor's
obligations with respect to the Accounts and the underlying sales of goods or
other transactions giving rise to the Accounts.
(d) Debtor will maintain and keep the Accounts Receivable Purchase
Agreement in full force and effect and take all appropriate action to cause PC
to promptly perform as required under such Contract.
Section 4.12 CONDITION OF COLLATERAL. Debtor will maintain all the
Collateral in good condition, repair and working order, and in accordance with
any manufacturer's manual. Debtor will not misuse, abuse, waste, destroy or
endanger the Collateral or allow it to deteriorate, except for ordinary wear and
tear from its intended use. Debtor will repair, replace or otherwise improve the
Collateral as may be necessary. Debtor will not use any Collateral in violation
in any material respect of any law, statute, ordinance, regulation or
administrative order, or suffer it to be so used.
Section 4.13 COLLATERAL ATTACHED TO OTHER PROPERTY. In the event that
the Collateral is to be attached or affixed to any real property, Debtor hereby
agrees that this Agreement may be filed for record in any appropriate real
estate records as a financing statement which is a fixture filing. In connection
therewith, Debtor will take whatever action is required by Section 4.09. If
Debtor is not
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the record owner of such real property, Debtor will provide Secured Party with
any additional security agreements or financing statements necessary for the
perfection of Secured Party's security interest in the Collateral. If the
Collateral is wholly or partly affixed to real estate or installed in or affixed
to other goods, Debtor will, on demand of Secured Party, furnish Secured Party
with a disclaimer (including landlord's or other lien waivers or releases, if
applicable), signed by all Persons or entities having an interest in the real
estate or other goods to which the Collateral may have become affixed, of any
prior interest to Secured Party's interest in the Collateral.
Section 4.14 COLLATERAL SEPARATE AND DISTINCT. Debtor shall at all times
keep the Collateral, including proceeds, or cause it to be kept (when in the
possession of warehousemen, bailees, agents, independent contractors or other
third parties), separate and distinct from other property.
ARTICLE 5
RIGHTS, DUTIES AND POWERS OF SECURED PARTY
The following rights, duties and powers of Secured Party are applicable
irrespective of whether an Event of Default occurs and is continuing:
Section 5.01 DISCHARGE ENCUMBRANCES. Secured Party may, at its option,
discharge any taxes, liens, security interests or other encumbrances at any time
levied or placed on the Collateral.
Section 5.02 TRANSFER OF COLLATERAL. Secured Party may transfer any or
all of the Obligations, and upon any such transfer Secured Party may transfer
its interest in any or all of the Collateral and shall be fully discharged
thereafter from all liability therefor. Any transferee of the Collateral shall
be vested with all rights, powers and remedies of Secured Party hereunder.
Section 5.03 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off. If any of the Obligations are given in renewal,
extension for any period or rearrangement, or applied toward the payment of debt
secured by any lien, Secured Party shall be, and is hereby, subrogated to all
the rights, titles, interests and liens securing the debt so renewed, extended,
rearranged or paid.
Section 5.04 DISCLAIMER OF CERTAIN DUTIES.
(a) The powers conferred upon Secured Party by this Agreement are to
protect its interest in the Collateral and shall not impose any duty upon
Secured Party to exercise any such powers. Debtor hereby agrees that Secured
Party shall not be liable for, nor shall the indebtedness evidenced
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by the Obligations be diminished by, Secured Party's delay or failure to collect
upon, foreclose, sell, take possession of or otherwise obtain value for the
Collateral.
(b) Except as provided for in the Credit Agreement, Secured Party shall
be under no duty whatsoever to make or give any presentment, notice of dishonor,
protest, demand for performance, notice of non-performance, notice of intent to
accelerate, notice of acceleration, or other notice or demand in connection with
any Collateral or the Obligations, or to take any steps necessary to preserve
any rights against any Obligor, Account Debtor or other Person. Debtor waives
any right of marshaling in respect of any and all Collateral, and waives any
right to require Secured Party to proceed against any Obligor, Account Debtor or
other Person, exhaust any Collateral or enforce any other remedy which Secured
Party now has or may hereafter have against any Obligor or other Person.
Section 5.05 MODIFICATION OF OBLIGATIONS; OTHER SECURITY. Debtor waives
(i) any and all notice of acceptance, creation, modification, rearrangement,
renewal or extension for any period of any instrument executed by any Obligor in
connection with the Obligations and (ii) any defense of any Obligor or Original
Account Party (other than the Obligor) by reason of disability, lack of
authorization, cessation of the liability of any Obligor or for any other
reason. Debtor authorizes Secured Party, without notice or demand and without
any reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Obligations, from time to time to (x) take and
hold other property of any Obligor, other than the Collateral, as security for
the Obligations, and exchange, enforce, waive and release any or all of the
Collateral, (y) apply the Collateral in the manner permitted by this Agreement
and (z) renew, extend for any period, accelerate, amend or modify, supplement,
enforce, compromise, settle, waive or release the obligations of any Obligor or
any Original Account Party (other than the Debtor) or any instrument or
agreement of such other Person with respect to any or all of the Obligations or
Collateral.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. It shall constitute an Event of Default under this
Agreement if an Event of Default occurs and is continuing under the Credit
Agreement.
Section 6.02 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, Secured Party may take any or all of the following actions
without notice (except where expressly required below or in the Credit
Agreement) or demand to Debtor:
(a) Declare all or part of the indebtedness pursuant to the
Obligations immediately due and payable and enforce payment of the same
by Debtor or any Obligor.
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(b) Take possession of the Collateral, or at Secured Party's
request Debtor shall, at Debtor's cost, assemble the Collateral and make
it available at a location to be specified by Secured Party which is
reasonably convenient to Debtor and Secured Party. Secured Party may, at
its option, render any equipment unusable that may be included in the
Collateral, or, at Secured Party's request, Debtor will render it
unusable. In any event, Debtor shall bear the risk of accidental loss or
damage to or diminution in value of the Collateral, and Secured Party
shall have no liability whatsoever for failure to obtain or maintain
insurance, nor to determine whether any insurance ever in force is
adequate as to amount or as to risk insured.
(c) Sell or lease, in one or more sales or leases and in one or
more parcels, or otherwise dispose of any or all of the Collateral in
its then condition or in any other commercially reasonable manner as
Secured Party may elect, in a public or private transaction, at any
location as deemed reasonable by Secured Party (including, without
limitation, Debtor's premises), either for cash or credit or for future
delivery at such price as Secured Party may deem fair, and (unless
prohibited by the Code, as adopted in any applicable jurisdiction)
Secured Party may be the purchaser of any or all Collateral so sold and
may apply upon the purchase price therefor any Obligations secured
hereby. Any such sale or transfer by Secured Party either to itself or
to any other Person shall be absolutely free from any claim of right by
Debtor, including any equity or right of redemption, stay or appraisal
which Debtor has or may have under any rule of law, regulation or
statute now existing or hereafter adopted. Upon any such sale or
transfer, Secured Party shall have the right to deliver, assign and
transfer to the purchaser or transferee thereof the Collateral so sold
or transferred. It shall not be necessary that the Collateral or any
part thereof be present at the location of any such sale or transfer.
Secured Party may, at its discretion, provide for a public sale, and any
such public sale shall be held at such time or times within ordinary
business hours and at such place or places as Secured Party may fix in
the notice of such sale. Secured Party shall not be obligated to make
any sale pursuant to any such notice. Secured Party may, without notice
or publication, adjourn any public or private sale by announcement at
any time and place fixed for such sale, and such sale may be made at any
time or place to which the same may be so adjourned. In the event any
sale or transfer hereunder is not completed or is defective in the
opinion of Secured Party, such sale or transfer shall not exhaust the
rights of Secured Party hereunder, and Secured Party shall have the
right to cause one or more subsequent sales or transfers to be made
hereunder. In the event that any of the Collateral is sold or
transferred on credit, or to be held by Secured Party for future
delivery to a purchaser or transferee, the Collateral so sold or
transferred may be retained by Secured Party until the purchase price or
other consideration is paid by the purchaser or transferee thereof, but
in the event that such purchaser or transferee fails to pay for the
Collateral so sold or transferred or to take delivery thereof, Secured
Party shall incur no liability in connection therewith. If only part of
the Collateral is sold or transferred such that the Obligations remain
outstanding (in whole or in part), Secured Party's rights and remedies
hereunder shall not be exhausted, waived or modified, and Secured Party
is specifically empowered to make one or
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more successive sales or transfers until all the Collateral shall be
sold or transferred and all the Obligations are paid. In the event that
Secured Party elects not to sell the Collateral, Secured Party retains
its rights to lease or otherwise dispose of or utilize the Collateral or
any part or parts thereof in any manner authorized or permitted by law
or in equity, and to apply the proceeds of the same towards payment of
the Obligations. Each and every method of disposition of the Collateral
described in this subsection or in subsection (f) shall constitute
disposition in a commercially reasonable manner.
(d) Take possession of all books and records of Debtor pertaining
to the Collateral. Secured Party shall have the authority to enter upon
any real property or improvements thereon in order to obtain any such
books or records, or any Collateral located thereon, and remove the same
therefrom without liability.
(e) Apply proceeds of the disposition of the Collateral to the
Obligations in any manner elected by Secured Party and permitted by the
Code or otherwise permitted by law or in equity. Such application may
include, without limitation, the reasonable expenses of retaking,
holding, preparing for sale or other disposition, and the reasonable
attorneys' fees and legal expenses incurred by Secured Party.
(f) Appoint any Person as agent to perform any act or acts
necessary or incident to any sale or transfer by Secured Party of the
Collateral. Additionally, any sale or transfer hereunder may be
conducted by an auctioneer or any officer or agent of Secured Party.
(g) Receive, change the address for delivery, open and dispose of
mail addressed to Debtor, and to execute, assign and endorse negotiable
and other instruments for the payment of money, documents of title or
other evidences of payment, shipment or storage for any form of
Collateral on behalf of and in the name of Debtor.
(h) Notify or require Debtor to notify Account Debtors that the
Accounts have been assigned to Secured Party and direct such Account
Debtors to make payments on the Accounts directly to Secured Party. To
the extent Secured Party does not so elect, Debtor shall continue to
collect the Accounts. Secured Party or its designee shall also have the
right, in its own name or in the name of Debtor, to do any of the
following: (i) to demand, collect, receipt for, settle, compromise any
amounts due, give acquittances for, prosecute or defend any action which
may be in relation to any monies due or to become due by virtue of, the
Accounts; (ii) to sell, transfer or assign or otherwise deal in the
Accounts or the proceeds thereof or the related goods, as fully and
effectively as if Secured Party were the absolute owner thereof; (iii)
to extend the time of payment of any of the Accounts, to grant waivers
and make any allowance or other adjustment with reference thereto; (iv)
to endorse the name of Debtor on notes, checks or other evidences of
payments on Collateral that may come into possession of Secured Party;
(v) to take control of cash and other proceeds of any Collateral;
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(vi) to sign the name of Debtor on any invoice or bill of lading
relating to any Collateral, or any drafts against Account Debtors or
other persons making payment with respect to Collateral; (vii) to send a
request for verification of Accounts to any Account Debtor; and (viii)
to do all other acts and things necessary to carry out the intent of
this Agreement.
(i) Exercise all other rights and remedies permitted by law or
in equity.
Section 6.03 ATTORNEY-IN-FACT. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, with full authority in the place and
stead of Debtor and in the name of Debtor or otherwise, from time to time in
Secured Party's discretion upon the occurrence and during the continuance of an
Event of Default, but at Debtor's cost and expense and without notice to Debtor:
(a) To obtain, adjust, sell and cancel any insurance with respect
to the Collateral, and endorse any draft drawn by insurers of the
Collateral. Secured Party may apply any proceeds or unearned premiums of
such insurance to the Obligations (whether or not due).
(b) To take any action and to execute any assignment,
certificate, financing statement, notification, document or instrument
which Secured Party may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to Debtor representing
any payment or other distribution in respect of the Collateral or any
part thereof and to give full discharge for the same.
Section 6.04 ACCOUNT DEBTORS. Any payment or settlement of an Account
made by an Account Debtor will be, to the extent of such payment or to the
extent provided under such settlement, a release, discharge and acquittance of
the Account Debtor with respect to such Account, and Debtor shall take any
action as may be required by Secured Party in connection therewith. No Account
Debtor on any Account will ever be bound to make inquiry as to the termination
of this Agreement or the rights of Secured Party to act hereunder, but shall be
fully protected by Debtor in making payment directly to Secured Party.
Section 6.05 LIABILITY FOR DEFICIENCY. If any sale or other disposition
of Collateral by Secured Party or any other action of Secured Party hereunder
results in reduction of the Obligations, such action will not release Debtor
from its liability to Secured Party for any unpaid Obligations, including costs,
charges and expenses incurred in the liquidation of Collateral, together with
interest thereon, and the same shall be immediately due and payable to Secured
Party at Secured Party's address set forth in the opening paragraph hereof.
Section 6.06 REASONABLE NOTICE. If any applicable provision of any law
requires Secured Party to give reasonable notice of any sale or disposition or
other action, Debtor hereby agrees that
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five days' prior written notice shall constitute reasonable notice thereof. Such
notice, in the case of public sale, shall state the time and place fixed for
such sale and, in the case of private sale, the time after which such sale is to
be made.
Section 6.07 NON-JUDICIAL ENFORCEMENT. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law Debtor expressly waives any and all legal rights which
might otherwise require Secured Party to enforce its rights by judicial process.
ARTICLE 7
MISCELLANEOUS PROVISIONS
Section 7.01 NOTICES. Any notice required or permitted to be given under
or in connection with this Agreement shall be given in accordance with the
notice provisions of the Credit Agreement.
Section 7.02 AMENDMENTS AND WAIVERS. Secured Party's acceptance of
partial or delinquent payments or any forbearance, failure or delay by Secured
Party in exercising any right, power or remedy hereunder shall not be deemed a
waiver of any obligation of Debtor or any Obligor, or of any right, power or
remedy of Secured Party; and no partial exercise of any right, power or remedy
shall preclude any other or further exercise thereof. Secured Party may remedy
any Event of Default hereunder or in connection with the Obligations without
waiving the Event of Default so remedied. Debtor hereby agrees that if Secured
Party agrees to a waiver of any provision hereunder, or an exchange of or
release of the Collateral, or the addition or release of any Obligor or other
Person, any such action shall not constitute a waiver of any of Secured Party's
other rights or of Debtor's obligations hereunder. This Agreement may be amended
only by an instrument in writing executed jointly by Debtor and Secured Party
and may be supplemented only by documents delivered or to be delivered in
accordance with the express terms hereof.
Section 7.03 COPY AS FINANCING STATEMENT. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral is sufficient as a financing statement, and the same may be filed
with any appropriate filing authority for the purpose of perfecting Secured
Party's security interest in the Collateral.
Section 7.04 POSSESSION OF COLLATERAL. Secured Party shall be deemed to
have possession of any Collateral in transit to it or set apart for it (or, in
either case, any of its agents, affiliates or correspondents).
Section 7.05 REDELIVERY OF COLLATERAL. If any sale or transfer of
Collateral by Secured Party results in full satisfaction of the Obligations, and
after such sale or transfer and discharge there remains a surplus of proceeds,
Secured Party will deliver to Debtor such excess proceeds in a
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commercially reasonable time; provided, however, that Secured Party shall not be
liable for any interest, cost or expense in connection with any delay in
delivering such proceeds to Debtor.
Section 7.06 GOVERNING LAW; JURISDICTION. This Agreement and the
security interest granted hereby shall be construed in accordance with and
governed by the laws of the State of Texas (except to the extent that the laws
of any other jurisdiction govern the perfection and priority of the security
interests granted hereby).
Section 7.07 CUMULATIVE AND OTHER RIGHTS. The rights, powers and
remedies of Secured Party hereunder are in addition to all rights, powers and
remedies given by law or in equity. The exercise by Secured Party of any one or
more of the rights, powers and remedies herein shall not be construed as a
waiver of any other rights, powers and remedies, including, without limitation,
any other rights of set-off.
Section 7.08 CONTINUING SECURITY AGREEMENT.
(a) Except as may be expressly applicable pursuant to Section 9.505 of
the Code, no action taken or omission to act by Secured Party hereunder,
including, without limitation, any action taken or inaction pursuant to Section
6.02, shall be deemed to constitute a retention of the Collateral in
satisfaction of the Obligations or otherwise to be in full satisfaction of the
Obligations, and the Obligations shall remain in full force and effect, until
Secured Party shall have applied payments (including, without limitation,
collections from Collateral) towards the Obligations in the full amount then
outstanding or until such subsequent time as is hereinafter provided in
subsection (b) below.
(b) To the extent that any payments on the Obligations or proceeds of
the Collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Secured Party, and Secured Party's security interests, rights, powers and
remedies hereunder shall continue in full force and effect. In such event, this
Agreement shall be automatically reinstated if it shall theretofore have been
terminated pursuant to Section 7.09.
Section 7.09 TERMINATION. The grant of a security interest hereunder and
all of Secured Party's rights, powers and remedies in connection therewith shall
remain in full force and effect until Secured Party has retransferred and
delivered all Collateral in its possession to Debtor, and executed a written
release or termination statement and reassigned to Debtor without recourse or
warranty any remaining Collateral and all rights conveyed hereby. Upon the
complete payment of the Obligations and the compliance by Debtor with all
covenants and agreements hereof, Secured Party, at the written request and
expense of Debtor, will release, reassign and transfer the Collateral to Debtor
and declare this Agreement to be of no further force or effect. Notwithstanding
the foregoing, the reimbursement
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and indemnification provisions of Section 4.08 and the provisions of subsection
7.07(b) shall survive the termination of this Agreement.
Section 7.10 CONFLICTS. In the event of a conflict between (a) this
Agreement and the Credit Agreement, the terms of the Credit Agreement shall
control or (b) this Agreement and any notice delivered to account debtors
pursuant to the Accounts Receivable Purchase Agreement, the terms of this
Agreement shall control.
Section 7.11 NO ORAL AGREEMENTS. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all other
agreements and understandings between such parties relating to the subject
matter hereof and thereof. This Agreement represents the final agreement between
the parties and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral
agreements between the parties.
Section 7.12 COUNTERPARTS, EFFECTIVENESS. This Agreement may be executed
in two or more counterparts. Each counterpart is deemed an original, but all
such counterparts taken together constitute one and the same instrument. This
Agreement becomes effective upon the execution hereof by Debtor and delivery of
the same to Secured Party, and it is not necessary for Secured Party to execute
any acceptance hereof or otherwise signify or express its acceptance hereof.
DEBTOR: CASTLE DENTAL CENTERS OF TENNESSEE,
INC.
By:
Name:Jack H. Castle, Jr.
Title: President
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EXHIBIT A
LOCATION OF COLLATERAL
-18-
EXHIBIT 10.61
GUARANTY AGREEMENT
BY
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
IN FAVOR OF
NATIONSBANK OF TEXAS, N.A.
MAY 31, 1996
TABLE OF CONTENTS
PAGE
ARTICLE 1
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE.............................................1
Section 1.2 CERTAIN DEFINITIONS.............................................1
Section 1.3 CREDIT AGREEMENT DEFINITIONS....................................3
ARTICLE 2
THE GUARANTY
Section 2.1 LIABILITIES GUARANTEED..........................................3
Section 2.2 NATURE OF GUARANTY..............................................4
Section 2.3 LENDER'S RIGHTS.................................................4
Section 2.4 GUARANTOR'S WAIVERS.............................................4
Section 2.5 MATURITY OF LIABILITIES; PAYMENT................................5
Section 2.6 LENDER'S EXPENSES...............................................5
Section 2.7 LIABILITY.......................................................5
Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS.........................................5
Section 2.9 RIGHT OF SUBROGATION AND CONTRIBUTION...........................8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 BY GUARANTOR....................................................8
Section 3.2 NO REPRESENTATION BY LENDER.....................................9
Section 3.3 INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS,
WARRANTIES AND COVENANTS........................................9
ARTICLE 4
SUBORDINATION OF INDEBTEDNESS
Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS...........................9
Section 4.2 CLAIMS IN BANKRUPTCY...........................................10
Section 4.3 PAYMENTS HELD IN TRUST.........................................10
Section 4.4 LIENS SUBORDINATE..............................................10
Section 4.5 NOTATION OF RECORDS............................................11
ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS.........................................11
Section 5.2 NOTICES........................................................11
Section 5.3 BUSINESS AND FINANCIAL INFORMATION.............................11
Section 5.4 CONSTRUCTION...................................................11
Section 5.5 INVALIDITY.....................................................12
Section 5.6 ENTIRE AGREEMENT...............................................12
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GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT by CASTLE DENTAL CENTERS OF TENNESSEE, INC.
(hereinafter called "GUARANTOR"), is in favor of NATIONSBANK OF TEXAS, N.A. (the
"LENDER").
WITNESSETH:
WHEREAS, on even date herewith, Castle Dental Centers, Inc., a Delaware
corporation (hereinafter called "BORROWER"), and the Lender have entered into
that certain Amended and Restated Credit Agreement (as the same may be amended
from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, one of the terms and conditions stated in the Credit Agreement
for the making of the loans described therein is the execution and delivery to
the Lender of this Guaranty Agreement;
NOW, THEREFORE, (i) in order to comply with the terms and conditions of
the Credit Agreement, (ii) to induce the Lender, at any time or from time to
time, to loan monies, with or without security to or for the account of Borrower
in accordance with the terms of the Credit Agreement, (iii) at the special
insistence and request of the Lender, and (iv) for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Guarantor hereby agrees as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 TERMS DEFINED ABOVE. As used in this Guaranty Agreement, the
terms "Borrower", "Guarantor", "Credit Agreement" and "Lender" shall have the
meanings indicated above.
Section 1.2 CERTAIN DEFINITIONS. As used in this Guaranty Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"COLLATERAL" shall have the meaning indicated in Section 4.1 hereof.
"CONTRIBUTION OBLIGATION" shall mean an amount equal, at any time and
from time to time and for each respective Subsidiary Guarantor, to the
product of (i) its Contribution Percentage times (ii) the sum of all
payments made previous to or at the time of calculation by all
Subsidiary Guarantors in respect of the Liabilities, as a Subsidiary
Guarantor (less the amount of any such payments previously returned to
any Subsidiary Guarantor by operation of law or otherwise, but not
including payments received by any Subsidiary Guarantor by way of its
rights of subrogation and contribution under Section 2.9 of the other
Guaranty Agreements), provided, however, such Contribution Obligation
for any Subsidiary Guarantor
-1-
shall in no event exceed such Subsidiary Guarantor's Maximum Guaranteed
Amount, as defined in the respective Guaranty Agreement of such
Subsidiary Guarantor.
"CONTRIBUTION PERCENTAGE" shall mean for any Subsidiary Guarantor for
any applicable date as of which such percentage is being determined, an
amount equal to the quotient of (i) the Net Worth of such Subsidiary
Guarantor as of such date, divided by (ii) the sum of the Net Worth of
all the Subsidiary Guarantors as of such date.
"GUARANTOR CLAIMS" shall have the meaning indicated in Section 5.1
hereof.
"GUARANTY AGREEMENT" shall mean this Guaranty Agreement, and where the
context indicates, the Guaranty Agreement of any other Subsidiary
Guarantor, as the same may from time to time be amended or supplemented.
"LIABILITIES" shall mean (a) any and all indebtedness, obligations and
liabilities of the Borrower pursuant to the Credit Agreement, including
without limitation, the unpaid principal of and interest on the Notes,
including without limitation, interest accruing subsequent to the filing
of a petition or other action concerning bankruptcy or other similar
proceeding; (b) any additional loans made by the Lender to the Borrower;
(c) payment of and performance of any and all present or future
obligations of the Borrower according to the terms of any present or
future interest or currency rate swap, rate cap, rate floor, rate
collar, exchange transaction, forward rate agreement or other exchange
or rate protection agreements or any option with respect to any such
transaction now existing or hereafter entered into between the Borrower
and the Lender; (d) any and all other indebtedness, obligations and
liabilities of any kind of the Borrower to the Lender, now or hereafter
existing, arising directly between the Borrower and the Lender or
acquired outright, as a participation, conditionally or as collateral
security from another by the Lender, absolute or contingent, joint
and/or several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect, including
indebtedness, obligations and liabilities to the Lender of the Borrower
as a member of any partnership, syndicate, association or other group,
and whether incurred by the Borrower as principal, surety, endorser,
guarantor, accommodation party or otherwise and (e) all renewals,
rearrangements, increases, extensions for any period, amendments or
supplement in whole or in part of the Notes or any documents evidencing
the above.
"LOAN DOCUMENTS" shall mean the Credit Agreement, the Notes and the
Security Instruments.
"MAXIMUM GUARANTEED AMOUNT" shall mean, for the Guarantor, the greater
of (i) the "reasonably equivalent value" or "fair consideration" (or
equivalent concept) received by the Guarantor in exchange for the
obligation incurred hereunder, within the meaning of any applicable
state or federal fraudulent conveyance or transfer laws;
-2-
or (ii) the lesser of (A) the maximum amount that will not render the
Guarantor insolvent, or (B) the maximum amount that will not leave the
Guarantor with any property deemed an unreasonably small capital.
Clauses (A) and (B) are and shall be determined pursuant to and as of
the appropriate date mandated by such applicable state or federal
fraudulent conveyance or transfer laws and to the extent allowed by law
take into account the rights to contribution and subrogation under
Section 2.9 in each Guaranty Agreement so as to provide for the largest
Maximum Guaranteed Amount possible.
"NET PAYMENTS" shall mean an amount equal, at any time and from time to
time and for each respective Subsidiary Guarantor, to the difference of
(i) the sum of all payments made previous to or at the time of
calculation by such Subsidiary Guarantor in respect to the Liabilities,
as a Subsidiary Guarantor, and in respect of its obligations contained
in this Guaranty Agreement, less (ii) the sum of all such payments
previously returned to such Subsidiary Guarantor by operation of law or
otherwise and including payments received by such Subsidiary Guarantor
by way of its rights of subrogation and contribution under Section 2.9
of the other Guaranty Agreements.
"NET WORTH" shall mean for any Subsidiary Guarantor, calculated on and
as of any applicable date on which such amount is being determined, the
difference between (i) the sum of all such Subsidiary Guarantor's
property, at a fair valuation and as of such date, minus (ii) the sum of
all such Subsidiary Guarantor's debts, at a fair valuation and as of
such date, excluding the Liabilities.
"SUBSIDIARY GUARANTORS" shall mean the Guarantors as defined in the
Credit Agreement, including the Guarantor.
Section 1.3 CREDIT AGREEMENT DEFINITIONS. Unless otherwise defined
herein, all terms beginning with a capital letter which are defined in the
Credit Agreement shall have the same meanings herein as therein.
ARTICLE 2
THE GUARANTY
Section 2.1 LIABILITIES GUARANTEED. Guarantor hereby irrevocably and
unconditionally guarantees the prompt payment of the Liabilities when due,
whether at maturity or otherwise, provided, however, that, notwithstanding
anything herein or in any other Loan Document to the contrary, the maximum
liability of Guarantor hereunder shall in no event exceed the Maximum Guaranteed
Amount.
