<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1996
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COAST DENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8741 59-3136131
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
<TABLE>
<S> <C>
COAST DENTAL SERVICES, INC. TEREK DIASTI, CEO
25400 U.S. HIGHWAY 19, SUITE 225 COAST DENTAL SERVICES, INC.
CLEARWATER, FLORIDA 34623 25400 U.S. HIGHWAY 19, SUITE 225
(813) 726-5152 CLEARWATER, FLORIDA 34623
(Address, including zip code, and telephone (813) 726-5152
number, including area code, of registrant's (Name, address, including zip code, and
principal executive offices) telephone number,
including area code, of agent for service)
</TABLE>
------------------------
With Copies to:
<TABLE>
<S> <C>
DARRELL C. SMITH, ESQUIRE JEFFREY M. STEIN, ESQUIRE
SHUMAKER, LOOP & KENDRICK, LLP KING & SPALDING
101 E. KENNEDY BLVD., SUITE 2800 191 PEACHTREE STREET, N.E.
TAMPA, FLORIDA 33602 ATLANTA, GEORGIA 30303-1763
(813) 229-7600 (404) 572-4600
</TABLE>
------------------------
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, 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>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value per
share........................... 2,300,000 $12.00 $27,600,000 $8,364
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</TABLE>
(1) Includes 300,000 shares which the Underwriters have an option to purchase to
cover over allotments, if any.
(2) Estimated solely for purposes of determining the registration fee.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
COAST DENTAL SERVICES, INC.
CROSS REFERENCE SHEET
FOR REGISTRATION STATEMENT ON FORM S-1 AND PROSPECTUS
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
-------------------------------------------- -------------------------------------------
Information About the Transaction
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus.... Facing Page of Registration Statement;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front and Outside Back Cover Pages;
Table of Contents
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors; The
Company; Business
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Underwriting
6. Dilution.................................... Dilution
7. Selling Security Holders.................... Principal and Selling Stockholders;
Management
8. Plan of Distribution........................ Outside Front Cover Page; Underwriting
9. Description of Securities to Be
Registered................................ Description of Capital Stock
10. Interests of Named Experts and Counsel...... Experts; Legal Matters
11. Information with Respect to the Registrant
(a) Item 101 of Regulation S-K.......... Prospectus Summary; The Company; Risk
Factors; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business
(b) Item 102 of Regulation S-K.......... Business
(c) Item 103 of Regulation S-K.......... Business
(d) Item 201 of Regulation S-K.......... Prospectus Summary; Risk Factors;
Description of Capital Stock; Dividend
Policy; Shares Eligible for Future Sale;
Underwriting
(e) Financial Statements................ Selected Financial Data; Selected Pro Forma
Financial Data; Index to Financial
Statements
(f) Item 301 of Regulation S-K.......... Selected Financial Data; Pro Forma
Financial Data
(g) Item 302 or Regulation S-K.......... *
(h) Item 303 of Regulation S-K.......... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Item 304 of Regulation S-K.......... *
(j) Item 401 of Regulation S-K.......... Management; Principal and Selling
Stockholders
(k) Item 402 of Regulation S-K.......... Management
(l) Item 403 of Regulation S-K.......... Principal and Selling Stockholders
(m) Item 404 of Regulation S-K.......... Management; Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
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* Not Applicable
<PAGE> 3
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 OCTOBER 7, 1996
PROSPECTUS
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2,000,000 Shares
(Insert Logo) COAST DENTAL SERVICES, INC.
Common Stock
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All of the 2,000,000 shares of common stock, par value $.001 per share (the
"Common Stock"), offered hereby are being sold by Coast Dental Services, Inc.
(the "Company"). Prior to this offering (the "Offering"), there has been no
public market for the Common Stock of the Company. It is currently anticipated
that the initial public offering price will be between $10.00 and $12.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Company has applied for inclusion of the Common Stock in The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol "CDEN."
SEE "RISK FACTORS" ON PAGES 7 TO 12 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
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>
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Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
<S> <C> <C> <C>
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Per Share................................... $ $ $
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Total(3).................................... $ $ $
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</TABLE>
(1) The Company and certain stockholders of the Company (the "Selling
Stockholders") have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $800,000.
(3) The Selling Stockholders have granted the several Underwriters 30-day
over-allotment options to purchase up to 300,000 additional shares of Common
Stock on the same terms and conditions as set forth above. If all such
additional shares are purchased by the Underwriters, the total Price to
Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and
the total Proceeds to Selling Stockholders will be $ . See
"Principal and Selling Stockholders" and "Underwriting."
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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about , 1996.
PRUDENTIAL SECURITIES INCORPORATED RAYMOND JAMES & ASSOCIATES, INC.
, 1996
<PAGE> 4
[MAP OF FLORIDA, INDICATING
DENTAL CENTER LOCATIONS]
------------------------------
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 STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and information under "Risk Factors." Unless the
context otherwise requires, references in this Prospectus to "Coast Dental" or
the "Company" refer to Coast Dental Services, Inc. and its predecessor; "Dental
Centers" refers to dental offices managed, or to be managed, by the Company;
"internally developed Dental Centers" refers to Dental Centers which are
initially opened, developed and managed by the Company pursuant to the services
and support agreement (the "Services and Support Agreement") with the Coast
Florida P.A.; "acquired Dental Centers" refers to Dental Centers resulting from
the acquisition of an existing dental facility by the Company, combined with the
acquisition by the Coast Florida P.A. of the existing dental practice located at
that facility; "Coast Dentists" refers to the licensed dentists employed by the
Coast Florida P.A. who provide the dental care services at the Dental Centers;
"Coast Dental Network" refers to collectively the Dental Centers and the Coast
Dentists; the "Coast Florida P.A." refers to the Florida professional
association which currently performs the dental services at the Dental Centers;
and the "Coast P.A." refers to any professional association established by a
Coast Dentist that performs future dental services at a Dental Center. Except as
otherwise indicated, the information contained in this Prospectus (i) assumes
that the Underwriters' over-allotment options will not be exercised and (ii)
gives retroactive effect to reverse stock splits resulting in an exchange of 1
share for 3.375 shares of Common Stock issued and outstanding.
THE COMPANY
Coast Dental Services, Inc. develops and manages an integrated network of
general dentistry practices. As of October 4, 1996, the Company was managing 22
Dental Centers in Florida, staffed by 24 Coast Dentists serving over 105,000
patients. Of these 22 Dental Centers, 11 were internally developed and 11 were
acquired by the Company. Management believes that the Coast Dental Network is
the largest provider of general dentistry services in Florida. The Company
expects to add one internally developed and six acquired Dental Centers for the
remainder of 1996 and at least 25 internally developed or acquired Dental
Centers in 1997.
Industry sources have estimated that expenditures for all dental services
in the United States were $45.2 billion in 1995 and are expected to grow at a
rate of 7% per year. General dentistry is estimated to represent approximately
88% of all dental services performed in the United States. The Company believes
several factors are driving the overall industry growth. First, as the "baby
boom" generation ages, the demand for many higher priced dental maintenance
products and procedures (such as crowns, bridges and dentures) will increase
relative to the demand for other more routine, lower priced dental products and
procedures (such as cleanings and fillings). Second, increasing attention to
dental health and, in particular, to personal appearance has increased the
demand for general dentistry services and cosmetic dental products and
procedures (such as bonding and whitening). Finally, a greater percentage of the
population is now covered by private or government funded dental health
insurance thereby facilitating increased dental office visits and a greater
utilization of general dentistry services. The United States dental industry is
highly fragmented, consisting of more than 110,000 dental practices with
approximately 84% of these practices operated by sole practitioners.
The Company's goal is to consolidate a leadership position in the
development and management of general dentistry centers throughout Florida and
the southeastern United States. Dental Centers utilize a uniform operating model
(the "Coast Operating Model") developed by the Company to increase productivity
and maintain the low cost delivery of quality general dentistry services. The
key elements of the Coast Operating Model are: (i) focusing on the most common,
high volume dental products and procedures which lend themselves to
cost-effective delivery; (ii) centralizing management and administrative
responsibilities, thus allowing Coast Dentists to concentrate on delivering high
quality dental care; (iii) facilitating the training of the Dental Center staff,
including Coast Dentists and hygienists, in the most efficient techniques for
delivering high volume quality dental services; and (iv) stimulating demand
through a combination of value pricing and marketing programs designed to meet
the needs of each Dental Center. The Company plans to expand the Coast Dental
Network to maximize economies of scale in management and administration,
3
<PAGE> 6
materials procurement and marketing, and to facilitate contracting with managed
care companies. The Company plans to increase penetration in currently served
regions and to expand into new contiguous markets in the southeastern United
States through the addition of internally developed and acquired Dental Centers.
In 1995, the average revenue production for Coast Dentists affiliated with
the Company for at least 12 months was approximately $500,000, compared to the
1994 national average of approximately $320,000 for sole practitioners. In 1995,
each Dental Center managed by the Company for at least 12 months averaged 125
patient visits per week, compared to the 1994 national average of approximately
80 patient visits per week for sole practitioners. Profitability at internally
developed Dental Centers has been attained in an average of three to four months
from opening. Acquired Dental Centers have experienced an average increase of
25% in productivity and 15% in profitability in the six month period following
acquisition.
As the Coast Dental Network grows, an increasing percentage of revenue is
being realized from a growing managed care patient base. The Coast Dental
Network began to provide dental services under managed care contracts in 1995
and, for the six months ended June 30, 1996, its managed care business has grown
to represent an average of 30% of Dental Center revenue. The Company believes
that managed care companies are presently focused on increasing their revenue
and gaining market share by offering a full range of health insurance options,
including dental insurance. As a result, managed care companies are aggressively
seeking to contract with dental providers that offer extensive regional
coverage, have the ability to deliver dental services at managed care pricing
levels, and possess the necessary management information systems and contract
administration expertise. Accordingly, the Coast Dental Network enjoys a
competitive advantage over sole practitioners and small dental group practices
that generally do not have the resources to develop such capabilities or managed
care relationships.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................. 2,000,000 shares
Common Stock to be Outstanding after the
Offering(1)....................................... 6,000,000 shares
Use of Proceeds..................................... To finance the addition of internally
developed and acquired Dental
Centers; to repay outstanding
indebtedness; and for general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.............. CDEN
</TABLE>
- ---------------
(1) Excludes an aggregate of 900,000 shares of Common Stock reserved for
issuance under the Company's stock plans (the "Plans"), of which options
for 90,577 shares have been granted. See "Management -- The Plans."
4
<PAGE> 7
SUMMARY FINANCIAL AND OPERATING DATA
Historical Financial Data. In 1996, the Company added 11 acquired Dental
Centers, including one dental office in January 1996, seven dental offices in
April 1996 (the "Volusia Acquisition") and three separate acquisitions of single
dental offices in September 1996 (referred to, together with the Volusia
Acquisition, as the "Recent Acquisitions"). Each of the Recent Acquisitions was
accounted for using the purchase method of accounting, so that the Company's
historical statement of operations data include results of operations of the
acquired Dental Centers from their respective acquisition dates. See Notes 4 and
12 to Notes to Financial Statements of the Company appearing elsewhere in this
Prospectus.
Pro Forma Financial Data. The pro forma financial data are derived from
the Unaudited Pro Forma Combined Financial Information of the Company appearing
elsewhere in this Prospectus. The Pro Forma Statement of Operations Data
presented in the following table for the year ended December 31, 1995 and the
six months ended June 30, 1996 give effect to (i) the Recent Acquisitions,
including the Company's entering into a new Services and Support Agreement with
the Coast Florida P.A., and (ii) issuance of 2,000,000 shares of common stock in
the Offering at an assumed initial public offering price of $11.00 per share and
the application of the net proceeds therefrom (the "Statement of Operations
Adjustments"). The Pro Forma Balance Sheet Data presented in the following table
at June 30, 1996 gives effect to (i) the acquisition of three dental offices in
September 1996 and the S Corporation Distribution (the "Balance Sheet
Adjustments"), and (ii) As Adjusted, the consummation of the Offering and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995(1) 1995 1996 1996(1)
------- ------- ------- --------- ------- ------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.......................... $ 1,195 $ 1,868 $ 3,325 $ 6,798 $ 1,586 $ 3,351 $ 4,240
Dental Center expenses............... 853 1,433 2,353 5,167 1,229 2,172 2,816
------- ------- ------- --------- ------- ------- ---------
Gross profit......................... 342 435 972 1,631 357 1,179 1,424
General and administrative
expenses........................... 306 585 697 1,263 363 486 595
Interest expense -- net.............. 30 32 50 29 23 60 24
------- ------- ------- --------- ------- ------- ---------
Net income(loss)(2).................. $ 4 $ (109) $ 135 $ 204 $ (17) $ 386 $ 491
======= ======= ======= ========= ======= ======= =========
Pro forma earnings per share(3)...... $ 0.05 $ 0.12
========= =========
Pro forma weighted average shares
outstanding(3)..................... 4,226,700 4,226,700
========= =========
SELECTED OPERATING DATA:
Number of Dental Centers(4).......... 4 8 11 10 19
Gross revenue per Dental Center(5)... NA $ 535 $ 590 $ 303 $ 303
Number of dental chairs(4)........... 22 35 56 50 82
Number of Coast Dentists(4).......... 4 7 11 10 21
Patient visits....................... 11,881 19,346 42,005 21,000 39,350
Number of patient visits per dental
chair(6)........................... 735 736 918 467 574
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
------ ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................................. $ 155 $ (102) $17,361
Total assets............................................... 3,450 3,594 20,760
Long-term debt, including current maturities............... 2,069 2,594 100
Stockholders' equity....................................... 733 352 20,012
</TABLE>
- ---------------
(1) After giving effect to the Statement of Operations Adjustments as if such
adjustments had occurred at the beginning of the respective periods
presented.
(2) Pro forma adjusted to reflect a 39% income tax rate as if the Company was
taxed as a C Corporation during the periods presented.
5
<PAGE> 8
(3) Reflects the pro forma earnings per share assuming an increase in the
weighted average number of out-standing shares to the extent necessary to
repay the existing indebtedness as described in the "Use of Proceeds."
(4) Presented as of the end of the period.
(5) Includes only Dental Centers open for at least one year as of the beginning
of the period, so that two Dental Centers are included for 1994, four
Dental Centers are included for 1995, four Dental Centers are included for
the six months ended June 30, 1995 and eight Dental Centers are included
for the six months ended June 30, 1996.
(6) Includes only Dental Centers that were opened for the entire period.
(7) After giving effect to the Balance Sheet Adjustments as if such adjustments
had occurred as of June 30, 1996. See Note 2 to the Notes to Financial
Statements of the Company for description of the S Corporation
Distribution.
(8) After giving effect to consummation of the Offering and the application of
the estimated net proceeds therefrom. See "Selected Pro Forma Financial
Data."
6
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
in connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements which constitute forward looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Those statements appear in a
number of places in this Prospectus and include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) potential acquisitions or internal
development of Dental Centers and the successful integration of such
acquisitions and internally developed Dental Centers into the Coast Dental
Network; (ii) the use of the proceeds of the Offering; (iii) the Company's
financing plans; (iv) trends affecting the Company's financial condition or
results of operations; (v) the Company's growth strategy and operating strategy;
(vi) trends in the health care, dental care and managed care industries; (vii)
trends in governmental regulations; or (viii) the declaration and payment of
dividends. Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward looking statements as a result of various factors. The
accompanying information contained in this Prospectus, including without
limitation the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business," identifies important factors that could cause such
differences.
RISKS ASSOCIATED WITH EXPANSION. From its inception in 1992 through 1994,
the Company opened eight internally developed Dental Centers. In 1995, the
Company added three internally developed Dental Centers. As of October 4, 1996,
the Company had acquired eleven Dental Centers in 1996, and expects to add one
additional internally developed Dental Center and six additional acquired Dental
Centers through the remainder of 1996. The Company expects to continue to add
internally developed and acquired Dental Centers in the foreseeable future. The
success of the Company's expansion strategy will depend on a number of factors,
including (i) the Company's ability to affiliate with dentists to open new
Dental Centers, and the Company's ability to obtain good locations in suitable
markets; (ii) the ability to identify and affiliate with existing dental
practices on favorable terms and to integrate such practices into the Coast
Dental Network; (iii) the availability of adequate financing to fund the
Company's expansion strategy; (iv) regulatory constraints; and (v) the Company's
ability to manage effectively additional Dental Centers as well as to continue
to manage successfully existing Dental Centers. Internally developed Dental
Centers could begin operation without any meaningful client base and could
involve the expenditure of significant amounts in the effort to make the Dental
Centers successful. There can be no assurance an internally developed Dental
Center will ever become productive or profitable. The Company intends to devote
substantial time and expense to locating and attempting to add acquired Dental
Centers. The Company may compete for acquisition opportunities with companies
that have greater resources than the Company. The acquisition of the allowable
business assets of existing dental practices could involve the issuance of
securities of the Company, including Common Stock, which may be dilutive to
stockholders of the Company. There can be no assurances that suitable
acquisition candidates will be available, that financing for such acquisitions
will be obtainable on terms acceptable to the Company, that such acquisitions
can be consummated or that the acquired Dental Centers can be integrated
successfully and profitably into the Coast Dental Network. Further, the
Company's financial results in the fiscal quarters immediately following a
material acquisition may be adversely impacted while the Company attempts to
integrate acquired Dental Centers into the Coast Dental Network. There can be no
assurance that the Company's expansion strategy will continue to be successful
or that modifications to the Company's strategy will not be required. See
"Business -- Strategy."
GOVERNMENT REGULATION. The health care industry and the practice of
dentistry are regulated extensively at the state and federal levels. The Company
does not control the practice of dentistry by the Coast Dentists or the
compliance with certain regulatory requirements directly applicable to the Coast
Dentists and their practices. The laws of many states prohibit corporate
entities which are not owned by licensed dentists (such as the Company) from
practicing dentistry, employing dentists, controlling the content of a dentist's
advertising or engaging in other activities that are deemed to constitute the
practice of dentistry. Many states,
7
<PAGE> 10
including Florida, also prohibit dentists from splitting professional fees with
non-practitioners or from practicing or advertising under any name other than
the dentist's. Some states, including Florida, prohibit a non-licensed party
(other than a professional partnership or corporation owned by dentists) from
owning, maintaining or operating an office for the practice of dentistry. Many
states also prohibit dentists from splitting fees with any person other than
another dentist in the same professional group. In most cases, such laws do not
prohibit reasonable payments for services under management agreements even if
they are based on a percentage of the dentist's revenue. The laws in most states
regarding fee splitting and the corporate practice of a dental professional have
been subject to limited judicial and regulatory interpretation. In addition,
many states impose limits on the tasks that may be delegated by a dentist to
other staff members. While the Company believes that it is in compliance with
all applicable laws and regulations, there can be no assurance that any review
of the Company's business relationships or the operation of the Dental Centers
by courts or other regulatory authorities will not result in determinations that
could adversely affect the operations of the Company or that the regulatory
environment will not change to restrict the Company's existing or future
operations. 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 long-term Services and Support
Agreement will not be successfully challenged or that enforceability of the
provisions thereof will not be limited. In addition, certain provisions in its
Services and Support Agreement, including provisions relating to non-competition
covenants by the Coast Dentists, could be ruled unenforceable. See
"Business -- Services and Support Agreement." 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 dentists in a manner which
may restrict the Company's operations in those states or may prevent the Company
from acquiring the assets of or managing dental practices in those states. There
can be no assurance that the laws and regulations of the state 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 relationships with
dentists or the operation of Dental Centers. See "Business -- Government
Regulation." Federal and state governments are currently considering various
types of health law initiatives and comprehensive revisions to the current
health care and health care insurance systems. Some of the proposals under
consideration, or others that may be introduced, could, if adopted, have a
material adverse effect on the Company's financial condition and results of
operations. It is uncertain what legislative programs, if any, will be adopted
in the future, or what actions Congress or state legislatures may take regarding
health care reform proposals or legislation. There can be no assurance that
future state or federal legislation or changes in the administration or
interpretation of governmental health care programs will not adversely affect
the Company's financial condition and results of operations. See
"Business -- Government Regulation."
DEPENDENCE ON THE COAST FLORIDA P.A. The Company receives fees for
services provided to the Coast Florida P.A. under a services and support
agreement, but does not employ dentists or control the practices of the Coast
Dentists employed by the Coast Florida P.A. The Company's revenue is dependent
on revenue generated by the Coast Dentists and, therefore, effective and
continued performance of the Coast Dentists during the term of the Services and
Support Agreement is essential to the Company's long term success. The Services
and Support Agreement with the Coast Florida P.A. is for a term of 40 years and
may be terminated by the Coast Florida P.A. only for "cause," which includes a
material default by or bankruptcy of the Company. Any material loss of revenue
by the Coast Florida P.A. would have a material adverse effect on the Company.
In the event of a breach of the Services and Support Agreement by the Coast
Florida, P.A., there can be no assurance that the legal remedies available to
the Company will be adequate to compensate the Company for its damages resulting
from such breach. See "Business -- Services and Support Agreement."
COMPETITION. The Company must compete with other companies which seek to
acquire the allowable business assets of, provide management and other services
to, and affiliate with existing dental practices. The Company is aware of
several other companies which are actively engaged in businesses similar to that
of the Company, some of which have substantially greater financial resources and
longer operating histories than the Company. The Company assumes that additional
companies with similar objectives may enter the Company's markets and compete
with the Company and there can be no assurance that the Company will be able to
compete effectively with such companies. The business of providing dental
services is highly competitive in each of the markets in which the Dental
Centers operate. The Coast Dentists compete with other dentists who
8
<PAGE> 11
maintain single offices or operate a single satellite office, as well as with
dentists who maintain group practices or operate in multiple offices. Many of
these dentists have more established practices in their markets. There can be no
assurance that the Coast Dentists will be able to compete effectively with such
other dentists. See "Business -- Competition."