Section 2.2 NATURE OF GUARANTY. This Guaranty Agreement is an absolute,
irrevocable, completed and continuing guaranty of payment and not a guaranty of
collection, and no notice of
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the Liabilities or any extension of credit already or hereafter contracted by or
extended to Borrower need be given to Guarantor. This Guaranty Agreement may not
be revoked by Guarantor and shall continue to be effective with respect to debt
under the Liabilities arising or created after any attempted revocation by
Guarantor and shall remain in full force and effect until the Liabilities are
paid in full, notwithstanding that from time to time prior thereto no
Liabilities may be outstanding. Borrower and the Lender may modify, alter,
rearrange, extend for any period and/or renew from time to time, the
Liabilities, and the Lender may waive any Default or Events of Default without
notice to the Guarantor and in such event Guarantor will remain fully bound
hereunder on the Liabilities. This Guaranty Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
the Liabilities is rescinded or must otherwise be returned by any of the Lender
upon the insolvency, bankruptcy or reorganization of Borrower or otherwise, all
as though such payment had not been made. This Guaranty Agreement may be
enforced by the Lender and any subsequent holder of any of the Liabilities and
shall not be discharged by the assignment or negotiation of all or part of the
Liabilities. Guarantor hereby expressly waives presentment, demand, notice of
non-payment, protest and notice of protest and dishonor, notice of Default or
Event of Default, notice of intent to accelerate the maturity and notice of
acceleration of the maturity and any other notice in connection with the
Liabilities, and also notice of acceptance of this Guaranty Agreement,
acceptance on the part of the Lender being conclusively presumed by the Lender's
request for this Guaranty Agreement and delivery of the same to the Lender.
Section 2.3 LENDER'S RIGHTS. Guarantor authorizes the Lender, without
notice or demand and without affecting Guarantor's liability hereunder, to take
and hold security for the payment of this Guaranty Agreement and/or the
Liabilities, and exchange, enforce, waive and release any such security; and to
apply such security and direct the order or manner of sale thereof as the Lender
in its discretion may determine; and to obtain a guaranty of the Liabilities
from any one or more Persons and at any time or times to enforce, waive,
rearrange, modify, limit or release any of such other Persons from their
obligations under such guaranties.
Section 2.4 GUARANTOR'S WAIVERS.
(a) GENERAL. Guarantor waives any right to require any of the
Lender to (i) proceed against Borrower or any other person liable on the
Liabilities, (ii) enforce any of their rights against any other
guarantor of the Liabilities (iii) proceed or enforce any of their
rights against or exhaust any security given to secure the Liabilities
(iv) have Borrower joined with Guarantor in any suit arising out of this
Guaranty Agreement and/or the Liabilities, or (v) pursue any other
remedy in the Lender's powers whatsoever. The Lender shall not be
required to mitigate damages or take any action to reduce, collect or
enforce the Liabilities. Guarantor waives any defense arising by reason
of any disability, lack of corporate authority or power, or other
defense of Borrower or any other guarantor of the Liabilities, and shall
remain liable hereon regardless of whether Borrower or any other
guarantor be found not liable thereon for any reason. Whether and when
to exercise any of the remedies of the Lender under any of the Loan
Documents shall be in the sole and absolute discretion of the Lender,
and no delay by the Lender in enforcing any remedy, including delay in
conducting a foreclosure sale, shall be a defense to the Guarantor's
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liability under this Guaranty Agreement. To the extent allowed by
applicable law, the Guarantor hereby waives any good faith duty on the
part of the Lender in exercising any remedies provided in the Loan
Documents.
(b) SUBROGATION. Until the Liabilities have been paid in full,
the Guarantor waives all rights of subrogation or reimbursement against
the Borrower, whether arising by contract or operation of law
(including, without limitation, any such right arising under any federal
or state bankruptcy or insolvency laws) and waives any right to enforce
any remedy which the Lender now have or may hereafter have against the
Borrower, and waives any benefit or any right to participate in any
security now or hereafter held by the Lender. The Guarantor further
agrees for the benefit of each of its creditors (including, without
limitation, the Lender) that any such payment by the Guarantor shall
constitute a contribution of capital by the Guarantor to the Borrower.
Section 2.5 MATURITY OF LIABILITIES; PAYMENT. Guarantor agrees that if
the maturity of any of the Liabilities is accelerated by bankruptcy or
otherwise, such maturity shall also be deemed accelerated for the purpose of
this Guaranty Agreement without demand or notice to Guarantor. Guarantor will,
forthwith upon notice from the Lender, pay to the Lender the amount due and
unpaid by Borrower and guaranteed hereby. The failure of the Lender to give this
notice shall not in any way release Guarantor hereunder.
Section 2.6 LENDER'S EXPENSES. If Guarantor fails to pay the Liabilities
after notice from the Lender of Borrower's failure to pay any Liabilities at
maturity, and if the Lender obtains the services of an attorney for collection
of amounts owing by Guarantor hereunder, or obtaining advice of counsel in
respect of any of their rights under this Guaranty Agreement, or if suit is
filed to enforce this Guaranty Agreement, or if proceedings are had in any
bankruptcy, probate, receivership or other judicial proceedings for the
establishment or collection of any amount owing by Guarantor hereunder, or if
any amount owing by Guarantor hereunder is collected through such proceedings,
Guarantor agrees to pay to the Lender the Lender's reasonable attorneys' fees.
Section 2.7 LIABILITY. It is expressly agreed that the liability of the
Guarantor for the payment of the Liabilities guaranteed hereby shall be primary
and not secondary.
Section 2.8 EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTOR'S OBLIGATIONS. Guarantor hereby consents and agrees to each of the
following to the fullest extent permitted by law, and agrees that Guarantor's
obligations under this Guaranty Agreement shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result of or in connection with any of the following:
(a) MODIFICATIONS, ETC. Any renewal, extension, modification,
increase, decrease, alteration or rearrangement of all or any part of
the Liabilities, or of the Notes, or the Credit Agreement or any
instrument executed in connection therewith,
-5-
or any contract or understanding between Borrower and any of the Lender,
or any other Person, pertaining to the Liabilities;
(b) ADJUSTMENT, ETC. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by any of the Lender to
Borrower or Guarantor or any Person liable on the Liabilities;
(c) CONDITION OF BORROWER OR GUARANTOR. The insolvency,
bankruptcy arrangement, adjustment, composition, liquidation,
disability, dissolution, death or lack of power of Borrower or Guarantor
or any other Person at any time liable for the payment of all or part of
the Liabilities; or any dissolution of Borrower or Guarantor, or any
sale, lease or transfer of any or all of the assets of Borrower or
Guarantor, or any changes in the shareholders, partners, or members of
Borrower or Guarantor; or any reorganization of Borrower or Guarantor;
(d) INVALIDITY OF LIABILITIES. The invalidity, illegality or
unenforceability of all or any part of the Liabilities, or any document
or agreement executed in connection with the Liabilities, for any reason
whatsoever, including without limitation the fact that the Liabilities,
or any part thereof, exceed the amount permitted by law, the act of
creating the Liabilities or any part thereof is ULTRA VIRES, the
officers or representatives executing the documents or otherwise
creating the Liabilities acted in excess of their authority, the
Liabilities violate applicable usury laws, the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by agreement)
which render the Liabilities wholly or partially uncollectible from
Borrower, the creation, performance or repayment of the Liabilities (or
the execution, delivery and performance of any document or instrument
representing part of the Liabilities or executed in connection with the
Liabilities, or given to secure the repayment of the Liabilities) is
illegal, uncollectible, legally impossible or unenforceable, or the
Credit Agreement or other documents or instruments pertaining to the
Liabilities have been forged or otherwise are irregular or not genuine
or authentic;
(e) RELEASE OF OBLIGORS. Any full or partial release of the
liability of Borrower on the Liabilities or any part thereof, of any
co-guarantors, or any other Person now or hereafter liable, whether
directly or indirectly, jointly, severally, or jointly and severally, to
pay, perform, guarantee or assure the payment of the Liabilities or any
part thereof, it being recognized, acknowledged and agreed by Guarantor
that Guarantor may be required to pay the Liabilities in full without
assistance or support of any other Person, and Guarantor has not been
induced to enter into this Guaranty Agreement on the basis of a
contemplation, belief, understanding or agreement that other parties
other than the Borrower will be liable to perform the Liabilities, or
the Lender will look to other parties to perform the Liabilities.
-6-
(f) OTHER SECURITY. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all
or any part of the Liabilities;
(g) RELEASE OF COLLATERAL, ETC. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or unjustifiable
impairment) of any collateral, property or security, at any time
existing in connection with, or assuring or securing payment of, all or
any part of the Liabilities;
(h) CARE AND DILIGENCE. The failure of the Lender or any other
Person to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all or
any part of such collateral, property or security;
(i) STATUS OF LIENS. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created
or granted as security for the repayment of the Liabilities shall not be
properly perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being recognized
and agreed by Guarantor that Guarantor is not entering into this
Guaranty Agreement in reliance on, or in contemplation of the benefits
of, the validity, enforceability, collectibility or value of any of the
collateral for the Liabilities;
(j) PAYMENTS RESCINDED. Any payment by Borrower to the Lender is
held to constitute a preference under the bankruptcy laws, or for any
reason the Lender are required to refund such payment or pay such amount
to Borrower or someone else; or
(k) OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or
omitted to be taken with respect to the Credit Agreement, the
Liabilities, or the security and collateral therefor, whether or not
such action or omission prejudices Guarantor or increases the likelihood
that Guarantor will be required to pay the Liabilities pursuant to the
terms hereof; it being the unambiguous and unequivocal intention of
Guarantor that Guarantor shall be obligated to pay the Liabilities when
due, notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether contemplated or uncontemplated, and whether
or not otherwise or particularly described herein, except for the full
and final payment and satisfaction of the Liabilities.
Section 2.9 RIGHT OF SUBROGATION AND CONTRIBUTION. If Guarantor makes a
payment in respect of the Liabilities, it shall be subrogated to the rights of
the Lender against the Borrower with respect to such payment and shall have the
rights of contribution against the other Subsidiary Guarantors set forth in
Section 2.9 of the Subsidiary Guarantors' Guaranty Agreements; provided that
Guarantor shall not enforce its rights to any payment by way of subrogation or
by exercising its
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rights of contribution or reimbursement or the right to participate in any
security now or hereafter held by or for the benefit of the Lender until the
Liabilities have been paid in full. The Guarantor agrees that after all the
Liabilities have been paid in full that if its then current Net Payments are
less than the amount of its then current Contribution Obligation, Guarantor
shall pay to the other Subsidiary Guarantors an amount (together with any
payments required of the other Subsidiary Guarantors by Section 2.9 of each
other Guaranty Agreement) such that the Net Payments made by all Subsidiary
Guarantors in respect of the Liabilities shall be shared among all of the
Subsidiary Guarantors in proportion to their respective Contribution Percentage.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 BY GUARANTOR. In order to induce the Lender to accept this
Guaranty Agreement, Guarantor represents and warrants to the Lender (which
representations and warranties will survive the creation of the Liabilities and
any extension of credit thereunder) that:
(a) BENEFIT TO GUARANTOR. Guarantor's guaranty pursuant to this
Guaranty Agreement reasonably may be expected to benefit, directly or
indirectly, Guarantor.
(b) CORPORATE EXISTENCE. Guarantor is a corporation duly
organized, legally existing and in good standing under the laws of the
State of Tennessee and is duly qualified as a foreign corporation in all
jurisdictions wherein the property owned or the business transacted by
it makes such qualification necessary.
(c) CORPORATE POWER AND AUTHORIZATION. Guarantor is duly
authorized and empowered to execute, deliver and perform this Guaranty
Agreement and all corporate action on Guarantor's part requisite for the
due execution, delivery and performance of this Guaranty Agreement has
been duly and effectively taken.
(d) BINDING OBLIGATIONS. This Guaranty Agreement constitutes
valid and binding obligations of Guarantor, enforceable in accordance
with its terms (except that enforcement may be subject to any applicable
bankruptcy, insolvency or similar laws generally affecting the
enforcement of creditors' rights).
(e) NO LEGAL BAR OR RESULTANT LIEN. This Guaranty Agreement will
not violate any provisions of Guarantor's articles or certificate of
incorporation, bylaws, or any contract, agreement, law, regulation,
order, injunction, judgment, decree or writ to which Guarantor is
subject, or result in the creation or imposition of any Lien upon any
Properties of Guarantor.
(f) NO CONSENT. Guarantor's execution, delivery and performance
of this Guaranty Agreement does not require the consent or approval of
any other Person,
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including without limitation any regulatory authority or governmental
body of the United States or any state thereof or any political
subdivision of the United States or any state thereof.
(g) SOLVENCY. The Guarantor hereby represents that (i) it is not
insolvent as of the date hereof and will not be rendered insolvent as a
result of this Guaranty Agreement, (ii) it is not engaged in business or
a transaction, or about to engage in a business or a transaction, for
which any property or assets remaining with such Guarantor is
unreasonably small capital, and (iii) it does not intend to incur, or
believe it will incur, debts that will be beyond its ability to pay as
such debts mature.
Section 3.2 NO REPRESENTATION BY LENDER. Neither the Lender nor any
other Person has made any representation, warranty or statement to the Guarantor
in order to induce the Guarantor to execute this Guaranty Agreement.
Section 3.3 INCORPORATION OF CREDIT AGREEMENT REPRESENTATIONS,
WARRANTIES AND COVENANTS. The Guarantor hereby represents and warrants that the
matters contained in each of the applicable representations and warranties
contained in Article VII of the Credit Agreement pertaining to the Guarantor or
its Properties are true and correct as of the date of this Guaranty Agreement,
and covenants and agrees, so long as any of the Liabilities or Commitment
remains outstanding, to comply with the applicable covenants contained in
Articles VIII and IX of the Credit Agreement pertaining to the Guarantor or its
Properties. The guarantor hereby acknowledges that it has been furnished a copy
of the Credit Agreement and that it is thoroughly familiar with the
representations, warranties and covenants which are incorporated herein by
virtue of this Section 3.3.
ARTICLE 4
SUBORDINATION OF INDEBTEDNESS
Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "GUARANTOR CLAIMS" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligation of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor Claims shall include without limitation
all rights and claims of Guarantor against Borrower arising as a result of
subrogation or otherwise as a result of Guarantor's payment of all or a portion
of the Liabilities. Until the Liabilities shall be paid and satisfied in full
and Guarantor shall have performed all of its obligations hereunder, Guarantor
shall
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not receive or collect, directly or indirectly, from Borrower or any other party
any amount upon the Guarantor Claims.
Section 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Borrower as debtor, the Lender shall have the right to
prove their claim in any proceeding, so as to establish its rights hereunder and
receive directly from the receiver, trustee or other court custodian, dividends
and payments which would otherwise be payable upon Guarantor Claims. Guarantor
hereby assigns such dividends and payments to the Lender. Should the Lender
receive, for application upon the Liabilities, any such dividend or payment
which is otherwise payable to Guarantor, and which, as between Borrower and
Guarantor, shall constitute a credit upon the Guarantor Claims, then upon
payment in full of the Liabilities, Guarantor shall become subrogated to the
rights of the Lender to the extent that such payments to the Lender on the
Guarantor Claims have contributed toward the liquidation of the Liabilities, and
such subrogation shall be with respect to that proportion of the Liabilities
which would have been unpaid if the Lender had not received dividends or
payments upon the Guarantor Claims.
Section 4.3 PAYMENTS HELD IN TRUST. In the event that notwithstanding
Sections 4.1 and 4.2 above, Guarantor should receive any funds, payments, claims
or distributions which is prohibited by such Sections, Guarantor agrees to hold
in trust for the Lender an amount equal to the amount of all funds, payments,
claims or distributions so received, and agrees that it shall have absolutely no
dominion over the amount of such funds, payments, claims or distributions except
to pay them promptly to the Lender, and Guarantor covenants promptly to pay the
same to the Lender.
Section 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens, security
interests, judgment liens, charges or other encumbrances upon Borrower's assets
securing payment of the Guarantor Claims shall be and remain inferior and
subordinate to any liens, security interests, judgment liens, charges or other
encumbrances upon Borrower's assets securing payment of the Liabilities,
regardless of whether such encumbrances in favor of Guarantor or the Lender
presently exist or are hereafter created or attach. Without the prior written
consent of the Lender, Guarantor shall not (a) exercise or enforce any
creditor's right it may have against the Borrower, or (b) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceeding
(judicial or otherwise, including without limitation the commencement of or
joinder in any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any lien, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
Section 4.5 NOTATION OF RECORDS. All promissory notes, accounts
receivable ledgers or other evidence of the Guarantor Claims accepted by or held
by Guarantor shall contain a specific written notice thereon that the
indebtedness evidenced thereby is subordinated under the terms of this Guaranty
Agreement.
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ARTICLE 5
MISCELLANEOUS
Section 5.1 SUCCESSORS AND ASSIGNS. This Guaranty Agreement is and shall
be in every particular available to the successors and assigns of the Lender and
is and shall always be fully binding upon the legal representatives, heirs,
successors and assigns of Guarantor, notwithstanding that some or all of the
monies, the repayment of which this Guaranty Agreement applies, may be actually
advanced after any bankruptcy, receivership, reorganization, death, disability
or other event affecting Guarantor.
Section 5.2 NOTICES. Any notice or demand to Guarantor under or in
connection with this Guaranty Agreement may be given and shall conclusively be
deemed and considered to have been given and received in accordance with Section
11.02 of the Credit Agreement, addressed to Guarantor at the address on the
signature page hereof or at such other address provided to the Lender in
writing.
Section 5.3 BUSINESS AND FINANCIAL INFORMATION. The Guarantor will
promptly furnish to the Lender from time to time upon request such information
regarding the business and affairs and financial condition of the Guarantor and
its subsidiaries as the Lender may reasonably request.
Section 5.4 CONSTRUCTION. This Guaranty Agreement is a contract made
under and shall be construed in accordance with and governed by the laws of the
State of Texas.
Section 5.5 INVALIDITY. In the event that any one or more of the
provisions contained in this Guaranty Agreement shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Guaranty
Agreement.
Section 5.6 ENTIRE AGREEMENT. THIS WRITTEN GUARANTY AGREEMENT AND THE
OTHER SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH EMBODIES THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE LENDER AND THE GUARANTOR AND SUPERSEDES
ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE
SUBJECT MATTER HEREOF AND THEREOF. THIS WRITTEN GUARANTY AGREEMENT AND THE OTHER
SECURITY INSTRUMENTS EXECUTED IN CONNECTION HEREWITH REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
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WITNESS THE EXECUTION HEREOF, as of this the 31st day of May, 1996.
CASTLE DENTAL CENTERS OF TENNESSEE, INC.
By:
Name: Jack H. Castle, Jr.
Title: President
Address:: 1360 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
Telecopier No.:: (713) 513-1401
Telephone No.:: (713) 513-1400
Attention::
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STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me on the 31st day of May, 1996,
by Jack H. Castle, Jr., President of CASTLE DENTAL CENTERS OF TENNESSEE, INC., a
Tennessee corporation, on behalf of such corporation.
Notary Public in and for
The State of TEXAS
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EXHIBIT 10.62
LEASE
This lease is effective as of the 1st day of January, 1996, by and between the
landlord and the Tenant hereinafter named:
ARTICLE 1. DEFINITIONS AND CERTAIN BASIC PROVISIONS.
1.1 a. Landlord: Goforth, Inc.
b. Landlord's Address: 1360 Post Oak Boulevard, Suite 1300 Houston,
Texas, 77056
c. Tenant: Family Dental Services of Texas, Inc.
d. Tenant's Address: 1360 POST OAK BOULEVARD, SUITE 1300
e. Tenant's Trade Name: Castle Dental Centers
f. Demised Premises: Being a free standing building of
approximately 6,781 sq ft in area in Harris County, located at
2101 West Loop South, further described on Exhibit "A" attached
hereto and made a part hereof.
g. Lease Term: Commencing on January 1, 1996, and continuing for
ten (10) full lease years thereafter. Tenant may open for
business prior to the commencement date of lease at no charge.
h. Minimum Guaranteed Rental: 1 ten (10) year primary term: Lease
Years (1-5) $1 2,000.00/month. First payment due the commence
date. Lease Years (6-10) $1 3,200.00/month. One five (5) year
option. Lease Years (11-15) $15,180.00/month.
i. Finish-out Allowance: $0.00
j. Security Deposit: $0.00 Prepaid Rental: $0.00
k. Permitted Use: Dental Center
l. Common Area Maintenance Charge: $500.00 per Month, payable in
advance, subject to periodic adjustments, commencing on the
first day of lease.
m. Taxes: $1,898.04 per month, payable in advance, subject to
periodic adjustments, commencing on the first day of lease.
n. Insurance: $121.00 per month, payable in advance, subject to
periodic adjustments, commencing on the first day of lease.
o. Tenant's Pro Rata Share of CAM, Taxes, and Insurance, hereafter
referred to as additional rent, means a fraction having as its
numerator 6,781 sq ft and as its denominator the total number of
sq ft of leasable area on the property. Tenant's Pro Rata share
is currently: 41 %. Should a new building be built on the
property, tenant's Pro Rata share will decrease accordingly.
p. Landlord's Agent: Jack Castle, Jr.
q. Agent's Address: 1360 Post Oak Boulevard, Suite 1300, Houston,
Texas, 77056
1.2 Each of the foregoing definitions and basic provisions shall be
construed in conjunction with and limited by the references thereto in
the other provisions of this Lease.
1.3 All monies to be paid by Tenant to Landlord shall be paid to Landlord's
Agent at the address stipulated in Article 1.1 (q).
1.4 Tenant may exercise its option to renew the lease by serving Landlord
written notice of interest to do so one hundred and eighty (180) days
prior to the expiration of (or any renewal) of the Lease.
ARTICLE 2. GRANTING CLAUSE AND QUITE POSSESSION.
2.1 In consideration of and subject to the terms, covenants and conditions
hereof, Landlord hereby demises and leases to Tenant, and Tenant hereby
takes from Landlord, the Demised Premises as described in Section 1.1
(f) (herein called the "Demised Premises").
2.2 Landlord agrees that if Tenant shall perform all of the covenants and
agreements herein required to be preformed by Tenant, Tenant shall,
subject to the terms of this Lease and any mortgages, leases, and other
matters to which this Lease is subordinate, at all times during the
continuance of this Lease have peaceful and quiet possession of the
Demised Premises.
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ARTICLE 3. DELIVERY AND ACCEPTANCE OF PREMISES: TERM OF LEASE: HOLDOVER.
3.1 Tenant agrees to accept possession of the Demised Premises at such time
as Landlord delivers same to Tenant. By occupying the Demised Premises,
Tenant shall be deemed to have accepted the same in an "AS IS" condition
and to have acknowledged that the same complies fully with Landlord's
covenants and obligations hereunder.
3.2 In the event Landlord delivers possession of the Demised Premises to
Tenant prior to the Commencement Date, Tenant agrees it shall be bound
by and subject to all terms, covenants, conditions and obligations of
this Lease during the period between the date possession is delivered
and the Commencement Date, other than the payment of Minimum Guaranteed
Rental, in the same manner as if delivery had occurred on the
Commencement Date, other than payment of all rentals and charges in the
same manner as if delivery occurred on the Commencement Date.
3.3 Tenant recognizes that this Lease provides for Tenant's maintaining and
repairing the Demised Premises, as more specifically provided in Article
7.
3.4 This Lease shall be for a Lease Term as set forth in Section 1.1 (g).
3.5 In the event this Lease is hereafter extended by written agreement of
the parties, the phrase "Lease Term", as used herein, shall refer to
such extended term in addition to the period specified in Section 1.1
(g) above.
3.6 In the event Tenant remains in possession of the Demised Premises after
the expiration of this Lease and without the execution of a new Lease,
it shall be deemed to be occupying the Demised Premises as a tenant from
month to month at a monthly rental equal to 150% of Minimum Guaranteed
Rental and Additional Rental payable for the last month of the expired
term and otherwise subject to all the conditions, provisions, and
obligations of this Lease insofar as the same are applicable to a month
to month tenancy.
ARTICLE 4. MINIMUM GUARANTEED RENTAL.
4.1 Minimum Guaranteed Rental shall accrue hereunder from the Commencement
Date, and shall be payable to Landlord without demand and/or deduction
or offset of any nature, as specified in Section 1.3 or at such other
address as may be designated by Landlord from time to time.
-3-
4.2 Tenant shall pay to Landlord Minimum Guaranteed Rental in monthly
installments in the amounts specified in Section 1.1 (h) above. The
first such monthly instalment shall be due and payable on or before the
first day of each succeeding calendar month during the Lease Term.
Minimum Guaranteed Rental and Additional Rental for any partial calendar
month shall be prorated.
4.3 In the event any Minimum Guaranteed Rental, of any nature payable
hereunder is not received with five (5) days after its due date for any
reason whatsoever, a late charge penalty of $10.00 per day shall become
due. The total amount due after the grace period set forth above
including any penalty shall bear interest at the maximum non-usurious
interest rate which could legally be charged in the event of a loan of
such Rental to Tenant in the state where the Demised Premises are
located. Any such late charge penalty or interest shall be payable on
demand as Additional Rental hereunder.
4.4 The term "Pre Occupancy" as used in this Lease shall mean that initial
period, if any, as stated in Section 1.1 (g). The term "Lease Year" as
used in this Lease shall mean a period of twelve (12) full months, with
the first such Lease Year commencing on the Commencement Date of the
Lease Term. Each succeeding Lease Year shall commence on the anniversary
date of the first Lease Year. The last Lease Year of the Lease Term
shall include such additional number of days as remain in the unexpired
portion of its last calendar month, so as to terminate on the last day
of a calendar month.
ARTICLE 5. COMMON AREA MAINTENANCE.
5.1 The term "Common Area" is defined for all purpose of this Lease as that
part of the Shopping Center intended for the common use or benefit of
all tenants including, among other facilities (as such may be applicable
to the Shopping Center), the parking area, private streets and alleys,
landscaping, curbs, loading areas, sidewalks, malls, and promenades
(enclosed or otherwise), lighting facilities, and the like, but
excluding interior space in buildings (now or hereafter existing)
designed for rental for commercial purposes, as the same may exist from
time to time, and further excluding streets and alleys maintained by a
public authority. Landlord reserves the right to changes within reason,
from time to time the dimensions, size and location of the Common Area,
parking lot, striping, as well as the dimensions, identity and type of
any buildings in the Shopping Center, so as not to disrupt tenant's
business or adversely effect tenant's exposure, visibility or parking.
Tenant, its employees, and customers, and when duly authorized pursuant
to the provisions of this Lease, its subtenants, licensees and
concessionaires, shall have the non-exclusive right to use the Common
Area as constituted from time to time, such use to be in common with
Landlord, other tenants of the Shopping Center and other persons
permitted by Landlord to use the same, subject to such reasonable rules
and regulations governing use as Landlord
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may from time to time prescribe, including the designation of specific
areas within the Shopping Center or in reasonable proximity thereto in
which automobiles owned or used by Tenant, its employees, subtenants,
licensees and concessionaires shall be parked. In this regard, Tenant
shall furnish to Landlord upon request a complete list of licenses
numbers of all automobiles operated by tenant, its employees,
subtenants, licensees, or concessionaires. Tenant shall not solicit
business within the Common Area or take in action which would interfere
with the rights of other persons to use the Common Area. Landlord may
temporarily close any part of the common Area for such periods of time
as may be necessary to make repairs or alterations or to prevent the
public from obtaining prescriptive rights, provided such repairs or
alterations are done in a manner to minimize disruptions to tenant's
business.
5.2 All costs paid or incurred by Landlord for the operation, management,
and maintenance of the Common Area and the necessity therefore, shall be
in the reasonable discretion of Landlord.
5.3 In addition to the Rentals and other charges prescribed in this Lease,
Tenant shall pay to Landlord as Additional Rental an amount equal to
Tenant's Pro Rata Share of Common Area Costs paid or incurred by
Landlord during the Lease Term. Tenant shall make such payments to
Landlord monthly on the same day that Minimum Guaranteed Rentals due.
The first such monthly installment shall be due and payable on or before
the date and in the amount specified in Section 1.1 (I). Landlord may,
at its option, reasonably increase the amount of Tenant's Common Area
Maintenance Charge, from time to time, based upon the estimated annual
cost of operation and maintenance of the Common Area, subject to
adjustment after the end of the year on the basis of the actual cost for
such year. The term "Common Area Costs", as used herein, means all costs
and expenses of every kind and nature paid or incurred in operating,
managing, cleaning, equipping, lighting, repairing, replacing and
maintaining the Common Area, including, without limitation, costs of
resurfacing, recoating and restripping the parking area; repainting,
cleaning, sweeping and other janitorial services; landscaping; car
stops; utilities serving the Common Area; maintenance, repair and
replacement of utility systems and drainage systems within and serving
the Shopping Center; rental charges for machinery and equipment;
Shopping Center identification signs; directional signs and other
markers; on and off-site traffic regulation and control signs and
devices; security (if and to the extent Landlord elects to provide
same); lighting fixtures and bulbs, sound equipment, supplies, costs of
personnel to implement all of the foregoing, including wages,
unemployment taxes and social security taxes; personal property taxes;
fees for required licenses and permits; supplies; heating ventilating
and air-conditioning systems serving the Common Area, including, without
limitation, if any; and an allowance to Landlord for supervision of the
Common Area in an amount not to exceed fifteen (15%) of the total of all
Common Area Costs (but there shall be excluded from Common Area Costs
-5-
the cost of equipment properly chargeable to a capital account, and
depreciation of the original costs of constructing the Common Area).
5.4 Within one hundred twenty (120) days after the end of each calendar year
Landlord will provide Tenant with a statement showing the balance, if
any, that Tenant owes Landlord for the Common Area Maintenance Charge
for such calendar year, and Tenant shall pay Landlord the difference
within thirty (30) days after receipt of said statement.
ARTICLE 6. USE AND OCCUPANCY OF PREMISES.
6.1 The Demised Premises shall be used only for the permitted use or uses
specified in Section 1.1 (k) above, and for no other purposes without
the prior written consent of Landlord, which shall not be unreasonably
withheld or delayed. Tenant shall use in the transaction of business in
the Demised Premises the Trade Name specified in Section 1.1(e) above
and no other Trade Name without the prior written consent of Landlord,
which shall not be unreasonably withheld or delayed.
6.2 Tenant shall operate its business in a high class and reputable manner.
6.3 Tenant shall not, without Landlord's prior written consent, which shall
not be unreasonably withheld or delayed, keep anything within the
Demised Premises or use the Demised Premises for any purpose which
increases the insurance premium cost or invalidates any insurance policy
carried on the Demised Premises or other parts of the Shopping Center.
All property kept, stored or maintained within the Demised Premises by
Tenant shall be at Tenant's sole risk. Tenant agrees, at its own cost
and expense, it comply with all rules, regulations and requirements of
the fire insurance underwriting organization and any similar body or
governmental authority having jurisdiction.
6.4 Tenant shall not conduct within the Demised Premises any fire, auction,
bankruptcy, "going- out-of-business", "lost-our-lease", or similar sales
without prior written consent of Landlord, which shall not be
unreasonable withheld or delayed. Tenant shall not permit any
objectionable or unpleasant odors or sounds to emanate from the Demised
Premises; nor place or permit any radio, television, loudspeaker or
amplifier on the roof or outside the Demised Premises or where the same
can be seen or heard from outside the building; nor place any antenna,
awning or other projection on the exterior of the Demised Premises; nor
place any "For Lease" or similar signs inside or outside its Demised
Premises; nor distribute or cause to be distributed any handbills or
other advertising devised in the Shopping Center; nor use any portion of
the Common Area for the keeping or displaying of any merchandise nor
take any other action which would constitute a nuisance or would disturb
or endanger
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other tenants of the Shopping Center or unreasonably interfere with
their use of the respective premises.
6.5 Tenant shall take good care of the Demised Premises and keep the same
free from waste at all times. Tenant shall keep the Demised Premises and
sidewalks, service-ways and loading areas adjacent to the Demised
Premises neat, safe, clean and free from dirt or rubbish at all times,
and shall store all trash and garbage within the Demised Premises,
arranging for the regular pickup of such trash and garbage from Tenant's
dumpster at Tenant's expense. Receiving and delivery of goods and
merchandise and removal of garbage and trash shall be made only in the
manner and areas prescribed by Landlord. Tenant shall not operate an
incinerator or burn trash or garbage within the Shopping Center.
6.6 Tenant shall maintain all display windows in a neat, attractive
condition, and shall keep all display windows, exterior electric signs
and any Tenant exterior lights on the Demised Premises lighted from dusk
until 11:00 P.M. every day, including Sundays and holidays.
6.7 Tenant shall take prudent measures to provide for the security of its
employees, agents, customers, and the Demised Premises, and shall keep
some of its interior store lights lighted from dusk until dawn every
day.
6.8 Tenant shall procure, at its sole expense, any permits required for the
transaction of business in the Premises and comply with all applicable
laws, ordinances, and governmental regulations.
ARTICLE 7. MAINTENANCE AND REPAIR OF PREMISES.
7.1 Tenant at its own expense shall keep and maintain the entire Premises in
good order and in a neat, clean, safe and habitable condition, free of
insects, rodents, vermin and other pests, and shall make all needed
repairs and replacements, excluding roof, foundation, structure and
parking lot. Landlord shall not be required to make any repairs
whatsoever, except as stated in 7.4. If any repairs or replacements
required to be made by Tenant hereunder are not commenced with ten (10)
days after written notice delivered to Tenant by Landlord, Landlord may
at its option make such repairs or replacements without liability to
Tenant for any loss or damage which may result by reason thereof; and
Tenant shall pay to Landlord upon demand, as Additional Rental
hereunder, the cost of such repairs or replacements.
7.2 Tenant shall keep and maintain the exterior and improvements on or about
the Demised Premises in good order, including but not limited to; plate
glass, windows, doors, door closure devices and other exterior openings,
window and door frames, molding, locks and hardware, store fronts,
lighting, heating and air conditioning; and grease traps, utility
meters,
-7-
plumbing and other electrical mechanical and electromotive
installations, equipment and fixtures, signs, decorations and storage
tanks, exclusively serving the Demised Premises, saving and except
Landlord's obligations set forth herein.
7.3 Tenant shall keep and maintain the interior of any buildings on or about
the Demised Premises, including but not limited to, the repair and
replacement of all lighting, heating, air conditioning, grease traps,
utility meters, plumbing, water heaters, floors, ceilings, sprinklers,
and other electrical, mechanical and electromotive installations,
equipment and fixtures. Tenant shall arrange for periodic inspection,
cleaning, maintenance and repair of any grease traps, fire safety
systems, HVAC systems, exhaust fans and/or hood duct systems located in,
on or about the Demised Premises, by qualified service technicians and
at reasonable intervals approved by Landlord.
7.4 Landlord at its sole cost and expense shall keep and maintain the roof,
foundation, structure and parking facilities. Landlord will initiate the
repair of defects or required repair within a commercially reasonable
time after notice from Tenant. If Landlord fails to do so, Landlord
shall compensate Tenant for any damages proximately caused by Landlord's
delay. Landlord will transfer the warranty of the HVAC to Tenant.
ARTICLE 8. UTILITIES.
8.1 Tenant shall promptly pay all charges for electricity, water, gas,
telephone service, sewage service and other utilities furnished to the
Demised Premises, including any charges for utilities on Landlord's
meters adjustable from time to time. As long as such changes are the
same as if tenant had contracted directly with the utility company.
ARTICLE 9. TAXES.
9.1 Tenant shall pay before delinquency all taxes levied against Tenant's
personal property and trade fixtures in the Demised Premises.
Additionally, Tenant shall pay before delinquency all Taxes (as defined
in Section 9.2) assessed against the Demised Premises that are billed
direct to Tenant by the taxing authorities. Should Landlord elect to pay
the same, Tenant shall reimburse Landlord promptly upon demand as
Additional Rental. However, should Landlord ever construct additional
improvements on a portion of the land, Tenant's land taxes shall be
proportionately reduced.
9.2 In the event the Demised Premises is assessed or billed along with the
Shopping Center, Tenant shall pay to Landlord as Additional Rental an
amount equal to Tenant's Pro Rata Share of all real estate and other ad
valorem taxes, assessments, parking surcharges, water and sewer rents,
and other governmental impositions, levies and charges of every kind and
-8-
nature whatsoever, general and special, ordinary and extraordinary
(hereinafter collectively referred to as the "Taxes") levied against the
Shopping Center for each real estate tax year during the Lease Term.
Tenant shall make such payments to Landlord monthly in such amounts as
are determined by Landlord, such installments being due on the same day
that minimum guaranteed rental is due.
9.3 Within one hundred twenty (120) days after the end of each calendar year
Landlord shall provide Tenant with a statement showing the amount, if
any, Tenant owes Landlord for Taxes for such calendar year. If the
aforesaid installment payments made for a given year are greater than
Tenant's Pro Rata Share of Taxes, Landlord shall credit the amount of
the excess to Tenant's next Taxes installment(s). If said installment
payments made are less that Tenant's Pro Rata Share of Taxes costs,
Tenant shall pay Landlord the difference within thirty (30) days after
receipt of said statement. In either case, neither party shall be
entitled to payment or credit for any amounts owing for more than two
(2) years, unless claims for such amounts are made prior to the end of
such two (2) year period.
9.4 If at any time during the Lease Term or any renewal or extension thereof
a tax or excise on rents, or other tax however described (except any
franchise, estate, inheritance, capital stock, income or excess profits
tax imposed upon Landlord) is levied or assessed against Landlord by any
lawful taxing authority on account of Landlord's interest in this Lease
or the Rentals or other charges reserved hereunder, as a substitute in
whole or in part for, or in addition to the Taxes described in Section
9.2 above, Tenant agrees to pay to Landlord upon 30 days after notice,
as Additional Rental, the amount of such tax or excise.
ARTICLE 10. ALTERATIONS.
10.1 Tenant shall not make any alterations, additions, or improvements to the
Demised Premises without the prior written consent of Landlord, which
will not be unreasonably withheld or delayed, except for the
installation of unattached movable trade fixtures which may be installed
without drilling, cutting or otherwise defacing the Demised Premises.
All alterations, additions, improvements and fixtures (other than
Tenant's unattached movable trade fixtures) which may be made or
installed by either party upon the Demised Premises shall remain upon
and be surrendered with the Demised Premises and become the property of
Landlord at the termination of this Lease, unless Landlord requests
their removal in which event Tenant shall remove the same and restore
the Demised Premises to their original conditions at Tenant's expense.
10.2 All construction and removal work by Tenant within the Demised Premises
shall be performed in a good and workmanlike manner, in compliance with
all governmental requirements, laws, ordinances, orders or regulations
affecting the Demised Premises or the
-9-
removal of any substances therefrom, in such a manner as to cause a
minimum of interference with other construction in progress and with the
transaction of business in the Shopping Center, and in full compliance
with Article 28 hereof. Tenant agrees to indemnify and hold Landlord
harmless from and against any and all claims, demands, losses,
liabilities, damages, costs, fines or penalties resulting from or
arising in connection with the performance of such work.
ARTICLE 11. TENANT'S FIXTURES.
11.1 Tenant may place or install in the Demised Premises Tenant's business
fixtures and related furnishings and equipment that are not in the
nature of a leasehold improvement, including but not limited to
counters, shelving, floor fixtures, display cases, office furniture and
safes, and shall remove same upon the expiration or termination of this
Lease; provided, however, that Tenant, at Tenant's own cost and expense,
shall repair any and all damage to the Demised Premises resulting from
or caused by such installation or removal.
ARTICLE 12. TENANT'S STORE FRONT AND SIGNS.
12.1 Tenant will have exclusive rights to use the top and bottom pylon signs,
(subject to governmental regulations) at no cost and Tenant shall
maintain such pylon sign and comply with all governmental regulations.
All signs shall be subject to Landlord's approval which shall not be
unreasonably delayed or withheld.
ARTICLE 13. LANDLORD'S RIGHT OF ACCESS: USE OF ROOF.
13.1 Landlord shall have the right to enter upon the Demised Premises at any
time for the purpose of inspecting the same, or of making repairs to the
Demised Premises, or of making repairs, alterations or additions to the
adjacent premises, or of showing the Demised Premises to prospective
purchasers, lessees or lenders.
ARTICLE 14. DAMAGES BY CASUALTY.
14.1 Tenant shall give immediate written notice to Landlord of any damage
caused to the Demised Premises by fire or other casualty.
14.2 In the event the Demised Premises shall be damaged or destroyed by fire
or other casualty insurable under standard fire and extended coverage
insurance and Landlord does not elect to terminate this Lease as
hereinafter provided, Landlord shall proceed with reasonable diligence
and Landlord's sole cost and expense to rebuild and repair the Demised
Premises. In the event (a) the building in which the Demised Premises
are located shall be destroyed
-10-
or substantially damaged by a casualty not covered by Tenant's or
LANDLORD's insurance or (b) such building shall be destroyed or rendered
untenantable to an extent in excess of fifty percent (50%) of the first
floor area by a casualty covered by Tenant's or Landlord's insurance, or
(c) the holder of a mortgage, deed of trust or other lien on the Demised
Premises at the time of the casualty elects, pursuant to such mortgage,
deed of trust or other lien, to require the use of all or part of
insurance proceeds in satisfaction of all or part of the indebtedness
secured by the mortgage, deed of trust or other lien, then Landlord may
elect either to terminate this Lease or to proceed to rebuild and repair
the Demised Premises. Landlord shall give written notice to Tenant of
such election within sixty (60) days after the occurrence of such
casualty and, if it elects to rebuild and repair, shall proceed to do so
with reasonable diligence.
14.3 Landlord's obligation to rebuild and repair under this Article 14 shall
in any event be limited to restoring the Demised Premises to
substantially the condition in which the same existed prior to such
casualty, exclusive of any alterations, additions, improvements,
fixtures and equipment installed by Tenant. Tenant agrees, promptly
after completion of such work by Landlord, to proceed with reasonable
diligence and at Tenant's sole cost and expense to restore, repair and
replace all alterations, additions, improvements, fixtures, signs and
equipment installed by Tenant and to reopen for business in the Demised
Premises.
14.4 Tenant agrees that during any period of reconstruction or repair of the
Demised Premises it will continue the operations of its business within
the Demised Premises to the extent practicable. During the period of
time that Tenant is unable to wholly use the Demised Premise, the
Minimum Guaranteed Rent shall be wholly abated. During the period from
the occurrence of the casualty until thirty (30) days after Landlord's
repairs are completed, the Minimum Guaranteed Rental shall be reduced to
such extent as may be fair and reasonable under the circumstances. There
shall be no abatement of additional rental provided for herein.
ARTICLE 15. INSURANCE.
15.1 Tenant shall pay to Landlord as Additional Rental an amount equal to
Tenant's Pro Rata Share of all premiums for liability insurance, fire
and extended coverage insurance, rental loss and such other insurance as
may be carried by Landlord covering the Shopping Center (hereinafter
collectively referred to as "Insurance") during the Lease Term. Tenant
shall make such payments to Landlord in monthly installments in such
amounts as are determined by Landlord, such installments being due and
payable on the same day that Minimum Guaranteed Rental is due. The first
such monthly installment shall be due and payable on or before the date
and in the amount specified in Section 1.1(n).
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15.2 Within one hundred twenty (120) days after the end of each calendar year
Landlord will provide Tenant with a statement showing the amount, if
any, Tenant owes Landlord for Insurance for such calendar year. If the
aforesaid installment payments made for a give year are greater than
Tenant's Pro Rata Share of Insurance, Landlord shall credit the amount
of the excess to Tenant's next Insurance installment(s). If said
installment payments made are less than Tenant's Pro Rata Share of
Insurance, Tenant shall pay Landlord the difference within thirty (30)
days after receipt of said statement. Neither party shall be entitled to
payment or credit for amounts owing for more than two (2) years, unless
claims for such amounts are made prior to the end of such two (2) year
period.
15.3 All other insurance coverage shall be the responsibility of Tenant,
including, without limitation, theft, liability, plate glass breakage,
and all insurance covering Tenant's stock of goods (including fore and
extended coverage), trade fixtures, and all other contents of the
Demised Premises. Any insurance against casualty loss which may be
carried by Landlord shall be under the control of Landlord. Tenant and
it assignees hereby expressly waive any cause of action or right of
recovery that it may hereafter have against Landlord for any loss or
damage to the Demised Premises or to the building of which the Demised
Premises are a part, or to the contents thereof belonging to Tenant
contained in said Demised Premises caused by fire, explosion or other
risk covered or which could be covered by a Texas Standard Form of Fire
and Extended Coverage Policy.
ARTICLE 16. INDEMNITY AND PUBLIC LIABILITY INSURANCE.
16.1 Landlord shall not be liable to Tenant or to Tenant's employees, agents,
or visitors, or to any other person whomsoever, for any injury to person
or damage to property on or about the Demised Premises or the Common
Area caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires, or of any other person
entering the Shopping Center under express or implied invitation of
Tenant, or arising out of the use of the Demised Premises by Tenant and
the conduct of its business therein or arising out of any breach or
default by Tenant in the performance of its obligations hereunder; and
Tenant hereby agrees to indemnify and hold Landlord harmless from and
against any and all liability, loss, damage, expense or claim arising
out of such damage or injury or resulting from any breach, violation or
nonperformance of any covenants or conditions hereof solely by Tenant,
its agents, employees or invitee.
16.2 Tenant shall procure and maintain throughout the Lease Term a policy or
policies of insurance, at its sole cost and expense, insuring both
Landlord (by naming Landlord as an additional insured) and Tenant
against all claims, demands or actions arising out of or in connection
with the Demised Premises, the condition of the Demised Premises,
Tenant's operations in and maintenance and use of the Demised Premises,
and Tenant's liability
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assumed under this Lease, the limits of such policy or policies to be in
an amount not less than $1,000,000 per occurrence and $1,000,000
aggregate in respect of injury to persons (including death), and in
respect of property damage or destruction, including loss of use
thereof. All such policies shall be procured by Tenant from responsible
insurance companies reasonably satisfactory to Landlord. Certified
copies of such policies or duly executed "Certificates of Insurance",
together with receipt evidencing payment of premiums therefor, shall be
delivered to Landlord prior to the Commencement Date of this Lease, or
prior to the date Landlord delivers possession of the Demised Premises
to Tenant, whichever is the earlier to occur. Not less than fifteen (15)
days prior to the expiration date of any such policies, certified copies
of the renewals thereof or duly executed "Certificates of Insurance"
bearing notations evidencing the payment of renewal premiums, shall be
delivered to Landlord prior to the Commencement Date of this Lease, or
prior to the date Landlord delivers possession of the Demised Premises
to Tenant, whichever is the earlier to occur. Not less than fifteen (15)
days prior to the expiration date of any such policies, certified
policies of the renewals thereof or duly executed "Certificates of
Insurance", bearing notations evidencing the payment of renewal
premiums, shall be delivered to Landlord. Such policies shall further
provide that not less than thirty (30) days written notice shall be
given to Landlord before such policy may be canceled or changed to
reduce insurance provided thereby. If Tenant should fail to comply with
the foregoing requirements relating to insurance, Landlord may obtain
such insurance and Tenant shall pay to Landlord on demand, as Additional
Rental hereunder, the premium cost thereof.
ARTICLE 17. NON-LIABILITY FOR CERTAIN DAMAGES.
17.1 Landlord and Landlord's agents and employees shall not be liable to
Tenant for any injury to person or damage to property caused by the
Demised Premises becoming out of repair or by defect or failure to any
structural element of the Demised Premises or of any equipment, pipes or
wiring, or broken glass, or by the backing up of drains, or by gas,
water, steam, electricity or oil leaking, escaping or flowing into the
Demised Premises (except where due to Landlord negligence or willful
failure to make repairs required to be made hereunder, after the
expiration of a reasonable time after written notice to Landlord of the
need for such repairs), nor shall Landlord be liable to Tenant for any
loss or damage that may be occasioned by or through the acts or
omissions of other tenants of the Shopping Center or of any other
persons whomsoever, excepting only duly authorized employees and agents
of Landlord.
17.2 Landlord shall not be liable to Tenant for losses due to theft,
vandalism or burglary, or for damages or injuries done by unauthorized
persons to the Demised Premises or to any person or property located in,
upon, or adjacent to the Demised Premises.
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ARTICLE 18. ASSIGNMENT AND SUBLETTING.
18.1 Tenant shall not assign or in any manner transfer this Lease or any
estate or interest therein, or sublet the Demised Premises or any part
thereof, or grant any license, concession or other right of occupancy of
any portion of the Demise Premises without the prior written consent of
Landlord which shall not be unreasonably withheld or delayed. Consent by
Landlord to one or more assignments or subletting shall not operate as a
waiver of Landlord's rights as to any subsequent assignments and
subletting.
18.2 If Tenant is a corporation, and if at any time during the Lease Term or
any renewal or extension thereof the owners of a majority of either the
outstanding voting shares or all outstanding shares of capital stock of
Tenant at the time of the execution of this Lease cease to own a
majority of such shares (except as the result of transfer by devise or
descent), the loss of a majority of such shares shall be deemed as
assignment of this Lease by Tenant and therefore subject in all respects
to the provisions of Section 18.1 above. The previous sentence shall not
apply, however, if at the time of the execution of this Lease the
outstanding voting shares of capital stock of Tenant are listed on a
recognized security exchange or over-the-counter market.
18.3 Notwithstanding any assignment or subletting, Tenant and any guarantor
of Tenant's obligations under this Lease shall at all times remain fully
responsible and liable for the payment of all Rentals herein specified
and for compliance with all of its other obligations under this Lease
(even if future assignments and subletting occur subsequently to the
assignment or subletting). Moreover, in the event that the rental due
and payable by a sublessee (or a combination of the rental payable under
such sublease (except for a sublease to Guarantor) plus any bonus or
other consideration therefor or incident thereto) exceeds the Rentals
payable under this Lease, then Tenant shall be bound and obligated to
pay Landlord all such excess rental and other excess consideration
within ten (10) days following receipt thereof by Tenant.
18.4 Tenant shall not mortgage, pledge or otherwise encumber its interest in
this Lease or in the Demised Premises, unless otherwise provided for by
the Lease.
ARTICLE 19. ASSIGNMENT OF LANDLORD'S INTEREST.
19.1 Landlord shall have the right to assign, or transfer in whole or in
part, every feature of Landlord's right and obligation hereunder and in
the Demised Premises, subject to this Lease. Such assignments or
transfers may be made to a corporation, state or national banking
association, trust, trust company, limited partnership, partnership,
individual or group of individuals, and however made, shall be in all
things respected and recognized by Tenant.
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Tenant shall not, however be charged with notice, actual or
constructive, of or with inquiry and respect to, any such assignment or
transfer until Tenant is furnished with a written notice of such
transfer or assignment by Landlord.
19.2 In the event of the transfer and assignment by Landlord of its interest
in this Lease and in the building containing the Demised Premises,
Landlord shall thereby be released from any further obligations
hereunder, and Tenant agrees to look solely to such successor in
interest of the Landlord for performance of such obligations. Any
remaining security given by Tenant to secure performance of Tenant's
obligations hereunder shall be assigned and transferred by Landlord to
such successor in interest, and Landlord shall thereby be discharged of
any further obligation relating thereto.
ARTICLE 20. SUBORDINATION: ATTORNMENT.
20.1 Tenant accepts this Lease subject and subordinate to any mortgage, deed
of trust or other lien presently existing or hereafter placed upon the
Demised Premises or the Shopping Center as a whole, and to any renewals
and extensions thereof (hereinafter collectively called "Mortgage").
Tenant agrees that any such mortgagee shall have the right at any time
to subordinate such Mortgage to this Lease; provided, however,
notwithstanding that this Lease may be (or made to be) superior to the
Mortgage, the provisions of the Mortgage relative to the rights of the
mortgagee with respect to proceeds arising from an eminent domain taking
(including a voluntary conveyance by Landlord) and/or arising from
insurance payable by reason of damage or destruction of the Demised
Premises shall be prior and superior to any contrary provisions
contained in this instrument. Landlord is hereby irrevocably vested with
full power and authority to subordinate this Lease to any Mortgage, and
Tenant agrees upon demand to execute such further instruments
subordination this lease as Landlord may request; provided, however,
Landlord shall obtain from any present mortgagee a written agreement
that the rights of Tenant shall remain in full force and effect during
the term of this Lease, notwithstanding any foreclosure of such
Mortgage, so long as Tenant shall continue to recognize and perform all
of the covenants and conditions of this Lease.
20.2 At any time when the holder of an outstanding Mortgage has given Tenant
written notice of its interest in this Lease, Tenant may not exercise
any remedies for default by Landlord hereunder unless and until the
holder of the indebtedness secured by such Mortgage shall have received
written notice of such default and a reasonable time for curing such
default thereafter shall have elapsed.
ARTICLE 21. DEFAULT BY TENANT AND LANDLORD REMEDIES.
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21.1 EVENTS OF DEFAULT. The following events shall be deemed to be "Events of
Default" by Tenant under this Lease.
(1) Tenant shall fail to pay any installment of Minimum Guaranteed Rental,
Additional Rental, or any other obligation hereunder involving the payment of
money and such failure shall continue for a period of ten (10) days after the
date due.
(2) Tenant shall fail to comply with any term, provision or covenant of this
Lease, other than as described in subsection (1) above, and shall not cure such
failure within thirty (30) days after written notice thereof to Tenant.
(3) Tenant or any guarantor of Tenant's obligations under this Lease shall
become insolvent, shall make a transfer in fraud of creditors, or shall make an
assignment for the benefit of creditors.
(4) Tenant or any guarantor of Tenant's obligations under this Lease shall file
a petition under any section or chapter of the Federal Bankruptcy Code, as
amended, or under any similar law or statute of the United States or any State
thereof; or Tenant or any guarantor of Tenant's obligations under this Lease
shall be adjudged bankrupt or insolvent in proceedings filed against Tenant or
any guarantor of Tenant's obligations under this Lease thereunder.
(5) A receiver or trustee shall be appointed for the Demised Premises or for all
substantially all of the assets of Tenant or any guarantor of Tenant's
obligations under this Lease.
(6) Tenant shall do or permit to be done anything that creates a lien upon the
Demised Premises or any portion of the Shopping Center, without the written
consent of Landlord, which shall not be unreasonably withheld or delayed. If any
such lien is created upon the Demised Premises, Tenant shall remove such lien
within 15 days of the filing of such lien or shall file a bond in favor of
landlord equal to two (2) times the amount of such lien and diligently pursue
the removal of such lien.
21.2 LANDLORD REMEDIES. Upon the occurrence of any such Events of Defaults,
in addition to all other legal or equitable remedies now or hereafter
available, Landlord shall have the option to pursue the following
described remedies:
(1) Terminate this Lease, in which event Tenant shall immediately surrender the
Demised Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which he may have for possession or
arrearage in rent, enter upon and take possession of the Demised Premises and
expel or remove Tenant and any other person who may be occupying said premises
or any part thereof, and Tenant agrees to pay to Landlord in demand the amount
of all loss
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and damage which Landlord may suffer by reason of such termination, whether
through inability to relet the premises on satisfactory terms or otherwise.
(2) Enter upon and take possession of the Demised Premises, without terminating
this Lease, and expel or remove Tenant and any other person who may be occupying
said premises or any part thereof, and, if Landlord so elects, relet the
premises on such terms and for such purposes as Landlord may deem advisable and
receive the rent therefore; and Tenant agrees to pay the Landlord on demand any
deficiency that may arise by reason of such reletting, and in no event shall
Tenant be entitled to any excess of any rent obtained by reletting over the sums
for which Tenant is obligated hereunder. Action may be brought from time to time
to collect Rentals prior to the expiration of the Lease Term.