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. As an increasing percentage
of the population is covered by managed care organizations that provide dental
coverage, the Company believes that its success will, in part, be dependent upon
its ability to negotiate, on behalf of the Coast Florida P.A., contracts with
HMOs and health insurance companies and other third party payors pursuant to
which services will be provided on a risk-sharing or capitated basis. Under some
of these agreements, the health care provider may accept a pre-determined amount
per month per patient in exchange for providing all necessary covered services
to the patients covered under the agreement. These contracts pass much of the
risk of providing care from the payor to the provider. The proliferation of
these contracts in markets served by the Company could result in greater
predictability of revenue, but less certainty with respect to profitability.
There can be no assurance, however, that the Company will be able to negotiate
satisfactory arrangements on a risk-sharing or capitated basis. In addition, to
the extent that patients or enrollees covered by these contracts require, in the
aggregate, more frequent or extensive care than is anticipated, operating
margins may be reduced or the revenue derived from these contracts may be
insufficient to cover the costs of the services provided. In such a change of
circumstances, the Company could incur losses. Any such reduction of earnings or
losses could have a material adverse affect on the Company's results of
operations. See "Business -- Government Regulation."
APPLICABILITY OF ANTI-KICKBACK LAWS. Most states (including Florida)
prohibit paying or receiving remuneration, direct or indirect, that is intended
to induce referrals for dental services. Federal law prohibits the offer,
payment, solicitation or receipt of any form of remuneration in return for the
referral of patients covered by Medicare or federally funded health programs
such as Medicaid ("Federal Programs"), or in return for purchasing, leasing,
ordering or arranging for the purchase, lease or order of any item or service
that is covered by a Federal Program. The applicability of these provisions to
many business practices in the health care industry, including the Company's
Services and Support Agreement, has not been subject to judicial and regulatory
interpretation. These laws provide for criminal and civil penalties. While the
Company believes it is in compliance with these laws and regulations, the
Company's relationships, including fee payments, with Coast Dentists and the
Coast Florida P.A. have not been examined by federal or state authorities under
these laws and regulations. There can be no assurance that changes in these laws
and regulations or their interpretation will not affect the Company's current or
future activities. See "Business -- Government Regulation."
RISKS OF PROVIDING DENTAL SERVICES. The Coast Dentists provide dental
services to the public and are exposed to the risk of professional liability and
other claims. Such claims, if successful, could result in substantial damage
awards to the claimants which may exceed the limits of any applicable insurance
coverage. The Company does not control the practice of dentistry by the Coast
Dentists or the compliance with regulatory and other requirements directly
applicable to the Coast Dentists and their practices. Each Coast Dentist has
undertaken, however, to comply with all applicable regulations and requirements,
and the Company is indemnified under its Services and Support Agreement for
claims against the Coast Dentists. The Company maintains liability insurance for
itself and is named as an additional insured party on the liability insurance
policies of the Coast Dentists. In addition, under the Services and Support
Agreement, the Coast Florida P.A. is required to indemnify the Company for
losses or liability relating to claims against the Coast Dentists. While the
Company believes it has adequate liability insurance coverage, there can be no
assurance that a pending or future claim or claims will not be successful and,
if successful, will not exceed the limits of available insurance coverage or
that such coverage will continue to be available at acceptable costs and on
favorable terms. See "Business -- Services and Support Agreement."
RISKS OF BECOMING SUBJECT TO LICENSURE. Federal and state laws regulate
insurance companies, HMOs and certain other managed care organizations. Many
states also regulate the establishment and operation of networks of health care
providers. In most states, including Florida, these laws do not apply to
discounted fee-for-service arrangements. These laws also do not generally apply
to networks that are paid on a "capitated" basis, i.e. based on the number of
covered persons the network is required to serve without regard to the cost of
9
<PAGE> 12
service actually rendered, unless the entity with which the network provider is
contracting is not a licensed health insurer or HMO. There are exceptions to
these rules in some states. For example, certain states require a license for a
capitated arrangement with any party unless the risk-bearing entity is a
professional corporation that employs the professionals. The Company believes
that it is in compliance with the laws of the State of Florida with respect to
the operation of the Dental Centers and the Company in Florida, but there can be
no assurance that interpretations of these laws by the regulatory authorities in
Florida or in the states in which the Company expands will not require licensure
or a restructuring of some or all of the Company's operations. In the event that
the Company is required to become licensed under these laws, the licensure
process can be lengthy and time consuming and, unless the regulatory authority
permits the Company to continue to operate while the licensure process is
progressing, the Company could experience a material adverse change in its
business while the licensure process is pending. In addition, many of the
licensing requirements mandate strict financial and other requirements which the
Company may not immediately be able to meet. Further, once licensed, the Company
would be subject to continuing oversight by and reporting to the respective
regulatory agency. The regulatory framework of certain jurisdictions may limit
the Company's expansion into, or ability to continue operations within, such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework. Any limitation on the Company's ability
to expand could have an adverse effect on the Company. See
"Business -- Government Regulation."
DEPENDENCE ON KEY INDIVIDUALS. The success of the Company is dependent
upon the continued services of the Company's senior management. The loss of the
services of one or more of these individuals, including the Company's Chairman
and Chief Executive Officer, Terek Diasti; its President, Chief Operating
Officer and sole owner of the Coast Florida P.A., Adam Diasti; or its Chief
Financial Officer, Joseph R. Smith, could have a material adverse effect on the
Company. The Company believes that its future success will also depend in part
upon its ability to attract and retain qualified management personnel.
Competition for such personnel is intense and the Company competes for qualified
personnel with numerous other employers, some of whom have greater financial and
other resources than the Company. There can be no assurance that the Company
will be successful in attracting and retaining such personnel. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS. Upon completion of the Offering, Terek
Diasti, Adam Diasti and Tim Diasti, as a group, will own approximately 62.1% of
the outstanding shares of Common Stock (57.0% if the Underwriters'
over-allotment options are exercised in full). Accordingly, these stockholders,
as a group, will have the ability to control all matters requiring stockholder
approval, including the election of the Company's directors and any amendments
to the Company's Certificate of Incorporation and Bylaws, and to control the
business of the Company. Such control could preclude any acquisition of the
Company and could adversely affect the market price of the Common Stock. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
RISKS RELATED TO INTANGIBLE ASSETS. The Company's pro forma total assets
reflect substantial intangible assets in the form of non-compete agreements and
dental service agreements. These intangible assets are being amortized over
their expected useful lives. There can be no assurance that the value of such
intangible assets will ever be realized by the Company. The dental service
agreements amount is being amortized on a straight-line basis over 25 years and
the non-compete agreements amount is being amortized on a straight-line basis
over nine years. The Company's policy is to evaluate on a regular basis whether
events and circumstances have occurred that indicate all or a portion of the
carrying amount of such assets may no longer be recoverable, in which case an
additional charge to earnings would become necessary. Any future determination
requiring the write-off of a significant portion of such unamortized assets
would adversely affect the Company's results of operations. See Unaudited Pro
Forma Combined Financial Information of the Company.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have outstanding 6,000,000 shares of Common Stock, of which the
2,000,000 shares sold in the Offering (2,300,000 shares if the Underwriters
over-allotment options are exercised in full) and an additional 120,000 shares
will be freely tradeable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act"). The remaining 3,880,000 shares
(the "Restricted Shares") are subject to certain restrictions described below.
Holders of 3,720,000 of the Restricted Shares will be eligible to sell a portion
of such shares pursuant to
10
<PAGE> 13
Rule 144 ("Rule 144") under the Securities Act beginning in 90 days following
the completion of this offering, subject to manner of sale, volume, notice and
information requirements of Rule 144. Notwithstanding the eligibility of certain
shares to be sold following the completion of the Offering, such shares are
subject to certain additional restrictions on transfer pursuant to certain
agreements described below. Holders of the 160,000 remaining Restricted Shares
will be eligible to sell a portion of such shares pursuant to Rule 144 beginning
in April 1998. See "Shares Eligible for Future Sales."
The Company and its executive officers and directors have agreed that they
will not, directly or indirectly, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose (or announce
any offer, sale, offer of sale, contract of sale, pledge, grant any option to
purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock or
other capital stock of the Company, or any right to purchase or acquire Common
Stock or other capital stock of the Company, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, except for bona fide
gifts or transfers affected by such stockholders other than on any securities
exchange or in the over-the-counter market to donees or transferees that agree
to be bound by similar agreements (the "Lock-up Agreements"). Sales of
substantial amounts of Common Stock in the public market, or the availability of
such shares for future sale, could adversely affect the market price of the
Common Stock and could impair the Company's future ability to raise additional
capital through an offering of its equity securities. See "Shares Eligible for
Future Sale" and "Underwriting."
Additionally, the Company intends to file one or more registration
statements on Form S-8 under the Securities Act to register all shares of Common
Stock subject to then outstanding stock options and Common Stock issuable
pursuant to the Plans. The Company expects to file these registration statements
promptly following the closing of the Offering, and such registration statements
are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets, subject to the Lock-up Agreements, with the exception of those held by
executive officers. See "Management" and "Shares Eligible for Future Sale."
Following the Offering the Company may issue its Common Stock from time to
time in connection with the acquisition of stock or assets of other companies.
Such securities may be issued in transactions exempt from registration under the
Securities Act.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock
in the Offering will experience immediate and substantial dilution,
approximately $7.90 per share, in the net tangible book value per share of
Common Stock from the assumed initial public offering price. See "Dilution."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Company's Common Stock and
there can be no assurance that an active public market for the Common Stock will
develop or, if a trading market does develop, continue after the Offering. The
initial public offering price will be determined by negotiations among the
Company and the representatives (the "Representatives") of the Underwriters. See
"Underwriting" for a description of the factors that will 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. Quarterly operating results of the Company, changes in general
conditions in the economy or the health care industry, or other developments
affecting the Company or its competitors, could cause the market price of the
Common Stock to fluctuate substantially. The equity markets have, on occasion,
experienced significant price and volume fluctuations that have affected the
market prices for many companies' securities and that have often been unrelated
to the operating performance of these companies. Concern about the potential
effects of health care reform measures has contributed to the volatility of
stock prices of companies in health care and related industries and may
similarly affect the price of the Common Stock following the Offering. Any such
fluctuations that occur following completion of the Offering may adversely
affect the market price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions in the Company's
Certificate of Incorporation and Bylaws and Delaware law may make a change in
control of the Company more difficult to effect, even if a
11
<PAGE> 14
change in control were in the stockholders' interest. Such provisions include
certain supermajority voting requirements contained in the Company's Certificate
of Incorporation. The Company's Certificate of Incorporation also provides that
the Board of Directors is divided into three classes of directors, elected for
staggered three-year terms. In addition, the Company's Certificate of
Incorporation allows the Board of Directors to determine the terms of preferred
stock which may be issued by the Company without approval of the holders of the
Common Stock, and thereby enables the Board of Directors to inhibit the ability
of the holders of the Common Stock to effect a change in control of the Company.
See "Description of Capital Stock -- Certain Provisions of Delaware Law."
The Company has entered into employment agreements with three executive
officers. Such agreements require the Company to pay certain amounts to such
employees upon their termination following certain events including a change in
control of the Company. Such agreements may inhibit a change in control of the
Company. See "Management -- Employment Agreements."
THE COMPANY
The Company was incorporated in August 1992 as Sunshine Health Services
Inc., a Florida corporation, and changed its name to Coast Dental, Inc. ("CDI")
in August 1994. Effective January 1996, CDI was merged into Coast Dental
Services, Inc., a Delaware corporation, for the purpose of reincorporating the
Company in the State of Delaware and changing its corporate name. See Note 1 to
the Financial Statements of the Company.
As of October 4, 1996, the Company was managing 22 Dental Centers in
Florida, 11 of which were internally developed and 11 of which were acquired.
The Company opened two internally developed Dental Centers in both 1992 and 1993
and four and three internally developed Dental Centers in 1994 and 1995,
respectively. The Company has added 11 acquired Dental Centers in 1996,
including a single dental office in January 1996, seven dental offices in April
1996 (the "Volusia Acquisition") and three separate single dental offices in
September 1996 (together with the Volusia Acquisition, the "Recent
Acquisitions"). The total purchase price for the Volusia Acquisition was $1.8
million and the purchase prices for the other acquisitions completed in 1996
aggregated $660,000. See Notes 4 and 12 to Notes to Financial Statements of the
Company and the Unaudited Pro Forma Combined Financial Information of the
Company.
The address of the Company's executive offices is 25400 U.S. Highway 19
North, Suite 225, Clearwater, Florida 34623. The telephone number at that
address is (813) 726-5152.
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company, at an assumed initial public offering price
of $11.00 per share, are estimated to be approximately $19.7 million (after
deducting underwriting discounts and commissions and estimated offering
expenses).
The Company intends to use the net proceeds from the Offering as follows:
(a) an aggregate of $15.0 million to finance the expansion of the Company
through the addition of internally developed Dental Centers and acquired Dental
Centers; (b) an aggregate of $2.5 million to repay outstanding indebtedness as
follows: (i) $824,000 of notes payable to banks, which bear interest at rates
currently ranging between 9.25% and prime plus 2% per annum and which mature
from November 1997 to February 2000, (ii) $1.1 million of notes issued in
connection with the Volusia Acquisition, which bear interest at 9% per annum and
mature at various dates through October 2003, (iii) $330,000 of seller financed
notes issued in connection with the addition of three acquired Dental Centers
occurring after June 30, 1996 which bear interest at rates ranging between 8%
and 9% per annum and mature at October 2001, and (iv) $240,000 of equipment
lease obligations, which bear interest at rates currently ranging between 14%
and 21% per annum; and (c) the balance of approximately $2.2 million for
miscellaneous working capital and general corporate purposes. Terek Diasti and
Adam Diasti provided personal guarantees in connection with the indebtedness
being repaid with the net proceeds from the Offering, and such guarantees will
be released upon such repayment. See "Certain Transactions." Pending such uses,
the net proceeds will be invested in short-term, investment grade securities,
certificates of deposit or direct or guaranteed obligations of the United States
government.
If the Underwriters' over-allotment options are exercised, the Company will
not receive any of the proceeds from the sale of the shares of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has not paid or declared any dividends since its inception
other than distributions of $216,751 to stockholders for taxable income earned
by the Company through December 31, 1995 as an S Corporation. In addition, the
Company intends to distribute to stockholders, out of its available cash
balances, sufficient cash to pay federal income taxes on the earnings of the
Company through the date of the closing of the Offering, as described in Note 2
to Notes to Financial Statements. At June 30, 1996, the amount of such
distribution would have been approximately $215,000. The Company currently
intends to retain all future earnings for the operation and expansion of its
business and accordingly, the Company does not anticipate that any dividends
will be declared or paid on the Common Stock for the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant. The Company's current bank credit facilities place
certain restrictions on the future payment of dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996, (i) on an actual basis, (ii) on a pro forma basis to give effect to
the acquisitions of three dental offices in September 1996 and the payment of
the S Corporation Distribution, and (iii) as adjusted for the issuance of
2,000,000 shares of Common Stock in the Offering at an assumed initial public
offering price of $11.00 per share and the application of the estimated net
proceeds therefrom, which are estimated to be approximately $19.7 million (after
deducting underwriting discounts and commissions and estimated offering
expenses). This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Unaudited Pro Forma Combined Financial Information
and related Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and current portion of long-term debt and
capital lease obligations................................. $ 255 $ 297 $ --
====== ======= =======
Long-term debt and capital lease obligations................ $1,813 $ 2,297 $ 100
------ ------- -------
Stockholders' equity(1):
Common Stock: $.001 par value; 50,000,000 shares
authorized, 4,000,000 shares outstanding, 6,000,000
shares outstanding, pro forma as adjusted.............. 4 4 6
Additional paid-in capital................................ 24 348 20,006
Retained earnings......................................... 705 -- --
------ ------- -------
Total stockholders' equity........................... 733 352 20,012
------ ------- -------
Total capitalization.............................. $2,546 $ 2,649 $20,112
====== ======= =======
</TABLE>
- ---------------
(1) Excludes 900,000 shares of Common Stock reserved for future issuance
pursuant to the Plans. At June 30, 1996, options to purchase 90,577 shares
of Common Stock have been granted under the Plans which are exercisable at
the Offering price, none of which are presently exercisable. Gives
retroactive effect to reverse stock splits resulting in an exchange of 1
share for 3.375 shares of Common Stock issued and outstanding.
Additionally, at such time the Company increased the number of authorized
shares of Common Stock to 50,000,000 shares, and the par value was changed
to $.001 per share. See "Management -- Stock Incentive Plans," "Shares
Eligible for Future Sale," and Note 12 of Notes to Financial Statements of
the Company.
14
<PAGE> 17
DILUTION
Purchasers of Common Stock offered hereby will experience an immediate and
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. At June 30, 1996, the pro forma net tangible book
value of the Company was $(1.1 million), or $(0.27) per share. Pro forma net
tangible book value per share is determined by dividing the Company's net
tangible book value (tangible assets less total liabilities, after giving effect
to the three dental offices acquired in September 1996 and the S Corporation
Distribution as if they occurred as of June 30, 1996) by the number of shares of
Common Stock outstanding. After giving effect, as of such date, to the sale of
2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $11.00 per share and after deducting underwriting discounts
and commissions and estimated offering expenses, the pro forma net tangible book
value of the Company would have been $18.6 million or $3.10 per share. This
represents an immediate increase in pro forma net tangible book value of $3.37
per share to existing stockholders and an immediate dilution in net tangible
book value of $7.90 per share to new investors purchasing shares of Common Stock
in the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $ 11.00
Net tangible book value (deficit) at June 30, 1996(1)......... $(0.27)
------
Increase attributable to new investors........................ 3.37
------
Pro forma net tangible book value after the Offering............ 3.10
------
Dilution in net tangible book value to new investors............ $ 7.90
------
</TABLE>
The following table sets forth, on a pro forma basis at June 30, 1996, the
differences between the existing stockholders and the new investors purchasing
shares in the Offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share at an assumed initial public offering price of $11.00
per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 4,000,000 66.7% $ 352,466 1.6% $ 0.09
--------- ----- --------- -----
New investors....................... 2,000,000 33.3% 22,000,000 98.4 11.00
--------- ----- --------- -----
Total(1).................. 6,000,000 100.0% $22,352,466 100.0%
========= ===== ========= =====
</TABLE>
- ---------------
(1) Excludes 900,000 shares of Common Stock reserved for issuance under the
Plans. To the extent that such stock options are eventually exercised,
there may be further dilution to new investors. See "Management -- The
Plans," "Shares Eligible for Future Sale" and Note 12 of Notes to Financial
Statements. Assuming the Underwriters' over-allotment options are exercised
in full, the number of shares held by existing stockholders will be reduced
to 3,700,000 shares, or 61.7% of the total number of shares outstanding
after the Offering, and the number of shares held by new investors will
increase by 300,000 shares to 2,300,000 shares, or 38.3% of the total
shares of Common Stock outstanding after the Offering. See "Principal and
Selling Stockholders."
15
<PAGE> 18
SELECTED PRO FORMA FINANCIAL DATA
The pro forma financial data are derived from the Unaudited Pro Forma
Combined Financial Information of the Company appearing elsewhere in this
Prospectus. The Pro Forma Statement of Operations Data presented in the
following table for the year ended December 31, 1995 and the six months ended
June 30, 1996 give effect to (i) the Recent Acquisitions, including the
Company's entering into a new Services and Support Agreement with the Coast
Florida P.A., and (ii) the issuance of 2,000,000 shares of Common Stock in the
Offering at an assumed initial public offering price of $11.00 per share and the
application of the net proceeds therefrom, as if they had occurred at the
beginning of the respective periods presented. The Pro Forma Balance Sheet Data
presented in the following table at June 30, 1996 give effect to (i) the
acquisition of three dental offices in September 1996, (ii) the S Corporation
Distribution, and (iii) the consummation of the Offering and the application of
the estimated net proceeds therefrom as described under "Use of Proceeds", as if
they had occurred as of June 30, 1996.
The pro forma financial data should be read in conjunction with the
Unaudited Pro Forma Combined Financial Information of the Company and the
related notes thereto included elsewhere in this Prospectus. Management believes
the assumptions used in the Unaudited Pro Forma Combined Financial Information
provide a reasonable basis on which to present the pro forma financial data. The
pro forma financial data are provided for informational purposes only and should
not be construed to be indicative of the Company's financial position or results
of operations had the transactions and events described in the notes thereto
been consummated on the dates assumed and are not intended to project the
Company's financial condition or results of operations on any future date or for
any future period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net revenue.............................................................. $ 6,798 $ 4,240
Dental Center expenses:
Staff salaries......................................................... 2,072 1,269
Dental supplies and lab fees........................................... 998 551
Advertising............................................................ 598 276
Rent................................................................... 712 405
Depreciation and other................................................. 787 315
------- -------
Total Dental Center expenses............................................. 5,167 2,816
------- -------
Gross profit............................................................. 1,631 1,424
General and administrative expenses.................................... 1,119 506
Depreciation and amortization.......................................... 144 89
------- -------
Operating income......................................................... 368 829
Interest expense -- net................................................ 29 24
------- -------
Income before income taxes............................................... 339 805
Income tax (expense) benefit........................................... (135) (314)
------- -------
Net income............................................................. $ 204 $ 491
======= =======
Earnings per share....................................................... $ 0.05 $ 0.12
======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital.......................................................................... $ 17,361
Total assets............................................................................. 20,760
Total long-term debt, including current maturities....................................... 100
Stockholders' equity..................................................................... 20,012
</TABLE>
See Notes to the Unaudited Pro Forma Combined Financial Information.