(3) Enter upon the Demised Premises, by legal process, without being obligated
to do so and without thereby waiving such default, and do whatever Tenant is
obligated to do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for all cost and expenses (including reasonable attorney's
fee) which Landlord may incur in thus effecting compliance with Tenant's
obligations under this Lease, and Tenant further agrees that Landlord shall not
be liable for any damages resulting to Tenant from such action.
Pursuit of any of the foregoing remedies shall not precluded pursuit of
any other remedies herein provided or provided by law, nor shall pursuit of any
other such remedy constitute a forfeiture or waiver of any Rentals due to
Landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, provisions and covenants herein contained.
Forbearance by Landlord to enforce one or more of the remedies herein provided
upon an Event of Default shall not be deemed or construed to constitute a waiver
of such default. The loss or damage which Landlord may suffer by reason of
termination of this Lease or the deficiency arising by reason of any reletting
by Landlord as above provided, shall include the expense of repossession,
brokerage fees and the cost of any repairs, alterations, additions, or
remodeling undertaken by Landlord following repossession.
Landlord may collect and receive any Rentals due from Tenant, and the
acceptance thereof shall not constitute a waiver of or affect any notice or
demand given, suit instituted or judgment obtained by Landlord, or be held to
waive, affect change, modify or alter the rights or remedies which Landlord has
in equity or at law by virtue of this Lease.
21.3 USE OF FIXTURES. In the event Landlord shall have take possession of the
Demised Premises pursuant to the authority herein granted, then Landlord
shall have the right to keep in place and use all of Tenant's fixture,
furniture, equipment, signs, and other personal property at all times
prior to any foreclosure thereon by Landlord or repossession thereof by
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any third party having a prior lien thereon or claim thereto, or
Landlord may remove and store such items in a public warehouse or
elsewhere at Tenant's expense.
21.4 ATTORNEYS FEES. If on account of any breach or default by either party
in its obligations hereunder, the non-defaulting party shall employ an
attorney to present, enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay any reasonable attorney's
fees incurred by the non-defaulting party in such connection.
21.5 DEFAULT In the event of any default by Landlord, Tenant's exclusive
remedies shall be (a) an action for damages (Tenant hereby waiving the
benefit of any laws granting it a lien upon the property of Landlord
and/or upon rent due Landlord) or (b) terminate the lease. Prior to any
action Tenant will give Landlord written notice specifying such default
with particularity, and Landlord shall thereupon have a reasonable
period, but in no event less than thirty (30) days, in which to commence
to cure any such default. Unless and until Landlord fails so to commence
to cure any default after such notice or having so commenced thereafter
fails to exercise reasonable diligence to complete such curing, Tenant
shall not have any remedy or cause of action by reason thereof. All
obligations of Landlord hereunder will be construed as independent
covenants, not conditions; and all such obligations will be binding upon
Landlord only during the period of its ownership of the Demised Remedies
and not thereafter.
ARTICLE 22. LANDLORDS'S CONTRACTUAL SECURITY INTEREST.
22.1 In addition to statutory Landlord's lien, Landlord shall have at all
times a valid security interest to secure payment of all Rentals and
other sums of money becoming due hereunder from Tenant, and to secure
payment of any damages or loss that Landlord may suffer by reason of the
breach by Tenant of any covenant, agreement or condition contained
herein, upon all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant presently, or which
may hereafter be situated on the Demised Premises, and all proceeds
therefrom, and such property of Tenant may not be removed without the
consent of Landlord until all arrearage in Rentals as well as any and
all other sums of money then due to Landlord or to become due to
Landlord hereunder shall first have been paid and discharged and all the
covenants, agreements and conditions hereof have been fully complied
with and performed by Tenant.
22.2 Upon the occurrence of an Event of Default by Tenant, Landlord may, in
addition to any other remedies provided herein, as provided by notice
and law, enter upon the Demised Premises and take possession of any and
all goods, wares, equipment, fixtures, furniture, improvements and other
personal property of Tenant situated on the Demised Premises and sell
the same at public or private sale, with or without having such property
at the sale, after
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giving Tenant reasonable notice of the time and place of any public sale
or of the time after which any private sale is to be made. Unless
otherwise provided by law, and without intending to exclude any other
manner of giving Tenant reasonable notice, the requirement of reasonable
notice shall be met if such notice is given in the manner prescribed in
this Lease at least seven (7) days before the time of sale. Any sale
made pursuant to the provision of this paragraph shall be deemed to have
been a public sale conducted in a commercially reasonable manner if held
in the Demised Premises or where the property is located after the time,
place and method of sale and a general description of the types of
property to be sold have been advertised in a daily newspaper published
in the county in which the property is located, for five (5) consecutive
days before the date of the sale. Landlord or its assigns may purchase
any or all of same at said public or private sale, unless otherwise
prohibited by law. The proceeds from any such private or public sale,
less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorney's
fees and legal expenses), shall be applied as a credit against the
indebtedness secured by the security interest granted Landlord in this
Article 22. Any surplus shall be paid to Tenant or as otherwise required
by law; Tenant shall promptly pay any deficiencies.
22.3 Upon request by Landlord, from time to time Tenant agrees to execute and
deliver to Landlord a Uniform Commercia Code Financing Statement in form
sufficient to perfect the security interest of Landlord in the
aforementioned property and proceeds thereof (sample attached hereto as
Exhibit "D"). Landlord agrees to subordinate its lien to one (1) bona
fide third party lender on inventory using the lender's subordination
form.
ARTICLE 23. EMINENT DOMAIN.
23.1 If more than thirty percent (30%) of the floor area of the Demised
Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain
or by private purchase in lieu thereof, this Lease shall terminate and
all Rentals shall be abated during the unexpired portion of this Lease,
effective on the date physical possession is taken by the condemning
authority.
23.2 If less than thirty percent (30%) of the floor area of the Demised
Premises should be taken as aforesaid, this Lease shall not terminate;
however, the Minimum Guaranteed Rental payable hereunder during the
unexpired portion of this Lease shall be reduce in proportion to the
area taken, effective on the date physical possession is taken by the
condemning authority. Following such partial taking, Landlord shall make
all necessary repairs or alterations to make the remaining portions of
the Demised Premises an architectural whole.
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23.3 If any part of the Common Area should be taken as aforesaid, this Lease
shall not terminate, nor shall the Rentals payable hereunder be reduced,
except that either Landlord or Tenant may terminate this Lease if the
area of the Common Area remaining following such taking, plus any
additional parking area provided by Landlord in reasonable proximity to
the Shopping Center, shall be less than seventy percent (70%) of the
area of the Common Area immediately prior to the taking. Any election to
terminate this Lease in accordance with this provision shall be
evidenced by written notice of termination delivered to the other party
within thirty (30) days after the date physical possession is taken by
the condemning authority.
23.4 All compensation awarded for any taking (or the proceeds of private
sales in lieu thereof) of the Demised Premises or Common Area excluding
Tenant's leasehold interest, trade fixtures, and tangible property shall
be the property of Landlord. Landlord shall have no interest in any
award made to Tenant for Tenant's leasehold interest moving and
relocating expenses or for the loss of Tenant's trade fixtures and other
tangible personal property if a separate award for such items is made to
Tenant.
ARTICLE 24. NOTICES.
24.1 Whenever any notice is required or permitted hereunder such notice shall
be in writing. Any notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered when actually
received by the designated addressee or, if earlier and regardless of
whether actually received or not, when deposited in the United States
Mail, postage prepaid, Certified Mail, Return Receipt Requested,
addressed to the parties hereto at the respective addresses set out in
Section 1.1 and Section 1.3 above (or at Landlord's option, to Tenant at
the Demised Premises), or at such other addresses as they have
theretofore specified by written notice.
ARTICLE 25. SURRENDER.
25.1 At the expiration or termination of this Lease, Tenant shall surrender
the Demised Premises in good condition, including the removals and
repairs required to be made by Tenant in Articles 10, 11, and 12 of this
Lease, excepting only reasonable wear and tear, damage by fire and other
casualty excepted and repairs required to be made by Landlord in Article
14 and Article 23 of this Lease
25.2 Should Tenant fail to remove any of its fixtures, equipment, signs or
personalty at the expiration or termination of this Lease, Landlord may
consider it to be abandoned and remove or dispose of same without
liability to Tenant, at Tenant's expense.
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ARTICLE 26. COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS.
26.1 Tenant is not responsible for any environmental problems which may have
existed prior to its Lease commencement. Landlord is liable for all
environmental problems prior to Tenant's Lease commencement.
Furthermore, Landlord delivers to Tenant the Demised Premises with no
environmental problems to the best of Landlord's knowledge. Landlord
verifies to Tenant that all asbestos that might have been in the
Premises have been cleaned, and provides Tenant with a copy of the
environmental report on the property.
Tenant shall comply with all applicable federal, state and local laws,
ordinances, orders, rules, and regulations concerning the protection of the
environment ("Environmental Law") and affecting the Demised Premises or the
operation of Tenant's business therein. Notwithstanding anything in this Lease
to the contrary, Tenant shall not use, store, handle, manufacture, process or
dispose of in, on or about the Shopping Center any substance, material,
chemical, gas, waste or other matter which is harmful to the environment
("Hazardous Substances).
26.2 Tenant will not do or permit anything to be done in, on or about the
Shopping Center that would violate any Environmental Laws. Any Hazardous
Substance (including any construction or remodeling wastes) shall be
removed from the Demised Premises by Tenant and shall be properly
disposed of in compliance with all Environmental Laws at Tenant's sole
cost and expense.
26.3 Tenant hereby agrees to indemnify and hold Landlord harmless of, from
and against any and all claims, actions, liens, demands, costs,
expenses, penalties, fines and judgments (including court costs and
attorney's fees) resulting from or arising by reason of the violation of
this Article 26 or any Environmental Laws by Tenant, its agents,
employees, contractors, subtenants, licensees or concessionaires.
26.4 Tenant's obligations under Article 26 shall survive for 1 year after the
expiration or termination of this Lease.
ARTICLE 27. MISCELLANEOUS.
27.1 Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of
principal and agent or of partnership or of joint venture between the
parties hereto, it being understood and agreed that neither the method
of computation of rent, nor any other provision contained herein, nor
any acts of the parties hereto, shall be deemed to create any
relationship between the parties hereto other than the relationship of
Landlord and Tenant.
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27.2 Tenant shall not for any reason withhold or reduce Tenant's required
payments of Minimum Guaranteed Rental, and Additional Rental provided in
this Lease, it being agreed that the obligations of Landlord hereunder
are independent of Tenant's obligations except as may be otherwise
expressly provided herewith or by law.
27.3 The liability of Landlord to Tenant for any default by Landlord under
the terms of this Lease shall be limited solely to the proceeds of the
sale on execution of the interest of Landlord in the Shopping Center
existing at the time any such liability is adjudicated; and Landlord
shall not be personally liable for any deficiency or otherwise. Under no
circumstances whatsoever shall Landlord ever be liable for consequential
or special damages. This clause shall not be deemed to limit or deny any
remedies which Tenant may have in the event of default by Landlord
hereunder, which do not involve the personal liability of Landlord.
27.4 All remedies herein given to Landlord, including those not set forth but
provided by law, shall be cumulative, and the exercise of one or more of
such remedies by Landlord hereunder shall not exclude the exercise of
any other consistent remedy. Any waiver by Landlord, express or implied,
of any breach of any term, covenant or condition hereof, shall not be
deemed a waiver of such term, condition or covenant for any subsequent
breach or of any other term, covenant or condition hereof, and consent
or approval shall not be deemed to waive or render unnecessary consent
to approval of any subsequential or similar act. Acceptance of Rental by
Landlord from Tenant or any assignee, subtenant, or other successor in
interest of Tenant, or the payment or tender of any Rental to Landlord,
with or without notice, shall never be construed as a waiver of any
breach of any term, condition or covenant of this Lease. The failure of
Landlord to declare any Event of Default upon the occurrence thereof, or
any delay by Landlord in taking action with respect thereto shall not
waive such default, but Landlord shall have the right to declare such
default at any time and to take such action as may be authorized
hereunder to the extent herein provided.
27.5 Whenever a period of time is herein prescribed for action to be taken by
Landlord or tenant, Landlord or Tenant shall not be liable or
responsible for, and there shall be excluded from the computation of any
such period of time, any delays due to strikes, riots, acts of God,
shortages of labor or materials, war, government laws, regulations or
restrictions or any other causes of any kind whatsoever which are beyond
the reasonable control of Landlord or Tenant.
27.6 Tenant agrees that it will from time to time upon request by Landlord
execute and deliver to Landlord within ten (10) days and Estoppel Letter
or a statement in recordable form certifying that this Lease is
unmodified and in full force and effect (or if there have been
modifications that the same is in full force and effect as so modified)
and including such information as Landlord may designate.
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27.7 The laws of the State of Texas shall govern the interpretation,
validity, performance and enforcement of this Lease. If any provision of
this Lease should be held to be invalid or unenforceable, the validity
and enforceability of the remaining provisions of this Lease shall not
be affected thereby. Venue for any action under this Lease shall be in
the County in which said Demised Premises are located.
27.8 The captions used herein are for convenience only and do not limit or
amplify the provisions hereof.
27.9 The terms, provisions and covenants contained in this Lease shall apply
to, inure to the benefit of and be binding upon the parties hereto and
their respective heirs, successors in interest and legal
representatives, subject to provisions contained in this Lease limiting
assignment.
27.10 This Lease contains the entire agreement between the parties, and no
agreement shall effective to change, modify or terminate this Lease, in
whole or in part, unless such is in writing and duly signed by the party
against whom enforcement is sought.
27.11 Tenant warrants that it has had no dealings with any broker or agent in
connection with the negotiation or execution of this Lease, and Tenant
agrees to indemnify Landlord and hold Landlord harmless from and against
any and all costs, expenses or liability for commissions or other
compensations or charges claimed by any broker or agent with respect to
this Lease. Landlord will pay the commissions of the brokers involved in
this Lease.
ARTICLE 28. TENANT'S INSPECTION RIGHT.
28.1 Tenant shall have four (4) days after execution of this Lease to review
the environmental report of the Demised Premises. If Tenant determines
that the environmental report is unacceptable, Tenant may terminate this
Lease by giving Landlord written notice thereof, prior to the end of the
aforesaid four (4) day period.
ARTICLE 29. TENANT PYLON SIGN.
29.1 Tenant will have the right to use the pylon signs, at no cost, as may be
agreed to between Landlord and Tenant.
ARTICLE 30. RENEWAL OPTION.
30.1 Provided that Tenant is not in default of this lease, Tenant shall have
the right and option to extend the lease term for two (2) additional
periods of five (5) years each, upon all the same
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terms and conditions as are contained in the Lease, except that the
Minimum Guaranteed Rental shall be the amount set forth in paragraph
1.1(h). Tenant may exercise its right to renewal by providing the
Landlord with a written notice at least four (4) months prior to
expiration of the Lease. Failure on the part of Tenant to give such
written notice to Landlord on or before the date herein above provided
shall be deemed to be an election by Tenant to waive its renewal option.
Landlord: Tenant:
Goforth, Inc. Family Dental Services of Texas, Inc.
by:___________________ by:_____________________________________
Jack H. Castle, Jr., Jack H. Castle, Chairman of the Board
President
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EXHIBIT 10.63
FOUR OAKS PLACE
LEASE AGREEMENT
THIS LEASE, made and entered into on the _____th day of ___________________,
19___ by and between LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD") and
____________________________________________________________________("TENANT"):
WITNESSETH:
In consideration of the mutual covenants set forth herein, Landlord and Tenant
hereby agree as follows:
PREMISES & CERTAIN
DEFINED TERMS 1. Landlord hereby leases to Tenant, and Tenant
hereby leases from Landlord, on the terms and
for the rental hereinafter set forth, the
premises indicated by crosshatching on the floor
plan drawing attached hereto as Exhibit "B" and
made a part hereof for all purposes (the
"Premises"), which Premises are situated on the
thirteenth (13th) floor of the building
presently known as the west Tower at Four Oaks
Place (the "Building") and located at 1360 Post
Oak ----- Boulevard, Houston, Harris County,
Texas, according to the present system of
numbering and naming streets and highways in
Houston, Harris County, Texas. References in
this Lease to the "Complex" or to "Four Oaks
Place" shall mean the entirety of the complex
(whether the same hereafter be known as "Four
Oaks Place" or be otherwise denominated) of
which the Building, the parking garage servicing
the Building (the "Garage") and the central
plant servicing the Building are a part, as
designated by Landlord from time to time, and
including without limitation all 'of the land
designated by Landlord from time to time as
constituting a part of the Complex (the "Land"),
the Building, the Garage, all other buildings,
structures, facilities, improvements or areas
that are now or hereafter may be constructed or
located on or installed in or at the Land, and
the central plant servicing the Building and any
or all such other buildings, structures,
facilities, improvements or areas included
therein or thereat as designated by Landlord
from time to time. The number of square feet of
Rentable Area (defined in Section 7) initially
included in the Premises hereunder is 10,862
------
AUTHORIZED USE 2. Tenant shall have the right to occupy and use
the Premises solely for general business office
purposes of a lawful nature. In no event shall
the Premises be used for any of the purposes set
forth in Exhibit "E" hereof. Any violation of
this provision shall constitute an Act of
Default (hereinafter defined) under this Lease.
TERM 3. Subject to and upon the terms and conditions set
forth in this Lease or in any Exhibit or
Addendum hereto, this Lease shall be in force
for a term (the "Term") of sixty (60) months
beginning on the 1ST day of June, 1995 (such
commencement date, subject to adjustment as
provided in Sections 10 and 11 of this Lease,
being hereinafter called the "Commencement
Date") and ending on the 3LET day of MAY.,
2000
BASE RENT 4. Tenant, in consideration for this Lease and the
leasing of the Premises, shall pay to Landlord
rent ("Base Rent"), which shall be payable as
set forth in the Lease Addendum attached hereto
and made a part hereof for all purposes. All
monthly installments of Base Rent shall be due
and payable in advance and without demand on the
first day of each calendar month during the
Term. If the Commencement Date occurs on a day
other than the first (1st) day of a calendar
month, or if the day on which the Term expires
occurs on a day other than the last day of a
calendar month, then the monthly installment of
Base Rent for such fractional month shall be pro
rated on a daily basis.
In addition to the Base Rent and monthly
installments thereof, Tenant shall also be
required to pay the Base Rent Adjustment as
provided in Section 5 hereof and all other items
constituting Rent as provided in Section 6
hereof.
ADJUSTMENT OF
BASE RENT 5. The "Base Rent Adjustment" shall be the amount
of "Excess Operating Expenses" (hereinafter
defined) calculated and payable in accordance
with the following terms and provisions:
(a) For each calendar year subsequent to the
Base Year (hereinafter defined), Tenant
shall pay to Landlord, as additional
Rent, Tenant's Share [calculated as set
out in Section 5(d)] of the amount by
which the Operating Expenses (as defined
in Section 8) for such calendar year
exceed the amount of Operating Expenses
for the Base Year (the "Excess Operating
Expenses").
Excess Operating Expenses shall be calculated
and payable in the following manner:
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(i) Prior to the commencement of each
calendar year during the Term, Landlord
shall provide Tenant with a good faith
estimate of the Excess Operating
Expenses for the immediately succeeding
calendar year (the "Subsequent Year").
Tenant shall pay, as additional Rent,
Tenant's Share of the estimated Excess
Operating Expenses in twelve (12) equal
monthly installments, each payable in
advance promptly on the date that the
installment of Base Rent for each month
is due and payable during such
Subsequent Year.
(ii) If, during any Subsequent Year, Landlord
determines that the excess Operating
Expenses are greater than the amount
estimated prior to the commencement of
such Subsequent Year, then Landlord may
deliver to Tenant on the first (1st) day
of March, June, September or December of
such Subsequent Year, as appropriate, a
statement of the revised Excess
Operating Expenses (the "Revision
Notice"), and Tenant shall pay to
Landlord, within twenty (20) days after
the date of the Revision Notice,
Tenant's Share of the difference between
the amount estimated prior to the
commencement of such Subsequent Year and
the revised estimate set forth in the
Revision Notice for the portion of such
Subsequent Year prior to the date of the
Revision Notice. Each monthly
installment of Excess Operating Expenses
for the portion of such Subsequent Year
after the date of the Revision Notice
will be increased by an amount equal to
Tenant's Share of the amount of the
annual revised Excess Operating Expenses
set forth in the Revision Notice divided
by twelve (12).
(iii) Within one hundred fifty (150) days (or
as soon thereafter as possible) after
the conclusion of each calendar year of
the Term, Landlord shall, upon request
by Tenant, furnish to Tenant a statement
setting forth in reasonable detail the
actual Operating Expenses for such
calendar year certified by a firm of
certified public accountants of national
reputation. If actual Excess Operating
Expenses for such completed calendar
year differ from the estimated Excess
Operating Expenses for .such completed
calendar year, then the difference
between the Excess Operating Expenses
actually paid by Tenant
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during such completed calendar year and
Tenant's Share of the actual Excess
Operating Expenses for such completed
calendar year shall (A) in the case of
an underpayment, be paid by Tenant to
Landlord in a lump sum amount within
thirty (30) days after delivery of such
statement or (B) in the case of an
overpayment, be credited by Landlord
toward the amount of Excess Operating
Expenses payable by Tenant for the then
current calendar year (except that if
the Term shall have expired during the
completed calendar year, Landlord will
refund any overpayment to Tenant). The
effect of this reconciliation payment is
to ensure that Tenant will pay during
the Term Tenant's Share of all Excess
Operating Expenses. The provisions of
this Section 5 shall survive the
expiration of the Term and any renewals
thereof.
(b) Any delay or failure of Landlord in
billing any Excess Operating Expenses as
provided in this Section 5 shall in no
way constitute a waiver of, or in any
way impair the continuing obligation of,
Tenant to pay such Excess Operating
Expenses.
(c) The "Base Year" for Operating Expenses
shall be the calendar year _______.
(d) "Tenant's Share" shall be the proportion
that the Rentable Area included in the
Premises from time to time bears to the
greater of (i) ninety-five percent (95%)
of the total Rentable Area in the
Building or (ii) the actual percentage
of the total Rentable Area in the
Building then leased.
(e) The amount of Operating Expenses for the
Base Year (the "Base Year Operating
Expenses")includes an amount allocable
to ad valorum taxes assessed in
connection with the Complex for the Base
Year (the "Ad Valorem Tax Amount"). If,
after the Base Year Operating Expenses
are determined at the end of the Base
Year, the Ad Valorem Tax Amount for the
Base Year is reduced as a result of a
reduction in the assessed valuation of
the Complex for the Base Year, then the
Base Year Operating Expenses shall be
adjusted to reflect such reduction (the
"Adjusted Base Year Operating
Expenses"). If the Base Year Operating
Expenses are adjusted pursuant to this
Section, then for each
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Subsequent Year occurring prior to such
adjustment, Tenant shall pay to Landlord
Tenant's Share of the difference between
the Base Year Operating Expenses and the
Adjusted Base Year Operating Expenses,
in a lump sum, within thirty (30) days
after Landlord notifies Tenant of such
adjustment. The Adjusted Base Year
Operating Expenses shall become the Base
Year Operating Expenses for purposes of
calculating Excess Operating Expenses
for the remainder of the Term.
(f) In the event the Operating Expenses for
any Subsequent Year are less than the
Operating Expenses for the Base Year,
Tenant shall be entitled to a credit for
only the amount of estimated Excess
Operating Expenses, if any, actually
paid by Tenant during such Subsequent
Year. Nothing contained in this Section
5 shall be construed at any time to
reduce the monthly installments of Base
Rent payable under this Lease below the
amount set forth in Section 4 of this
Lease.
PAYMENT OF RENT 6. The term "Rent" as used in this Lease shall mean
the Base Rent, the Base Rent Adjustment provided
for in Section 5 hereof, and all other amounts
provided for in this Lease to be paid by Tenant,
all of which shall constitute rental in
consideration for this Lease and the leasing of
the Premises. The Rent shall be paid at the
times and in the amounts provided for herein in
legal tender of the United States of America to
Landlord at the address shown herein or to such
other person or at such other address as
Landlord may from time to time designate in
writing. The Rent shall be paid without notice,
demand, abatement, deduction, or offset except
as may be expressly set forth in this Lease.
RENTABLE AREA 7. The term "Rentable Area" as used in this Lease
shall refer to (i) in the case of a single
tenancy floor, all floor area measured from the
inside surface of the outer glass or finished
column or exterior wall of the Building to the
inside surface of the opposite exterior wall,
excluding only the areas ("service areas")
within the outside walls used for elevator
mechanical rooms, building stairs, fire towers,
elevator shafts, flues, vents, stacks, vertical
pipe shafts and vertical duties. but including
any such areas which are for the specific use of
the particular tenant such as special stairs or
elevators, plus an allocation of the square
footage of the Building's elevators, main
mechanical rooms, central plant servicing the
Building, ground
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and basement lobbies, and the contiguous Garage
elevators and lobby, and (ii) in the case of a
partial floor, all floor areas within the inside
surface of the outer glass or finished column or
exterior wall enclosing the portion of the
Premises on such floor and measured to the
mid-point of the walls separating the Premises
from other areas on the floor, and including a
proportionate part of the areas devoted to
corridors, elevator foyers, restrooms,
mechanical rooms, janitor closets, vending areas
and other similar facilities for the use of all
tenants (hereinafter sometimes called "Common
Areas") on Tenant's partial floor, plus an
allocation of the square footage of the
Building's elevators, main mechanical rooms,
central plant servicing the Building, ground and
basement lobbies, and the contiguous Garage
elevators and lobby; Tenant's proportionate part
of the Common Areas on Tenant's partial floor
shall be based upon the ratio which the Tenant's
Rentable Area on such floor bears to the
aggregate Rentable Area on such floor. No
deductions from Rentable Area are made for
columns or projections necessary to the
Building. The Rentable Area in the Premises has
been calculated on the basis of the foregoing
definition and is hereby stipulated for all
purposes hereof to be the number of square feet
specified in Section 1, whether the same in fact
should be more or less as a result of minor
variations resulting from actual construction
and completion of the Premises for occupancy so
long as such work is in accordance with the
terms and provisions hereof. The Rentable Area
included in the Building has similarly been
calculated and is hereby stipulated for all
purposes hereof to be 4957114 square feet.
OPERATING EXPENSES 8. The term "Operating Expenses" as used in this
Lease refers to the aggregate of all amounts
paid or accrued by Landlord, in accordance with
generally accepted accounting principles,
consistently applied, for the ownership,
operation, repair, or maintenance of the
Building (including an allocation of the central
plant servicing the Building), the Garage, a
portion of the Land calculated on the basis of
the ratio of total Rentable Area in the Building
to the total Rentable Area of all buildings
constituting a part of the Complex, and all
equipment, fixtures and facilities used in
connection therewith (including such additional
facilities as may be added to or used in
connection with the Building, Land and Garage).
Operating Expenses shall also include, but not
be limited to, the costs of utilities, cleaning
and janitorial services, repairs and
refurbishing, restoration, Taxes (defined in
Section 9), all insurance premiums and all
labor, supplies, materials,
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tools, management fees, accounting, legal and
other professional costs and expenses, an
allocation of Landlord's general and
administrative expenses, and all other items
constituting operating and maintenance costs in
connection with the Building (including an
allocation of the central plant servicing the
Building), Garage and Land according to
generally accepted accounting principles as
determined by a firm of certified public
accountants of national reputation selected by
Landlord. Operating Expenses shall also include
amortization, with a market rate of interest, of
the cost of installation of capital investment
items that are primarily for the purpose of
reducing operating costs or that may be required
by governmental authority, or that are for the
purpose of repairing or refurbishing the common
areas of the Building and Land so as to maintain
their existing quality, provided that (a) all
such costs shall be amortized over the
reasonable life of the capital investment items,
with the reasonable life and amortization
schedule being determined in accordance with
generally accepted accounting principles, and
(b) in the case of installations for the purpose
of reducing operating costs, Landlord shall
provide a cost justification. Notwithstanding
any other provision herein to the contrary, it
is agreed that in the event the Building is not
fully occupied during any year of the Term, an
adjustment shall be made in computing the
Operating Expenses for such year so that the
Operating Expenses shall be computed for such
year as though the Building had been fully
occupied during such year.
TAXES 9. The term "Taxes" as used in this Lease shall
mean all ad valora taxes, personal property
taxes, transit taxes, water and sewer charges,
excises, levies, license and permit fees and all
other similar charges, if any, which are levied,
assessed, or imposed upon or become due and
payable in connection with, or a lien upon, the
Land, the Garage, the Building or facilities
used in connection therewith, and rentals or
receipts therefrom and all taxes of whatsoever
nature that are imposed in substitution for or
in lieu of any of the taxes, assessments, or
other charges included in this definition of
taxes excluding only franchise and income taxes
of Landlord (but not excluding such taxes if
imposed in the future wholly or partially in
lieu of present real estate, ad valorem or
similar taxes). Further, the term "Taxes" shall
mean all charges and fees of counsel and experts
which are reasonably incurred by, or
reimbursable by Landlord in seeking any
reduction in the assessed valuation of the
Complex or a judicial review thereof. If any
such application or review results in a refund,
Landlord
-7-
shall, after payment of reasonable expenses in
connection therewith. reimburse Tenant its pro
rata share of such
COMMENCEMENT 10. Subject to Section 11 hereof, if on the
Commencement Date specified in Section 3 hereof
any of the work described in Exhibit "A" that is
required to be performed by Landlord at
Landlord's expense to prepare the Premises for
occupancy has not been substantially completed,
or if Landlord is unable to tender possession of
the Premises to Tenant on such specified date
due to any reason beyond the reasonable control
of Landlord, then the Commencement Date (and
commencement of installments of Base Rent and
Base Rent Adjustment) shall be postponed until
such work to be performed in the Premises at
Landlord's expense is substantially completed or
until Landlord is able to tender possession of
the Premises to Tenant, as the case may be, and
such postponement shall operate to extend the
expiration date specified in Section 3 in order
to give full effect to the stated duration of
the Term. Such deferment of installments of Base
Rent and Base Rent Adjustment shall be Tenant's
exclusive remedy for any postponement of the
Commencement Date, and Tenant shall have no
claim against Landlord because of any such
delay.
TENANT DELAY 11. No delay in the completion of the Premises
resulting from delay or failure on the part of
Tenant in furnishing information or other
matters required in Exhibit "A" or from any
Tenant Delay as defined in Exhibit "A", and no
delay resulting from the completion of work, if
any, relating to Special Tenant Improvements
pursuant to Exhibit "A", shall delay the
Commencement Date, expiration date, or
commencement of payment of Rent.
If prior to the Commencement Date Tenant shall
enter into possession of all or any part of the
Premises, then the Term, and all other
obligations of Tenant to be performed during the
Term* shall commence on, and the Commencement
Date shall be deemed for all purposes to be, the
date of such entry, and the total amount of Base
Rent shall be increased accordingly, provided
that no such early entry shall operate to change
the expiration date provided for herein.
- --------
* (except for the payment of monthly installments of Base Rent, which shall
commence on the date set forth in Section 4 set forth in the Addendum
attached hereto, and Base Rent Adjustment, which shall be payable as set
forth in Section 5).
-8-
MAINTENANCE & REPAIR 12. Landlord. shall provide all normal and customary
routine maintenance and repair of the exterior
and the structural portions of the Building and
common areas such as lobbies, stairs, corridors,
restrooms, roof, elevators and escalators in
keeping with the usual standards for office
buildings of comparable size, quality and age in
the West Loop-Galleria area of Houston, Texas.
Except to the extent Building Standard
Improvements or other improvements installed by
Landlord are covered by warranties from
Landlord's suppliers or contractors, Landlord
shall not have any obligation to maintain,
repair, or replace any improvements installed by
Landlord or Tenant pursuant to the provisions of
Exhibit "A" after initial installation. Except
to the extent that Landlord is obligated to
furnish maintenance of the Premises pursuant to
this Section 12 and to repair damage by fire or
other casualty pursuant to Section 24, Tenant,
at its sole cost, shall maintain and repair the
Premises and otherwise keep the Premises in good
order and repair, but all workmen, artisans and
contractors employed for such purposes shall be
obtained through or specifically approved by
Landlord prior to the commencement of any work
on the Premises.
LANDLORD'S SERVICES 13. So long as Tenant is not in default, Landlord
shall, at Landlord's expense except as provided
for to the contrary in this Lease, furnish to
Tenant the following services:
(a) Air conditioning and central heat in
season at such temperatures and in such
amounts as are considered to be standard
for general office use in office
buildings of comparable age and quality
in the West Loop-Galleria area of
Houston, Texas, during normal Building
hours, which are presently scheduled to
be 7:00 a.m. through 6:00 p.m. on
weekdays and 8:00 a.m. through 1:00 p.m.
on Saturdays, exclusive of Holidays. (As
used herein, "Holidays" shall mean those
Holidays generally observed for office
buildings of comparable age and quality
in the West Loop- Galleria area of
Houston, Texas.)
(b) Janitorial services in the Premises and
public portions of the Building in such
fashion that such services shall have
been performed before the commencement
of normal Building hours on all days
except Saturdays, Sundays, and Holidays.
-9-
(c) Water at those points of supply provided
for drinking, toilet, and lavatory
purposes.
(d) Normal and customary routine maintenance
for all public, structural and exterior
portions of the Building according to
standards for office buildings of
comparable size, quality and age in the
West Loop-Galleria area of Houston,
Texas.
(e) Electric lighting service for all public
portions of the Building.
(f) Automatic passenger elevator service at
all times for access to and egress from
the Premises. Freight elevator service,
in common with other tenants, shall be
provided during reasonable business
hours, exclusive of Saturdays, Sundays
and Holidays, or as otherwise agreed to
in writing by Landlord.
(g) Ballast and lamp replacement for
Building Standard fluorescent lighting
fixtures located in the Premises.
(h) Electric energy for office equipment in
the Premises; provided, however, any
such power consumed in the Premises in
excess of .65 kilowatt hours per square
foot of Usable Area (as hereinafter
defined) within the Premises per month
shall be billed to Tenant as excess
usage above the Building Standard for
such electrical power. For purposes of
this Section 13(h), the Usable Area of
the Premises has been measured to be
8,732 square feet. Any excess electrical
usage will be billed to Tenant monthly
during the Term, and will be calculated
by multiplying the excess amount of
kilowatt hours of usage for the Premises
times the average kilowatt hour rate
charged by the utility company providing
electrical service to the Building for
the applicable month. Excess electrical
usage for the partial months during
which this Lease commences or terminates
will be calculated as provided above,
except that the allowed amount of
kilowatt hours of usage shall be
prorated on a daily basis. Tenant shall
pay such amounts within thirty (30) days
after such billing.
Any obligation of Landlord to furnish
electrical service will be subject to
the rules and regulations of the
supplier of such electrical service and
of any municipal or
-10-
governmental authority regulating the
business of providing electrical utility
service, and to temporary interruptions
for maintenance, repair, or testing of
emergency systems. Landlord will not be
liable in any way to Tenant for any
failure or defect in the supply or
character of electrical energy furnished
to the Premises by reason of any
requirement, act or omission of the
public utility serving the Building with
electricity.
Any riser or risers or wiring to meet
Tenant's excess electrical requirements
will be installed by Landlord upon
written request of Tenant at the sole
cost and expense of Tenant (if, in
Landlord's reasonable judgment, the same
are necessary and will not cause
permanent damage or create a dangerous
or hazardous condition or entail excess
or unreasonable alterations, repairs, or
expense, or unreasonably interfere with
or disturb other tenants or occupants of
the Building). The foregoing
notwithstanding, the final decision to
furnish any of Tenant's special
electrical requirements will be subject
to Landlord's approval, which approval
will not be unreasonably withheld or
delayed, and expenses and additional
costs of services with respect to any of
Tenant's special electrical requirements
that are furnished by Landlord shall be
borne solely by Tenant.
PAYMENT FOR NON-
STANDARD SERVICES 14. Tenant shall pay Landlord, upon request, such
additional amounts, including, specifically a
fifteen percent (15%) administrative fee, as are
necessary to recover additional costs incurred
by Landlord in performing or providing
janitorial, maintenance, security or other
services or requirements of Tenant or in
performing any services (and in paying
additional taxes) as to any non-Building
Standard Improvements in the Premises. Tenant
shall pay Landlord, upon request, actual or
estimated costs for all off-hour and
non-standard air conditioning, heating and
electricity.
SERVICES INTERRUPTION 15. Landlord shall use all reasonable diligence to
restore any failure or defect in the supply or
character of services furnished or to be
furnished by Landlord under this Lease, but
Landlord shall not otherwise be liable to Tenant
for any such failure or defect and such shall
not be construed as an eviction of Tenant nor
shall such entitle Tenant to any reduction,
abatement, offset, or refund of Rent or to any
damages from Landlord, nor shall Landlord be in
-11-
breach or default under this Lease if Landlord
uses reasonable diligence to restore any such
failure or defect after Landlord receives
written notice thereof. Tenant hereby waives and
disclaims, and agrees not to claim or assert,
all present and future rights to apply any Rent
against any obligation of Landlord, howsoever
incurred, or to assert that any such obligation
of Landlord entitles Tenant to any counterclaim
or any reduction, abatement, offset or refund of
Rent.
PROHIBITED USES 16. Tenant shall not use or permit any other party
to use all or any part of the Premises for any
of the purposes listed on Exhibit "E" hereto or
for any purpose not authorized in Section 2 of
this Lease. Tenant shall not do or permit
anything to be done in or about the Premises,
the Building, the Garage, the Land, the central
plant servicing the Building, or the Complex
generally, nor bring or keep or permit anything
to be brought to or kept therein, which is
prohibited by or which will in any way increase
the existing rate of or affect any fire or other
insurance which Landlord carries upon the
Building, any other buildings in the Complex or
any of their contents, or cause a cancellation
of any insurance policy covering the Building or
any part thereof or any other buildings in the
Complex or any of their contents. Tenant shall
not do or permit anything to be done in or about
the Complex which will in any way obstruct or
interfere with the rights of other tenants of
the Building or of any other buildings in the
Complex, or injure or annoy them or their
agents, employees, invitees or visitors or use
or allow the Premises to be used for any
unlawful or objectionable purpose. Tenant shall
not cause, maintain or permit any nuisance in,
on or about the Complex or commit or suffer to
be committed any waste to, in, on or about the
Complex.
RULES & REGULATIONS
OF BUILDING 17. Tenant shall perform and comply with the Rules
and Regulations of the Building set out in
Exhibit "C" hereto, as reasonably amended from
time to time upon written notice to Tenant, and
upon written notice thereof, all other
reasonable rules and regulations with respect to
safety, care, cleanliness and preservation of
good order, operation and conduct in the
Building or the Complex generally that may be
established from time to time by Landlord for
tenants of the Building or the Complex
generally. Landlord shall not have any liability
to Tenant for any failure of any other tenants
of the Building or the Complex generally to
comply with such Rules and Regulations.
COMPLIANCE WITH LAWS & OTHER
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REGULATIONS;
LICENSES IN EFFECT 18. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes,
ordinances and governmental rules, regulations
or requirements now in force or which may
hereafter be in force, with the requirements of
any board of fire underwriters or other similar
body now or hereafter constituted, and with any
directive or occupancy certificate issued
pursuant to any law by any public officer or
officers insofar as any thereof relate to or
affect the condition, use, occupancy, or
alteration of the Premises. Tenant warrants and
represents that it has obtained all licenses and
permits required for the conduct of its business
and that all such licenses and permits are
currently in effect and Tenant is in good
standing thereunder, and Tenant covenants that
it shall maintain in effect all such licenses
and permits (and shall obtain and maintain in
effect such additional licenses and permits as
may during the Term become required in order to
conduct its business) throughout the Term and
shall maintain its good standing thereunder.
ALTERATIONS 19. After the initial improvements are made pursuant
to Exhibit "A" attached hereto, Tenant shall
make no alterations, installations, additions or
improvements in or to the Premises without
Landlord's prior written consent, which consent
shall not be unreasonably withheld. Approval by
Landlord of any of Tenant's drawings, plans and
specifications prepared in connection with any
improvements in the Premises shall not
constitute a representation or warranty of
Landlord as to (a) the completeness or design
sufficiency of such drawings, plans and
specifications, or the improvements to which
they relate, for any use, purpose or condition,
or (b) their compliance with all laws, rules,
and regulations of governmental agencies or
authorities; such approval shall merely be the
consent of Landlord as required hereunder. All
such work shall be performed in a manner, and by
workmen and contractors, satisfactory to
Landlord. All alterations, installations,
additions or improvements (including but not
limited to paneling, partitions and fixtures)
made by or for Tenant to the Premises shall
remain upon and be surrendered with the Premises
and become the property of Landlord at the
expiration or termination of this Lease or the
termination of Tenant's right to possession of
the Premises; provided, however, Landlord may
require Tenant to remove any or all of such
items that are not Building Standard upon the
expiration or termination of this Lease or the
termination of Tenant's right to possession of
the
-13-
Premises.* Tenant shall bear the costs of all
removal of Tenant's property from the Premises
and all resulting repairs to the Premises. All
work performed by Tenant with respect to the
Premises shall be performed so as not to alter
the exterior appearance of the Building or
adversely affect the structure, safety, systems
or services of the Building, shall comply with
all building, safety, fire and other codes and
governmental and insurance requirements, shall
be performed so as not to result in any usage in
excess of Building Standard of water,
electricity, gas, heating, ventilating or air
conditioning (either during or after such work)
unless prior written arrangements satisfactory
to Landlord are entered into, shall be completed
promptly and in a good and workmanlike manner,
and shall be performed in such a manner that no
valid mechanic's, materialman's or other similar
liens attach to Tenant's leasehold estate and in
no event shall Tenant permit, or be authorized
to permit, any such liens (valid or alleged) or
other claims to be asserted against Landlord or
Landlord's rights. estates. and interests with
respect to the Land, the Building or this Lease.
TENANT(degree)S EQUIPMENT
& INSTALLATIONS 20. Except for desk or table-mounted typewriters,
adding machines, personal computers, facsimile
machines, office calculators, dictation
equipment and other similar desk or
table-mounted office equipment and standard
business office word processing and photocopying
equipment, Tenant shall not install within the
Premises any fixtures, equipment, facilities or
other improvements until the plans therefor have
been approved by Landlord. Tenant shall not,
without the specific written consent of Landlord
and Tenant's written agreement to pay all
additional costs attributable to either the
installation or operation thereof or both
(including, without limitation, the full amount
of any increase in Operating Expenses caused by
or attributable thereto), install or maintain
any apparatus or devices within the Premises
that will increase the usage of electrical
power, heating, air conditioning, water or gas
for the Premises to an amount greater than would
be normally required for general office use for
space of comparable size in Houston, Texas.
TAXES ON PERSONALTY
& TENANT IMPROVEMENTS 21. Tenant shall pay all ad valora and similar taxes
or assessments levied upon, or applicable to,
all equipment, fixtures, furniture or other
property -------- * provided same shall have
been so specified in Landlord's granting of
consent thereto).
-14-
placed by Tenant in the Premises, and all
license and other fees or charges imposed on the
business conducted by Tenant on the Premises. If
the Premises do not consist entirely of Building
Standard Improvements (as defined in Attachment
1 To Exhibit "A" hereto) and Landlord shall be
required to pay a higher ad valora tax with
respect to the Building than would have been
payable had the Premises consisted entirely of
Building Standard Improvements, Tenant shall pay
to the Landlord, within thirty (30) days after
demand, the amount by which the ad valorem taxes
payable by Landlord with respect to the Building
for the tax period exceed the amount of ad
valora taxes that otherwise would have been
payable by Landlord.
LANDLORD'S ACCESS 22. Landlord shall have the right at all reasonable
times during the Term (with reasonable notice to
Tenant except when Tenant is in default or in
cases of emergency) to enter the Premises to
inspect the condition thereof, to show the
Premises to prospective tenants, to determine if
Tenant is performing its obligations under this
Lease, and to perform the services or to make
the repairs and restoration that Landlord is
obligated or elects to perform or furnish under
this Lease, to make repairs to adjoining space,
to cure any defaults of Tenant hereunder that
Landlord elects to cure, and to remove from the
Premises any improvements thereto or property
placed therein in violation of this Lease.
INSURANCE
23. (a) Landlord shall maintain during the Term
fire and extended coverage insurance
("Insurance")insuring the Building,
Garage and Premises (excluding Tenant's
goods, furniture or property placed in
the Premises and non-Building Standard
Improvements) against damage or loss
from fire or other casualty normally
insured against under the terms of
standard policies of fire and extended
coverage insurance. Notwithstanding the
foregoing, it is agreed by the parties
hereto that Landlord may satisfy all or
any portion of the foregoing insurance
requirements through self insurance. If
the annual premiums to be paid by
Landlord shall exceed the standard rates
because Tenant's operations, contents of
the Premises or improvements with
respect to the Premises beyond Building
Standard result in extra-hazardous
exposure, Tenant shall promptly pay the
excess amount of the premium upon
request by Landlord.
(b) Tenant shall provide, at Tenant's own
expense, all insurance coverage
necessary or
-15-
desirable for the full protection
against loss or damage from fire or
other casualty of any non- Building
Standard Improvements and Tenant's
goods, furniture or other property
placed in the Premises. Tenant shall
further maintain, with insurers licensed
to do business in the State of Texas,
(i) Worker's Compensation with the
statutory limits, and Employer's
Liability with limits of not less than
Five Hundred Thousand and No/100ths
Dollars ($500,000.00) (which policies
will include a waiver of subrogation in
favor of Landlord, Landlord's partners,
venturers, directors, officers, agents,
employees, invitees, visitors, and
contractors), and (ii) commercial
general liability insurance to include
coverage for Premises-Operations,
Independent Contractors, Broad Form
Contractual and Products coverage
(specifically in support of, but not
limited to, the indemnity provisions of
this Lease), with limits for bodily
injury and property damage liability of
not less than One Million and No/100ths
Dollars ($1,000,000.00) per occurrence,
or such other limits as may reasonably
be established from time to time by
Landlord. All such insurance policies
shall (1) include Landlord and
Landlord's managing agent as primary and
non-contributing insurance with any
other insurance available to Landlord
(or any other party indemnified under
this Lease). Tenant shall furnish
Landlord with current certificates of
all required insurance, which
certificates shall provide for thirty
(30) days advance written notice to
Landlord of any cancellation thereof.
Landlord shall not be obligated to
insure any portion of the Premises not
consisting wholly of Building Standard
Improvements or any of Tenant's goods,
fixtures, furniture, or other property
placed in or incorporated in the
Premises.
FIRE OR OTHER
CASUALTY 24. If the Premises or the Building is damaged or
destroyed in whole or in part by fire or other
casualty at any time during the Term and if
after such damage or destruction Tenant is not
able to use the Premises to substantially the
same extent and for substantially the same
purposes as Tenant used the Premises prior
thereto, then, as soon as practicable and in any
case within ninety (90) days after delivery to
Landlord by Tenant of written notice describing
in reasonable detail such damage or destruction,
Landlord shall give
-16-
Tenant a written notice setting forth Landlord's
election either to (a) terminate this Lease, or
(b) restore or replace the damaged or destroyed
portion to Building Standard condition. If
Landlord does not elect to proceed under the
foregoing Subsection (b), it shall be deemed
that it has elected to terminate this Lease
pursuant to the foregoing Subsection (a). If
such damage or destruction occurs, then the Base
Rent and Base Rent Adjustment shall be abated
for the period and proportionately to the extent
that after such damage or destruction Tenant is
not able to use the Premises to substantially
the same extent and for substantially the same
purposes as Tenant used the Premises prior
thereto; provided, however, in no event shall
the abatement continue beyond fifteen (15) days
following the completion of restoration work. If
Landlord elects to restore or replace the
damaged or destroyed portions of the Premises or
Building, this Lease shall continue in full
force and effect in accordance with the terms
hereof except for the abatement of Base Rent and
Base Rent Adjustment hereinbefore referred to
and except that the Term shall be extended by a
length of time equal to the period beginning on
the date of such damage or destruction and
ending upon completion of such restoration or
replacement. If Landlord elects to restore or
replace the damaged or destroyed portions of the
Premises or Building, such restoration or
replacement shall be made within a reasonable
time, subject to delays arising from any
Landlord, including, without limitation, acts of
God, shortages of labor or materials, war or
other force majeure conditions or events beyond
the reasonable control of Landlord. If Landlord
elects to terminate this Lease, this Lease shall
terminate on the last day of the month next
following the end of the ninety (90) day period
hereinbefore referred to. If such damage or
destruction hereinbefore described is the result
of the negligence or willful misconduct of
Tenant, its agents, employees, invitees,
visitors or contractors, then this Lease shall
continue in full force and effect in accordance
with the terms hereof, and with no abatement of
Base Rent or Base Rent Adjustment, whether or
not Landlord elects to restore or replace the
damaged or destroyed portions of the Premises or
Building (which Landlord shall have no
obligation to do), unless Landlord shall
voluntarily elect to terminate this Lease.
WAIVER OF CLAIMS 25. (a) Anything in this Lease to the contrary
notwithstanding, each party hereto
hereby releases and waives all claims,
rights of recovery, and causes of action
that either such party or any party
claiming by, through, or
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under such party by subrogation or
otherwise may now or hereafter have
against the other party or any of the
other party's partners, venturers,
directors, officers, agents, or
employees for any loss or damage that
may occur to the Building, Premises, any
of Tenant's fixtures or improvements or
any of the contents of any of the
foregoing by reason of fire, act of God,
the elements, or any other cause,
including negligence of the parties
hereto or their partners, venturers,
directors, officers, agents, or
employees, that could have been insured
against in the State of Texas under the
terms of standard fire and extended
coverage insurance policies.
(b) Landlord shall not be liable to Tenant
for any inconvenience or loss to Tenant
(including, without limitation,
consequential damages, loss of profits
or business opportunity, or any other
losses or damages whatsoever
attributable to, or resulting from, any
interruptions in the operation of
Tenant's business) in connection with
any of the repair, maintenance, damage,
destruction, restoration, or replacement
referred to in this Lease. Landlord
shall not be obligated to repair,
maintain, restore or replace or
otherwise be liable for the damage or
destruction of any of Tenant's fixtures
or improvements, or any of Tenant's
goods, furniture or other property
placed in or incorporated in the
Premises.
(c) Landlord, its agents and employees,
shall not be liable for any damage of
any kind or for any damage to property,
death or injury to persons from any
cause whatsoever. by reason of the use
and occupancy of the Premises by Tenant.
Landlord shall not be liable to Tenant
and Tenant hereby waives all claims
against Landlord, Landlord's partners,
venturers, directors, officers, agents,
employees, invitees, visitors or
contractors for any damages,
consequential damages, loss of profits
or business opportunity, business
interruption, and for any damage to
property, death or injury to persons
from any cause whatsoever including, but
not limited to, acts of other tenants,
vandalism, loss of trade secrets or
other confidential information, any
damage, loss or injury caused by a
defect in the Premises, the Building, or
the Garage, pipes, air conditioning,
heating, plumbing or by water leakage of
any kind from the roof,
-18-
walls, windows, basement or other
portion of the Premises or the Building,
or caused by electricity, gas, oil,
fire, interruption of Landlord's
services or any cause whatsoever in, on,
or about the Premises, the Building, the
Land, the Garage, the Complex generally,
or any part thereof.
INDEMNITY 26. Except for the claims, rights of recovery and
causes of action that Landlord has released and
waived pursuant to Section 25 hereof, Tenant
shall be liable to Landlord for and shall
indemnify and hold harmless Landlord and
Landlord's partners, venturers, directors,
officers, agents, employees, invitees, visitors
and contractors from all claims, losses, costs,
damages or expenses (including but not limited
to attorney's fees) resulting or arising or
alleged to result or arise from any and all
injuries to or death of any person or damage to
or loss of any property caused by any act,
omission or neglect of Tenant or Tenant's
partners, venturers, directors, officers,
agents, employees, invitees, guests or any
parties contracting with Tenant relating to the
Premises, the Land, the Building, the Garage or
the Complex generally or by any breach,
violation or non-performance of any covenant of
Tenant under this Lease. If any action or
proceeding should be brought by or against
Landlord in connection with any such liability
or claim, Tenant, on notice from Landlord, shall
defend such action or. proceeding, at Tenant's
expense, by or through attorneys reasonably
satisfactory to Landlord. The provisions of this
Section 26 shall apply to all activities of
Tenant, Tenant's partners, venturers, directors,
officers, agents, employees, invitees, guests
and contractors with respect to the Premises.
the Land, the Garage, the Building or the
Complex generally, whether occurring before or
after the expiration or termination of this
Lease. Tenant's obligations under this Section
26 shall not be limited to the limits of
coverage of insurance maintained or required to
be maintained by Tenant under this Lease.
NON-WAIVER 27. No consent or waiver, express or implied, by
either party hereto to or of any breach in the
performance or observance by the other party of
any of its obligations under this Lease shall be
construed as or constitute a consent or waiver
to or of any other breach in the performance or
observance by such other party of such
obligation or any other obligation of such other
party. Neither the acceptance by Landlord of any
Rent or other payment hereunder, whether or not
any default hereunder by Tenant is then known to
Landlord, nor any custom or practice followed in
connection with this Lease shall constitute a
waiver
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of any of Tenant's obligations under this Lease.
Failure by either party hereto to complain of
any action or non-action on the part of the
other party or to declare the other party in
default, irrespective of how long such a failure
may continue, shall not be deemed to be a waiver
by such party of any of its rights hereunder.
Time is of the essence with respect to the
performance of every obligation of either party
hereto under this Lease in which time of
performance is a factor. Except where expressly
provided herein to the contrary, all Rent and
other amounts payable by Tenant under this Lease
shall be paid without abatement, offset,
counterclaim or diminution to any extent
whatsoever. Except for the execution and
delivery of a written agreement expressly
accepting surrender of the Premises, no act
taken or failed to be taken by Landlord shall be
deemed an acceptance of surrender of the
Premises.
QUIET POSSESSION 28. Provided Tenant has performed all its
obligations under this Lease, Tenant shall
peaceably and quietly hold and enjoy the
Premises for the Term, subject to the provisions
and conditions set forth in this Lease.
NOTICES 29. Each notice required or permitted to be given
hereunder by one party to the other shall be in
writing, with a statement therein to the effect
that notice is given pursuant to this Lease, and
the same shall be delivered in person, placed in
the United States mail, postage prepaid,
registered or certified mail, return receipt
requested, or sent by telecopy or facsimile
(followed by a copy sent by United States mail)
addressed to such party at the address provided
for such party herein. Any notices to Landlord
shall be addressed and given to Landlord, c/o L
& B Institutional Property Managers, Inc., 1300
Post Oak Boulevard, Suite 500, Houston, Texas,
77056, Facsimile No. (713) 963-0148. Prior to
the Commencement Date, the address for notices
to Tenant shall be the address set forth for
Tenant on the signature page of this Lease;
after the Commencement Date, the address for
Tenant shall be the Premises. The addresses
hereinbefore stated shall be effective for all
notices to the respective parties until written
notice of a change in address is given pursuant
to the provisions hereof. Any notice or document
to be delivered, whether or not actually
received, shall be deemed to be delivered when
received or on the day when attempt to deliver
has been made and refused as attested by the
carrier. Any notice sent by telecopy or
facsimile shall be deemed to be delivered when
received.