16
<PAGE> 19
SELECTED FINANCIAL DATA
The following selected financial data with respect to the Company's
statements of operation's for the years ended December 31, 1993, 1994 and 1995
and for the six months ended June 30, 1996 and the balance sheet data as of
December 31, 1994, 1995 and June 30, 1996 are derived from the Financial
Statements of the Company which have been audited by Deloitte & Touche LLP,
independent accountants. The selected financial data presented below for the
year ended December 31, 1992 and for the six months ended June 30, 1995 is
unaudited and was prepared by management of the Company on the same basis as the
audited Financial Statements included elsewhere herein and, in the opinion of
management of the Company, include all adjustments necessary to present fairly
the information set forth therein. The results for the six months ended June 30,
1996 are not necessarily indicative of the results to be expected for the full
year ending December 31, 1996 or future periods. The following data should be
read in conjunction with the Financial Statements of the Company and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------
1992 1993 1994 1995 1995 1996
---- ------ ------ ------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................... $398 $1,194 $1,868 $ 3,325 $ 1,586 $ 3,351
Dental Center expenses:
Staff salaries.......................... 63 291 446 863 470 947
Dental supplies and lab fees............ 35 166 385 557 288 444
Advertising............................. 71 155 221 351 205 262
Rent.................................... 33 140 218 296 146 305
Other................................... 52 100 163 286 119 214
---- ------ ------ ------ ------ ------
Total Dental Center expenses.............. 254 852 1,433 2,353 1,228 2,172
---- ------ ------ ------ ------ ------
Gross profit............................ 144 342 435 972 358 1,179
General and administrative expenses....... -- 296 580 682 353 433
Depreciation and amortization............. 11 10 5 15 10 53
---- ------ ------ ------ ------ ------
Operating income (loss)................. 133 36 (150) 275 (5) 693
Interest expense -- net................... 9 30 32 50 23 60
---- ------ ------ ------ ------ ------
Income (loss) before income taxes......... 124 6 (182) 225 (28) 633
Pro forma income tax (expense)
benefit(1).............................. (50) (2) 73 (90) 11 (247)
---- ------ ------ ------ ------ ------
Pro forma net income (loss)............... $ 74 $ 4 $ (109) $ 135 $ (17) $ 386
==== ====== ====== ====== ====== ======
Pro forma net earnings per common share... $ 0.03 $ 0.10
====== ======
Weighted average shares outstanding
(000s).................................. 4,000 4,000
====== ======
SELECTED OPERATING DATA:
Number of Dental Centers(2)............... 2 4 8 11 10 19
Gross revenue per Dental Center(3)........ NA NA $ 535 $ 590 $ 303 $ 303
Number of dental chairs(2)................ 11 22 35 56 50 82
Number of Coast Dentists(2)............... 2 4 7 11 10 21
Patient visits............................ NA 11,881 19,346 42,005 21,000 39,350
Number of patient visits per dental
chair(4)................................ NA 735 736 918 467 574
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1992 1993 1994 1995 JUNE 30, 1996
---- ----- ----- ------ --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................. $(24) $(228) $(496) $ (168) $ 155
Total assets............................... 376 583 914 1,198 3,450
Long-term debt, including current
maturities............................... 172 210 385 608 2,069
Stockholders' equity....................... 126 132 (50) 175 733
</TABLE>
- ---------------
(1) Pro forma adjusted to reflect a 39% income tax rate as if the Company was
taxed as a C Corporation during the periods presented.
(2) Presented as of the end of the period.
(3) Includes only Dental Centers open for at least one year as of the beginning
of the period, so that two Dental Centers are included for 1994, four
Dental Centers are included for 1995, four Dental Centers are included for
the six months ended June 30, 1995 and 8 Dental Centers are included for
the six months ended June 30, 1996.
(4) Includes only Dental Centers that were opened for the entire period.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OVERVIEW
The Company commenced the management of its first Dental Center in May 1992
and since that time has opened 11 internally developed Dental Centers and added
11 acquired Dental Centers. The Company currently manages a network of 22 Dental
Centers in Florida, staffed by 24 dentists, which currently serve over 105,000
patients. The Company expects to expand the Coast Dental Network in new and
existing markets through the addition of internally developed and acquired
Dental Centers.
The Company opened two internally developed Dental Centers in both 1992 and
1993 and four and three internally developed Dental Centers in 1994 and 1995,
respectively. The average cost of an internally developed Dental Center is
approximately $125,000, which includes the cost of equipment, leasehold
improvements, working capital and funding of losses associated with the initial
operations of the internally developed Dental Center. Profitability at
internally developed Dental Centers has been attained in an average of three to
four months from opening.
The Company completed its first acquisition of one Dental Center in January
1996 for a purchase price of $40,000 and added seven acquired Dental Centers on
April 1996 for purchase price of $1.8 million. The gross revenue for these eight
acquired Dental Centers was approximately $3.5 million in 1995. Annualized gross
revenue from the date of acquisition has, on average, increased 15% over the 12
month period ending January 30, 1996 for the seven acquired Dental Centers and
December 31, 1995 for the one acquired Dental Center. Gross profit from center
operations has increased from $176,000 for the same 12 month periods to $211,000
for the period following each acquisition date through August 1996. The Company
believes implementation of the Coast Operating Model at each acquired Dental
Center has driven these increases in revenue and profitability. The Company
believes full integration of acquired Dental Centers generally requires six
months. See Notes 4 and 12 of the Notes to Financial Statements of the Company.
In September 1996, the Company added a total of three acquired Dental
Centers located in Tampa, Wesley Chapel and Orlando, Florida. The combined
purchase price for the three acquired Dental Centers was $620,000. For the 12
month period ended December 31, 1995 these three acquired Dental Centers had
combined gross revenue in excess of $1.1 million. See "Certain Transactions" and
the Financial Statements and Unaudited Pro Forma Combined Financial Information
of the Company.
Pursuant to the October 1996 Services and Support Agreement with the Coast
Florida P.A., the Company provides capital for the development and growth of
Dental Centers in addition to management and support services. Operating
expenses of the Dental Centers are expenses of the Company and are recognized as
incurred. Under the Services and Support Agreement, the Coast Florida P.A. pays
a fee to the Company equal to approximately 76.0% of the Dental Centers' gross
revenue. Prior to October 1996, the services and support fee paid to the Company
averaged 78.5% of gross revenues.
The Coast Florida P.A. currently derives its revenue from a combination of
sources, including fees paid by private pay patients, indemnity insurance
reimbursements and capitation payments from managed care companies. Medicare and
Medicaid reimbursements currently account for approximately three percent of the
revenue of the Coast Florida P.A. The Coast Florida P.A. currently maintains 11
capitated managed care contracts.
18
<PAGE> 21
The following table outlines the payor mix for the Coast Florida P.A.
revenue for the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------- SIX MONTHS ENDED
1994 1995 JUNE 30, 1996
----- ----- ----------------
<S> <C> <C> <C>
Self-pay............................................ 100.0% 87.0% 55.0%
HMOs................................................ -- -- 30.0
Private insurers.................................... -- 12.0 12.0
Medicare and Medicaid............................... -- 1.0 3.0
--- --- ---
Total............................................. 100.0% 100.0% 100.0%
=== === ===
</TABLE>
The Company has been an S Corporation for federal income tax purposes. The
Company's S Corporation status will terminate upon the consummation of the
Offering.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenue, certain
items in the Company's statements of operations for the indicated periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS
31, ENDED JUNE 30,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ----- ------ ------
Dental Center expenses:
Staff salaries............................. 24.3 23.9 26.0 29.7 28.2
Dental supplies and lab fees............... 13.9 20.6 16.7 18.2 13.3
Advertising................................ 13.0 11.8 10.6 12.9 7.8
Rent....................................... 11.8 11.7 8.9 9.2 9.1
Other...................................... 8.4 8.7 8.6 7.5 6.4
------ ------ ----- ------ ------
Total Dental Center expenses....... 71.4 76.7 70.8 77.5 64.8
------ ------ ----- ------ ------
Gross profit................................. 28.6 23.3 29.2 22.5 35.2
------ ------ ----- ------ ------
General and administrative expense........... 24.8 31.0 20.5 22.2 12.9
Depreciation and amortization................ 0.8 0.3 0.5 0.6 1.6
------ ------ ----- ------ ------
Operating income (loss)...................... 3.0 (8.0) 8.2 (0.3) 20.7
Interest expense............................. 2.5 1.7 1.5 1.5 1.8
------ ------ ----- ------ ------
Income (loss) before income taxes............ 0.5 (9.7) 6.7 (1.8) 18.9
Pro forma provision for income taxes......... (0.2) 3.9 (2.7) .7 (7.4)
------ ------ ----- ------ ------
Pro forma net income (loss).................. 0.3% (5.8)% 4.0% (1.1)% 11.5%
====== ====== ===== ====== ======
</TABLE>
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Net Revenue. Net revenue increased 111.3% from $1.6 million for the six
months ended June 30, 1995 to $3.4 million for the six months ended June 30,
1996. This increase was caused primarily by a 49.0% increase in net revenue for
the eight comparable Dental Centers (Dental Centers that were open throughout
the periods being compared), which accounted for $136,005 of the net revenue
increase, the three internally developed Dental Centers opened in 1995, which
accounted for $473,000 of the increase, and the eight acquired Dental Centers
added in 1996, which accounted for $770,753 million of the increase. Capitation
payments received from eleven managed care contracts during the six months ended
June 30, 1996 accounted for $377,000 of this increase. Increases in net revenue
are primarily driven by increases in patient visits. Patient visits increased
87.4% from 21,000 for the six months ended June 30, 1995 to 39,350 for the six
months ended June 30, 1996. This increase was caused primarily by an increase of
7,698 patient visits at the eight comparable Dental Centers, an increase of
2,752 patient visits at the three internally developed Dental Center and 7,900
patient visits at the eight acquired Dental Centers.
19
<PAGE> 22
Staff Salaries. Staff salaries increased 101.3% from $470,000 for the six
months ended June 30, 1995 to $947,000 for the six months ended June 30, 1996.
This increase was caused primarily by the increase in staff related to the
opening of the three internally developed Dental Centers and the addition of
eight acquired Dental Centers. Staff salaries include the compensation paid to
the administrative staff at each Dental Center, including the dental assistants,
office managers, sterilization technicians and front desk managers. As a
percentage of net revenue, staff salaries decreased from 29.7% for the six
months ended June 30, 1995 to 28.2% for the six months ended June 30, 1996. This
decrease was caused primarily by staff levels at the eight comparable Dental
Centers remaining relatively constant, while net revenue increased, which more
than offset the increase in staffing due to the addition of internally developed
and acquired Dental Centers. While an internally developed Dental Center can
operate with a relatively limited dental staff in the early stages of
development, the services of a dentist, dental hygienist, dental assistant and
front desk manager are still required. As a result, staff salaries as a
percentage of net revenue will typically be higher in the first six months of
operation as patient visits are increased. In addition, for acquired Dental
Centers, staff salaries as a percentage of net revenue will typically be higher
in the first three months following acquisition as the Company implements the
Coast Operating Model to increase productivity and efficiency.
Dental Supplies and Lab Fees. Dental supplies and lab fees increased 54.0%
from $288,000 for the six months ended June 30, 1995 to $444,000 for the six
months ended June 30, 1996. This increase was caused primarily by the increase
in patient visits and dental services provided at the eight comparable Dental
Centers and the three internally developed and the eight acquired Dental
Centers. As a percentage of net revenue, dental supplies and lab fees decreased
from 18.2% for the six months ended June 30, 1995 to 13.3% for the six months
ended June 30, 1996. This decrease was caused primarily by the Company changing
suppliers in October 1995 and negotiating a more favorable supply agreement. In
addition, as the Coast Dental Network expands into new markets, changing
demographics have caused crowns and dentures as a percentage of total product
mix to decrease. Crowns and dentures incur lab fees not related to other dental
products and procedures provided.
Advertising. Advertising expense increased 27.4% from $205,000 for the six
months ended June 30, 1995 to $262,000 for the six months ended June 30, 1996.
This increase was caused primarily by implementation of a more aggressive
advertising program for the eight acquired Dental Centers. As a percentage of
net revenue, advertising expense decreased from 12.9% for the six months ended
June 30, 1995 to 7.8% for the six months ended June 30, 1996. This decrease was
caused primarily by an increase in market penetration by comparable Dental
Centers while advertising expenses remained relatively constant.
Rent. Rent expense increased 109.3% from $146,000 for the six months ended
June 30, 1995 to $305,000 for the six months ended June 30, 1996. This increase
was caused primarily by the addition of the three internally developed Dental
Centers and the eight acquired Dental Centers. As a percentage of net revenue,
rent expense remained relatively constant, decreasing from 9.2% for the six
months ended June 30, 1995 to 9.1% for the six months ended June 30, 1996. This
decrease was caused primarily by the result of a greater increase in net revenue
at the eight comparable Dental Centers offsetting higher than usual rent expense
associated with the eight acquired Dental Centers.
Other Expenses. Other expenses increased 79.8% from $119,000 for the six
months ended June 30, 1995 to $214,000 for the six months ended June 30, 1996.
This increase was caused primarily by increases in insurance costs, credit card
discounts and other costs, which accounted for $74,000 of the increase, and
depreciation expense, which accounted for $21,000 of the increase associated
with the addition of the nine Dental Centers. As a percentage of net revenue,
other expenses decreased from 7.5% for the six months ended June 30, 1995 to
6.4% for the six months ended June 30, 1996. This decrease was caused primarily
by increased economies of scale associated with the increasing number of patient
visits.
General and Administrative Expenses. General and administrative expenses
increased 22.8% from $353,000 for the six months ended June 30, 1995 to $433,000
for the six months ended June 30, 1996. This increase was caused primarily by
corporate administrative salaries increasing, which accounted for $47,000 of the
increase, and an increase in other general and administrative expenses, which
accounted for $34,000 of the increase. As a percentage of net revenue, general
and administrative expenses decreased from 22.3% for the six
20
<PAGE> 23
months ended June 30, 1995 to 12.9% for the six months ended June 30, 1996. This
decrease was caused primarily by economies of scale realized through the
centralization of Dental Center management. General and administrative expenses
relate to substantially all expenses incurred at the corporate office.
Depreciation and Amortization. Depreciation and amortization expense
increase 449.7% from $10,000 for the six months ended June 30, 1995 to $53,000
for the six months ended June 30, 1996. As a percentage of net revenue,
depreciation and amortization expense increased from 0.6% for the six months
ended June 30, 1995 to 1.6% for the six months ended June 30, 1996. This
increase was caused primarily by the recognition of amortization expense in 1996
related to a covenant not to compete agreement pursuant to the Volusia
Acquisition, which accounted for $26,000 of the increase and depreciation
expense incurred at the corporate office which accounted for $17,000 of the
increase.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net Revenue. Net revenue increased 78.0% from $1.9 million for 1994 to
$3.3 million for 1995. This increase was caused primarily by a 14.2% increase in
net revenue for the four comparable Dental Centers, all of which were internally
developed and accounted for $224,000 of the net revenue increase, the four
internally developed Dental Centers that were opened during 1994, which
accounted for $431,000 of the increase, and the three internally developed
Dental Centers opened in 1995, which accounted for $802,000 of the increase.
Capitation payments received from eleven managed care contracts during 1995
accounted for approximately $20,000 of the increase. Patient visits increased
117.1% from 19,346 in 1994 to 42,005 in 1995. This increase was caused primarily
by an increase of 6,509 patient visits at the four comparable Dental Centers, an
increase of 6,228 patient visits at the four internally developed Dental Centers
opened in 1994 and an increase of 9,922 patient visits at the three internally
developed Dental Centers opened in 1995.
Staff Salaries. Staff salaries increased 93.8% from $445,000 in 1994 to
$863,000 in 1995. This increase was caused primarily by the increase in staff
related to the addition of the four internally developed Dental Centers in 1994
and the three internally developed Dental Centers in 1995. As a percentage of
net revenue, staff salaries increased from 23.8% in 1994 to 26.0% in 1995. This
increase was caused primarily by the opening of internally developed Dental
Centers in 1994 and 1995. Staff salaries at the comparable Dental Centers
remained relatively constant.
Dental Supplies and Lab Fees. Dental supplies and lab fees increased 44.5%
from $385,000 in 1994 to $557,000 in 1995. This increase was primarily caused by
the increase in patient visits and dental services provided at the four
comparable Dental Centers, the four internally developed Dental Centers opened
in 1994 and the three internally developed Dental Centers opened in 1995. As a
percentage of net revenue dental supplies and lab fees decreased from 20.6% in
1994 to 16.7% in 1995. This decrease was caused primarily by the Company
changing suppliers in October 1995 and negotiating a more favorable supply
agreement. In addition, as the Coast Dental Network expands into new markets,
changing demographics have caused crowns and dentures as a percentage of the
total product mix to decrease.
Advertising. Advertising expense increased 58.6% from $221,000 in 1994 to
$351,000 in 1995. This increase was caused primarily by the Company's increased
advertising for the four internally developed Dental Centers opened in 1994 and
the three internally developed Dental Centers opened in 1995. As a percentage of
net revenue, advertising expense decreased from 11.7% in 1994 to 10.6% in 1995.
This decrease was caused primarily by increased economies of scale in
advertising achieved through greater market penetration.
Rent. Rent expense increased 35.8% from $218,000 in 1994 to $296,000 in
1995. This increase was caused primarily by the addition of the four internally
developed Dental Centers opened in 1994 and the three internally developed
Dental Centers opened in 1995. Rent expense at the four comparable Dental
Centers remained relatively constant. As a percentage of net revenue, rent
expense decreased from 11.7% in 1994 to 8.9% in 1995. This decrease was caused
primarily by the increase in net revenue at comparable Dental Centers and the
seven internally developed Dental Centers more than offsetting the increase in
rent expense.
Other Expenses. Other expenses increased 76.1% from $163,000 in 1994 to
$287,000 in 1995. This increase was caused primarily by increases in insurance
costs, credit card discounts and expenses related to the
21
<PAGE> 24
three internally developed Dental Centers opened during 1995, which accounted
for $92,000 of the increase, and depreciation expense, which accounted for
$32,000 of the increase. As a percentage of net revenue, other expenses remained
relatively constant, decreasing from 8.7% in 1994 to 8.6% in 1995.
General and Administrative Expenses. General and administrative expenses
increased 17.5% from $580,000 in 1994 to $682,000 in 1995. This increase was
caused primarily by corporate administrative salaries increasing $131,000 while
other general and administrative expenses decreased $29,000. Additions to
corporate staff were made in 1994 in anticipation of the Company's expansion in
1995. As a percentage of net revenue, general and administrative expenses
decreased from 31.0% in 1994 to 20.5% in 1995. This decrease was caused
primarily by economies of scale realized through the centralization of Dental
Center management.
Depreciation and Amortization. Depreciation and amortization increased
200.0% from $5,000 in 1994 to $15,000 in 1995. This increase was caused
primarily by equipment purchases for the corporate office in 1995.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net Revenue. Net revenue increased 56.4% from $1.2 million in 1993 to $1.9
million in 1994. This increase was caused primarily by a 60.0% increase in net
revenue at one of the two comparable Dental Center, which accounted for $29,000
of the increase, two internally developed Dental Centers opened in 1993, which
accounted for $417,000 of the increase, four internally developed Dental Centers
opened in 1994, which accounted for 279,000 of the increase. Net revenue for the
second comparable Dental Center decreased $51,000 in 1994. This decrease was
caused primarily by the transition of dentists at this particular Dental Center.
Patient visits increased 62.8% from 11,881 in 1993 to 19,346 in 1994. This
increase was caused primarily by an increase of 3,271 patient visits at the four
internally developed Dental Centers opened in 1994 and an increase of 722
patient visits at the two comparable Dental Centers.
Staff Salaries. Staff salaries increased 53.2% from $291,000 in 1993 to
$445,000 in 1994. This increase was caused primarily by an increase in staff
related to the addition of two internally developed Dental Centers in 1993 and
four internally developed Dental Centers in 1994. As a percentage of net
revenue, staff salaries remained relatively constant, decreasing from 24.3% in
1993 to 23.9% in 1994. This decrease was caused primarily by the increase in net
revenue more than offsetting the increase in staff salaries.
Dental Supplies and Lab Fees. Dental supplies and lab fees increased
132.6% from $166,000 in 1993 to $385,000 in 1994. This increase was caused
primarily by the increase in patient visits and dental services provided at the
two comparable Dental Centers, the two internally developed Dental Centers
opened in 1993, and the four internally developed Dental Centers opened in 1994.
As a percentage of net revenue, dental supplies and lab fees increased from
13.9% in 1993 to 20.6% in 1994. This increase was caused primarily by increased
spending on dental supplies in anticipation of increased patient visits at
developing Dental Centers.
Advertising. Advertising expense increased 42.3% from $155,000 in 1993 to
$221,000 in 1994. This increase was caused primarily by increased advertising
for the four internally developed Dental Centers opened in 1994. As a percentage
of net revenue, advertising expense decreased 13.0% in 1993 to 11.8% in 1994.
This decrease was caused primarily by an increase in net revenue in one of the
comparable Dental Centers and continued development of the two internally
developed Dental Centers opened in 1993 which more than offset increased
advertising spending for the four internally developed Dental Centers opened in
1994.