LANDLORD'S FAILURE
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TO PERFORM 30. If Landlord fails to perform any of its
obligations under this Lease, Landlord shall not
be in default hereunder and Tenant shall not
have any rights or remedies growing out of such
failure unless Tenant gives Landlord written
notice thereof setting forth in reasonable
detail the nature and extent of such failure and
such failure by Landlord is not cured within the
thirty (30) day period following delivery of
such notice or such longer period therefor
provided elsewhere in this Lease. If such
failure cannot reasonably be cured within such
thirty (30) day period, the length of such
period shall be extended for the period
reasonably required therefor if Landlord
commences curing such failure within such thirty
(30) day period and continues the curing thereof
with reasonable diligence and continuity.
LANDLORD'S RIGHT TO
PERFORM TENANT'S
OBLIGATIONS 31. If Tenant fails to perform any one or more of
its obligations hereunder within (a) in the case
of a failure that unreasonably interferes with
the rights of other tenants, forty-eight (48)
hours after Landlord gives written notice of
such failure or (b) in any other instance,
within ten (1 O) days after Landlord gives
written notice of such failure, or in either (a)
or (b), within such longer period as may
reasonably be required to perform such
obligations, then, in addition to the other
rights of Landlord hereunder or at law or
equity, Landlord shall have the right but not
the obligation to perform all or any part of
such obligations of Tenant. Upon receipt of a
demand therefor from Landlord, Tenant shall
reimburse Landlord for (i) the cost to Landlord
of performing such obligations and reasonable
profit and overhead, plus (ii) interest thereon
at the maximum rate of interest at which Tenant
may lawfully contract in Texas from the date
such costs are paid by Landlord until Tenant
reimburses Landlord. If the obligation so
performed by Landlord involves any repair or
maintenance or the removing by Landlord of any
improvements to or use of the Premises not
authorized by this Lease, such reasonable profit
and overhead shall be deemed to be ten percent
(10%) of the cost to Landlord of performing such
obligation.
ACT OF DEFAULT 32. The term "Act of Default" as used in this Lease
refers to the occurrence of any one or more of
the following: (a) subject to the
next-to-the-last sentence of this Section 32,
failure of Tenant to pay, within three (3)
business days after written notice is given by
Landlord, any Rent or other amount required to
be paid under this Lease; or (b) failure of
Tenant to cure, within forty-eight (48) hours
after written notice from Landlord or such
longer period as may reasonably be
-21-
required, any default in the performance of
Tenant's obligations, covenants or agreements
under this Lease that unreasonably interferes
with the rights of other tenants and is wholly
within Tenant's control or the control of
Tenant's agents or employees; or (c) failure of
Tenant after twenty (20) days written notice
from Landlord of Tenant's default in the
performance of any of Tenant's other obligations
covenants or agreements under this Lease, to do,
observe, keep and perform with diligence and
continuity any of such other obligations,
covenants, or agreements; or (d) the entry of a
decree or order by a court having jurisdiction
adjudging Tenant to be bankrupt or insolvent or
approving as properly filed a petition seeking
reorganization under the Federal Bankruptcy Code
(Title 11 of the United States Code, 11 U.S.C.
ss.101, et SEQ.), or any other similar
applicable Federal or State law; or (e) the
issuance of a decree or order of a court having
jurisdiction for the appointment of a receiver
or liquidator or a trustee or assignee in
bankruptcy or insolvency of Tenant or its
property or for the winding up or liquidation of
its affairs; or (f) the institution by Tenant of
proceedings to be adjudicated a voluntary
bankrupt; or (g) the filing by Tenant of, or the
consent by Tenant to the filing of, any
bankruptcy, reorganization, receivership or
other proceedings against Tenant or to declare
Tenant a bankrupt or to delay, reduce or modify,
or which have the effect of delaying, reducing
or modifying Tenant's debts or obligations, or
any such proceedings shall be instituted against
Tenant and (if so instituted against Tenant) the
same shall not be vacated within sixty (60) days
after the same are commenced; or (h) the making
by Tenant of an assignment for the benefit of
Tenant's creditors or the admission in writing
of Tenant's inability to pay the debts of Tenant
generally as they become due; or (i) the failure
of Tenant to discharge any judgment against
Tenant within sixty (60) days after such
judgment becomes final; or (j) the sale or
attempted sale under execution or other legal
process of the interest of Tenant in the
Premises; or (k) the vacating or abandonment by
Tenant of the Premises during the Term. If it
becomes necessary for Landlord to give the
notice referred to in Subparagraph (a) of this
Section 32 on three (3) separate occasions in
any twelve (12) month period, then the fourth
(4th) occasion in such twelve (12) month period
on which Tenant fails to pay when due any Rent
or other amount required to be paid under this
Lease shall constitute an Act of Default and no
notice thereof shall be required of Landlord.
Furthermore, for each occasion on which Tenant
fails to pay when due any Rent or other amount
required to be paid under this Lease, Tenant
shall pay Landlord a late fee equal to one-half
('/~) of one percent (1%) of such Rent or other
amount due to compensate Landlord for its
additional administrative costs resulting from
Tenant's failure. In addition, Tenant shall pay
Landlord Twenty-Five and No/100 Dollars ($25.00)
for each returned check. The payment of such
late fee or returned
-22-
check charges will not constitute a waiver by
Landlord of any default by Tenant under this
Lease.
RIGHTS UPON DEFAULT 33. If an Act of Default occurs, Landlord at any
time thereafter prior to the curing of such Act
of Default and without waiving any other right
available to Landlord herein, at law or in
equity, may either terminate this Lease or
terminate Tenant's right to possession without
terminating this Lease, whichever Landlord
elects. In either event, Landlord may without
additional notice and with or without court
proceedings reenter and repossess the Premises,
and remove all persons and property therefrom
using such force as may be necessary and Tenant
hereby waives any claim arising by reason of
issuance of any distress warrant or writ of
sequestration and agrees to hold Landlord
harmless from any such claims. In no event shall
Landlord's exercise of any one or more remedies
hereunder granted or otherwise available to it
be deemed to be an acceptance of surrender of
the Premises by Tenant, whether by agreement or
operation of law, it being understood that such
surrender can be effected only by the written
agreement of Landlord and Tenant. If Landlord
elects to terminate this Lease, it may treat the
Act of Default as an entire breach of this Lease
and Tenant immediately shall become liable to
Landlord for damages for the entire breach in an
amount equal to the amount by which (a) the Rent
(being the Base Rent set forth in Section 4
hereof plus the Base Rent Adjustment set forth
in Section 5 hereof for any increase and
estimated increase in Operating Expenses which
would be payable by Tenant during the unexpired
balance of the Term and all other payments due
for the balance of the Term) is in excess of (b)
the fair market rental value of the Premises for
the balance of the Term as of the time of
default, both discounted at the rate of ten
percent (10%) per annum to the then present
value, plus the cost of recovering, remodeling
and releasing the Premises, and all unpaid Rent
due through the date of such termination. If
Landlord elects to terminate Tenant's right to
possession of the Premises without terminating
this Lease, Landlord may rent the Premises or
any part thereof for the account of Tenant to
any person or persons for such rent and for such
terms and other conditions as Landlord deems
practical, and Tenant shall be liable to
Landlord for the amount, if any, by which the
total Rent and all other payments herein
provided for the unexpired balance of the Term
exceed the net amount, if any, received by
Landlord from such re-renting. Such net amount
is the gross amount received by Landlord less
the cost of repossession, re-renting, remodeling
and other
-23-
expenses incurred by Landlord. Such amount shall
be paid by Tenant in monthly installments on the
first day of each month of the Term. In no case
shall Landlord have any obligation to, or be
liable for failure to, re-rent the Premises or
collect the rental due under such re-renting and
in no event shall Tenant be entitled to any
excess rents received by Landlord. If Landlord
elects to terminate Tenant's right to possession
without terminating this Lease, Landlord shall
have the right at any time thereafter to
terminate this Lease, whereupon the foregoing
provisions with respect to termination will
thereafter apply. If an Act of Default occurs or
in the case of any holding over or possession by
Tenant of the Premises after the expiration or
termination of this Lease, Tenant shall
reimburse Landlord on demand for all costs
incurred by Landlord in connection therewith
including, but not limited to, reasonable
attorneys' fees, court costs, and related costs
plus interest thereon at the lesser of: (i)
eighteen percent (18%) per annum, or (ii) the
maximum rate of interest allowed by applicable
law from the date such costs are paid by
Landlord until Tenant reimburses Landlord.
The following provisions shall override and
control any conflicting provisions of Section
93.002 of the Texas Property Code of 1990, as
well as any successor statute governing the
right of a landlord to change the door locks of
commercial tenantso In the event an Act of
Default occurs, .Landlord is entitled and is
hereby authorized, without any further notice to
Tenant whatsoever, to enter upon the Premises by
use of a master key, a duplicate key, or other
peaceable means, and to change, alter, and/or
modify the door locks on all entry doors of the
Premises, thereby permanently excluding Tenant
and its officers, principals, agents, employees
and representatives therefrom. In the event that
Landlord has either permanently repossessed the
Premises pursuant to the foregoing provisions of
this Lease, or has terminated this Lease by
reason of Tenant's default, Landlord shall not
thereafter be obligated to provide Tenant with a
key to the Premises at any time, regardless of
any amounts subsequently paid by Tenant;
provided, however, that in any such instance,
during Landlord's normal business hours and at
the convenience of Landlord, and upon receipt of
written request from Tenant accompanied by such
written waivers and releases as the Landlord may
require, Landlord will (at Landlord's option)
either (1) escort Tenant or its authorized
personnel to the Premises to retrieve any
personal belongings or other property of Tenant
not subject to the Landlord's statutory lien or
the lien and security interest described in
Section 37 of this Lease,
-24-
or (2) obtain a list from Tenant of such
personal property as Tenant intends to remove,
whereupon Landlord shall remove such property
and make it available to Tenant at a time and
place designated by Landlord. However, if
Landlord elects option (2), Tenant shall pay, in
cash in advance, all costs and expenses
estimated by Landlord to be incurred in removing
such property and making it available to Tenant
and all moving and/or storage charges
theretofore incurred by Landlord with respect to
such property. If Landlord elects to exclude
Tenant from the Premises without permanently
repossessing or terminating pursuant to the
foregoing provisions of this Lease, then
Landlord shall not be obligated to provide
Tenant a key to re-enter the Premises until such
time as all delinquent Rent and other amounts
due under this Lease have been paid in full and
all other defaults, if any, have been completely
cured to Landlord's satisfaction (if such cure
occurs prior to any actual permanent
repossession or termination), and Landlord has
been given assurance reasonably satisfactory to
Landlord evidencing Tenant's ability to satisfy
its remaining obligations under this Lease.
During any such temporary period of exclusion,
Landlord will, during Landlord's regular
business hours and at Landlord's convenience,
upon receipt of written request from Tenant
(accompanied by such written waivers and
releases as Landlord may require), escort Tenant
or its authorized personnel to the Premises to
retrieve personal belongings of Tenant or its
employees, and such other property of Tenant as
is not subject to the Landlord's statutory lien
or the lien and security interest described in
Section 37 of this Lease.
All rights and remedies of Landlord shall be
cumulative and not exclusive. Landlord shall be
entitled to pursue simultaneously multiple or
alternative remedies, at any time tn abandon or
resume pursuit of any remedy, and at any time to
pursue additional remedies
SURRENDER 34. On the last day of the Term or upon the earlier
termination of this Lease, Tenant shall
peaceably and quietly surrender the Premises to
Landlord, broom clean, in good order, repair and
condition at least equal to the condition when
delivered to Tenant excepting only fair wear and
tear resulting from normal use. Prior to the
surrender of the Premises to Landlord, Tenant at
its sole cost and expense shall remove all liens
and other encumbrances that may have resulted
from the acts or omissions of Tenant. If Tenant
fails to do any of the foregoing, Landlord, in
addition to other remedies available to it at
law or
-25-
equity, may, without notice, enter upon,
reenter, possess and repossess itself thereof,
by force, summary proceedings, ejectment, or
otherwise, and may dispossess and remove Tenant
and all persons and property from the Premises;
and Tenant waives any and all damages or claims
for damages as a result thereof. Such
dispossession and removal of Tenant shall not
constitute a waiver by Landlord of any claims by
Landlord against Tenant.
HOLDING OVER 35. If Tenant does not surrender possession of the
Premises at the end of the Term or upon earlier
termination of this Lease, then at the election
of Landlord, Tenant shall be a
tenant-at-sufferance of Landlord and the Rent
(including, without limitation Base Rent
Adjustment) and other payments due during each
month of such holdover period shall be * times
the sum of all installments of Rent payable with
respect to the last full calendar month
immediately prior to the end of the Term or
termination of this Lease for which Rent is
payable. No holding over by Tenant shall operate
to extend this Lease, and in the event of any
such holding over, Tenant shall, in addition to
all other obligations and liabilities of Tenant
hereunder (all of which shall remain in full
force and effect during the entire period of any
such holding over) indemnify, defend, and hold
harmless Landlord from and against any and all
claims for damages (including consequential
damages) by any other tenant to whom Landlord
may have leased all or any part of the Premises
effective upon the termination of this Lease. In
the event Landlord shall commence proceedings to
dispossess Tenant by reason of Tenant's default
or holdover hereunder, then Tenant shall pay as
additional Rent, all costs of such proceedings,
including, without limitation, attorneys' fees.
REMOVAL OF
TENANT'S PROPERTY 36. Tenant shall retain the ownership of all movable
equipment, furniture and supplies placed in or
on the Premises by Tenant and shall have the
right to remove such movable equipment,
furniture and supplies prior to termination of
this Lease provided that no Act of Default has
been committed by Tenant which has not been
fully cured in a manner acceptable to Landlord
and further provided that Tenant repairs any
injury to the Premises or Building resulting
from such removal. Unless Tenant has made prior
arrangements with Landlord and Landlord has
agreed in writing to permit Tenant to leave such
equipment, furniture or supplies
- --------
* one and one-half (1 1/2)
-26-
on the Premises for an agreed period, if Tenant
does not remove such movable equipment,
furniture and supplies prior to such
termination, then, in addition to its other
remedies at law or in equity, Landlord shall
have the right to have such items removed and
stored at Tenant's expense and all damage to the
Premises or Building resulting therefrom
repaired at the cost of Tenant or the right to
elect that such movable equipment, furniture and
supplies automatically become the property of
the Landlord upon termination of this Lease, and
Tenant shall not have any further right with
respect thereto or reimbursement therefor.
LIENS 37. Tenant shall not permit any mechanics',
materialmen's or other liens to be fixed or
placed against the Premises or the Building or
the Land and agrees immediately to discharge
(either by payment or by filing of the necessary
bond, or otherwise) any mechanics',
materialmen's or other lien that is allegedly or
in fact fixed or placed against any of the
foregoing. In addition to and cumulative of
Landlord's statutory lien, Tenant hereby grants
to Landlord a security interest in and to all
furniture, furnishings, fixtures, equipment,
merchandise and other property placed on the
Premises by Tenant to secure the performance of
Tenant's obligations under this Lease,
including, without limitation, Tenant's
obligation to pay timely all items of Rent. At
Landlord's request, Tenant shall execute and
cause to be filed in the appropriate public
records all documents required or desirable to
perfect such security interest pursuant to the
terms of the Texas Uniform Commercial Code.
INTEREST 38. All amounts of money payable by Tenant to
Landlord under this Lease, if not paid when due,
shall bear interest from the date due until paid
at the lesser of: (a) eighteen percent (18%) per
annum, or (b) the maximum interest rate allowed
by applicable law.
ASSIGNMENT
& SUBLETTING 39. Landlord shall have the right to transfer and
assign in whole or in part, by operation of law
or otherwise, its rights and obligations
hereunder whenever Landlord in its sole judgment
deems it appropriate without any liability to
Tenant and Tenant shall attorn to any party to
which Landlord transfers the Building.
Tenant shall not sublet the Premises or
any part thereof without the prior
written approval by Landlord. Tenant
shall not assign this Lease or allow it
to be assigned, in whole or in part, by
operation of law or otherwise, without
the prior written approval of Landlord.
In the event Tenant should desire to
assign
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this Lease or sublet the Premises or any part
thereof, Tenant shall give Landlord written
notice of such desire at least sixty (60) days
in advance of the date on which Tenant desires
to make such assignment or sublease which notice
shall specify the proposed subtenant or
assignee, the term of and the sub-rent payable
in respect of such proposed sublease or
assignment, the specific portion of the Premises
(if less than all) to be so subleased or
assigned, the proposed use thereof (which shall
not be a use not permitted hereunder), and such
other information concerning the proposed
sublease or assignment as Landlord may
reasonably request. Landlord shall within thirty
(30) days following receipt of such notice and
all other information requested by Landlord
pursuant to this Section 39, notify Tenant in
writing that Landlord elects either (a) to
terminate this Lease as to the space so affected
as of the date so specified by Tenant, in which
event Tenant will be relieved of all further
obligation hereunder as to such space, or (b) to
permit Tenant to assign or sublet such space
(provided, however, if the rental rate agreed
upon between Tenant and sublessee or assignee is
greater than the Base Rent and Base Rent
Adjustment that Tenant must pay Landlord, then
such excess rental shall be deemed additional
Rent owed by Tenant and payable to Landlord in
the same manner that Tenant pays the Base Rent
as outlined in Section 4), or (c) to refuse to
consent to Tenant's assignment or subleasing
such space and to continue this Lease in full
force and effect as to the entire Premises. If
Landlord should fail to notify Tenant in writing
of such election within such sixty (60) day
period, Landlord shall be deemed to have elected
option (c) hereof.
Landlord shall have no obligation to consider
any proposed assignment or sublease at any time
that Tenant is in default under this Lease, or
if approval of such assignment or sublease would
violate any provision of or constitute a default
under any Security Documents (as defined in
Section 44 of this Lease). Subject to the
foregoing, if Landlord does not elect to
terminate this Lease pursuant to Subparagraph
(a) of the preceding paragraph of this Section
39, then Landlord's consent shall not be
unreasonably withheld, but shall be subject in
all respects to Landlord's approval of the
credit-worthiness and reputation of the proposed
subtenant or assignee and the use to which such
proposed subtenant or assignee intends to put
the Premises or portion thereof and whether in
Landlord's reasonable judgment such proposed use
would be in keeping with, or would detract from,
the operation of the Building as a first-class
office building, and whether such proposed use
would constitute a Prohibited Use as set forth
in Exhibit "E" of this Lease.
No permitted or unauthorized assignment or
subletting by Tenant shall relieve Tenant of any
obligation under this Lease. All obligations,
duties and liabilities of Tenant hereunder shall
be fully binding upon and enforceable against
any assignee or sublessee of Tenant. Any
attempted assignment or sublease by Tenant in
violation of the terms and covenants of this
paragraph shall be void. If this Lease is
assigned or if the Premises or any part thereof
are subleased by Tenant without the permission
of Landlord, then Landlord may nevertheless
collect Rent from the assignee or sublessee and
apply the net amount collected to the Rent
payable hereunder, but no such transaction or
collection of Rent or application thereof by
Landlord shall be deemed a waiver of any
provision hereof or a release of Tenant from the
performance of the obligations of Tenant
hereunder. If during the term of any assignment
of this Lease or permitted sublease of the
Premises or any part thereof there shall occur
any Act of Default, then Landlord shall, in
addition to all other rights and remedies
available to it, be entitled to collect Rent
directly from any sublessee or assignee and give
an effective receipt therefor.
LANDLORD'S LIABILITY 40. Any provisions of this Lease to the contrary
notwithstanding, Tenant hereby agrees that no
personal or corporate liability of any kind or
character whatsoever now attaches or at any time
hereafter under any condition shall attach to
Landlord or its shareholders, partners or
venturers for payment of any amounts payable
under this Lease or for the performance of any
obligation under this Lease. The exclusive
remedies of Tenant for the failure of Landlord
to perform any of its obligations under this
Lease shall be to proceed against the interest
of Landlord in and to the Building.
LIGHT &AIR 41. Neither diminution nor shutting off of natural
light or air or both nor any other effect on the
Premises by any structure erected or condition
now or hereafter existing on lands adjacent to
the Building shall affect this Lease, abate
Rent, or otherwise impose any liability on
Landlord.
CONDEMNATION 42. If all or any part of or any interest in the
Premises shall be taken as a result of the
exercise of the power of eminent domain, this
Lease shall terminate as to the part so taken as
of the date Tenant is deprived of possession
thereby. If any part of or interest in the
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Premises or if a substantial portion of the
Building is so taken, either Landlord or Tenant
shall have the right to terminate this Lease as
to the balance of the Premises by written notice
to the other within thirty (30) days after the
date of taking; provided, however, that a
condition to the exercise by Tenant of such
right to terminate shall be that the portion of
the Premises or Building taken shall be of such
extent and nature as to substantially handicap,
impede or impair Tenant's use of the Premises or
the balance of the Premises remaining. In the
event of any taking, Landlord shall be entitled
to any and all compensation, damages, income,
Rent, and awards with respect thereto except for
an award, if any, specified by the condemning
authority for any property that Tenant has the
right to remove upon termination of this Lease.
Tenant shall have no claim against Landlord for
the value of any unexpired Term. In the event of
a partial taking of the Premises which does not
result in a termination of this Lease, the Rent
thereafter to be paid shall be equitably
reduced.
USE OF NAMES 43. Tenant shall not have the right to use the name
Four Oaks Place or the name of the Building
except in connection with giving the address of
Tenant and then such terms cannot be emphasized
or displayed with more prominence than the rest
of such address unless otherwise agreed in
writing by Landlord. Landlord shall have the
right to change the name of the Building or the
Complex in which it is situated whenever
Landlord in its sole judgment deems appropriate
without any liability to Tenant.
SUBORDINATION 44. The rights and interests of Tenant under this
Lease and to the Premises shall be subject and
subordinate to all deeds of trust, mortgages,
rent assignments, and other security instruments
and to all renewals, modifications,
consolidations, replacements and extensions
thereof (the "Security Documents") heretofore or
hereafter executed by Landlord or any successor
in interest of Landlord covering the Premises,
the Building, the Garage, the Land or any parts
thereof or interest therein to the same extent
as if the Security Documents had been executed,
delivered and recorded prior to the execution of
this Lease; provided, however, that at the
option of the holder or holders of any Security
Document, which option may be exercised at any
time either prior to, upon or subsequent to a
foreclosure or deed in lieu thereof of the
Security Document, this Lease shall be superior
to the Security Document held by such holder or
holders. After the delivery to Tenant of n
notice from Landlord that It has entered Into
one or
-29-
more Security Documents, then during the term of
such Security Documents Tenant shall deliver to
the holder or holders of all Security Documents
a copy of all notices to Landlord and shall
grant to such holder or holders the right to
cure all defaults, if any, of Landlord hereunder
within the same time period provided in this
Lease for curing such defaults by Landlord and,
except with the prior written consent of the
holder of the Security Documents, shall not (i)
amend this Lease, (ii) surrender or terminate
this Lease except pursuant to a right to
terminate expressly set forth in this Lease, or
(iii) pay any Rent or installment thereof more
than one month in advance or pay any Rent or
installment thereof or other amounts payable
hereunder other than in strict accordance with
the terms hereof or of the Security Documents.
In the event of the enforcement of its rights by
the holder of a Security Document, Tenant will,
upon request (at any time) of any person or
party succeeding to the interest of such holders
of a Security Document (regardless of whether
the holder of the Security Document has elected
to make this Lease superior to such Security
Document) as a result of such enforcement,
automatically become the Tenant of such
successor in interest and attorn to such
successor in interest as Landlord without change
in the terms or provisions of this Lease. Upon
the request of a holder of a Security Document
or such successor in interest, Tenant shall
execute and deliver an instrument or instruments
confirming the attornment provided for herein.
At any time and from time to time upon not less
than ten (10) days prior notice by Landlord,
Tenant shall furnish a statement in writing
certifying that this Lease is unmodified and in
full force and effect (or if there have been
modifications), and stating whether or not to
the best knowledge of Tenant Landlord is in
default in the keeping, observance or
performance of any covenant, agreement, term,
provision or condition contained in this Lease
and, if so, specifying each such default of
which Tenant may have knowledge, it being
intended that any such statement may be relied
upon by any prospective purchaser, tenant,
mortgagee or assignee of any mortgage of the
Building or Land or of Landlord's interest
therein.
LEGAL INTERPRETATION 45. This Lease and the rights and obligations of the
parties hereto shall be interpreted, construed
and enforced in determination that one or more
provisions of this Lease is invalid, void,
illegal or unenforceable shall not affect or
invalidate the remainder. All obligations of
either party requiring any performance .after
the expiration of the Term shall survive the
expiration of the Term and shall be enforceable
in
-30-
accordance with those provisions pertaining
thereto. If the rights of the Tenant hereunder
are owned by two or more parties, such parties
shall be jointly and severally liable for the
obligations of Tenant hereunder. Section titles
appearing in the margins are for convenient
reference only and shall not be used to
interpret or limit the meaning of any provision
of this Lease.
ENTIRE AGREEMENT 46. No oral statements or prior written material not
specifically incorporated herein shall be of any
force or effect. Tenant agrees that in entering
into and taking this Lease, it relies solely
upon the representations and agreements
contained in this Lease and no others. This
Lease (including the Lease Addendum and Exhibits
"A", "B", "C", "D", "E", "F", and "G", all of
which are attached hereto and made a part hereof
for all purposes) constitutes the whole
agreement of the parties and shall in no way be
conditioned, modified or supplemented except by
a written agreement executed by both parties.
DEFINITION OF LEASE MONTH & LEASE YEAR 47.
References in this Lease or any Exhibit or
attachment hereto to one or more "Lease Months"
shall mean monthly periods beginning with that
day during each calendar month during the Term
that corresponds to the day of the calendar
month on which the Commencement Date occurs and
ending with the day during the next calendar
month that corresponds to the day of the month
immediately preceding the Commencement Date. To
illustrate, if the Commencement Date occurs on
the tenth (10th) day of a calendar month, then a
Lease Month shall mean each monthly period
during the Term beginning with the tenth (10th)
day of each calendar month during the Term and
ending with the ninth (9th) day of the following
calendar month. A Lease Year shall mean a twelve
(12) month period during the Term and renewals
thereof beginning on the Commencement Date or
any anniversary of the Commencement Date and
ending on the day preceding the immediately
following anniversary of the Commencement Date.
LENDER REQUESTS 48. If, in connection with any financing or
refinancing for the Building or with any ground
or underlying lease, the lender, lessor or
financier shall request reasonable modifications
in this Lease, Tenant will not unreasonably
withhold, delay or defer its consent thereto,
provided that such modifications do not increase
the obligations of Tenant hereunder or
materially adversely affect the leasehold
interests hereby created or Tenant's use and
enjoyment of the Premises.
-31-
ESTOPPEL LETTERS 49. Landlord and Tenant will, at such time or times
as either of them request, execute and
acknowledge a certificate stating the
Commencement Date and expiration date, whether
this Lease is in full force and effect, whether
any amendments or modifications exist, whether
there are any defaults hereunder, and containing
such other related information as may be
reasonably requested.
RELOCATION 50. Landlord reserves the right to relocate the
Premises to comparable space within the Complex*
by giving Tenant prior written notice of such
intention to relocate. If within ** days after
receipt of such notice, Landlord and Tenant have
not agreed on a space to which the Premises are
to be relocated and the timing of such
relocation, Landlord shall have the right to
terminate this Lease at any time thereafter by
giving Tenant thirty (30) days prior written
notice. If Landlord and Tenant do so agree, then
effective on the date*** , this Lease shall be
amended through a Lease Amendment to be executed
by both Landlord and Tenant by deleting the
description of the original Premises and
substituting therefor the description of the new
space. Landlord agrees to pay the reasonable
cost of moving Tenant to such other space within
the Complex.****
SECURITY DEPOSIT 51. Concurrently with Tenant's execution of this
Lease, Tenant has deposited with Landlord the
sum of ($ ) hereinafter referred to as the
"Security Deposit", as security for the faithful
performance by Tenant of all of the covenants
and conditions contained in this Lease. If
Tenant shall default in the performance of any
such covenant or condition, Landlord may apply
or retain the whole or any part of the Security
Deposit for the payment of any damages or
charges that may result from such default. The
Security Deposit, less damages or unpaid
obligations owed by Tenant to Landlord pursuant
hereto, shall be returned to Tenant within sixty
(60) days of the expiration of the Lease Term
together with an itemized list of deductions.
Tenant shall not be entitled to any interest on
the Security Deposit and Landlord shall have the
right to commingle the Security Deposit with
other funds of Landlord.
- --------
* on a floor equal to or higher than the Premises
** ninety (90)
*** Tenant actually moves into the relocated space,
**** , including, without limitation, the reasonable cost of moving all
of Tenant's furniture, fixtures, and equipment, the cost of service technicians,
computer hardware and software technicians as may be necessary to prepare
Tenant's equipment and computers for relocation and for setting up of same to be
operational in the relocated space. See Addendum attached hereto.
-32-
SUCCESSORS & ASSIGNS 52. The terms, covenants and conditions of this
Lease shall be binding upon and shall inure to
the benefit of Landlord and Tenant and their
respective executors, administrators, heirs,
legal representatives, successors and assigns.
PARKING 53. Tenant shall be entitled to lease parking spaces
in or on the Garage as set forth in Exhibit "D"
attached hereto and made a part hereof for all
purposes.
Sections 54 through 56 of this Lease are set forth in the Lease Addendum
attached hereto and made a part hereof for all purposes.
IN WITNESS WHEREOF, this Lease is hereby executed as of the date first
hereinbefore set forth.
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
BY: L&B DELAWARE ITS PROPERTY MANAGERS, INC., A
BY: ___________________________________________________
__________________________________________("TENANT")
BY:
NAME:
TITLE:
_______________________________________________________
_______________________________________________________
[Tenant's Address Prior To Occupancy]
Facsimile No: _________________________________________
Signature page for Lease Agreement dated ________________, covering
____________________square feet of Rentable Area in the west Tower at Four Oaks
Place, 1360 Post Oak Boulevard, Houston, Texas. Attached hereto and made a part
of this Lease are an Addendum to Lease Agreement and the following Exhibits:
"A" - Work Letter Agreement
"B" - Delineation of the Premises
"C" - Rules and Regulations of
the Building "D" Parking
Lease and Agreement
"E" - Prohibited Uses
"F" - Renewal Option
"G" - Guaranty of Lease
-33-
ADDENDUM TO LEASE AGREEMENT
dated ______,
by and between
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
and
FAMILY DENTAL SERVICES OF TEXAS, INC. ("TENANT")
BASE RENT
(ADDENDUM) 4. Base Rent shall be payable in monthly
installments throughout the Term as follows:
(a) Twelve Thousand Eight Hundred Ninety- Eight and
63/100 Dollars ($12,898.63) upon execution of
this Lease by Tenant, which amount shall be
applied by Landlord against the monthly
installment of Base Rent due for the month of
August, 1995 as provided below; and
(b) Twelve Thousand Eight Hundred Ninety- Eight and
63/100 Dollars ($12,898.63) per month (being
equal to a Base Rent rate of $14.25 per square
foot of Rentable Area contained in the Premises
per annum), in advance, commencing with the
first (lst) month of the Term and continuing for
each successive month thereafter through the
expiration of the Term; provided, however, that
Landlord shall credit against the installment of
Base Rent payable for the month of August, 1995,
the amount paid by Tenant upon execution of this
Lease pursuant to Subparagraph 4(a) of this
Addendum; and, provided further, that Base Rent
shall be abated for the months of June and July,
1995.
RELOCATION
(ADDENDUM) 50. If Landlord and Tenant do agree to relocate the
Premises pursuant to the provisions of this
Section 50, the relocation space shall be
built-out and improved, at Landlord's sole cost
and expense, in a manner at least equal in
quality to the improvements in the Premises, and
Tenant shall approve the plans for the build-out
of the relocated space; provided, however,
Landlord shall not be obligated to pay the cost
of improving the relocated space above the level
of improvements located in the Premises. Base
Rent and Base Rent Adjustment shall be abated
for the first month that Tenant has relocated to
the Relocation Premises.
BROKERS 54. Tenant represents and warrants that Tenant has
dealt with and only with McDade, Smith & Gould,
Inc. and Warren Savery (collectively, the
"Brokers") in connection with this Lease, and no
broker other than the Brokers negotiated this
Lease or is entitled to any commission in
connection with this Lease through Tenant.
Tenant and Landlord shall each indemnify the
other from and against all costs expenses,
attorneys' fees, and other liability for
commissions or other compensations claimed by
any broker or agent other than the Brokers
claiming the same by, through or under the
indemnifying party.
AUTHORITY 55. The person executing this Lease on behalf of
Tenant warrants and represents unto Landlord
that:
(a) Tenant is a duly organized and existing
Texas corporation, in good standing
under the laws of the State of Texas and
is authorized to do business in the
State of Texas;
(b) Tenant has the full right and authority
to execute, deliver and perform this
Lease;
(c) The person executing this Lease on
behalf of Tenant is authorized to do so;
and
(d) Upon request of Landlord, such person
will deliver to Landlord satisfactory
evidence of his or her authority to
execute this Lease on behalf of Tenant.
RENEWAL 56. So long as there is no default under this Lease,
Tenant shall be entitled to exercise the Renewal
Option set forth in Exhibit "F" attached hereto.
GUARANTY 57. Contemporaneously with the execution of this
Lease by Tenant, Jack H. Castle, D.D.S., Inc.
has executed a Guaranty in the form attached
hereto as Exhibit "G"
EXHIBIT "A"
TO LEASE AGREEMENT DATED
BY AND BETWEEN
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
AND
_____ ("TENANT")
A Texas Corporation
WORK LETTER AGREEMENT
1. DEFINITIONS:
(a) BUILDING STANDARD IMPROVEMENTS shall mean the improvements
listed in Attachment 1 hereto. References in the Lease to
"Building Standard" or similar references shall mean the
Building Standard Improvements.
(b) NON-BUILDING STANDARD IMPROVEMENTS shall mean any improvements
in excess of Building Standard Improvements. Some of the
improvements within the Premises as of the date of this Lease
are Non-Building Standard Improvements.
(c) TENANT'S IMPROVEMENTS shall mean Tenant's improvements in excess
of the improvements within the Premises as of the date of this
Lease.
(d) TENANT IMPROVEMENT ALLOWANCE shall mean an allowance of up to
Fourteen and No/100 Dollars ($14.00 ) per square foot of
Rentable Area initially included in the Premises, to be applied
to the cost of design and installation of any and all Tenant's
Improvements.
2. Landlord has agreed to deliver, and Tenant has agreed to accept, the
Premises in "AS IS" condition (except that Landlord shall provide the
Tenant Improvement Allowance, to be applied towards the cost of design
and installation of Tenant's Improvements in accordance with the terms
and conditions of this Exhibit) and Landlord shall have no obligation
to provide any Building Standard Improvements with respect thereto.
3. If Landlord' is to arrange for the completion and installation of
Tenant's Improvements (the "Work"), by not later than ten (10) days
after execution of the Lease Agreement, Tenant will deliver to Landlord
in writing the information requested by Landlord (the "Tenant's
Improvements Information") relating to the completion of improvements
and other installations in the Premises, in such detail and showing such
items as Landlord may require in order to prepare plans for Tenant's
Improvements. Within fifteen (15) working days after receipt of the
Tenant's Improvements Information, Landlord shall prepare working
drawings (the "Working Drawings") for the Work and shall deliver such
Working Drawings, together with an estimate ("Estimate") of the cost of
the Work. If Landlord requires additional matters for completion of the
Working Drawings, if Landlord has raised objections to any Tenant's
Improvements, or if Tenant wants to change the scope of the Work as the
result of the Estimate, then Tenant shall have
4. Landlord shall review the Plans (whether the corrected and revised
Working Drawings or the plans submitted by Tenant) and approve them or
advise Tenant of any additional required matters or objections, and
Tenant shall then make such additional corrections or revisions as so
required, in accordance with the review and approval procedure provided
in paragraph 3 of this Exhibit. Delivery of revised Plans by Tenant
shall constitute Tenant's approval thereof and of all matters covered
thereby or included therein. The Plans (whether the Working Drawings
prepared by Landlord or the plans submitted by Tenant) shell be subject
to final approval by Landlord, which approval or any objections thereto
shall be given within seven (7) business days after Tenant shall have
delivered to Landlord the corrected and revised Plans. Approval by
Landlord of any of the Plans shall not constitute a representation or
warranty of Landlord as to the completeness or design sufficiency of the
Plans or the improvements to which they relate, for any use, purpose, or
condition, or as to their compliance with all laws, rules, and
regulations of governmental agencies or authorities, but such approval
shall merely be the consent of Landlord as required hereunder.
5. Tenant may require such changes as Tenant desires to the Plans and to
completion of the Premises upon obtaining Landlord's prior written
consent. Landlord may require such changes to the Plans and to
completion of the Premises as Landlord determines to be appropriate in
order to comply with the provisions of the Lease and with all
applicable building and safety codes and other governmental and
insurance requirements, to maintain the quality and character of the
Building and the Complex, or as Landlord shall otherwise determine in
its sole discretion to be appropriate.
6. After the foregoing approval by Tenant of the Plans and if Tenant shall
have also approved the Estimate, if Landlord is to arrange for the
completion of the Work, Landlord shall commence (or cause to be
commenced) completion of the Premises in substantial accordance with the
Plans and shall charge the cost thereof against the Tenant Improvement
Allowance. Otherwise Tenant shall arrange for the completion of the Work
using contractors or subcontractors approved by Landlord, which approval
shall not be unreasonably withheld or delayed. In such case, the Tenant
Improvement Allowance shall be paid in accordance with the procedures
set forth in Attachment 2 to this Exhibit "A". Tenant shall not be
entitled to any refund, reduction of Rent, or credit from Landlord for
any portion of the Tenant Improvement Allowance not used pursuant to
this Exhibit. All Work performed with respect to the Tenant's
Improvements shall conform to the requirements set forth in Section 19
of the Lease.
7. Tenant shall bear all costs that exceed the Tenant Improvement
Allowance, including the costs of all changes to the Plans after initial
working drawings are completed, whether required by Landlord or
requested by Tenant. If Landlord incurs any costs or expenses that are
in excess of the Tenant Improvement Allowance then Tenant shall
reimburse Landlord therefor, upon demand and Landlord shall be entitled
to bill Tenant therefor in installments as such costs are incurred by
Landlord. Failure of Tenant to reimburse Landlord for any such costs or
expenses within thirty (30) days after written request therefor by
Landlord shall constitute an Act of Default under the Lease, whereupon
Landlord shall have all of the rights set forth in Section 33 of the
Lease.
As used herein, "Tenant Delay" shall mean and include Tenant's delay or
failure to prepare or to revise or correct, or to furnish information
for, the Plans within the times specified, delays attributable to
changes by Tenant in the Plans, Tenant's delay or failure to approve or
properly disapprove the Plans within the time periods specified
therefore herein, delays in preparation of the Estimate attributable to
pricing of Tenant's Improvements or changes requested by Tenant, or
other delay in the design, construction, installation or completion of
the Premises or the improvements to be installed therein from any other
cause reasonably attributable to the acts or omissions of Tenant. As
provided in Section 11 of the Lease, the Commencement Date, expiration
date, and commencement of payment of Rent under the Lease shall not be
postponed or delayed as the result of Tenant Delay.
8. Landlord shall permit Tenant and its agents to enter the Premises prior
to the Commencement Date in order that Tenant may perform any Work to be
performed by Tenant hereunder through its own contractors, subject to
Landlord's prior written approval and in a manner and upon terms and
conditions and at times satisfactory to Landlord. The foregoing license
to enter the Premises prior to the Commencement Date is, however,
conditioned upon Tenant's contractors and their subcontractors complying
with the provisions of Section 19 of the Lease and with the Contractor
and Subcontractor Rules and Regulations set forth in Attachment 3
hereto. This license may be withdrawn by Landlord upon twenty-four (24)
hours' written notice to Tenant. Such license is further conditioned
upon the maintenance by Tenant and its contractors and subcontractors of
worker's compensation and commercial general liability and property
damage insurance in accordance with the requirements set forth in
Attachment 4 hereto and the compliance with all other requirements set
forth in Attachment 4. Such entry shall be deemed to be under all of the
provisions of the Lease except as to the covenants to pay Rent. Landlord
shall not be liable in any way for any injury, loss, or damage which may
occur on account of or as a result of any such Work being performed by
Tenant or Tenant's contractors, their subcontractors and employees, the
same being solely at Tenant's risk.
9. Notwithstanding anything in this Exhibit "A" to the contrary, so long as
there is no default under this Lease, Tenant may, at Tenant's option,
apply up to a total of Two and No/100 Dollars ($2.00) per square foot of
Rentable Area contained in the Premises of the Tenant Improvement
Allowance not used for Tenant's Improvements (the "Surplus Improvement
Allowance") to reimburse Tenant for expenses incurred by Tenant in
moving to the Premises and/or against the first installments of Base
Rent coming due hereunder. Any portion of the Surplus Improvement
Allowance to be applied to Tenant's moving expenses shall be disbursed
by Landlord to Tenant within thirty (30) days after Tenant's written
request therefor accompanied by paid invoices for the expenses incurred
up to the amount of the Surplus Improvement Allowance, which request
must be made within thirty (30) days after Tenant occupies the Premises.
In no event shall Tenant be entitled to any refund, reduction of Rent,
or credit from Landlord for any portion of the Surplus Improvement
Allowance not used pursuant to this paragraph.
ATTACHMENT 1 TO EXHIBIT "A"
BUILDING STANDARD IMPROVEMENTS
PARTITIONS Type (A) Demisinq: 1 linear foot of demising partitioning will
be provided to Tenant for each 55 square feet of Rentable Area
within the Premises. The partitions will be 5/8" thick,
full-height gypsum board attached on each side of 2-1/2" metal
studs. All demising partitioning is acoustically insulated. The
partition exterior within Tenant areas will be painted with a
flat latex.
TYPE (B) INTERIOR: 1 linear foot of interior partitioning for
each 13 square feet of Rentable Area will be provided. 1 layer
of 5/8" gypsum board will be painted on both sides with a flat
latex. Interior partitioning will have aluminum head tracks.
DOORS AND
HARDWARE Solid core, ceiling-height, flush wood veneer doors set in
aluminum frames will be used throughout the Premises. 1 door for
each 300 square feet of Rentable Area will be provided to
Tenant. Hardware will consist of brushed chrome, lever handles
on all doors (lock-sets and surface-mounted door closets on each
entrance door) and brushed chrome plated, steel butts.
CEILING Mechanically fissured, 1 square foot, acoustical tile with
beveled edges, suspended by a concealed spline system, will be
installed throughout the Premises.
LIGHTING 1 parabolic fluorescent light fixture for each 90 square feet of
Rentable Area will be provided. Each fixture is 2' x 4' and will
contain 3 fluorescent tubes.
LIGHT SWITCHES 1 smooth-faced rocker-type switch for each 300 square
feet of Rentable Area will be provided.
ELECTRICAL
OUTLETS 1 smooth-faced duplex receptacle and cover plate for each 140
square feet of Rentable Area will be wall-mounted within the
Premises.
TELEPHONE 1 access point and pull string for each 250 square feet of
Rentable Area will be provided.
CARPET Carpeting will be installed in elevator lobbies and common
corridors of all multiple tenancy floors in color and type
selected by Landlord. Building Standard carpet will be provided
to Tenant throughout the Premises.
BLINDS Building Standard, LeVelor mini-blinds will be furnished for all
exterior windows as selected by Landlord.
GRAPHICS Each Tenant initially will be provided Building Standard
graphics, as selected by Landlord, to adequately identify the
Premises.
ATTACHMENT 2 TO EXHIBIT "A"
PAYMENT OF TENANT IMPROVEMENT ALLOWANCE
So long as there is no default under the Lease, the Tenant Improvement Allowance
shall be paid in the form of advances against the Allowance in accordance with
the following procedure:
A. Not later than the last day of each calendar month during the
performance of the completion and installation of Tenant's
Improvements (the "Work"), Tenant shall submit to Landlord for
its approval a request for payment for Work performed during
that calendar month ("Request for Payment"). Each Request for
Payment shall:
(1) Set forth in reasonable detail the costs and
expenses incurred or paid by Tenant's contractor
during that calendar month to any subcontractor,
materialman, employee or laborer for services
actually performed in connection with the Work
("Services") and for materials actually
incorporated in the Work or suitably stored on
the Premises, or at some other location
previously agreed upon in writing by the Tenant
and Landlord and which are coordinated with the
progress of the Work ("Materials");
(2) Show the names of contractors, subcontractors
and materialmen to be paid;
(3) Set forth the total amount of expenditures to
date and the total estimated expenditures to be
made for the remaining balance of the Work;
(4) Be accompanied by invoices, receipts,
affidavits, and other evidence of payment
therefor and appropriate releases and
satisfactions from all subcontractors,
materialmen and other parties furnishing labor
and materials or either in connection with the
performance of the Work, together with such
other evidence as Landlord may reasonably
require as to the costs and expenses incurred or
paid by Tenant during that calendar month;
(5) At Landlord's request, itemize charges for any
Materials or Services on which any sales taxes
will be payable by purchaser or user thereof
separately from any charges for any skill and
labor upon which no sales taxes will be payable;
and
(6) At Landlord's request, show the amount for sales
tax being collected by Tenant's contractor from
Tenant for remittance to the Comptroller of
Public Accounts of the State of Texas and to any
local taxing authorities.
Upon receipt of written request from Landlord,
Tenant shall also make available to Landlord,
Tenant's and Tenant's contractor's files setting
forth the addresses of all Tenant's contractors,
subcontractors, laborers and materialmen, and
the names of all laborers involved in the Work,
and Landlord shall have the right to make and
retain
Upon receipt of written request from Landlord,
Tenant shall also make available to Landlord,
Tenant's and Tenant's contractor's files setting
forth the addresses of all Tenant's contractors,
subcontractors, laborers and materialmen, and
the names of all laborers involved in the Work,
and Landlord shall have the right to make and
retain copies of the same.
All request for disbursement of the Tenant
Improvement Allowance must be made within ninety
(90) days after the Commencement Date, and
Landlord shall have no obligation to make any
disbursements of the Tenant Improvement
Allowance after the expiration of such time
period. Tenant shall not be entitled to any
refund,
reduction of Rent, or credit from Landlord for
any portion of the Tenant Improvement Allowance
not used pursuant to this Exhibit.
B. After Landlord's approval of each Request for Payment issued by
Tenant, Landlord shall pay to Tenant on or before the 15th day
of the following month, an amount of money equal to that portion
of Tenant's contractor's cost that is covered by each such
certificate of payment.
C. Tenant warrants and guarantees that title to all Work, materials
and equipment covered by a Request for Payment, whether
incorporated in the Premises or not, shall pass to Landlord upon
the receipt of such payment by Tenant's contractor, free and
clear of all liens, claims, security interests or encumbrances
and that no Work, materials or equipment covered by a Request
for Payment shall have been acquired by Tenant's contractor (or
by any other person performing the Work at the site or
furnishing materials and equipment for the Work) subject to an
agreement under which an interest therein or an encumbrance
thereon is retained by the seller or otherwise imposed by
Tenant's contractor or such other person.
D. Any provisions hereof to the contrary notwithstanding, Landlord
shall not be obligated to make any payment to Tenant hereunder
if any one of the following conditions exists:
(1) Tenant or Tenant's contractor has failed to
perform any of its obligations hereunder with
reasonable promptness or otherwise is in
violation of any provision of the Lease.
(2) Any part of such payment is attributable to Work
which is defective or which has not been
performed in accordance with the Plans or with
applicable laws; provided, however, that
Landlord shall pay any portion of a payment that
is attributable to Work that is not defective or
which has been performed in accordance with the
Plans.
ATTACHMENT 3 TO EXHIBIT "A"
CONTRACTOR AND SUBCONTRACTOR RULES AND REGULATIONS
1. All deliveries must be made to the loading docks of the
respective building. All delivery vehicles have a 30 minute
parking limit. Those who abuse the privilege are subject to
being towed away. Deliveries which do not involve materials
requiring special transport (i.e., heavy boxes that require a
dolly) must park in the visitor's area above level 4 of the
garage.
2. Contractors and their employees are allowed only on the floors
they are contracted to work on.
3. When the freight elevator is in operation, no construction
personnel or materials will be allowed on any passenger car for
any reason. Violators' companies will be assessed $100.00 per
occurrence by Landlord to be used for cleaning the elevators.
Also, any individuals caught on the passenger car will be asked
to leave the project. If the freight elevator is out of service,
please contact Landlord so Landlord can arrange to properly
protect a passenger elevator.
4. Public areas used in transferring materials must be protected
and cleaned at all times.
5. All noisy work must be done after 5:30 p.m. and before 7:30 a.m.
Monday through Friday. All noisy work is subject to delay after
5:30 p.m. if tenants complain.
6. All deliveries of contractor's large materials must be
transported after normal building hours (see Item 5 above).
7. All debris must be removed by the contractor daily at the
contractor's expense and after normal working hours. Only
freight elevators may be used for this purpose.
8. All construction must conform to the City of Houston Building
Code, Fire Code, and must be properly permitted.
9. Any damage to the building (corridors, elevators, restrooms,
tenant areas, etc.) must be repaired at the expense of the
contractor and must be returned to its original Building
Standard condition and such repair must be approved by Landlord.
ATTACHMENT 4 TO EXHIBIT "A"
INSURANCE REQUIREMENTS
I. INSURANCE PROVIDED BY CONTRACTORS:
A. Without limitation, a contractor shall purchase and maintain
in force the following insurance, in form and from carriers
acceptable to Landlord, and with not less than the minimum
limits set forth below:
COVERAGE LIMITS
1. Workers' Compensation and Statutory Limits
Employer's Liability $100,000.00
2. Broad Form Commercial $1,000,000.00 on an
General Liability to include occurrence form
Products/Completed Operations,
Broad Form Property Damage and
Contractual Liability
3. Comprehensive Automobile
Liability to include Hired
and Non-Owned Autos
(a) Bodily Injury $250,000.00 per person
$500,000.00 per occurrence
(b) Property Damage $100,000.00 per occurrence
4. Umbrella Liability providing $1,000,000.00
Excess Limits on Above Coverage
B. A contractor shall furnish Landlord with certificates of
insurance before any work is started and before any
contractor's equipment is moved onto any part of the Building
or area adjacent to the Building. At Landlord's option, a
contractor shall name Landlord, Landlord's managing agent and
any other persons having an interest in the Building as
additional insured, as their interest may appear.
II. NOTICES:
Each policy of insurance required to be purchased and maintained by a
contractor, and each certificate of insurance provided to be furnished
by it, shall provide that the insurance provided or evidenced thereby
shall not be changed or canceled except upon thirty (30) days prior
written notice to Landlord.
Each contractor and subcontractor participating in the construction of
Tenant's Improvements shall guarantee that its work will be free from
any and all defects in workmanship and materials for the period of time
which customarily applies in good contracting practice, but in no event
for less than one ( 1 ) year after the acceptance of the work by Tenant
and Landlord. The aforesaid guarantees of each such contractor and
subcontractor shall include the obligation to repair or replace in a
thoroughly first-class and workmanlike manner, and without any
additional charge, all defects in workmanship and materials. All
warranties or guaranties as to materials or workmanship on or with
respect to Tenant's Improvements, shall be contained in the contracts
and subcontracts for performance of the construction of Tenant's
Improvements and shall be written so that they shall inure to the
benefit of Landlord and Tenant as their respective interests may
appear. Such warranties and guarantees shall be so written that they
can be directly enforced by either and Tenant shall give to Landlord
any assignment or other assurance necessary to effectuate the same.
E X H I B I T "B"
To LEASE AGREEMENT DATED
BY AND BETWEEN
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
AND
( "TENANT" )
LEASED PREMISES
10,862 Square feet of Net Rentable Area
13th Floor, West Tower
1360 Post Oak Boulevard
Houston, Texas 77056
[GRAPHIC OMITTED]
EXHIBIT "C"
TO LEASE AGREEMENT DATED ,
BY AND BETWEEN
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
AND
, ("TENANT")
A Texas Corporation
RULES AND REGULATIONS OF THE BUILDING
1. Landlord will provide and maintain a directory for all tenants of the
Building. No signs, advertisements or notices visible to the general
public shall be permitted within the Building or the Complex generally
unless first approved in writing by Landlord.
2. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenants or used by any tenant for any
purpose other than ingress or egress to and from its premises and for
going from one to another part of the Building.
3. Corridor doors, when not in use, shall be kept closed.
4. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any
such fixtures or appliances from misuse by a tenant shall be paid by
such tenant.
5. Landlord shall provide all locks for doors into each tenant's premises,
and no tenant shall place any additional lock or locks on any door in
its premises without Landlord's prior written consent. Two keys for
each lock on the doors in each tenant's premises shall be furnished by
Landlord. Additional keys shall be made available to each tenant at
such tenant's cost. Tenants shall not have any duplicate keys made
except by Landlord.
6. Electric current shall not be used for cooking or heating without
Landlord's prior written permission.
7. All tenants will refer all contractors, contractors' representatives
and installation technicians who are to perform any work within the
Building to Landlord for Landlord's supervision, approval and control
before the performance of any such work This provision shall apply to
all work performed in the Building including, but not limited to,
installations of telephones, telegraph equipment, electrical devices
and attachments, and any and all installations of every nature
affecting floors, walls, woodwork, trim, windows, ceilings, equipment
any other physical portion of the Building.
8. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any heavy equipment, bulky materials
or merchandise which requires use of elevators or stairways, or
movement through the Building entrances or lobbies shall be restricted
to such hours as Landlord shall designate. All such movement shall be
in a manner to be agreed between the tenant and Landlord in advance.
Such pre-arrangement shall be initiated by ,the tenant. The time,
method, and routing of movement and limitations for safety or other
concern which may prohibit any article, equipment or other item from
being brought into the Building shall be subject to Landlord's
discretion and control. Although Landlord or its personnel may
participate in or assist in the supervision of such movement, each
tenant assumes final responsibility for all risks as to damages to
articles moved and injury to persons or public engaged in such
movement, including equipment, property and personnel of Landlord or
others if damaged or injured as a result of acts in connection with
carrying out this service for such tenant from time of entering
property to completion of work. Landlord shall not be liable for acts
of any person engaged in, or any d3mage or loss to any of said property
or persons resulting from, any act in connection with such service
performed for a tenant.