Rent. Rent expense increased 54.6% from $141,000 in 1993 to $218,000 in
1994. This increase was caused primarily by the opening of four internally
developed Dental Centers in 1994 and a full year of rent expense associated with
the two internally developed Dental Centers opened in 1993. As a percentage of
net revenue, rent expense remained relatively constant, decreasing from 11.8% in
1993 to 11.7% in 1994.
Other Expenses. Other expenses increased 63.0% from $100,000 in 1993 to
$163,000 in 1994. This increase was caused primarily by an increase in
depreciation expense related to equipment purchases for the two internally
developed Dental Centers opened in 1993, which accounted for $44,000 of the
increase. Increases in miscellaneous Dental Center expenses of $19,000 accounted
for the remainder of the increase. As
22
<PAGE> 25
a percentage of net revenue, other expenses remained relatively constant,
increasing from 8.4% in 1993 to 8.7% in 1994.
General and Administrative Expenses. General and administrative expenses
increased 96.0% from $296,000 in 1993 to $580,000 in 1994. This increase was
caused primarily by an increase in training expenses associated with the
implementation of the Coast Operating Model at the four internally developed
Dental Centers opened in 1994. As a percentage of net revenue, general
administrative expenses increased from 24.8% in 1993 to 31.1% in 1994.
Depreciation and Amortization. Depreciation and amortization expense
decreased 50.0% from $10,000 in 1993 to $5,000 in 1994. This decrease was caused
primarily by depreciation related to the acquisition of equipment for corporate
office purposes. As a percentage of net revenue, depreciation expense decreased
from 0.8% in 1993 to 0.3% in 1994.
SEASONALITY
The Company has traditionally experienced its highest volume of patient
visits during the first and last quarters of the year and its lowest volume of
patient visits in the summer. Individual Dental Centers typically experience
increased patient visits during the period from October through March, when the
population of Florida increases for the winter, and decreased patient visits
during the summer months. Seasonality in recent periods has been mitigated by
the impact of increased recurring revenues from managed care capitated
contracts.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through a
combination of commercial borrowings and cash generated from operations. Net
cash provided by operations for the years ended December 31, 1993, 1994, 1995
and for the six months ended June 30, 1996 was $197,000, $135,000, $231,000, and
$645,000, respectively. Net cash provided by operations for 1993, 1994 and 1995
consisted primarily of net income and increases in accounts payable, offset by
an increase in 1995 in the management fee receivable. For the six months ended
June 30, 1996, net cash provided by operations consisted primarily of net income
and increases in accounts payable and accrued expenses offset by an increase in
management fees and other receivables.
Cash used in investing activities for the years ended 1993, 1994 and 1995
of $175,000, $200,000 and $157,000, respectively, was almost exclusively related
to the purchase of equipment and leasehold improvements related to the nine
internally developed Dental Centers opened during those periods. For the six
months ended June 30, 1996, cash used in investing activities of $1.7 million
related primarily to the acquisition of tangible and intangible assets of eight
acquired Dental Centers, one in January 1996 and seven in April 1996.
Cash used in financing activities in 1993 was limited to $7,000. Cash
provided by financing activities during 1994 and 1995 and the six month period
ended June 30, 1996 was $147,000, $46,000 and $1.3 million, respectively. The
increase was primarily due to higher levels of bank borrowings to support the
Company's addition of both internally developed and acquired Dental Centers.
On August 15, 1996, the Company entered into a revolving line of credit
with Barnett Bank of Florida (the "Barnett Credit Agreement"), which provides an
aggregate of $1.5 million for general working capital needs and expansion of the
number of Dental Centers. The revolving line of credit bears interest at the
rate of 1.5% per annum above Barnett Bank of Florida's prime rate and is payable
on demand. Interest only is payable monthly. Amounts borrowed pursuant to the
Barnett Credit Agreement are secured by a first security interest in most of the
Company's assets, including its receivables and equipment, and are subject to
repayment on demand. The Barnett Credit Agreement contains negative and
affirmative covenants and agreements restricting the Company's disposition of
assets, capital expenditures, acquisitions, operations and payment of dividends
as well as requiring the maintenance of certain financial ratios. As of October
4, 1996 the Company had available approximately $1.3 million for borrowing under
the Barnett Credit Agreement. The outstanding balance of the Barnett Credit
Agreement is expected to be repaid from the net proceeds received from the
Offering.
23
<PAGE> 26
On December 11, 1995, the Company entered into a revolving line of credit
with the Bank of St. Petersburg (the "St. Petersburg Credit Agreement"), which
provides an aggregate of $100,000 for general working capital needs and the
addition of internally developed and acquired Dental Centers. The revolving line
of credit bears interest at 2.0% per annum above the Bank of St. Petersburg's
prime rate and amounts borrowed are secured by a first security interest in the
Company's assets generally not secured by the Barnett Credit Agreement,
including certain receivables and equipment, and are to be repaid in equal
installments of $2,174 per month, plus interest. As of October 4, 1996 the
Company had available approximately $15,000 for borrowing under the St.
Petersburg Credit Agreement. The outstanding balance of approximately $85,000 is
expected to be repaid from net proceeds received from the Offering.
During 1996, the Company added 11 acquired Dental Centers at a cost of
approximately $2.0 million, consisting of approximately $525,000 in cash and
approximately $1.5 million of promissory notes issued by the Company. In certain
acquisitions the Company has provided security in the assets purchased pursuant
to seller financing. The interest rates on the notes range from 8% to 9% per
annum and the maturity dates for the notes range from the date of the Offering
to October 2003. Approximately $1.4 million of such notes shall be repaid from
the net proceeds received from the Offering.
Upon the completion of the Offering the Company will convert from an S
Corporation to a C Corporation and will become obligated to pay federal and
state income taxes. The Company, has historically distributed funds to its
shareholders sufficient to pay their personal income tax liabilities
attributable to the Company's earnings an S Corporation.
The Company expects to add one internally developed and six acquired Dental
Centers in the remainder of 1996 and at least 25 internally developed or
acquired Dental Centers by the end of 1997. The average cost of an internally
developed Dental Center is approximately $125,000, which includes the cost of
equipment, leasehold improvements, working capital and funding of losses
associated with the internal operations of the Dental Centers. Acquired Dental
Centers typically generate sufficient cash flow to fund their operations. The
Company plans to finance the addition of internally developed and acquired
Dental Centers for the foreseeable future through a combination of bank
financing, seller financing, issuances of Common Stock, cash flow from
operations and the net proceeds to be received from the Offering. See "Use of
Proceeds."
Based upon the Company's anticipated capital needs for the remainder of
1996 and 1997, management believes that the combination of the funds expected to
be available under the Company's revolving line of credit, cash flow from
operations and the proceeds received from the Offering will be sufficient to
meet the Company's funding requirements for the foreseeable future to conduct
its operations and for further implementation of its growth strategy.
24
<PAGE> 27
BUSINESS
Coast Dental Services, Inc. develops and manages an integrated network of
general dentistry practices. As of October 4, 1996, the Company was managing 22
Dental Centers in Florida, staffed by 24 Coast Dentists serving over 105,000
patients. Of these 22 Dental Centers, 11 were internally developed and 11 were
acquired by the Company. Management believes that the Coast Dental Network is
the largest provider of general dentistry services in Florida. The Company
expects to add one internally developed and six acquired Dental Centers for the
remainder of 1996 and at least 25 internally developed or acquired Dental
Centers in 1997.
DENTAL SERVICES INDUSTRY
Industry sources have estimated that expenditures for all dental services
in the United States were $45.2 billion in 1995 and growing at a rate of 7% per
year. General dentistry is estimated to represent approximately 88% of all
dental services performed in the United States. The Company believes several
factors are driving the overall industry growth. First, as the "baby boom"
generation ages, the demand for many higher priced dental maintenance products
and procedures (such as crowns, bridges and dentures) will increase relative to
the demand for other more routine, lower priced dental products and procedures
(such as cleanings and fillings). Second, increasing attention to dental health
and, in particular, to personal appearance has increased the demand for general
dentistry services and cosmetic dental products and procedures (such as bonding
and whitening). Finally, a greater percentage of the population is now covered
by private or government funded dental health insurance thereby facilitating
increased dental office visits and a greater utilization of general dentistry
services. The United States dental industry is highly fragmented, consisting of
more than 110,000 dental practices with approximately 84% of these practices
operated by sole practitioners.
The number of people covered by private dental insurance (i.e., managed
care and indemnity plans) is expected to increase in the near future, due, in
large part, to efforts by health insurers to gain a competitive advantage by
offering dental insurance packages to both their present and prospective
members. Payments for dental services by private insurance companies grew from
approximately $3.8 billion in 1980 to approximately $16.8 billion in 1993. Many
of these insurers are managed care companies, whose present focus is on the need
to increase revenue and market share by offering a full range of health
insurance options including dental insurance. The National Association of Dental
Plans estimates that dental managed care companies' enrollments grew 27.3% in
1994 and 19.5% in 1995.
In spite of the growth in private dental insurance, a significant portion
of the United States population is not covered by any type of private or
government funded dental insurance. A majority of this uninsured population is
comprised of lower income individuals who cannot afford a basic level of dental
services. As a result, many current government health care reform proposals
include provisions for increased dental coverage. It is estimated that
government funding for dental insurance grew 124% from 1990 to 1994.
While both private and government funded dental insurance programs vary
widely in their coverage and benefits, they are expected to impact the dental
industry in two major ways. First, as more people obtain dental insurance of any
kind, there should be increased demand for elective cosmetic procedures which
are typically not covered. Second, health insurance companies, including HMOs
and other managed care companies, are contracting with dental practitioners and
dental practice networks to provide dental services on a capitated basis. Under
capitated contracts, the dental practitioner or dental practice network agrees
to accept a predetermined monthly fee per assigned patient in exchange for
providing certain dental services to patients covered by the contract.
The Company anticipates that, as the number of managed care plans and
government funded programs providing dental insurance grows, pressures relating
to cost containment by dental care providers will increase, as in many other
sectors of the health care industry. Such cost containment pressures will likely
place smaller dental care provider groups and individual practices at a
significant disadvantage. These practices generally have higher operating costs
because overhead must be spread over a relatively small revenue base and minimal
purchasing power can be exercised with suppliers. Furthermore, in order to
properly negotiate and administer dental managed care contracts, dental care
providers must develop the necessary management infrastructure
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and sophisticated information systems which often exceed the capabilities of
most sole practitioners and small dental practice groups.
Traditionally, dentistry has operated as a highly-fragmented, professional
"cottage" industry with most dentists practicing as sole practitioners or in
dental groups containing three or less dentists. According to the ADA, more than
150,000 dentists provided dental services through 113,000 dental practices in
the United States in 1994. The traditional sole practitioner or small dental
practice group has historically managed all aspects of the dental practice,
including administrative, purchasing, accounting and marketing functions.
Dentists have not historically competed with each other based upon the pricing
of their services and, therefore, pricing of dental services often varies little
among traditional dental providers within a particular market. According to the
ADA, the average dental practice generated revenue of approximately $320,000 in
1994, with less than 2% of the dental practices generating revenue in excess of
$1.0 million.
In order to remain competitive, dental care providers are increasingly
consolidating. Much of this consolidation is taking place through the formation
of dental physician practice management companies ("Dental PPMs"). Dental PPMs
are growing in response to the demand by managed care companies for larger
dental practice groups which can offer dental care over a wide geographic area.
In addition, Dental PPMs generally have the management infrastructure and
sophisticated information systems necessary to negotiate and manage the risk
associated with capitated managed care contracts and to provide the contract
administration expertise required by managed care companies. Furthermore, Dental
PPMs allow dental practitioners to capture increased market share and
incremental revenue through the addition of managed care contracts. However, the
mere consolidation of practices and creation of a Dental PPM to manage the
practices will most likely not, in itself, be sufficient to enhance the
competitive position of the combined dental groups. Effective management and a
cost efficient operating model are necessary for a Dental PPM to compete
successfully in this changing and growing industry.
BUSINESS STRATEGY
The Company's goal is to consolidate a leadership position in the
development and management of general dentistry centers throughout Florida and
the southeastern United States. Dental Centers utilize a uniform operating model
(the "Coast Operating Model") developed by the Company to increase productivity
and maintain the low cost delivery of quality general dentistry services. The
key elements of the Coast Operating Model are: (i) focusing on the most common,
high volume dental products and procedures which lend themselves to
cost-effective delivery; (ii) centralizing management and administrative
responsibilities, thus allowing Coast Dentists to concentrate on delivering high
quality dental care; (iii) facilitating the training of the Dental Center staff
in the most efficient techniques for delivering high volume, quality dental
services; and (iv) stimulating demand through a combination of value pricing and
marketing programs designed to meet the needs of each Dental Center. The Company
plans to expand the Coast Dental Network, to maximize economies of scale in
management and administration, materials procurement and marketing, and to
facilitate contracting with managed care companies. The Company plans to
increase penetration in currently served regions and to expand into new
contiguous markets throughout the southeastern United States through the
addition of internally developed and acquired Dental Centers.
The Coast Operating Model
The focus of the Company is to manage Dental Centers providing general
dentistry services. General dentistry is estimated to represent approximately
88% of all dental services performed in the United States. General dentistry
products and procedures provided by the Dental Centers include, but are not
limited to, sealants, crowns, bridges, dentures, examinations, cleaning,
polishing, whitening, filling cavities, simple root canals and extractions, but
exclude orthodontics, periodontics, endodontics and oral surgery which require
specialized care. Dental Centers focus on the most common, high volume general
dentistry products and procedures which lend themselves to cost-effective
delivery, emphasizing crowns, bridges and dentures. As a result, Coast Dentists
are able to offer more affordable dental products and procedures, often at
prices 25% below the national average for certain comparable dental products and
procedures.
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<PAGE> 29
In addition to providing dental care, the traditional dental practitioner
typically performs all the management and administrative functions for the
practice, including billing, purchasing, accounting and the hiring of
administrative personnel. Through the Coast Operating Model, the Coast Dentist
is relieved of most management and administrative responsibilities, allowing the
Coast Dentist to concentrate on delivering high quality general dental care,
thus maximizing both productivity and efficiency. The Company provides its
Dental Centers with management and financial information systems which improve
each Dental Center's cost efficiency and maintain greater uniformity in the
delivery of dental care services. The Company believes that its management
controls and quality assessment programs are generally more comprehensive than
those of traditional sole dental practitioners and small dental groups and have
contributed significantly to the delivery of high quality dental care within the
Coast Dental Network.
After a dentist joins the Coast Florida P.A., they are familiarized with
the Company's operating systems at the Company's headquarters in Tampa, Florida.
The Company also employs training teams which travel to each new Dental Center
to train the Dental Center's business staff with respect to the Company's
operating systems. Follow-up visits by the training team are conducted
approximately six months following the opening of each Dental Center to maintain
the business operations of the Dental Centers. The Coast Florida, P.A. conducts
initial training for its dental professionals regarding standardized dental
techniques and systems which seek to establish uniform standards for providing
high quality and cost effective dental services. Thereafter, periodic continuing
education and training sessions are provided by the Coast Florida P.A. for
reinforcement of its dental techniques and systems as well as for new procedures
and practices to be utilized throughout the Coast Dental Network. In addition,
the Company assists the Coast Florida P.A. in the implementation of quality
assessment programs designed to monitor and assist in maintaining high standards
of dental care.
Demand is stimulated at each Dental Center through a combination of value
pricing and direct marketing to the consumer. The Company assists in developing
and implementing aggressive and innovative direct marketing plans for each
Dental Center, utilizing local radio and print advertising and marketing
promotions to highlight each Dental Center's convenient location and affordable
prices. During 1995, an average of approximately 8% of each Dental Center's
revenue was spent on advertising and marketing. In contrast, the traditional
dentist's office, which relies primarily on referrals from dentists and
patients, spent approximately 2% of revenue on advertising and marketing.
The Coast Dental Network
The Company's goal is to consolidate a leadership position in the
development and management of general dentistry centers throughout Florida and
the southeastern United States. The Company plans to effect certain economies of
scale in management, materials procurement and direct marketing through the
expansion of the Coast Dental Network. The Company intends to centralize many
administrative and management functions, such as accounting, staffing, training
and billing, thereby more effectively managing its overhead. In addition,
expansion of the Coast Dental Network maximizes the effectiveness of marketing
programs to both customers and managed care companies. Finally, the Company
anticipates that it will be able to increase its negotiating leverage with
managed care companies and purchasing power with suppliers.
The Company facilitates negotiating and contracting with managed care
companies who generally have an established presence in local regions served, or
expected to be served, by the Company's Dental Centers. The Company believes it
is well positioned to attract significant additional business from HMOs and
other managed care companies, which generally prefer to deal with health care
providers that can offer extensive regional coverage to their members. The Coast
Florida P.A. has recently entered into arrangements with several leading HMOs.
Presently, managed care companies are focusing on dental care to gain a
competitive advantage by offering a full range of health care coverage.
Utilizing the Coast Operating Model, the Company is well positioned to continue
to take advantage of the growing managed care business even as cost containment
becomes a factor. In addition, an increase in patients provided through managed
care contracts creates an
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<PAGE> 30
opportunity for the Coast Dentists to proactively sell elective dental products
and procedures that may not be covered by a particular dental plan.
The Company is expanding into select markets through the implementation of
a well formulated and controlled strategy. When evaluating whether or not to
enter a new region, the Company considers a number of factors. First, the
Company studies the demographics of the local area. The Company also reviews the
competition for general dentistry services in the local area with the objective
of being able to offer its dental services at substantially more affordable
prices than its local competitors. The Company also seeks locations containing
substantial numbers of consumers who are covered by dental managed care plans,
but who have access to only a limited number of general dentistry providers
through these plans. The Company expects to add one internally developed and six
acquired Dental Centers by the end of 1996 and at least 25 internally developed
or acquired Dental Centers in 1997.
While targeting potential markets for the location of an internally
developed Dental Center, the Company seeks to contract with managed care
companies serving a particular market. By contracting with managed care
companies prior to entering a new market, the Company is able to establish a
minimum recurring revenue stream during the early stages of development. In some
cases, managed care companies will also provide long-term financing for
internally developed Dental Centers. The Company typically seeks to locate in
large shopping centers, where pedestrian traffic is heavy. This provides the
Dental Center with the opportunity to rapidly increase patient revenue beyond
the minimum guaranteed managed care revenue through the implementation of a
direct marketing program. Internally developed Dental Centers typically require
90 days to prepare for opening. During the initial phase of development, the
Dental Center operates on a limited schedule with a reduced staff until
sufficient productivity is achieved. Generally, Coast Dentists who have
experience utilizing the Coast Operating Model are placed in new internally
developed Dental Centers, often providing services at two locations until a
full-time Coast Dentist is required.
In evaluating potential acquired Dental Centers, the physical plant and
equipment of the Dental Center is evaluated, as are historical revenue and
expense levels, including the mix of managed care and fee-for-service revenue.
The Company targets Dental Centers which are self supporting, but which can
benefit from the Company's implementation of the Coast Operating Model. The
Company generally seeks to affiliate with dentists who are willing to remain in
practice as Coast Dentists. Following the acquisition of a Dental Center, a
post-acquisition team is actively involved in the integration of the Dental
Center into the Coast Dental Network. This integration includes centralizing
many administrative and management functions and bringing the Dental Center on
line with the Company's management information systems. The Company believes the
full integration of an acquired Dental Center, including the implementation of
the Coast Operating Model, generally takes approximately six months to complete.
In 1995, the average revenue production for Coast Dentists affiliated with
the Company for at least 12 months was approximately $500,000 compared to the
national average of approximately $320,000 for sole practitioners. In 1995, each
Dental Center managed by the Company for at least twelve months averaged 125
patient visits per week compared to the 1994 national average of approximately
80 patient visits per week for sole practitioners. Profitability at internally
developed Dental Centers has been attained in an average of three to four months
from opening. Acquired Dental Centers have experienced an average increase of
25% in productivity and 15% in earnings before interest and taxes in the six
month period following a completed acquisition, as compared to the six month
period immediately prior to the acquisition.
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COAST DENTAL CENTER LOCATIONS
The current locations of the Dental Centers and the date each was opened or
acquired are as follows:
<TABLE>
<CAPTION>
CURRENT DATE OPENED
LOCATIONS /ACQUIRED*
---------- ---------------
<S> <C>
Holiday.................................................... May 1992
Port Richey................................................ September 1992
Spring Hill................................................ April 1993
Clearwater................................................. September 1993
Largo...................................................... May 1994
Oldsmar.................................................... August 1994
Dunedin.................................................... November 1994
Tampa...................................................... December 1994
St. Petersburg............................................. January 1995
Tampa...................................................... March 1995
Titusville................................................. December 1995
Tampa...................................................... January 1996*
Daytona.................................................... April 1996*
Daytona.................................................... April 1996*
Deltona.................................................... April 1996*
Orange City................................................ April 1996*
Ormond Beach............................................... April 1996*
Palm Coast................................................. April 1996*
Port Orange................................................ April 1996*
Tampa...................................................... September 1996*
Wesley Chapel.............................................. September 1996*
Orlando.................................................... September 1996*
</TABLE>
SERVICES AND OPERATIONS
The Company is primarily responsible for the management and administrative
functions of its Dental Centers, but does not provide dental care. The Company
provides financial, accounting, billing, training, marketing assistance and
collection services for each of its Dental Centers and employs the Dental
Center's administrative personnel. The Coast Florida P.A. maintains full control
over the dental practices of the Coast Dentists, employs the Coast Dentists and
their hygienists and sets standards of care in order to promote the provision of
quality dental care. The Coast Florida P.A. is also responsible for compliance
with state and local regulations of the practice of dentistry and with license
or certification requirements. Each Coast Dentist is responsible for acquiring
and maintaining professional liability insurance.
Advertising and Marketing. The Company assists in developing and
implementing aggressive and innovative direct marketing plans for each Dental
Center, utilizing local radio and print advertising and marketing promotions.
The Company produces all broadcast advertising internally and tailors such
advertising to the particular local market. The name of the Coast Dentist is
prominently featured in each advertisement. The advertising typically highlights
affordable services and convenient locations.
Managed Care Contracts. The Coast Dental Network is marketed to HMOs,
health insurance companies and other third party payors who have an established
presence in regional markets served, or expected to be served, by the Company's
Dental Centers. The Company provides expertise to the Coast Florida P.A. and
assists in the negotiation of contracts with managed care companies. In some
instances, the managed care contract provides for a monthly pre-determined lump
sum amount or per patient amount, while in other instances, the managed care
contract provides for certain discounts or fixed fees for dental services
provided under the contract. The managed care contracts are typically for one
year terms which automatically renew for additional one year periods unless
terminated by either party. The Company believes that managed care contracts
provide the Dental Centers with a steady patient flow and predictable revenue.
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Management Information Systems. The Company utilizes information systems
which track important data related to each Dental Center's operations and
financial performance. The Company monitors all expenditures on advertising in
order to advise the Coast Florida P.A. as to where advertising expenditures need
to be increased or decreased. The Company's systems also track new patient cases
for each of its Dental Centers and develop programs to monitor whether new
patient services at the Dental Centers are at projected levels. Billing and
collection information is sent daily by each of the Dental Centers to the
Company for processing. The Company also provides each of the Dental Centers
with monthly operating data and quarterly financial statements. The Company
provides an analysis of the financial results and recommends changes to improve
the financial performance of the Dental Center. This analysis allows a Dental
Center to make periodic adjustments in marketing and operations.
Recruiting and Training. The Coast Florida P.A. is responsible for the
employment and supervision of all Coast Dentists and dental hygienists in each
Dental Center. Each Coast Dentist is a graduate of an accredited dental program,
and each Dental Center is supervised by a Coast Dentist with at least three
years of experience. The Coast Florida P.A. maintains full control over the
dental practice of the Coast Dentists and sets standards of practice in order to
promote quality dental care. All personnel, other than Coast Dentist's and
dental hygienist, are employees of the Company. The Company, while not engaged
in the practice of dentistry, assists the Dental Center in the day-to-day
operations and management of personnel. The Coast Florida P.A. is responsible
for compliance with state and local regulations of the practice of dentistry and
with license or certification requirements.
Staffing and Scheduling. The Dental Centers are generally open from 8:30
a.m. to 5:00 p.m., Monday through Friday. A Dental Center will increase its
hours and open on Saturday if necessary to accommodate additional patient
visits. A Coast Dentist may rotate to another Dental Center in order to
accommodate unusual volume at that Dental Center. Currently, the staff of a
typical Dental Center consists of one dentist, one hygienist, one office
manager, one receptionist and three dental assistants. The staffing and
scheduling procedures, which are a part of the Coast Operating Model, allow the
Coast Dentists to spend substantially all of the time they are in the Dental
Center working with patients. The Coast Dentists provide services to an average
of 25 patients per day versus the industry standard of 16 patients per day.
Purchasing and Distribution. Because of the growing number of Dental
Centers, the Company is able to make purchases of dental supplies and inventory,
equipment, and office furniture at reduced per unit costs. The Company
negotiates arrangements with suppliers that provide cost savings to each of the
Dental Centers. Dental equipment supplies are obtained by the Company as
directed by the Coast Florida P.A. Dental and administrative supplies are
purchased by the Company and distributed on a just-in-time basis to each Dental
Center, thereby limiting storage of unused inventory and supplies.
Facilities. All Dental Centers are leased and are generally located either
in shopping centers or professional office buildings. Substantially all of the
Dental Centers include private treatment rooms and large patient waiting areas
rather than one large treatment area. Dental Centers typically range from six to
12 treatment rooms and range in size from 1,200 square feet to 3,900 square
feet. Pursuant to its Services and Support Agreement, the Company provides
office facilities and dental equipment to the Coast Florida P.A.
SERVICES AND SUPPORT AGREEMENT
The Company has entered into a Services and Support Agreement with the
Coast Florida P.A. pursuant to which the Company is the exclusive business
manager, to the extent allowable by law, of the Dental Centers. As Dental
Centers are acquired or internally developed in Florida by the Company and the
Coast Florida P.A., the Dental Centers are expected to be governed by the
existing Services and Support Agreement, subject to possible future modification
or amendment.
Under the Services and Support Agreement, the Company is obligated to
provide comprehensive administrative and business services and support
including, among other things, to: (i) provide, maintain and repair all offices,
equipment and furnishings, (ii) employ all non-professional personnel necessary
for the operation of the Dental Centers, (iii) provide payroll services, (iv)
implement standard business systems and procedures and provide systems and
procedures training, (v) order all general business inventory and supplies
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<PAGE> 33
required by the Dental Centers and handle accounts payable, (vi) establish and
maintain information systems and provide accounting and bookkeeping services,
(vii) monitor compliance with rules and regulations applicable to Dental Center
business, (viii) provide marketing assistance, (ix) provide advisory services
regarding future offices, and (x) provide assistance in billing and collections,
all as to the extent permitted by law.
The Services and Support Agreement provides that the Coast Florida P.A. is
responsible for, among other things, (i) employing and supervising all dentists
and dental hygienists, (ii) compliance with all laws, rules and regulations
relating to dentists and dental hygienists, (iii) participating in quality
assurance/utilization review programs, (iv) maintaining proper dental patient
records, and (v) maintaining professional liability insurance with limits of not
less than $100,000 per claim and aggregate policy limits of not less than
$300,000.
Under the terms of the Services and Support Agreement, the Coast Florida,
P.A. is required to indemnify, hold harmless, and defend the Company from and
against any and all claims from negligent or intentional acts or omissions,
including the performance of dental services, by the Coast Florida, P.A. and its
employees. The Company is required to indemnify, hold harmless and defend the
Coast Florida, P.A. from and against any and all claims resulting from negligent
or intentional acts or omissions by the Company.
As compensation for its management services under the October 1996 Services
and Support Agreement, the Coast Florida P.A. pays the Company a monthly
services and support fee equal to 76% of the gross revenue of the Dental Center.
Dental Center expenses paid by the Company include all operating and
nonoperating expenses incurred in the Dental Center except for the salaries and
benefits of the Coast Dentists and dental hygienists, federal and state income
taxes, bad debt, and any other expenses designated as an expense of the Coast
Florida P.A.
Pursuant to the Services and Support Agreement, an advisory board
("Advisory Board") consisting of one member designated by the Company, and one
member designated by the Coast Florida P.A., will have the responsibility for,
among other things, (i) reviewing any renovation and expansion plans and capital
equipment expenditures relating to the Coast Florida P.A., (ii) approving the
ancillary services provided by the Coast Florida P.A., (iii) providing input on
agreements with institutional care providers and third party payors, (iv)
assisting the Company in developing long-term strategic planning objectives, (v)
providing advice regarding the priority of major capital expenditures and (vi)
resolving disputes between the Company and the Coast Dentists. Due to legal
restrictions in the State of Florida, the Services and Support Agreement
prohibits the Company from exercising any control, either direct or indirect,
over the Coast Dentists' professional decisions, patient records, and decisions
relating to pricing, advertising, office personnel and hours of practice.
The Services and Support Agreement is for a term of 40 years which
automatically renews annually and is terminable by the Company if the Company
determines that any applicable legislation, rule or regulation may have an
adverse effect on the Company's rights, remedies or discretion under the
Services and Support Agreement. The Services and Support Agreement is terminable
by either party if the other party materially defaults in the performance of any
of its obligations under the Services and Support Agreement and such default
continues for a certain period of time after notice, or if the other party files
a petition for bankruptcy or other similar events occur. The Services and
Support Agreement provides that it shall be amended by the parties in the event
of any regulatory matters affecting the validity of the Services and Support
Agreement as is necessary to bring it into compliance. However, the Company may
terminate the Services and Support Agreement if amendment will not preserve the
underlying financial arrangement.
During the term of the Services and Support Agreement, the Company and the
Coast Florida P.A. agree not to disclose certain confidential and proprietary
information regarding the other. The Coast Florida P.A. is required under the
Services and Support Agreement to use its best efforts to enter into and enforce
written employment agreements with each of its professional employees containing
covenants not to compete with the Coast Florida P.A. in a specified geographic
area for a specified period of time after termination of the employment
agreement. The employment agreements provide for liquidated damages and
injunctive relief in the event of a breach of the covenant not to compete. Under
the Services and Support Agreement, the Company is to be designated as a third
party beneficiary in the employment agreements between Coast Florida P.A. and
the Coast Dentist.
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The Company plans to continue to use the current form of its Services and
Support Agreement to the extent possible and marketable, as it enters into new
states or into arrangements with other dental practices. However, the terms of
future agreements may differ according to market conditions and the statutory or
regulatory requirements of the particular state in which the dental practice is
located.
GOVERNMENTAL AND STATE REGULATIONS
General Overview. The Company's operations and relationships are subject
to a variety of governmental and regulatory requirements relating to the conduct
of its business. The Company is also subject to laws and regulations which
relate to business corporations in general. The Company believes that it
exercises care in an effort to structure its practices and arrangements with
dental practices to comply with relevant federal and state law and believes that
such arrangements and practices comply in all material respects with all
applicable statutes and regulations. The health care industry and dental
practices are highly regulated, and there can be no assurance that the
regulatory environment in which the Company operates will not change
significantly and adversely in the future. In general, regulation of health care
providers and companies is increasing.
There are currently several federal and state initiatives designed to amend
regulations relating to the provision of health care services, the access to
health care, the costs of health care and the manner in which health care
providers are reimbursed for their services. However, it is not possible to
predict whether any such initiatives will be enacted as legislation or, if
enacted, what their form, effective dates or impact on the Company will be. See
"Risk Factors -- Government Regulation."
Every state imposes licensing requirements on dentists and on their
facilities and services. In addition, many states require regulatory approval,
including certificates of need, before establishing certain types of health care
facilities, offering certain services or making expenditures in excess of
statutory thresholds for health care equipment, facilities or programs. The
execution of a management agreement with a dental practice does not in most
states require any health care regulatory approval on the part of the Company or
the dental practice. However, in connection with the expansion of existing
operations and the entry into new markets, the Company and its associated dental
practice may become subject to additional regulation. See "Risk
Factors -- Government Regulation."
State Laws Prohibiting Corporate Practice of Dentistry. The laws of many
states prohibit dentists from splitting professional fees with non-practitioners
and prohibit entities, such as the Company, from employing dentists or engaging
in other activities that are deemed to constitute the practice of dentistry.
Some states prohibit a non-licensed party (other than a professional partnership
or corporation owned by dentists) from owning, maintaining or operating an
office for the practice of dentistry. The Company contracts with the Coast
Florida P.A. (which is owned solely by Dr. Adam Diasti, a licensed dentist
employed by the professional association and a director and executive officer of
the Company), which in turn employs or contracts with other licensed dentists to
provide professional services. The Company performs only non-professional
services, does not represent to the public or its clients that it offers
professional services and does not exercise influence or control over the
practices of the Coast Dentists or dental hygienists employed by the Coast
Florida P.A. Furthermore, as required by Florida law, the Coast Florida P.A.
maintains complete care, custody and control of all equipment and dental
supplies used for the provision of dental services. Accordingly, the Company
believes it is not in violation of applicable state laws relating to the
corporate practice of dentistry, or the maintenance of a dental office. Many
states also prohibit dentists from splitting fees with any person other than
another dentist in the same professional group. In most cases, such laws do not
prohibit reasonable payments for services under management agreements even if
they are based on a percentage of the dentist's revenue. The laws in most states
regarding fee splitting and the corporate practice of a dental profession have
been subject to limited judicial and regulatory interpretation. There can be no
assurance that regulatory authorities or other parties will not assert that the
Company is engaged in the corporate practice of dentistry or the maintenance of
a dental office or that the percentage fee arrangements between the Company and
the Coast Florida P.A. constitute fee splitting or the corporate practice of
dentistry. If such a claim were successfully asserted in any jurisdiction, the
Company could be subject to civil and criminal penalties under such
jurisdiction's laws and could be required to restructure its contractual
arrangements. In addition, certain provisions in its current contractual
arrangements, including non-competition covenants by the practitioners,
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could be ruled unenforceable. Such results or the inability to successfully
restructure contractual arrangements could have a material adverse effect on the
Company's financial condition and results of operations.
Fraud and Abuse Laws. Most states (including Florida) prohibit paying or
receiving remuneration, direct or indirect, that is intended to induce referrals
for dental services. Federal law prohibits the offer, payment, solicitation or
receipt of any form of remuneration in return for the referral of patients
covered by Medicare or federally funded state health program such as Medicaid
("State Programs"), or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service that is covered by
Medicare or a State Program.
Federal and state laws also prohibit any person from knowingly and
willfully making any false statement or misrepresentation of a material fact in
seeking payment for items or services. The applicability of these provisions to
many business practices in the health care industry, including the Company's
management agreements with dental practices, has not been subject to judicial
and regulatory interpretation. These laws provide for criminal and civil
penalties. The Company's relationships, including fee payments, with Coast
Dentists and the Coast Florida P.A. have not been examined by federal or state
authorities under these laws and regulations. The Company believes that the
compensation it receives under its Services and Support Agreement with the Coast
Florida P.A. is for management services and is not paid in whole or in part to
induce the Company to influence referrals or to arrange for the purchasing or
ordering of items or services, therefore, the Company believes it is in
compliance with these laws. There is no assurance changes in these laws or their
interpretation will not affect the Company's current or future activities.
Self-Referral Laws. Many states, subject to certain exceptions, prohibit
referrals for certain health services if the referring dentist has an ownership
interest in and/or a compensation arrangement with the entity receiving the
referral. Many states require the dentist to disclose such interests to
patients. Federal law, subject to certain exceptions, prohibits certain Medicare
and Medicaid referrals to entities in which a dentist has an ownership interest
or with which the dentist has a compensation arrangement. The federal law and
most state laws have exceptions for in-office services provided under the direct
supervision of the dentist. The Company believes that its arrangements with its
Coast Dentists comply with these laws. There is no assurance that changes in
these laws or their interpretation will not affect the Company's current or
future activities.
Regulatory Compliance. The Company believes that health care regulations
will continue to change, and as a result, regularly monitors developments in
health care law. The Company expects to modify its agreements and operations
from time to time as the business and regulatory environment change. However,
there can be no assurance that such change will not adversely affect the ability
of the Company to operate as it currently does or to remain profitable in doing
so.
INSURANCE
The Company's business entails an inherent risk of claims of liability. The
Coast Dentists are involved in the delivery of health care services to the
public and, therefore, are exposed to the risk of professional liability claims.
Claims of this nature, if successful, could result in substantial damage awards
to the claimants that may exceed the limits of any applicable insurance
coverage. Insurance against losses related to claims of this type can be
expensive and varies widely from state to state. The Company is indemnified
under its Services and Support Agreement for claims against the Coast Florida
P.A.'s, maintains liability insurance for itself, and negotiates liability
insurance for the Coast Dentists. Successful malpractice claims asserted against
the Coast Florida P.A.'s, however, could have an adverse effect on the Company's
profitability. The Company maintains professional liability and general
liability insurance on a claims-made basis in the amounts of $1.0 million per
incident, and $3.0 million in the aggregate per annum, along with a $5.0 million
umbrella policy. While the Company believes it has adequate liability insurance
coverage, there can be no assurance that a pending or future claim or claims
will not be successful or, if successful, will not exceed the limits of
available insurance coverage or that such coverage will continue to be available
at acceptable costs and on favorable terms.
33
<PAGE> 36
COMPETITION
The Company is aware of several other companies which are actively engaged
in the consolidation of existing dental practices and providing management
services to dental practices, some of which may have substantially greater
financial resources and longer operating histories than the Company. The Company
assumes that additional companies with similar objectives may enter the
Company's markets and compete with the Company. The primary basis of competition
between dental PPMs are the extent of the dental care network, management
expertise and experience, sophistication of management information systems, the
elements of its operating system, the availability of managed care business,
opportunity for career enhancement of potential associated dentists, liquidity,
high visibility, pricing in acquisition and management agreements, degrees of
control required by the merger and the size of operations.
The business of providing dental services is highly competitive in each of
the markets in which the Dental Centers operate. The primary bases of
competition within the dental services industry are price of services, marketing
exposure, convenience of location and traffic flow of location, hours of
operation, reputation, managed care contracts, quality of care, and appearance
and usefulness of facility and equipment. Coast Dentists compete with other
dentists who maintain single offices or operate a single satellite office, as
well as with dentists who maintain group practices or operate in multiple
offices. Many of those dentists have more established practices in their
markets.
SERVICE MARKS
The Company applied for registration of the service marks "Coast Dental"
and the Company logo with the United States Patent and Trademarks Office in 1996
which application is currently pending.
EMPLOYEES
At October 1, 1996, the Company had 114 full-time and part-time employees,
of which approximately 16 were employed at the Company's headquarters and 98
were employed at the Dental Centers. None of the Company's employees are
employed under a collective bargaining agreement. The Company believes that its
relationship with its employees is good.
LITIGATION
There are no material pending legal proceedings other than routine
litigation arising in the ordinary course of business. The Company does not
believe that the results of such litigation, even if the outcome were
unfavorable to the Company, would have a material adverse effect on its
financial position.
PROPERTIES
The Company presently leases an average of between 1,200 to 2,000 square
feet of office space for each of the Dental Centers. The typical lease for
office space is for a term of approximately five years and generally provides
for renewal options for additional years. The average rental payments for a
leased Dental Center are approximately $1,600 per month. The Company plans to
continue to lease rather than purchase space for the Dental Centers to preserve
the Company's available capital.
The Company leases 3,800 square feet of office space in Tampa, Florida for
its Corporate headquarters. This lease is for a term through May 2000 and the
Company believes the facility is adequate for its current needs.
The Company generally anticipates leasing and developing new Dental Centers
in its current market as well as in certain other geographic markets rather than
significantly expanding the size of its existing Dental Centers.
34
<PAGE> 37
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to each
person who is currently a director, executive officer or key employee of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Dr. Terek Diasti, DVM........ 37 Chief Executive Officer, Chairman of the Board, and
Director
Dr. Adam Diasti, DDS......... 35 President, Chief Operating Officer, National Dental
Director and Director
Joseph R. Smith, CPA......... 44 Chief Financial Officer, Secretary, Treasurer and
Director
Tim Diasti................... 28 Vice President of Operations
Elizabeth Szeltner, CPA...... 35 Controller
</TABLE>
DR. TEREK DIASTI, DVM, CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE BOARD, AND
DIRECTOR. Dr. Diasti is a founder of the Company and has served as Chairman of
the Board since 1992. From 1989 to 1993, Dr. Diasti operated and managed
Lakeside Animal Hospital, Avalon Animal Hospital, Country Oaks Animal Hospital
and Northdale Animal Hospital which are veterinary hospitals in the Tampa Bay
area. While at the veterinary hospitals, Dr. Diasti was engaged in developing
internal managerial and operational programs. Dr. Diasti received his Doctorate
of Veterinary Medicine from Purdue University. Dr. Diasti is the brother of Dr.
Adam Diasti and Tim Diasti.
DR. ADAM DIASTI, DDS, PRESIDENT, CHIEF OPERATING OFFICER, NATIONAL DENTAL
DIRECTOR AND DIRECTOR. Dr. Diasti is a founder of the Company. He has been the
President of the Company since its inception in May 1992. Dr. Diasti is also the
founder, president, director and sole shareholder of the Coast Florida P.A. From
May 1991 to May 1992, he managed and operated the Sarasota Walk In Dental
Clinic, a group practice of three dentists and denture laboratory in Sarasota,
Florida. Prior to May 1991, Dr. Diasti worked as a dentist in a large group
practice of 18 offices known as Quality Dental in Newman Grove, Nebraska. He
served as the Dental Operations Manager of Quality Dental. Dr. Diasti has a
Doctorate of Dental Surgery from Creighton University in 1990 and is a member of
the American Dental Association. Dr. Diasti is the brother of Dr. Terek Diasti
and Tim Diasti.
MR. JOSEPH R. SMITH, CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER AND
DIRECTOR. Mr. Smith, a Certified Public Accountant, joined Coast Dental as its
Chief Financial Officer in February 1996. He was elected as a director of the
Company in September 1996. Prior to joining Coast and since 1985, he was a
partner with Deloitte & Touche LLP, in the Central Florida practice where he
most recently served as the partner in charge of middle market services for
Central Florida and the Partner in charge of services to the Retail industry for
the Florida region. Mr. Smith graduated with a Bachelor of Science in Accounting
in 1975 from the University of Florida.
MR. TIM DIASTI, VICE PRESIDENT OF OPERATIONS. Mr. Diasti is a founder of
the Company. Mr. Diasti has served as Vice President of Operations of the
Company since its inception. Mr. Diasti graduated with a Bachelor of Arts from
the University of Nebraska's School of Business in 1992. Mr. Diasti is the
brother of Dr. Terek Diasti and Dr. Adam Diasti.