9. The location, weight and supporting devices for any safes and other
heavy equipment shall in all cases be approved by Landlord prior to
initial installation or relocation.
10. No portion of any tenant's premises shall at any time be used for
cooking, sleeping or lodging quarters. No birds, animals or pets of any
type, with the exception of guide dogs accompanying visually
handicapped persons, shall be brought into or kept in, on or about the
Building or any tenant's premises.
11. Tenants shall not make or permit any loud or improper noises in the
Building or otherwise interfere in any way with other tenants or
persons having business with them.
12. Each tenant shall endeavor to keep its premises neat and clean. Nothing
shall be swept or thrown into the corridors, halls, elevator shafts or
stairways, nor shall tenants place any trash receptacles in these
areas.
13. Tenants shall not employ any person for the purpose of cleaning other
than the authorized cleaning and maintenance personnel for the Building
unless otherwise approved in writing by Landlord.
14. To insure orderly operation of the Building, Landlord reserves the
right to approve all concessionaires, vending machine operators or
other distributors of cold drinks, coffee, food or other concessions,
water, towels or newspapers.
15. Landlord shall not be responsible to the tenants, their agents,
employees, contractors or invitees for any loss of money, jewelry or
other personal property from their respective premises or public areas
or the Building or Complex generally or for any damage to any property
therein from any cause whatsoever whether such loss or damage occurs
when an area is locked against entry or not.
16. Tenants shall exercise reasonable precautions in the protection of
their personal property from loss or damage by keeping doors to the
unattended areas locked. Tenants shall also report any thefts or losses
to the Building Manager and security personnel as soon as reasonably
possible after discovery and shall also notify the Building Manager and
security personnel of the presence of any persons whose conduct is
suspicious or causes a disturbance.
17. Tenants, their employees, guests, contractors and invitees may be
called upon to show suitable identification and sign a building
register when entering or leaving the Building at times other than
normal Building operating hours, and all tenants shall cooperate fully
with Building security personnel in complying with such requirements.
18. Tenants shall not solicit from or circulate advertising material among
other tenants of the Building except through the regular use of the
U.S. mail service. Tenants shall notify the Building Manager or the
Building security personnel promptly if it comes to their attention
that any unauthorized persons are soliciting from or causing annoyance
to tenants, their employees, guests, or invitees.
19. Landlord reserves the right to deny entrance to the Building or remove
any person or persons from the Building in any case where the conduct
of such person involves a hazard or nuisance to any tenant of the
Building or to the public or in the event of fire or other emergency,
riot, civil commotion or similar disturbance involving risk to the
Building, tenants or the general public.
20. Landlord reserves the right to rescind or amend any of these rules and
regulations and to make such other and further rules and regulations as
in its judgment shall from time to time be necessary or appropriate for
the safety, protection, care and cleanliness of the Building, the
operation thereof, the preservation of good order therein and the
protection and comfort of the tenants and their agents, employees, and
invitees, which rules and regulations, when made and written notice
thereof is given to a tenant, shall be binding upon it in like manner
as if originally herein prescribed.
EXHIBIT "D"
TO LEASE AGREEMENT DATED ,
BY AND BETWEEN
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
AND
, ("TENANT")
A Texas Corporation
PARKING
Landlord agrees to provide, and Tenant obligates itself to rent, for the Term
(as defined in the Lease to which this Exhibit is attached) TWO ( 2 ) reserved
spaces and FORTY-TWO ( 42 ) unreserved spaces for the parking of automobiles in
or on the garage ("Garage") serving the WEST TOWER at Four Oaks Place, 1360 Post
Oak Boulevard, Houston, Harris County, Texas, as set forth in this Exhibit.
Subject to availability, Tenant shall rent such spaces for the entire Term
unless Landlord and Tenant should agree otherwise. Notwithstanding anything else
herein contained to the contrary, and all rights of Tenant under this Exhibit
"D" shall terminate or expire simultaneously with the termination or expiration,
for whatever reason, of the Lease.
The rent for parking spaces leased by Tenant hereunder shall initially be at the
rate of Dollars($ ) per reserved parking space per month ("Base Reserved Parking
Rent"), and at the rate of Dollars ($ ) per unreserved parking space per month
("Base Unreserved Parking Rent"), hereinafter referred to together as "Base
Parking Rents". Accordingly, the initial aggregate Base Parking Rents due each
month from Tenant are ($ ). The Base Reserved Parking Rent and the Base
Unreserved Parking Rent shall be adjusted by Landlord from time to time
hereafter to the then prevailing rates being charged by Landlord for reserved
and unreserved parking spaces in the Garage. Tenant shall pay all monthly
installments of Base Parking Rent for each space rented hereunder on or before
the first day of each calendar month to Landlord, or to the operator of the
Garage, whichever Landlord may from time-to-time specify. In the event the
Commencement Date (as defined in the Lease) is other than the first day of a
calendar month, or the Expiration Date of the Term is other than the last day of
a calendar month, Tenant shall pay a pro rata portion of the monthly Base
Parking Rent then in effect for the first partial calendar month, the last
partial calendar month, or both as the case may be.
In the case of unreserved parking spaces, no specific spaces in the Garage are
to be assigned to Tenant, but Landlord will issue to Tenant parking stickers,
each of which will authorize the parking in the Garage of a vehicle on which the
sticker is displayed, or Landlord will provide a reasonable alternative means of
identifying and controlling vehicles authorized to be parked in the Garage.
* Notwithstanding the foregoing, Base Parking Rent for two (2) reserved
spaces shall be abated for the initial twenty-four (24) months of the
Term, and Base Parking Rents for up to forty-two (42) unreserved spaces
shall be abated for the initial sixty (60) month Term.
Tenant shall comply and shall cause all persons using the parking spaces subject
hereto to comply with all traffic, security, safety, and other rules and
regulations promulgated from time-to-time by Landlord or by the operator of the
Garage and with all laws, statutes, ordinances, and other governmental rules,
regulations or requirements now or hereafter in force with respect to any use or
occupancy of the Garage. Tenant shall indemnify and hold harmless Landlord, the
operator of the Garage, and the owner of the Garage and their respective
personnel, agents, employees, contractors and representatives from and against
all claims, losses, liabilities, damages, costs and expenses (including, but not
limited to, attorneys' fees and court costs) arising or alleged to arise out of
Tenant's use of any such parking spaces or their use by Tenant's personnel,
agents, employees, contractors, guests or invitees. Visitor parking, not to
exceed a reasonable number of spaces, shall be provided free of charge during
the Term of the Lease. Spaces provided visitors shall not be used by Tenant's
employees working in the Building.
All rights and obligations of Tenant and Landlord under this Exhibit shall be
upon and subject to all of the provisions of the Lease, and any default by
Tenant hereunder shall constitute an Act of Default under the Lease. Without
limiting the foregoing, Tenant's obligation to pay the Base Parking Rent
provided above for each space rented hereunder shall be considered an obligation
to pay Rent under the Lease, and default in payment of any such Base Parking
Rent shall be deemed a default in payment of Rent under the Lease. If Tenant
shall be in default under this Exhibit or under the Lease, Landlord shall have,
with respect to Tenant and the parking spaces subject hereto, all the rights set
forth in Section 33 of the Lease with respect to Tenant and the Premises. Upon
the expiration or earlier termination of Tenant's rights under this Exhibit or
the Lease, then with respect to the parking spaces subject hereto, and in
addition to such other rights and obligations as may be available under or
imposed by law, equity, the Lease or otherwise, Landlord shall have the rights
and Tenant shall have the obligations set forth in Sections 34 and 35 of the
Lease with respect to the Premises. The parking spaces covered by this Exhibit
shall be used only by employees of Tenant working in the Building. Tenant may
not assign its rights set forth in this Exhibit nor sublet the parking spaces or
any part thereof leased hereunder without the express written consent of
Landlord, which consent shall not be unreasonably withheld.
The term "automobile", in addition to its usual and customary meaning, shall be
deemed to include pick-up trucks, station wagons, vans and similar vehicles used
primarily for passengers and of no greater height than six feet six inches
(6'6") and of no greater width than American full-size passenger automobiles.
Expressly excluded from the term "automobile" shall be recreational vehicles
such as campers and trucks with cabs or cabins which exceed six feet six inches
(6'6") in height and eight feet (8') in width.
EXHIBIT "E"
TO LEASE AGREEMENT DATED FEBRUARY,20 , 1995
BY AND BETWEEN LEHNDORFF FOUR OAKS PLACE JOINT VENTURE
("LANDLORD")
AND
, ("TENANT")
A Texas Corporation
PROHIBITED USES
1. All aspects of retail and commercial banking operations.
2. Real estate title insurance agency issuing real estate title policies
directly to the public.
3. Operating a full dental office.
EXHIBIT "F"
TO LEASE AGREEMENT DATED
AND BETWEEN
LEHNDORFF FOUR OAKS PLACE JOINT VENTURE ("LANDLORD")
AND
("TENANT")
RENEWAL OPTION
1. Provided that Tenant is not then in default under this Lease and there
shall not have occurred and be continuing any Act of Default, Tenant
shall have the right to renew and extend this Lease with respect to all
(but not less than all) of the Premises (including all Expansion
Premises theretofore taken by Tenant), hereinafter collectively
referred to as the "Renewal Premises," for ONE (1) renewal term of
sixty (60) months (the "Renewal Term"), commencing upon the expiration
of the initial SIXTY (60) month Term. As used in this Lease, "Initial
Premises" shall mean the Premises as defined in Section I of this Lease
on the date of execution thereof.
2. Tenant shall exercise its Renewal Option by giving written notice to
Landlord of such election not later than six (6) months prior to the
expiration of the initial Term. If Tenant fails to give timely written
notice to Landlord of its election to exercise the Renewal Option, then
Tenant shall conclusively be deemed to have waived its right to
exercise such option. If Tenant timely elects to exercise the Renewal
Option, or Tenant (whether by written notice to Landlord or otherwise)
waives or is deemed to have waived the Renewal Option, then Tenant
shall not thereafter be entitled to revoke such election or waiver,
even though the applicable Base Rent and Base Rent Adjustment for the
Renewal Premises during the Renewal Term may not then have been
established.
3. Base Rent and Base Rent Adjustment shall be payable with respect to all
of the Renewal Premises during the Renewal Term as follows:
(a) Base Rent shall be at a rate equal to the prevailing rental
rate then being charged by Landlord for comparable space then
being offered for rent in the Complex applied to such Renewal
Premises and determined as of the commencement of the Renewal
Term.
(b) Base Rent Adjustment for such Renewal Premises during the
Renewal Term shall be determined and payable in accordance
with the procedures set forth in Section 5 of this Lease.
The preceding provisions of this paragraph 3 notwithstanding, in no event and at
no time during the Renewal Term shall the Base Rent for such Renewal Premises
for the Renewal Term (computed on an annual per square foot of Rentable Area
basis) be less than the sum of the Base Rent rate and the Base Rent Adjustment
rate (as so computed) for such Premises as of the end of the initial Term.
4. The Renewal Premises shall be leased by Tenant for the Renewal Term on
an "AS IS" basis, and Landlord shall not be obligated to make any
alterations or install or modify any improvements therein. The leasing
of all Premises during the Renewal Term shall be upon the same terms
and conditions as are set forth in this Lease and the Exhibits thereto
for the leasing of such Premises during the initial Term, except as
otherwise specifically provided in this Exhibit.
5. Tenant shall have no further right to renew this Lease beyond the
expiration of the Renewal Term.
EXHIBIT "G"
GUARANTY OF LEASE
THIS GUARANTY, effective as of _______,
is made by _____, whose address is _________.
PRELIMINARY STATEMENT
_________________________ is hereinafter called "Guarantor." Lehndorff Four Oaks
Place Joint Venture is hereinafter called "Landlord." Family DENTAL SERVICES OF
Texas, is hereinafter_ called "Tenant." Landlord proposes to enter into a Lease
concerning space located in the WEST TOWER located in Four Oaks Place located at
1360 Post Oak Boulevard, Houston, Texas (the "Lease"). Said space is more
particularly described in the Lease. Landlord is unwilling to enter into the
Lease with Tenant unless Guarantor executes and delivers to Landlord this
Guaranty; therefore, Guarantor executes and delivers this Guaranty to Landlord
in order to induce Landlord to enter into the Lease with Tenant. Guarantor has
received a copy of the Lease, has examined the Lease and is familiar with all
the terms, covenants and provisions contained therein.
W I T N E S S E T H:
NOW, THEREFORE, in consideration of the foregoing and in further
consideration of the sum of TEN ANDNO/100 DOLLARS ($!0.00) paid to Guarantor,
the receipt and sufficiency of which are hereby expressly acknowledged, and for
other good and valuable consider-ation, Guarantor hereby agrees with Landlord as
follows:
1. Guarantor unconditionally guarantees the payment of all sums, costs,
expenses, charges, payments and deposits (including sums payable as
damages upon a default under the Lease) which are at any time payable
by Tenant under the Lease (whether on their stated due dates or by
acceleration or otherwise) in accordance with the Lease, and the
performance of each covenant and condition of the Lease to be performed
or observed by Tenant.
2. This Guaranty is an unconditional, irrevocable and absolute guarantee
of payment and performance. If for any reason any provision of the
Lease shall not be faithfully performed or observed by Tenant as
required thereby, or if the annual rental or any other sums, costs,
expenses, charges, payments or deposits, or any part thereof, payable
under the Lease shall not be paid when due in accordance with the
provisions of the Lease, Guarantor will promptly perform or observe, or
cause the performance or observance of each such provision, and will
immediately pay such annual rental or other sums, costs, expenses,
charges, payments or deposits to the person entitled thereto pursuant
to the provisions of the Lease, together with interest at the rate per
annum of the prime rate being charged by the Chase Manhattan Bank on
the date as of which the interest in question commences to accrue plus
two percent (2%); provided, however, if such interest rate exceeds that
permitted to be charged by law, then the interest rate shall be the
highest rate the law shall allow at the time. Said interest shall
accrue from the due date thereof to the date of payment in all cases
regardless of whether Landlord shall have taken any steps to enforce
any rights against Tenant and/or Guarantor or any other person to
compel any such performance or observance or to colledct any such
annual rental or any other sum, cost, expense, charge, payment or
deposit, or any part thereof, either pursuant to the provisions of the
Lease or this Guaranty, or at law or in equity, and regardless of any
other condition or contingency. Guarantor also agrees to pay to sch
person the costs and expenses of colleting any such annual rental or
any other sum, cost, expense, charge, payment or deposit at any time
payable by Tenant under the Lease, and waives notice of the breach or
non-performance of any provision of the Lease. Landlord shall have the
right to enforce this Guaranty regardless of the receipt by Landlord of
additional security or the enforcement of any remedies against such
security or the release of such security.
3. Guarantor's obligations under this Guaranty shall in no way be affected
or impaired by reason of the happening from time to time of any of the
following with respect either to the Lease or to this Guaranty, even
without notice to or the further consent of Guarantor:
(a) the previous waiver by Landlord or its successors or assigns
of the performance or observance by Tenant of any provision of
the Lease;
(b) the extension of the time for payment by Tenant of any annual
rental or any sums, costs, expenses, charges, payments or
deposits or any part thereof, owing or payable under the
Lease, or of the time for performance by Tenant of any other
obligations under or arising out of or on account of the Lease
or any extension or renewal thereof;
(c) the assignment, subletting or mortgaging or the purported
assignment, subletting or mortgaging of all or part of
Tenant's interest in the Lease, whether or not permitted by
the Lease;
(d) the modification or amendment (whether material or otherwise)
of any obligation of Tenant as set forth in the Lease;
(e) the taking or the omission of any right or remedy referred to
in the Lease;
(f) the failure, omission or delay of Landlord to enforce, assert
or exercise any right, power or remedy conferred on Landlord
in the Lease or by law or any action on the part of Landlord
granting indulgence or extension in any form;
(g) the voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all of the assets,
marshalling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or
readjustment of, or other similar proceeding affecting Tenant
or any of its assets, or the disaffirmance of the Lease in any
such proceeding;
(h) the release of Tenant from performance or observance of any
provision of the Lease by operation of law unless resulting
from condemnation or damage or destruction of the Premises;
(i) the receipt and acceptance by Landlord of notes, checks or
other instruments for the payment of money made by Tenant, or
any extensions or renewals thereof;
(j) the renewal or extension of the term of the Lease; or
(k) any other cause, whether similar to or dissimilar from the
forgoing except in cases in which Tenant has been excused from
performance, but specifically not excepting cases in which
Tenant has been excused from performance as a result of
bankruptcy.
4. This Guaranty shall be governed by and construed in accordance with the
laws of the State of Texas.
5. This Guaranty may not be modified or amended except by written
agreement executed by Guarantor with the consent in writing of Landlord
and any attempted modification or amendment without such consent by
Landlord shall be void and without force and effect.
6. No waiver by Landlord of the payment by Guarantor of any of its
obligations contained in this Guaranty, nor any extension of time for
the payment by Guarantor of any such obligations, shall affect or
impair this Guaranty or constitute a waiver or relinquishment of any
rights of Landlord hereunder for the future. No action brought under
this Guaranty against Guarantor and no recovery had in pursuance
thereof shall be any bar or defense to any further action or recovery
which may be brought or had under this Guaranty by reason of any
further default or default of Tenant.
7. All of the provisions of this Guaranty shall inure to the benefit of
Landlord and its grantees, successors and assigns, and shall inure to
the benefit of any future owner of the fee title of which the Premises
(as defined in the Lease) are a part and shall inure to the benefit of
any tenant to whom said fee title shall have been leased
contemporaneously with a transfer of said fee title (a so-called "sale
and leaseback transaction"); and all of the provisions of this Guaranty
shall be binding upon Guarantor and his heirs, legal representatives,
successors and assigns.
8. Any notice sent by Guarantor to Landlord or by Landlord to Guarantor
shall be sufficient if sent by United States Registered or Certified
Mail, Return Receipt Requested, to the address of such party
hereinabove specified, or to such other address as such party shall
have designated by similar written notice; and such notice shall be
deemed to have been given as of the date postmarked on the envelope
containing said notice.
9. Guarantor shall have no liability for the payment of any sum or the
performance of any obligation coming due, accruing, or arising under
the Lease after the expiration of the term of this Guaranty, and shall
have liability for obligations arising under this Guaranty only in
respect of defaults occurring under the Lease during the Term of the
Guaranty.
10. The liability of Guarantor is coextensive with that of Tenant and also
joint and several, and action may be brought against Guarantor and
carried to final judgment either with or without making Tenant a party
thereto.
11. All of Landlord's rights and remedies under the Lease and this Guaranty
shall be distinct, separate and cumulative and no such right or remedy
shall be exclusive of or a waiver of any of the others.
12. Guarantor will pay to Landlord all of Landlord's expenses incurred in
enforcing this Guaranty, including but not limited to, attorneys' fees.
13. Notwithstanding anything to the contrary contained in this Guaranty,
Guarantor shall be liable for all interest accrued and for all amounts
expended by Landlord in collecting sums due Landlord under this
Guaranty even though said amounts may be accrued or incurred after the
expiration of the Term of the
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed as of the
day and year first hereinbefore written.
_____________("GUARANTOR")
By:_______________________
[Name]____________________
[Title]____________________
SS# or TAX ID#:
THE STATE OF____________________
COUNTY OF____________________
BEFORE ME, the undersigned authority, on this day personally appeared
of known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he/she executed he
same for the purposes and consideration therein expressed in the
capacity therein stated and as the act and deed of said corporation.
GIVEN UNDER MY HAND AND SEAL OF OFFICE THIS THE day of , 19___.
__________________________________________
Notary Public in and for The State of Texas
___________________________________________
Printed Name of Notary
My Commission Expires:__________
EXHIBIT 11.1
CASTLE DENTAL CENTERS
EXHIBIT 11.1 -- COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
------------------------------- -------- --------
1993 1994 1995 1995 1996
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Weighted average common shares
outstanding........................ 4,000 4,000 4,000 4,000 4,000
Weighted average of shares issued for
business acquisitions.............. 54
Assumed conversion of preferred stock
issued within one year of initial
public offering.................... 1,245 1,245 1,245 1,245 1,245
Net effect of dilutive stock options,
convertible debts, and
warrants -- based on the treasury
stock method using average market
price.............................. 270 270 270 270 270
--------- --------- --------- -------- --------
Total primary shares................. 5,515 5,515 5,515 5,515 5,569
========= ========= ========= ======== ========
Net income (loss).................... $ 809 $ 781 $ (2,414) $ 333 $ 31
========= ========= ========= ======== ========
Net income (loss) per share.......... $ .15 $ .14 $ (.44) $ .06 $ .01
========= ========= ========= ======== ========
FULLY DILUTED:
Weighted average common shares
outstanding........................ 4,000 4,000 4,000 4,000 4,000
Weighted average shares issued for
business acquisitions.............. 54
Assumed conversion of preferred stock
issued within one year of initial
public offering.................... 1,245 1,245 1,245 1,245 1,245
Net effect of dilutive stock options,
convertible debts, and warrants -- based on the treasury stock method using
the year-end market price, if higher than
average market price............... 270 270 270 270 270
--------- --------- --------- -------- --------
Total fully diluted shares........... 5,515 5,515 5,515 5,515 5,515
========= ========= ========= ======== ========
Net income (loss).................... $ 809 $ 781 $ (2,414) $ 333 $ 31
========= ========= ========= ======== ========
Net income (loss) per share.......... $ .15 $ .14 $ (.44) $ .06 $ .01
========= ========= ========= ======== ========
</TABLE>
EXHIBIT 11.2
CASTLE DENTAL CENTERS
EXHIBIT 11.2 -- COMPUTATION OF EARNINGS PER SHARE
UNDER SAB NO. 55
(IN THOUSANDS)
SIX
MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------ --------
1995 1996
------------ --------
PRIMARY:
Weighted average common shares
outstanding........................ 4,000 4,000
Weighted average shares issued for
business acquisitions.............. 54
Assumed conversion of preferred stock
issued within one year of initial
public offering.................... 1,245 1,245
Assumed issuance of stock to fund
distribution to owner.............. 600 600
Net effect of dilutive stock options,
convertible debts, and
warrants -- based on the treasury
stock method using average market
price.............................. 270 270
------------ --------
Total primary shares................. 6,115 6,169
============ ========
Net income (loss).................... $ (2,414) $ 31
============ ========
Net income (loss) per share.......... $ (.39) $ .01
============ ========
FULLY DILUTED:
Weighted average common shares
outstanding........................ 4,000 4,000
Weighted average shares issued for
business acquisitions.............. 54
Assumed conversion of preferred stock
issued within one year of initial
public offering.................... 1,245 1,245
Assumed issuance of stock to fund
distribution to owner.............. 600 600
Net effect of dilutive stock options,
convertible debts, and warrants -- based on the treasury stock method using
the year-end market price, if higher than
average market price............... 270 270
------------ --------
Total fully diluted shares........... 6,115 6,115
============ ========
Net income (loss).................... $ (2,414) $ 31
============ ========
Net income (loss) per share.......... $ (.39) $ .01
============ ========
EXHIBIT 11.3
CASTLE DENTAL CENTERS
EXHIBIT 11.3 -- COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1995
----------------- -------------
PRIMARY:
Weighted average common shares
outstanding........................... 4,000 4,000
Assumed conversion of preferred stock
issued within one year of initial
public offering....................... 1,245 1,245
Shares issued for business
acquisitions.......................... 1,297 1,297
Net effect of dilutive stock options,
convertible debt, and warrants --
based on the treasury stock method
using average market price............ 271 271
Shares issued in initial public
offering.............................. 5,000 5,000
Less excess shares issued in initial
public offering....................... (335) (335)
----------------- -------------
Total primary shares.................... 11,478 11,478
================= =============
Pro forma net income (loss)............. $ 2,512 $ 1,822
================= =============
Pro forma net income (loss) per share... $ .22 $ .16
================= =============
FULLY DILUTED:
Weighted average common shares
outstanding........................... 4,000 4,000
Assumed conversion of preferred stock
issued within one year of initial
public offering....................... 1,245 1,245
Shares issued for business
acquisitions.......................... 1,297 1,297
Net effect of dilutive stock options and
warrants -- based on the treasury stock method using the year-end market
price, if higher than average market
price................................. 271 271
Shares issued in initial public
offering.............................. 5,000 5,000
Less excess shares issued in initial
public offering....................... (335) (335)
----------------- -------------
Total fully diluted shares.............. 11,478 11,478
================= =============
Pro forma net Income (loss)............. $ 2,512 $ 1,822
================= =============
Pro forma net income (loss) per share... $ .22 $ .16
================= =============
EXHIBIT 21
SUBSIDIARIES OF CASTLE DENTAL CENTERS, INC.
STATE OF PERCENTAGE
COMPANY NAME INCORPORATION OF OWNERSHIP
JHCDDS, Inc. Texas 100%
Castle Dental Centers of Florida, Inc. Florida 100%
Castle Dental Centers of Tennessee, Inc. Tennessee 100%
Castle Dental Centers of Texas, Inc. Texas 100%
Castle Dental Centers of Arkansas, Inc. Arkansas 100%
Castle Dental Centers of Louisiana, Inc. Louisiana 100%
Castle Dental Centers of Oklahoma, Inc. Oklahoma 100%
Castle Dental Centers of New York, Inc. New York 100%
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333- ) for the registration of 5,000,000 shares of Castle Dental
Centers Common Stock, $0.001 par value of i) our report dated September 3, 1996
on our audits of the financial statements of Castle Dental Centers, Inc. as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, ii) our report dated June 10, 1996 on our audits of the
financial statements of 1st Dental Care as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995, iii) our report
dated June 10, 1996 on our audits of the financial statements of Mid-South
Dental Centers as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995, iv) our report dated August 15, 1996 on
our audits of the financial statements of Horizon Dental Centers as of December
31, 1995 and for each of the two years in the period ended December 31, 1995, v)
our report dated September 3, 1996 on our audits of the financial statements of
American Dental Centers as of December 31, 1994 and 1995 and for each of the
three years in the period ended December 31, 1995 and vi) our report dated July
2, 1996 on our audits of the financial statements of United DentalCare as of
December 31, 1995 and for each of the two years in the period ended December 31,
1995. We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Houston, Texas
September 3, 1996
EXHIBIT 23.2
CONSENT
The undersigned, Jules V. Lane D.D.S., hereby consents to the reference
to him as having agreed to become a Director of Castle Dental Centers, Inc. on
the closing of the acquisition by Castle Dental Centers, Inc. of American Dental
Centers, as described in the Registration Statement on Form S-1 relating to the
Common Stock of Castle Dental Centers, Inc.
/S/ JULES V. LANE D.D.S.
Jules V. Lane D.D.S.
Date: SEPTEMBER 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 JUN-30-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 6439 2095
<SECURITIES> 0 0
<RECEIVABLES> 6288 7699
<ALLOWANCES> 2665 3257
<INVENTORY> 0 0
<CURRENT-ASSETS> 10084 6833
<PP&E> 3387 5518
<DEPRECIATION> 1804 2030
<TOTAL-ASSETS> 12677 22358
<CURRENT-LIABILITIES> 3876 6017
<BONDS> 0 0
0 0
2928 2928
<COMMON> 4 4
<OTHER-SE> (5747) (4121)
<TOTAL-LIABILITY-AND-EQUITY> 12677 22358
<SALES> 18257 10707
<TOTAL-REVENUES> 18257 10707
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 20909 9698
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 87 1066
<INCOME-PRETAX> (2739) 50
<INCOME-TAX> (325) 19
<INCOME-CONTINUING> (2414) 31
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2414) 31
<EPS-PRIMARY> (0.44) 0.01
<EPS-DILUTED> 0 0
</TABLE>