MS. ELIZABETH SZELTNER, CONTROLLER. Ms. Szeltner joined Coast Dental in
1994. She served as a controller for USA Rent a Car from 1992-1994, a nationwide
rental car company with annual revenue exceeding $52.0 million. From 1990
through 1992, Ms. Szeltner served as Consultant/Controller for El Paso
Rehabilitation Center, a health care company. She also was employed as a Senior
Accountant at KPMG Peat Marwick from 1987-1990. Ms. Szeltner has a Bachelor of
Science in Accounting from the University of Texas-El Paso. She earned her CPA
certificate in 1993.
Pursuant to the terms of the Company's Certificate of Incorporation and the
Bylaws, the Board of Directors has the power to change the number of directors
by resolution. The number of directors is currently set at three members. The
directors are divided into three classes. Each director in a particular class is
elected
35
<PAGE> 38
to serve a three-year term or until his or her successor is duly elected and
qualified. The classes are staggered so that their terms expire in successive
years resulting in the election of only one class of directors each year.
Officers of the Company are appointed by the Board of Directors and hold office
until the first meeting of directors following the annual meeting of
stockholders and until their successors are appointed, subject to earlier
removal by the Board of Directors. The Company intends to elect two outside
directors prior to the closing of the Offering.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that a Director shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a Director,
except: (i) for any breach of duty of loyalty; (ii) for acts or omissions not in
good faith or which involve international misconduct or knowing violations of
laws; (iii) for liability under Section 174 of the Delaware GCL (relating to
certain unlawful dividends, stock repurchases or stock redemptions); or (iv) for
any transaction from which the Director derived any improper personal benefit.
Article VIII of the Company's By-laws provides that the Company shall indemnify
each Director and such of the Company's officers, employees and agents as the
Board of Directors shall determine from time to time to the fullest extent
provided by the Delaware GCL.
The Company has entered into indemnification agreements (the
"Indemnification Agreements") with all of its Directors and certain of its
officers. Similar Indemnification Agreements may from time to time be entered
into with additional officers of the Company or certain other employees or
agents of the Company. At present, there is no material pending litigation or
proceeding involving a director, officer, employee or agent of the Company where
indemnification is required or permitted, nor is the Company aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification. The Company is also empowered under its Certificate to purchase
and maintain insurance or furnish similar protection on behalf of any person who
it is required or permitted to indemnify and the Company has acquired such
insurance in connection with such individuals that the Company believes is
warranted.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Shortly after completion of the Offering, the Company
intends to establish an Audit Committee composed of at least two independent
directors. The functions of the Audit Committee will be to recommend annually to
the Board of Directors the appointment of the independent public accountants of
the Company, discuss and review the scope and the fees of the prospective annual
audit, to review the results thereof with the independent public accounts,
review and approve non-audit services of the independent public accountants,
review compliance with existing major accounting and financial policies of the
Company, review the adequacy of the financial organization of the Company,
review management's procedures and policies relative to the adequacy of the
Company's internal accounting controls, review compliance with federal and state
laws relating to accounting practices and review and approve (with the
concurrence of a majority of the disinterested directors of the Company)
transactions, if any, with affiliated parties.
Compensation Committee. Shortly after completion of the Offering, the
Company intends to establish a Compensation Committee, the majority of which
will be composed of independent directors. The functions of the Compensation
Committee will be to review and approve annual salaries and bonuses for all
officers, review, approve and recommend to the Board of Directors the terms and
conditions of all employee benefit plans or changes thereto, administer the
Company's stock option plans, and carry out the responsibilities required by
rules of the Securities and Exchange Commission.
Executive Committee. Shortly after the completion of the Offering, the
Company intends to establish an Executive Committee. The Executive Committee, to
the fullest extent allowed by Delaware law and subject to the powers and
authority delegated to the Audit Committee and the Compensation Committee, will
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Company during intervals
between meetings of the Board of Directors.
36
<PAGE> 39
COMPENSATION OF DIRECTORS
All directors of the Company receive reimbursement for reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to all
compensation paid or accrued for services rendered in all capacities to the
Company and its predecessors by the chief executive officer. For the year ended
December 31, 1995, no officers of the Company received compensation in excess of
$100,000. The compensation set forth in the table below was paid by the
Company's predecessor.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($)
- --------------------------------------------------------------------------- ----- ---------
<S> <C> <C>
Terek Diasti,.............................................................. 1995 26,833
</TABLE>
The Company did not grant any stock options or stock appreciation rights
during 1995 nor were any such options or rights outstanding as of the end of
that fiscal year.
EMPLOYMENT AGREEMENTS
Dr. Terek Diasti and Dr. Adam Diasti have each entered into an Employment
Agreement with the Company (the "Employment Agreements"), pursuant to which they
have agreed to serve as the Company's Chief Executive Officer and Chief
Operating Officer, respectively. The Employment Agreements are for a term of
five years ending on September 30, 2001 and are renewable for subsequent one
year terms by mutual agreement of the parties. Dr. Terek Diasti and Dr. Adam
Diasti will each receive annual base salaries of not less than $150,000 during
the first year and not less than $175,000 for subsequent years, under the
Employment Agreements, and have agreed to devote substantially all of their time
and attention to the business and affairs of the Company. Dr. Terek Diasti and
Dr. Adam Diasti will each be eligible for annual incentive bonuses, up to 100%
of their annual base salary, in an amount to be determined by the Compensation
Committee of the Board of Directors in accordance with the Company achieving
certain performance measures set by the Committee. Each of such Employment
Agreements provides that in the event of a termination of employment by the
Company other than (i) for cause, (ii) upon death or disability or (iii) upon
voluntary termination by employee, such employee shall be entitled to receive
from the Company a series of monthly payments equal to one-twelfth of the
employee's annual base salary for each month during the remaining term of such
Employment Agreement, but not less than twenty-four months, plus a payment for
accrued but unpaid wages and expense reimbursements. Such Employment Agreements
provide that in the event such employee's employment terminates other than for
cause within twelve months following a change in control (as defined in such
Employment Agreements) of the Company, the Company shall pay such employee three
times such employee's base salary previous years bonus. Each such Employment
Agreement contains a non-competition covenant with the Company for a period of
two years following termination of employment.
The Company and Joseph R. Smith are parties to an Employment Agreement (the
"Employment Agreement"), pursuant to which Mr. Smith has agreed to serve as
Chief Financial Officer of the Company. The term of the Employment Agreement is
for three years ending on February 12, 1999, and is renewable for subsequent one
year terms by mutual agreement of the parties. The Employment Agreement also
provides that Mr. Smith will be employed for at least two years after any public
offering of the Company which occurs during the initial term of the Employment
Agreement. In the event Mr. Smith terminates the Employment Agreement without
cause during the two year period after any public offering, the Employment
Agreement requires Mr. Smith to pay liquidated damages to the Company of
$200,000 for each complete year or portion of a year remaining. The Employment
Agreement provides that Mr. Smith will devote his full time to the
37
<PAGE> 40
business and affairs of the Company and will receive an annual base salary at a
rate equal to $125,000 during the first six months of employment and $150,000
during the second six months, $165,000 in the second year and $180,000 in the
third year. The Employment Agreement further provides that upon completion of an
initial public offering by the Company, Mr. Smith's compensation will be
adjusted to a compensation level which is equivalent to compensation levels of
chief financial officers in similarly sized public companies. In addition, Mr.
Smith has received under the Employment Agreement 120,000 shares of restricted
Company Common Stock of which one-third of the shares will cease to be
forfeitable after each full year of employment except in that the event of an
initial public offering of the Company one-half of the shares will cease to be
forfeitable on the initial public offering date and the remaining one-half will
cease to be forfeitable after the second and third year of employment. Mr. Smith
is also eligible for inclusion, at the Company's expense, in any health,
medical, disability, insurance or pension plan made available by the Company to
its employees. The Employment Agreement terminates automatically upon death or
disability of Mr. Smith and is terminable by the Company "for cause" as defined
in the Employment Agreement. The Employment Agreement provides that during the
period ending one year after termination, Mr. Smith will not compete with the
Company in the dental management business.
THE PLANS
Effective April 1, 1996, the Board of Directors adopted, and the
stockholders of the Company approved, two stock incentive plans: the Coast
Dental Services, Inc. Stock Option Plan (the "Incentive Plan") and the Coast
Dental Services, Inc. Affiliated Professionals Stock Plan (the "Professionals
Plan," and together with the Incentive Plan, the "Plans"). The purpose of the
Plans is to provide officers, key employees, and dental professionals employed
by the Coast Florida P.A.'s with additional incentives by increasing their
proprietary interest in the Company or tying a portion of their compensation to
increases in the price of the Company's Common Stock. The aggregate number of
shares of Common Stock subject to the Incentive Plan and the Professionals Plan
is 450,000 shares for each plan.
The Incentive Plan permits the Company to grant incentive stock options
("ISOs"), as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), non-qualified stock options ("Non-qualified Options"),
stock appreciation rights ("SARs"), Restricted Shares of Common Stock
("Restricted Shares") and Performance Shares (individually, an "Award" and
collectively, "Awards") to officers and employees of the Company. The
Professionals Plan permits the Company to grant Awards of Non-qualified Stock
Options, SARs and Restricted Shares to dental professionals employed by the
Coast Florida P.A.'s. The various types of Awards are described in more detail
below.
The Incentive Plan is intended to qualify for favorable treatment under
Section 16 of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder
("Rule 16b-3") and Awards under the Incentive Plan are intended to qualify for
treatment as "performance-based compensation" under Section 162(m) of the
Internal Revenue Code ("Section 162(m)"). Following the consummation of the
Offering, the Plans will be administered by the Compensation Committee, which
will be comprised of two or more nonemployee directors who are "disinterested"
within the meaning of Rule 16b-3 and Section 162(m) (the "Committee"). The
Committee will have, subject to the terms of the Plans, the sole authority to
grant Awards under the Plans, to construe and interpret the Plans and to make
all other determinations and take any and all actions necessary or advisable for
the administration of the Plans.
Options. Options for the purchase of shares of the Common Stock may be
granted under both Plans. The exercise price for the ISOs granted under the
Incentive 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). Only employees of the Company are eligible to
receive ISOs. The exercise price for Non-qualified Options granted under the
Plans will generally be the fair market value of the Common Stock on the date of
grant; however, the Committee will set an exercise price at less than fair
market value if it determines that special circumstances warrant a lower price.
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 Committee. No Option will remain exercisable later than
ten years after the
38
<PAGE> 41
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).
SARs. Stock appreciation rights may be granted under both Plans in tandem
with Options. An SAR represents the right to receive from the Company the
difference (the "Spread"), or a percentage thereof not in excess of 100 percent,
between the exercise price of the related Option and the market value of the
Common Stock on the date of exercise of the SAR. SARs may only be exercised at a
time when the related Option is exercisable and the Spread is positive, and the
exercise requires the surrender of the related Option for cancellation. The
amount payable by the Company upon exercise may be paid in cash, Common Stock or
a combination thereof, as determined by the Committee.
Restricted Shares. Restricted Shares may be granted under both Plans. An
award of Restricted Shares involves the immediate transfer by the Company to a
participating employee of ownership of a specific number of shares of Common
Stock in consideration of the performance of services. The employee is entitled
immediately to voting, dividend and other ownership rights in the shares. The
transfer may be made without additional consideration, or for payment of an
amount that is less than the market value of the shares on the date of grant, as
the Committee may determine. Restricted Shares must be subject to a "substantial
risk of forfeiture" for a period to be determined by the Committee. An example
would be a provision that the employee's Restricted Shares would be forfeited if
he or she ceased to serve the Company as an officer at any time before the end
of a specified period of years. In order to enforce these forfeiture provisions,
the transferability of Restricted Shares will be prohibited or restricted in a
manner and to the extent prescribed by the Committee for the period during which
the forfeiture provisions are to continue. The Committee may also condition the
vesting of the Restricted Shares on the achievement of specified performance
objectives ("Management Objectives").
Performance Shares. Performance Shares may be granted under the Incentive
Plan. A Performance Share is the equivalent of one share of Common Stock. An
Incentive Plan participant may be granted any number of Performance Shares. The
participant will be given one or more Management Objectives to meet within a
specified period (the "Performance Period"). Maximum or minimum levels of
acceptable achievement for each Management Objective will be established by the
Committee. If, by the end of the Performance Period the specified Management
Objectives have been satisfied, the participant will be deemed to have fully
earned the Performance Shares. If the Management Objectives have not been
satisfied in full, but predetermined minimum levels of acceptable achievement
have been attained or exceeded, the participant will be deemed to have partly
earned the Performance Shares in accordance with a predetermined formula. To the
extent earned, the Performance Shares will be paid to the participant at the
time and in the manner determined by the Committee in cash or in shares of
Common Stock or any combination thereof.
Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of a department or
function within the Company or with respect to which the participant provides
services. The Committee may adjust any Management Objectives and the related
minimum level of acceptable achievement if, in its judgment, transactions or
events have occurred after the date of grant that are unrelated to the
participant's performance and result in distortion of the Management Objectives
or the related minimum level of acceptable achievement.
Notwithstanding the provisions of any agreement relating to an Award, in
the event of a change or threatened "change in control" (as defined in The
Plans) of the Company and in the event of certain mergers and reorganizations of
the Company, the Committee will have the discretion to (i) declare all Options
immediately exercisable, (ii) determine that all or any portion of conditions
associated with a Restricted Share or Performance Share award have been met,
(iii) grant SARs or cash bonus awards to holders of outstanding Options, (iv)
pay cash in exchange for the cancellation of Non-qualified Options, SARs,
Performance Share Awards or Restricted Shares, or (v) make other adjustments or
amendments to the Plan and outstanding Awards and/or substitute new Awards.
The Company has awarded a total of 160,000 Restricted Shares to employees
and affiliated professionals under the Incentive Plans, which vest over three to
five years from the date of grants.
39
<PAGE> 42
The Company anticipates that prior to or upon the consummation of the
Offering it will have outstanding options to purchase a total of approximately
90,577 shares of Common Stock exercisable at the initial public offering price.
The outstanding options are exercisable over a three year vesting schedule.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation in the past has been determined by the Company's
chief executive officer. Shortly after completion of the Offering, the Company
intends to establish a Compensation Committee of the Board of Directors, a
majority of whom will be independent directors.
CERTAIN TRANSACTIONS
The information set forth herein briefly describes transactions over the
past three years between the Company and its directors, officers and 5%
stockholders. Management of the Company believes that such transactions have
been on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. These transactions have been approved by a
majority of the Company's disinterested directors. Future transactions, if any,
with affiliated parties will be approved by a majority of the Company's
disinterested directors and the Audit Committee (after the Offering) and will be
on terms no less favorable to the Company than those that could be obtained from
unaffiliated parties.
THE REORGANIZATION
In March 1996, Coast Dental, Inc. ("CDI"), was merged into the Company for
the purpose of reincorporating the Company in the State of Delaware and changing
its name. Terek Diasti and Adam Diasti, directors and executive officers of the
Company, and Tim Diasti, an executive officer of the Company, collectively owned
100% of the outstanding common stock of CDI and each received 1,440,000 shares
or 100% of the then outstanding shares of Common Stock of the Company as a
result of the merger.
AGREEMENT WITH THE COAST FLORIDA P.A.
The Company has an agreement to provide dental management, services and
support to the Coast Florida P.A. Dr. Adam Diasti, D.D.S., a director and the
President and Chief Operating Officer of the Company, is the sole owner of the
Coast Florida P.A. Payments made by the Coast Florida P.A. to the Company for
the management services were $1.2 million, $1.9 million and $3.3 million, in
1993, 1994 and 1995, respectively, and $3.4 million for the six months ended
June 30, 1996. In September 1996, the Company and the Coast Florida P.A. entered
into a new services and support agreement pursuant to which the Company will
provide dental management services to the Coast Florida P.A. for a management
fee equal to 76% of the gross revenue of the Coast Florida P.A.'s Dental
Centers. The Coast Florida P.A. hires and supervises all Coast Dentists and
hygienists. See "Business -- Services and Support Agreement."
LOANS TO THE COAST FLORIDA P.A.
The Coast Florida P.A. is indebted to the Company in the aggregate amount
of approximately $470,000 which represents advances, management fee receivable
and a Promissory Note dated June 30, 1996. The Promissory Note totalling
approximately $52,000 bears interest at 8% per annum and is payable in one
balloon payment due July 1, 1998. The funds were loaned in connection with the
acquisition by the Coast Florida P.A. of the professional assets of certain
dental practices located in Volusia and Flagler Counties, Florida, in which the
Company acquired the permittable business assets. The management fee receivable
of approximately $296,000 relates to amounts due to the Company in accordance
with the Services and Support Agreement. The balance of approximately $122,000
relates to advances made by the Company to the Coast Florida P.A.
CANCELLATION OF PERSONAL GUARANTYS
Terek Diasti and Adam Diasti have personally guaranteed certain notes
payable by the Company, under which $1.8 million was outstanding as of June 30,
1996. The Company intends to repay certain of these notes out of the net
proceeds of the Offering, whereupon those individuals are expected to be
released from the guaranty. See Note 7 of the Financial Statements of the
Company and "Use of Proceeds."
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<PAGE> 43
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of October 4, 1996 and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person or entity known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (ii) each director of the Company,
(iii) each stockholder that has granted over-allotment options to the
Underwriters (the "Selling Stockholders") and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the persons
listed below have sole voting and investment power with respect to all shares of
Common Stock owned by them, except to the extent such power may be shared with a
spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER OFFERING
PERCENT IF
BENEFICIALLY OVER-ALLOTMENT
SHARES BENEFICIALLY OWNED AFTER NUMBER OF OPTIONS
OWNED PRIOR TO THE OFFERING SHARES SUBJECT ARE EXERCISED IN
OFFERING(2) IF OVER-ALLOTMENT TO FULL(2)
NAME AND ADDRESS OF ---------------------- OPTIONS ARE NOT OVER-ALLOTMENT --------------------
BENEFICIAL OWNER(1) NUMBER PERCENT EXERCISED OPTIONS NUMBER PERCENT
- ---------------------------- ---------- ------- ----------------- -------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Dr. Terek Diasti............ 1,240,000(3) 31.0% 20.7% 100,000 1,140,000 19.0%
Dr. Adam Diasti............. 1,240,000(3) 31.0 20.7 100,000 1,140,000 19.0
Tim Diasti.................. 1,240,000(3) 31.0 20.7 100,000 1,140,000 19.0
Joseph R. Smith............. 120,000 3.0 2.0 -- 120,000 2.0
All directors and executive
officers as a group (4
persons).................. 3,840,000 96.0% 64.1% 300,000 3,540,000 59.0%
</TABLE>
- ---------------
* Less than one percent.
(1) The address of each of the beneficial owners identified is 25400 U.S.
Highway 19 North, Suite 225, Clearwater, Florida 34623. See
"Management -- Executive Officers and Directors," "Management -- Employment
Agreements" and "Certain Transactions" for discussion of any material
relationship which certain of the Selling Stockholders have had with the
Company within the past three years.
(2) Based on 4,000,000 shares of Common Stock outstanding prior to the Offering
and 6,000,000 shares of Common Stock to be outstanding immediately after
the Offering. Pursuant to the rules of the Securities and Exchange
Commission (the "Commission"), certain shares of Common Stock which a
person has the right to acquire within 60 days of the date hereof pursuant
to the exercise of stock options are deemed to be outstanding for the
purpose of computing the percentage ownership of such person but are not
deemed outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Shares are owned by the Diasti Nevada Family Limited Partnership in which
Dr. Terek Diasti, Dr. Adam Diasti and Tim Diasti exercise equal investment
and voting powers as the general partners.
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<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 50,000,000 shares of Common Stock, $.001
par value per share, and 2,000,000 shares of preferred stock, $.001 par value
per share (the "Preferred Stock"). At October 1, 1996, 4,000,000 shares of
Common Stock were issued and outstanding and no shares of Preferred Stock were
outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to the prior rights of the
holders of Preferred Stock, holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors from funds legally
available therefor, and to share ratably in the assets of the Company legally
available for distribution to the stockholders in the event of liquidation or
dissolution. The Common Stock has no preemptive rights and no subscription or
redemption privileges. Stockholders of the Company are not entitled to
cumulative voting rights, which means the holder or holders of a majority of the
shares of Common Stock entitled to vote in any election of directors can elect
all of the Directors standing for election. All the outstanding shares of Common
Stock are, and the shares to be issued in the Transaction when issued will be,
fully paid and not liable for further call or assessment. Upon a liquidation of
the Company, holders of Common Stock will be entitled to a pro rata distribution
of the assets of the Company, after payment of all amounts owed to the Company's
creditors, and subject to any preferential amount payable to holders of
Preferred Stock, if any.
PREFERRED STOCK
The Board of Directors is authorized to issue 2,000,000 shares of Preferred
Stock from time to time in one or more series, and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the stockholders. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance of such Preferred Stock could have
a material adverse effect on the market value of the Common Stock. The Company
has no present plan to issue shares of Preferred Stock.
DIRECTORS' LIABILITY
As authorized by the Delaware General Corporation Law ("DGCL"), the
Restated Certificate of Incorporation of the Company (the "Certificate") limits,
to the fullest extent permitted by Delaware law, the liability of Directors to
the Company for monetary damages. The effect of this provision in the
Certificate is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against Directors for breaches of their fiduciary duties
(including breaches resulting from negligent behavior), except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, the Bylaws contain provisions to indemnify
the Company's Directors and officers to the fullest extent permitted by the
General Corporation Law of Delaware. These provisions do not limit or eliminate
the rights of the Company or any stockholder to seek non-monetary relief such as
an injunction or rescission in the event of a breach of a Director's fiduciary
duty. These provisions will not alter the liability of Directors under federal
securities laws. The Company believes that these provisions will assist the
Company in attracting and retaining qualified individuals to serve as directors.
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<PAGE> 45
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the DGCL.
Section 203 prevents an "interested stockholder" (defined in Section 203,
generally, as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with a publicly-held Delaware corporation for three years following the date
such person became an interested stockholder unless (i) before such person
became an interested stockholder, the board of directors of the corporation
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
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 stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to the
interested stockholder. This provision may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BYLAWS
Certain provisions of the Certificate of Incorporation (the "Certificate")
and the Bylaws (the "Bylaws") of the Company could have an anti-takeover effect.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors of the Company and in the
policies formulated by the Board of Directors and to discourage certain types of
transactions, described below, which may involve an actual or threatened change
of control of the Company. The provisions are designed to reduce the
vulnerability of the Company to an unsolicited proposal for a takeover of the
Company that does not contemplate the acquisition of all of its outstanding
shares or an unsolicited proposal for the restructuring or sale of all or part
of the Company. The provisions are also intended to discourage certain tactics
that may be used in proxy fights. The Board of Directors believes that, as a
general rule, such takeover proposals would not be in the best interests of the
Company and its stockholders.
CERTIFICATE OF INCORPORATION
Classified Board of Directors. The Certificate provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. The Board of Directors believes that a classified
Board of Directors will help to assure the continuity and stability of the Board
of Directors and the business strategies and policies of the Company as
determined by the Board of Directors, because the likelihood of continuity and
stability in the composition of the Company's Board of Directors and in the
policies formulated by the Board will be enhanced by staggered three-year terms.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
the Company, even though such an attempt might be beneficial to the Company and
its stockholders. In addition, the classified board provision could delay
stockholders who do not agree with the policies of the Board of Directors from
removing a majority of the Board for two years, unless they can show cause and
obtain the requisite vote. See "Number of Directors; Removal" below.
Special Meetings of Stockholders. The Certificate prohibits the taking of
stockholder action by written consent without a meeting if there are more than
25 stockholders of record. The Certificate provides that special meetings of
stockholders of the Company may be called only by the Chairman, the President or
by a majority of the members of the Board of Directors. Furthermore, if a
proposal requiring stockholder action is made by or on behalf of an Interested
Stockholder (as defined) or a Director affiliated with an Interested Stockholder
or where an Interested Stockholder otherwise seeks action requiring stockholder
approval, the
43
<PAGE> 46
affirmative vote of a majority of the Continuing Directors (as defined) will
also be required to call a special meeting of stockholders. This provision will
make it more difficult for stockholders to take action opposed by the Board of
Directors.
Special Voting Requirements for Certain Transactions. The Certificate
provides that (i) any merger or consolidation of the Company or any Subsidiary
(as defined) with (a) any Interested Stockholder or (b) any other corporation
which is, or after such merger or consolidation would be, an Affiliate (as
defined) or Associate (as defined) of an Interested Stockholder, (ii) any sale,
lease or other disposition to or with or on behalf of any Interested Stockholder
or any Affiliate or Associate of any Interested Stockholder of 5% of the book
value of the total assets of the Company or 5% of stockholders' equity, (iii)
certain liquidations or dissolutions of the Company and any proposal to amend
the Certificate made on behalf of an Interested Stockholder or any Affiliate or
Associate of an Interested Stockholder, or (iv) certain reclassifications and
recapitalizations or other transactions that have the effect of increasing an
Interested Stockholder's proportionate share of the Company's capital stock
(collectively "Business Combinations") require, subject to certain exceptions,
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of capital stock entitled to vote on matters generally submitted to
stockholders ("Voting Stock") other than the Voting Stock of which an Interested
Stockholder is the beneficial owner. The term "Interested Stockholder" generally
means any person who is a beneficial owner of or has announced a plan to acquire
10% or more of the outstanding Voting Stock and an Affiliate or Associate which,
at any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the outstanding Voting Stock.
The above requirements generally do not apply to a Business Combination
approved by a disinterested majority of the Continuing Directors if certain
other requirements are met. Such other requirements are designed to provide an
incentive to an Interested Stockholder to treat the stockholders within a class
equally, to discourage discriminatory two-tiered transactions and to encourage
an Interested Stockholder to furnish timely information regarding such Business
Combination.
Amendment of Certain Provisions of the Certificate. The Certificate
generally requires the affirmative vote of the holders of at least 80% of the
outstanding Voting Stock in order to amend its provisions, including any
provisions concerning (i) the classified board, (ii) the amendment of the
Bylaws, (iii) any proposed compromise or arrangement between the Company and its
creditors, (iv) the authority of stockholders to act by written consent, (v) the
liability of Directors, (vi) the calling of special meetings of the
stockholders, and (vii) the supermajority voting requirements described in this
paragraph. These voting requirements will make it more difficult for
stockholders to make changes in the Certificate which would be designed to
facilitate the exercise of control over the Company. In addition, the
requirement for approval by at least an 80% stockholder vote will enable the
holders of a minority of the voting securities of the Company to prevent the
holders of a majority or more of such securities from amending such provisions
of the Certificate.
Number of Directors; Removal. The Certificate provides that the Board of
Directors will consist of between two and 15 members, the exact number to be
fixed from time to time by resolution adopted by a majority of the Directors
then in office. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, the Certificate provides that Directors of the Company
may be removed only for cause and only by the affirmative vote of holders of a
majority of the outstanding shares of Voting Stock. Additionally, if the
proposal to remove a Director is made by or on behalf of an Interested
Stockholder or a Director affiliated with an Interested Stockholder, removal
will also require the affirmative vote of holders of a majority of Disinterested
Shares (as defined). These provisions will preclude a stockholder from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies created by such removal with its own
nominees.
BYLAWS
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as Director as well as for other
stockholder proposals to be considered at stockholders' meetings.
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<PAGE> 47
Notice of stockholder proposals and director nominations must be timely
given in writing to the Secretary of the Company prior to the meeting at which
the matters are to be acted upon or the Directors are to be elected. To be
timely, notice must be received at the principal executive offices of the
Company not less than 60 nor more than 90 days prior to the meeting of
stockholders; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made to
the stockholders, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth day following the day
on which such notice of the date of the meeting was mailed or public disclosure
of the date of the meeting was made, whichever first occurs.
A stockholders' notice to the Secretary with respect to a stockholder
proposal, shall set forth as to each matter the stockholder proposes to bring
before the meeting (i) a brief description of the business desired to be brought
before the meeting, (ii) the reasons for conducting such business at the
meeting, (iii) the name and record address of the stockholder proposing such
business, (iv) the class or series and number of shares of the Company which are
owned beneficially or of record by such stockholder, (v) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business, and (vi) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting, A stockholders' notice to the Secretary with respect to a Director
nomination, shall set forth (i) certain information about the nominee, (ii) the
consent of the nominee to serve as a Director if elected, (iii) the name and
record address of the nominating stockholder, (iv) the class or series and
number of shares of the Company which are beneficially owned by such
stockholder, (v) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other person pursuant to
which the nominations are to be made, (vi) a representation that such
stockholder intends to appear in person or by proxy at the meeting to nominate
the persons named, and (vii) certain other information.
The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other stockholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about those matters.
Amendment to Bylaw Provisions. The Certificate provides that the Bylaws
are subject to adoption, amendment, repeal or rescission either by (a) a
majority of the authorized number of Directors and, if one or more Interested
Stockholders exists, by a majority of the Directors who are Continuing Directors
or (b) the affirmative vote of the holders of not less than 80% of the
outstanding shares of Voting Stock and, if such adoption, amendment, repeal or
rescission is proposed by or on behalf of an Interested Stockholder or a
Director affiliated with an Interested Stockholder, by a majority of the
Disinterested Shares. These provisions will make it more difficult for
stockholders to make changes in the Bylaws. The 80% vote will allow the holders
of a minority of the voting securities to prevent the holders of a majority or
more of voting securities from amending the Bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York, New York, New York.
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<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 6,000,000 shares of
Common Stock outstanding. Of these shares, the 2,000,000 shares offered hereby
(2,300,000 if the Underwriters over-allotment option is exercised in full) and
an additional 120,000 shares will be freely tradeable without restriction or
further registration under the Securities Act of 1993, as amended (the
"Securities Act") unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 3,880,000 shares
outstanding are "Restricted Securities" as that term is defined in Rule 144 and
fall into three categories: (i) 3,720,000 shares held by "affiliates" whom have
already held their shares for more than two years, (ii) 120,000 shares held by
affiliates whom have not held their shares for more than two years and (iii)
40,000 shares held by non-affiliates whom have not held their shares for more
than two years. In addition, 900,000 shares of Common Stock are reserved under
the Plans for exercise of stock options granted by the Company, of which options
to purchase 90,577 shares have been granted (the "Option Shares").
The Restricted Securities may not be sold unless they are registered under
the Securities Act or are sold pursuant to an exemption from registration, such
as the exemption provided by Rule 144. Rule 144 imposes certain restrictions and
limitations on resale. In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with the Rule), who has beneficially owned Restricted Securities
for at least two years would be entitled to sell, within any three-month period
a number of such shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 60,000 shares after the
Offering), or the reported average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sale restrictions and notice requirements and
to the availability of current public information concerning the Company. A
person (or persons whose shares are aggregated) who is not an "affiliate" of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned such shares for at least three years, is currently entitled
to sell such shares under Rule 144(k) without regard to the availability of
current public information, volume limitations, manner of sales provisions or
notice requirements. Beginning 90 days after the date of this Prospectus,
3,720,000 Restricted Shares held by affiliates will be eligible for sale in the
public market pursuant to Rule 144, but are subject to certain "lock-up"
agreements described below. Beginning on April 1, 1998, 40,000 Restricted Shares
held by non-affiliates will be eligible for sale on the public market pursuant
to Rule 144 and beginning on May 13, 1998, 120,000 Restricted Shares held by an
affiliate will be eligible for sale pursuant to Rule 144.
The Company and its officers and directors, including affiliates holding
3,720,000 Restricted Shares, have entered into lock-up agreements providing that
they will not, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant any
option to purchase or other sale disposition) of any shares of Common Stock or
any other securities convertible into, or exercisable or exchangeable for,
Common Stock or other capital stock of the Company or any right to purchase or
acquire Common Stock or other capital stock of the Company, for a period of 180
days after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except for
bona fide gifts or transfers effected by such stockholders other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to be bound by similar agreements.
The Option Shares are subject to all the limitations on resale imposed by
Rule 701. In general, shares subject to Rule 701 are subject to the resale
restrictions of Rule 144. However, with respect to resales by non-affiliates, 90
days after the date of this Prospectus, the Option Shares may be resold without
conformance with Rule 144 except for its manner of sale limitation. With respect
to resale of Option Shares by affiliates, 90 days after the date of this
Prospectus, all Rule 144 limitations continue to apply except the two-year
holding period. Additionally, the Company intends to file one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to then outstanding stock options and Common
Stock issuable pursuant to The Plans. The Company expects to file these
registration statements promptly following the closing of the Offering, and such
registration statements are expected to become effective upon
46
<PAGE> 49
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to lock-up agreements, to the
extent applicable. See "Management."
Because there has been no public market for the shares of Common Stock of
the Company, the Company is unable to predict the effect, if any, that future
sales of shares, or the availability of shares for future sale, will have on the
market price for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sale could
occur, could adversely affect market prices for the Common Stock and could
impair the Company's future ability to obtain capital through offerings of
equity securities.
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<PAGE> 50
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Raymond James & Associates, Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company and the Selling Stockholders the number of shares of Common Stock
set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated........................................
Raymond James & Associates, Inc...........................................
-------
Total........................................................... 2,000,000
=======
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all the shares of Common Stock offered
hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the initial public
offering, the offering price and the concessions may be changed by the
Representatives.
The Selling Stockholders have granted the Underwriters options, exercisable
for 30 days from the date of this Prospectus, to purchase, in the aggregate, up
to 300,000 additional shares of Common Stock at the initial public offering
price, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may exercise such options solely for
the purpose of covering over-allotments incurred in the sale of the shares of
Common Stock offered hereby. To the extent such options are 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 next to such Underwriter's name in the preceding table bears to 2,000,000.
The Company, its officers and directors, and the Selling Stockholders and
certain other stockholders of the Company, who in the aggregate will own
approximately shares of Common Stock upon the completion of the Offering
(assuming the Underwriters' over-allotment options are exercised in full), have
agreed not to, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
or other capital stock or any securities convertible into, or exercisable or
exchangeable for, any share of Common Stock or other capital stock of the
Company or any right to purchase or acquire Common Stock or other capital stock
of the Company, for a period of 180 days after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, other than pursuant to the exercise of currently
outstanding stock options and, in the case of the Company, subject to certain
limited exceptions related to acquisitions of assets for Dental Centers in
exchange for Common Stock and except for bona fide gifts or transfers effected
by such stockholders other than on any securities exchange or in the over-the-
counter market to donees or transferees that agree to execute and be bound by
such agreements.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
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<PAGE> 51
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company and the
Representatives. Among the factors to be considered in making such determination
will be the prevailing market conditions, the Company's financial and operating
history and condition, its prospects and the prospects of the industry in
general, the management of the Company, and the market prices of securities for
companies in businesses similar to that of the Company.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company by Shumaker, Loop &
Kendrick, LLP, Tampa, Florida, and for the Underwriters by King & Spalding,
Atlanta, Georgia. A partner in the law firm of Shumaker, Loop & Kendrick, LLP
owns 120,000 shares of Common Stock.
EXPERTS
The Company's financial statements as of December 31, 1994 and 1995 and
June 30, 1996 and for each of the three years in the period ended December 31,
1995 and for the six months ended June 30, 1996, included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and are so included in reliance upon the report of
such firm given upon their authority as experts in auditing and accounting.
The combined financial statements of Richard J. Shawn DMD, P.A. for each of
the three years in the period ended January 31, 1996, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and are so included in reliance upon the
report of such firm given upon their authority as experts in auditing and
accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
omits certain of the information contained in the Registration Statement, and
reference is hereby made to the Registration Statement and related exhibits and
schedules for further information with respect to the Company and the Common
Stock offered hereby. Any statements contained herein concerning the provisions
of any document are not necessarily complete, and in each such instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules forming a
part thereof can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
DC 20549, and should also be available for inspection and copying at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Registration Statement
may also be obtained through the Commission's Internet address at
"http://www.sec.gov".
The Company intends to furnish to its stockholders annual reports,
containing audited financial statements and a report thereon by the Company's
independent public accountants, and quarterly reports for the first three fiscal
quarters of each fiscal year, containing certain unaudited interim financial
information.
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<PAGE> 52
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF COAST DENTAL SERVICES,
INC.
<TABLE>
<S> <C>
Basis of Presentation................................................................. F-2
Pro Forma Combined Balance Sheet -- June 30, 1996 (Unaudited)......................... F-3
Pro Forma Combined Statement of Income -- Year Ended December 31, 1995 (Unaudited).... F-4
Pro Forma Combined Statement of Income -- Six Months Ended June 30, 1996
(Unaudited)......................................................................... F-4
Notes to Pro Forma Combined Financial Information (Unaudited)......................... F-5
FINANCIAL STATEMENTS OF COAST DENTAL SERVICES, INC.
Independent Auditors' Report.......................................................... F-6
Balance Sheets -- December 31, 1994 and 1995 and June 30, 1996........................ F-7
Statements of Operations -- Years Ended December 31, 1993, 1994 and 1995 and Six
Months Ended June 30, 1995 (Unaudited) and 1996..................................... F-8
Statements of Stockholders' Equity -- Years Ended December 31, 1993, 1994 and 1995 and
Six Months Ended June 30, 1996...................................................... F-9
Statements of Cash Flows -- Years Ended December 31, 1993, 1994 and 1995 and Six
Months Ended June 30, 1995 (Unaudited) and 1996..................................... F-10
Notes to Financial Statements......................................................... F-11
FINANCIAL STATEMENTS OF RICHARD J. SHAWN DMD, P.A.
Independent Auditors' Report.......................................................... F-19
Combined Statements of Operations -- Years Ended January 31, 1994, 1995 and 1996...... F-20
Combined Statements of Cash Flows -- Years Ended January 31, 1994, 1995 and 1996...... F-21
Notes to Combined Financial Statements................................................ F-22
</TABLE>
F-1
<PAGE> 53
COAST DENTAL SERVICES, INC.
BASIS OF PRESENTATION
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1995 and the six months ended June 30, 1996 give effect to the
following, as if each had occurred on January 1, 1995 and January 1, 1996,
respectively: (i) the Recent Acquisitions, including the Company's entering into
a new Services and Support Agreement with the Coast Florida P.A., and (ii) the
sale of 2,000,000 shares of Common Stock in the Offering at an assumed initial
public offering price of $11.00 per share and the application of the estimated
net proceeds therefrom, as described under "Use of Proceeds." The unaudited Pro
Forma Combined Balance Sheet as of June 30, 1996 gives effect to the following,
as if each had occurred at that date: (i) the acquisition of three dental
offices in September 1996, (ii) the S Corporation Distribution (as described
below); and (iii) the consummation of the Offering and the application of the
estimated net proceeds therefrom, as described under "Use of Proceeds." The
Recent Acquisitions have been accounted for using the purchase method of
accounting, so that the Company's historical statement of operations data
include results of operations of the acquired Dental Centers from their
respective acquisition dates.
The unaudited Pro Forma Combined Financial Information has been prepared by
the Company based on the Company's audited Statements of Operations for the year
ended December 31, 1995 and the six months ended June 30, 1996, and the
Company's audited Balance Sheets as of June 30, 1996, and the financial
statements of the entities involved in the Recent Acquisitions. The audited
historical financial statements of Richard J. Shawn DMD, P.A., the seller of the
assets in the Volusia Acquisition, are included elsewhere in this Prospectus.
The Pro Forma Combined Financial Information should be read in conjunction with
the complete historical Financial Statements of the Company and the notes
thereto and the historical financial statements of Richard J. Shawn DMD, P.A.
and the notes thereto included elsewhere in this Prospectus. The Pro Forma
Combined Financial Information does not purport to be indicative of the combined
results of operations that actually would have occurred if the transactions
described above had been effected at the dates indicated or to project future
results of operations for any period.
F-2
<PAGE> 54
COAST DENTAL SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------------------------------------
PRO FORMA
COMBINED
RECENT PRO FORMA OFFERING AFTER
COMPANY ACQUISITIONS COMBINED ADJUSTMENTS OFFERING
------- ------------ --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ 507 $ 507 $ (215)(B) $ 17,458
17,166(C)
Accounts receivable, net....................... 296 296 296
Other current assets........................... 255 255 255
------ ------ ------- -------
Total current assets.................... $1,058 1,058 16,951 18,009
------ ------ ------- -------
Property and equipment, net.................... 1,153 $133(A) 1,286 1,286
Intangible assets.............................. 1,037 392(A) 1,429 1,429
Other assets................................... 202 202 (166)(B) 36
------ ---- ------ ------- -------
Total assets............................ $3,450 $525 $ 3,975 $16,785 $ 20,760
====== ==== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......... $ 648 $ 648 $ 648
Current maturities of long-term debt and
capital lease obligations.................... 255 $ 42(A) 297 $ (297)(C)
------ ---- ------ ------- -------
Total current liabilities............... 903 42 945 (297) 648
Long-term debt and capital lease obligations..... 1,814 483(A) 2,297 (2,197)(C) 100
------ ---- ------ ------- -------
Total liabilities....................... 2,717 525 3,242 (2,494) 748
------ ---- ------ ------- -------
STOCKHOLDERS' EQUITY:
Common stock................................... 4 4 2(C) 6
Additional paid-in capital..................... 24 24 324(B) 20,006
19,658(C)
Retained earnings.............................. 705 705 (705)(B)
------ ------ ------- -------
Total stockholders' equity.............. 733 733 19,279 20,012
------ ------ ------- -------
Total................................... $3,450 $525 $ 3,975 $16,785 $ 20,760
====== ==== ====== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-3
<PAGE> 55
COAST DENTAL SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------
PRO FORMA
RECENT AFTER
COMPANY ACQUISITIONS ADJUSTMENTS ACQUISITIONS
------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue.......................................................... $3,351 $1,269 $ (17)(D) $ 4,240
(363)(E)
Dental Center expenses:
Dentist and hygienist salaries..................................... 363 (363)(E)
Staff salaries..................................................... 947 322 1,269
Dental supplies and lab fees....................................... 444 107 551
Advertising........................................................ 262 14 276
Rent............................................................... 305 100 405
Depreciation and other............................................. 214 101 315
------- ------------ ----------- ------------
Total Dental Center expenses:........................................ 2,172 1,007 (363) 2,816
------- ------------ ----------- ------------
Gross profit......................................................... 1,179 262 (17) 1,424
------- ------------ ----------- ------------
General and administrative expenses:................................. 433 73 506
Depreciation and amortization........................................ 53 3 33(F) 89
------- ------------ ----------- ------------
Operating income..................................................... 693 186 (50) 829
Interest expense -- net............................................ 60 4 54(G) 24
(94)(H)
------- ------------ ----------- ------------
Income before income taxes........................................... 633 182 (10) 805
Pro Forma income tax expense (benefit)............................. (247 ) (71) 4(I) (314)
------- ------------ ----------- ------------
Pro Forma net income................................................. $ 386 $ 111 $ (6) $ 491
========== ======== ======== ==========
Pro Forma earnings per share......................................... (J) .12
==========
Pro Forma weighted average shares outstanding........................ 4,226,700
==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
PRO FORMA
RECENT AFTER
COMPANY ACQUISITIONS ADJUSTMENTS ACQUISITIONS
------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue...................................................... $3,325 $4,663 $ (85)(D) $ 6,798
(1,105)(E)
Dental Center expenses:
Dentist and hygienist salaries................................. 1,105 (1,105)(E)
Staff salaries................................................. 863 1,209 2,072
Dental supplies and lab fees................................... 557 441 998
Advertising.................................................... 351 247 598
Rent........................................................... 296 416 712
Depreciation and other......................................... 286 501 787
------ ------ ------ ------
Total Dental Center expenses:.................................... 2,353 3,919 (1,105) 5,167
------ ------ ------ ------
Gross profit..................................................... 972 744 (85) 1,631
------ ------ ------ ------
General and administrative expenses.............................. 682 437 1,119
Depreciation and amortization.................................... 15 18 111(F) 144
------ ------ ------ ------
Operating income................................................. 275 289 (196) 368
Interest expense -- net........................................ 50 14 158(G) 29
(193)(H)
------ ------ ------ ------
Income before income taxes....................................... 225 275 (161) 339
Pro Forma income tax expense (benefit)........................... (90 ) (110) 65(I) (135)
------ ------ ------ ------
Pro Forma net income............................................. $ 135 $ 165 $ (96) $ 204
====== ====== ====== ======
Pro Forma earnings per share..................................... (J) .05
======
Pro Forma weighted average shares outstanding.................... 4,226,700
======
</TABLE>
See accompanying notes to unaudited pro forma combined financial information.
F-4
<PAGE> 56
NOTES TO UNAUDITED PRO FORMA COMBINED INFORMATION
The accompanying pro forma combined information presents the pro forma
financial position of Coast Dental Services, Inc. as of June 30, 1996 and the
pro forma results of its operations for the year ended December 31, 1995 and the
six months ended June 30, 1996.
From January 1, 1996 through June 30, 1996, the Company acquired eight
Dental Centers, consisting of a single dental office on January 18, 1996, and
seven dental offices in Volusia and Flager Counties, Florida on April 1, 1996
(the "Volusia Acquisition"). Since June 30, 1996, the Company has made three
separate acquisitions of single dental offices. The accompanying pro forma
combined balance sheet includes the acquired assets, assumed liabilities and
effects of financing of the three Dental Centers acquired since June 30, 1996,
as if they had been acquired on June 30, 1996. The accompanying pro forma
combined statements of operations reflect the pro forma results of operations of
the Company, as adjusted, as if the eleven acquired Dental Centers had been
acquired at the beginning of the periods presented.
PRO FORMA COMBINED BALANCE SHEET
The pro forma adjustments reflected in the pro forma combined balance sheet
are as follows:
(A) Reflects the three Dental Centers acquired after June 30, 1996.
The three Dental Centers were acquired at a total cost of $525,000 of which
$133,000 has been allocated to the property and equipment acquired and
$392,000 to the intangible assets. The purchase of the three Dental Centers
was financed entirely with a combination of bank and seller financing. See
Note 12 of the Notes to the historical Financial Statements of the Company.
(B) Reflects the planned distribution to existing shareholders of the
Company of 34% of the S Corporation earnings and the forgiveness of the
notes receivable from existing shareholders of $215,000 and $166,000,
respectively. The remaining undistributed S Corporation retained earnings
of $324,000 are reclassified as additional paid-in capital. See Note 2 of
the Notes to the historical Financial Statements of the Company.
(C) Reflects the net proceeds from the sale of 2,000,000 shares of
Common Stock in the Offering, estimated to be approximately $19.7 million
(after deducting underwriting discounts and commissions and estimated
offering expenses) and the repayment of (i) $824,000 of notes payable to
banks, (ii) notes payable to sellers from all of the acquisitions completed
during 1996 of $1.4 million, and (iii) various equipment financing debts of
$240,000. See "Use of Proceeds."
PRO FORMA COMBINED STATEMENTS OF INCOME
The pro forma adjustments reflected in the pro forma combined statements of
income are as follows:
(D) To reflect the impact of applying the percentage management fee of
76% to the gross revenue of the Dental Centers in accordance with the
services and support agreement entered into between the Company and the
Coast Florida P.A. as of October 1, 1996, as if that form of services and
support agreement was in place at the beginning of the periods presented.
(E) To reflect the reclassification of dentists and hygienists
salaries as a reduction from net revenue of the Company in accordance with
the terms of the services and support agreement between the Company and the
Coast Florida P.A.
(F) To reflect the increased amortization of the intangible assets
(non compete agreements and dental service agreements).
(G) To reflect the increased interest expense for both the notes
payable to banks and notes payable issued to sellers to complete all the
1996 acquisitions, as described in Note (A) above.
(H) To reflect the savings on interest expense due to the repayment of
debt, discussed in note (C) above.
(I) To reflect the estimated income tax effect of the pro forma
adjustments (D) through (H) utilizing a 39% combined Federal and state
rate.
(J) To reflect the pro forma earnings per share assuming an increase
in the weighted average number of outstanding shares to the extent
necessary to repay the existing indebtedness as shown in pro forma
adjustment (C), representing an increase of 226,700 shares.
F-5
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
Coast Dental Services, Inc.:
We have audited the accompanying balance sheets of Coast Dental Services,
Inc. (the Company) as of and December 31, 1994 and 1995, and June 30, 1996 and
the related statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995 and the six months
ended June 30, 1996. 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 present fairly,
in all material respects, the financial position of Coast Dental Services, Inc.
as of December 31, 1994 and 1995 and June 30, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 and the six months ended June 30, 1996 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Tampa, Florida
October 7, 1996
F-6
<PAGE> 58
COAST DENTAL SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PROFORMA
--------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
-------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (including restricted
cash of $25,763 at June 30, 1996)........... $121,403 $ 241,403 $ 507,166 $ 292,166
Management fee receivable from P.A............. -- 130,113 296,253 296,253
Notes receivable from Manrique and advances
to P.A...................................... -- -- 180,508 180,508
Supplies....................................... 30,000 41,250 67,500 67,500
Prepaid expenses and other assets.............. 11,648 2,786 6,890 6,890
-------- ---------- ---------- ----------
Total current assets................... 163,051 415,552 1,058,317 843,317
Property and equipment, net...................... 585,740 602,070 1,153,081 1,153,081
Notes receivable from stockholders............... 148,056 125,579 165,841 --
Non-compete agreement -- net of amortization of
$15,833........................................ -- -- 934,167 934,167
Dental service agreement -- net of amortization
of $20,917..................................... -- -- 103,083 103,083
Other assets..................................... 17,343 54,351 35,196 35,196
-------- ---------- ---------- ----------
Total.................................. $914,190 $1,197,552 $3,449,685 $3,068,844
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $358,604 $ 352,166 $ 453,328 $ 453,328
Accrued payroll................................ 33,793 57,568 114,417 114,417
Other accrued expenses......................... 36,605 5,079 79,848 79,848
Notes payable to banks......................... 150,000 -- -- --
Current maturities of long-term debt........... 45,829 99,161 183,989 183,989
Current portion of capital lease obligations... 34,081 69,578 71,358 71,358
-------- ---------- ---------- ----------
Total current liabilities.............. 658,912 583,552 902,940 902,940
Long-term debt, excluding current maturities..... 120,868 254,812 1,647,855 1,647,855
Capital lease obligations, excluding current
portion........................................ 184,062 184,529 165,583 165,583
-------- ---------- ---------- ----------
Total liabilities...................... 963,842 1,022,893 2,716,378 2,716,378
-------- ---------- ---------- ----------
Stockholders' equity (deficiency):
Preferred stock, $.001 par value; 2,000,000
shares authorized, none issued..............
Common stock, $.001 par value; 50,000,000
shares authorized, 3,880,000, 3,880,000 and
4,000,000, shares issued and outstanding,
respectively................................ 388 388 4,000 4,000
Additional paid-in capital..................... 612 612 24,674 348,466
Retained earnings (deficit).................... (50,652) 173,659 704,633 --
-------- ---------- ---------- ----------
Total stockholders' equity
(deficiency)......................... (49,652) 174,659 733,307 352,466
-------- ---------- ---------- ----------
Total.................................. $914,190 $1,197,552 $3,449,685 $3,068,844
======== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 59
COAST DENTAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue.......................... $1,194,494 $1,867,765 $3,324,668 $ 1,585,975 $3,350,512
Dental Center expenses:
Staff salaries..................... 290,652 445,385 863,142 470,373 946,815
Dental supplies and lab fees....... 165,644 385,311 556,574 288,477 444,107
Advertising........................ 155,395 221,071 350,659 205,281 261,613
Rent............................... 140,646 218,017 295,982 145,782 305,161
Depreciation....................... 57,384 106,179 138,213 54,653 76,296
Other.............................. 42,955 56,575 148,506 64,252 137,770
---------- ---------- ---------- ---------- ----------
Total Dental Center expenses......... 852,676 1,432,538 2,353,076 1,228,818 2,171,762
---------- ---------- ---------- ---------- ----------
Gross profit....................... 341,818 435,227 971,592 357,157 1,178,750
General and administrative
expenses........................... 296,062 580,298 681,815 352,980 432,935
Depreciation and amortization........ 10,126 5,043 15,127 9,644 53,015
---------- ---------- ---------- ---------- ----------
Operating income (loss)............ 35,630 (150,114) 274,650 (5,467) 692,800
Interest expense -- net.............. 29,581 31,677 50,339 23,265 60,280
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.... 6,049 (181,791) 224,311 (28,732) 632,520
Pro forma income tax (expense)
benefit............................ (2,420) 72,716 (89,725) 11,493 246,683
---------- ---------- ---------- ---------- ----------
Pro forma net income (loss).......... $ 3,629 $ (109,075) $ 134,586 $ (17,239) $ 385,837
========== ========== ========== ========== ==========
Pro forma earnings per share......... $ .03 $ .10
========== ==========
Weighted average number of shares
outstanding........................ 4,000,000 4,000,000
========== ==========
</TABLE>
See notes to financial statements.
F-8
<PAGE> 60
COAST DENTAL SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------------ PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIENCY)
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992............... 3,880,000 $ 388 $ 612 $ 125,090 $ 126,090
Net income................................. -- -- -- 6,049 6,049
--------- ---- ------- --------- ---------
Balance at December 31, 1993............... 3,880,000 388 612 131,139 132,139
Net loss................................... -- -- -- (181,791) (181,791)
--------- ---- ------- --------- ---------
Balance at December 31, 1994............... 3,880,000 388 612 (50,652) (49,652)
Net income................................. -- -- -- 224,311 224,311
--------- ---- ------- --------- ---------
Balance at December 31, 1995............... 3,880,000 388 612 173,659 174,659
Net income................................. -- -- -- 632,520 632,520
Change in par value of stock............... -- 3,600 (3,600) -- --
Issuance of common stock................... 120,000 12 27,662 -- 27,674
Distribution to stockholders............... -- -- -- (101,546) (101,546)
--------- ---- ------- --------- ---------
Balance at June 30, 1996................... 4,000,000 $4,000 $ 24,674 $ 704,633 $ 733,307
========= ==== ======= ========= =========
</TABLE>
See notes to financial statements.
F-9
<PAGE> 61
COAST DENTAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- -------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)............................ $ 6,049 $(181,791) $ 224,311 $ (28,732) $ 632,520
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation............................... 67,510 111,222 153,341 64,297 102,466
Amortization of noncompete and dental
service agreements....................... -- -- -- -- 26,389
Compensation in the form of common stock... -- -- -- -- 27,674
Changes in operating assets and
liabilities:
Increase in management fee receivable
from P.A.............................. (5,465) (13,142) (130,113) (82,067) (166,140)
Increase in notes receivables from
Manrique and advances to P.A.......... -- -- -- -- (180,508)
(Increase) decrease in prepaids and other
assets................................ -- (11,648) 8,862 8,862 (4,104)
Increase in supplies..................... (8,000) (15,000) (11,250) -- (26,250)
Increase (decrease) in accounts payable
and accrued expenses.................. 137,316 245,417 (14,189) 62,089 232,770
--------- --------- --------- --------- -----------
Net cash provided by operating
activities.......................... 197,410 135,058 230,962 24,449 644,817
--------- --------- --------- --------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment.......... (173,135) (192,155) (119,770) (62,997) (65,708)
Acquired assets, including intangible assets
of $1,063,639.............................. -- -- -- -- (1,651,398)
(Increase) decrease in other assets.......... (2,088) (7,572) (37,008) (1,858) 19,155
--------- --------- --------- --------- -----------
Net cash used in investing
activities.......................... (175,223) (199,727) (156,778) (64,855) (1,697,951)
--------- --------- --------- --------- -----------
Cash Flows From Financing Activities:
Proceeds from long-term debt................. 58,058 131,947 231,500 50,000 1,639,292
Principal payments on long-term debt......... (28,071) (68,648) (44,225) (34,496) (161,421)
Proceeds from notes payable.................. 35,000 150,000 -- 50,000 17,208
Payments on notes payable.................... -- (35,000) (150,000) -- --
Proceeds from capital leases................. -- -- 8,065
Principal payments on capital leases......... (8,489) (21,993) (24,036) (53,215) (34,374)
(Increase) decrease in notes receivable
stockholders............................... (63,468) (9,051) 24,512 (33,712) (40,262)
Distributions to shareholders................ -- -- -- -- (101,546)
--------- --------- --------- --------- -----------
Net cash provided by (used in)
financing activities................ (6,970) 147,255 45,816 (21,423) 1,318,897
--------- --------- --------- --------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 15,217 82,586 120,000 (61,829) 265,763
Cash and cash equivalents at beginning of
period....................................... 23,600 38,817 121,403 121,403 241,403
--------- --------- --------- --------- -----------
Cash and cash equivalents at end of period..... $ 38,817 $ 121,403 $ 241,403 $ 59,574 $ 507,166
========= ========= ========= ========= ===========
Supplemental schedule of cash flow information:
Cash paid for interest....................... $ 27,130 $ 36,307 $ 70,554 $ 30,950 $ 49,254
========= ========= ========= ========= ===========
</TABLE>
Noncash investing and financing activities:
During 1993, 1994, 1995 and June 30, 1996, the Company recorded
approximately $16,000, $134,000, $60,000, and $18,000, respectively, of
capital leases.
See notes to financial statements.
F-10
<PAGE> 62
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Sunshine Health Services, Inc. was incorporated in August 1992, as a
Florida corporation and subsequently changed its name to Coast Dental, Inc.
Effective January 1, 1996, Coast Dental, Inc. was merged into Coast Dental
Services, Inc. (the "Company"), a Delaware corporation. The Company's sole
business is to provide practice management services to the Coast Florida, P.A.,
(the "P.A.") an affiliated company. The Company has entered into a services and
support agreement with the P.A. whereby the Company will provide certain
management support services to the P.A. in return for a fee. The P.A. employs
the dentists and the professional hygienists and provides all of the dental
services to the patients. As of June 30, 1996, the Company operated 19 dental
centers in Florida.
The Company provides administrative and technical support for professional
services rendered by the dental professionals under the service agreement and
receives a management fee from the P.A. Prior to October 1, 1996 the fee was
based on costs incurred by the P.A., however, effective October 1, 1996 the fee
is equal to seventy six percent of revenue of the P.A.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements have been
prepared on the accrual basis of accounting. The Company does not own any
interests or control the activities of the P.A., accordingly, the financial
statements of the P.A. are not consolidated with those of the Company.
In the opinion of the Company, all adjustments necessary for a fair
presentation of the unaudited interim financial statement as of and for the six
months ended June 30, 1995 have been included. Such adjustments consist only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
Cash Equivalents. The Company considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
Management Fee Receivable from P.A. Management fee receivable represents
the receivable from the P.A. for management services provided by the Company
(See Note 3.)
Supplies. Supplies are stated at the lower of FIFO cost or market.
Property and Equipment. Property and equipment are stated at cost.
Equipment held under capital leases is stated at the present value of minimum
lease payments at the inception of the related leases. Depreciation of property
and equipment is calculated using the straight-line method over the estimated
useful lives of the assets ranging from 5 to 7 years. Equipment held under
capital leases and leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term or estimated useful life of the assets.
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts. The difference between
the net book value of the assets and proceeds from disposition is recognized as
gain or loss. Routine maintenance and repairs are charged to expenses as
incurred, while costs of betterments and renewals are capitalized.
Non-Compete Agreement. Costs incurred in connection with the non-compete
agreement are being amortized over its estimated life of nine years on a
straight line basis.
Dental Service Agreement. Costs of acquisitions in excess of the
identified fair value of property and equipment and any noncompete agreements is
allocated to the dental service agreement. The dental service agreement with the
P.A. represents the exclusive right to operate the Company's dental centers in
affiliation
F-11
<PAGE> 63
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
with the P.A. during the term of the agreement. The assigned value of the dental
service agreement is amortized using the straight-line method over its estimated
life of twenty five years.
Use of estimates. 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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimated.
Dependence on the Coast Florida P.A. The Company receives fees for
services provided to the P.A. under a services and support agreement, but does
not employ dentists or control the practices of the Coast Dentists employed by
the P.A. The Company's revenue is dependent on revenue generated by the Coast
Dentists and, therefore, effective and continued performance of the Coast
Dentists during the term of the services and support agreement is essential to
the Company's long term success. The services and support agreement with the
P.A. is for a term of 40 years and may be terminated by the P.A. only for
"cause," which includes a material default by or bankruptcy of the Company. Any
material loss of revenue by the P.A. would have a material adverse effect on the
Company.
Fair Value of Financial Instruments. The estimated fair value of amounts
reported in the financial statements has been determined by using available
market information and appropriate valuation methodologies. The carrying value
of all current assets and current liabilities approximates the fair value
because of their short-term nature. The fair value of long-term debt
approximates its carrying value.
Pro Forma Income Taxes. Upon completion of the public offering, the
Company will terminate its status as an S Corporation and will be subject to
federal income taxes. As such, the financial statements include a pro forma
adjustment for federal income taxes as if the Company had not been treated as an
S Corporation. The effective rate utilized of 39% approximates the combined
statutory federal and state income tax rate.
Pro Forma Net Income Per Common Share. The pro forma net income per common
share is based on the weighted average number of common shares outstanding
during each period adjusted for actual shares issued during the period. The
weighted average number of shares outstanding reflect all shares issued within
one year of the initial public offering as being issued on January 1, 1995.
Pro Forma Balance Sheet. Upon completion of the public offering, the
Company will make a distribution to the existing shareholders which constitutes
approximately 34% of the S corporation earnings, by reducing cash and retained
earnings. Additionally, the Company will forgive, by way of dividend, the notes
receivable from shareholders. The pro forma balance sheet as of June 30, 1996
reflects these distributions totalling $380,841. The remaining undistributed S
Corporation retained earnings of $323,792 are reclassified as additional paid-in
capital. These distributions and reclassification are collectively referred to
as the "S Corporation Distribution."
3. NET REVENUE
Revenue for all dental centers is recorded at established rates reduced by
amounts retained by the P.A. The Company has a 40 year evergreen dental service
agreement with the P.A. whereby the Company receives fees for services provided
to the P.A. Net revenue represents the aggregate fee charged to the P.A. under
the agreement during the year.
F-12
<PAGE> 64
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following represent amounts included in the determination of net
revenue:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------ ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross dental center
revenue.................... $1,531,402 $2,286,265 $4,281,340 $ 2,070,620 $4,309,989
Amounts retained by the
P.A........................ 336,908 418,500 956,672 484,645 959,477
---------- ---------- ---------- ---------- ----------
Net revenue........ $1,194,494 $1,867,765 $3,324,668 $ 1,585,975 $3,350,512
========== ========== ========== ========== ==========
</TABLE>
4. ACQUISITIONS
On January 18, 1996, the Company entered into an asset purchase agreement
with Dr. Manrique, P.A. ("Manrique"), whereby the Company acquired all of the
tangible assets of the dental practice entity and entered into a services and
support agreement with Manrique. to provide management services. The total
purchase price was $40,000. In connection with the purchase, the Company loaned
$60,000 to Manrique at 9% repayable in sixty equal installments. The P.A. also
has the option to acquire Manrique's patient lists and records for a price
ranging from $222,000 to $322,000 depending on an appraisal as to their value,
subject to adjustment based on future revenue from the acquired practice.
On April 1, 1996, the Company and the P.A. entered into a purchase
agreement with Richard J. Shawn DMD, P.A., ("Volusia"), whereby the Company
acquired all of the tangible assets and assumed certain liabilities of Volusia
and the P.A. acquired the patient files of Volusia for a total purchase price of
$1,800,000. The Company's portion of the purchase was approximately $1,500,000
($300,000 paid in cash and the balance in seller financed notes) of which
$950,000 has been allocated to the contractually assigned value of the non
compete agreement and the balance of $550,000 to property and equipment. The
P.A.'s portion of the purchase price, $300,000 (seller financed), relates to the
value of the professional assets, principally the patient files. The Company has
entered into a services and support agreement with the P.A. to provide
management services and support to the Volusia practice. Two of the Company's
majority shareholders are guarantors of the $300,000 debt of the P.A.
The unaudited pro forma results of all current, continuing operations,
assuming the two 1996 acquisitions completed prior to June 30, 1996 had been
consummated on January 1, 1995 are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ ----------
<S> <C> <C>
Net revenue.............................................. $5,963,000 $3,860,000
Earnings before income taxes............................. 145,000 721,000
Net earnings............................................. 86,000 433,000
Net earnings per share................................... .02 .11
</TABLE>
F-13
<PAGE> 65
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Furniture fixtures and equipment.................... $ 303,407 $ 405,676 $1,051,458
Leasehold improvements.............................. 233,658 251,159 251,159
Capitalized leases -- equipment..................... 237,327 287,227 287,227
--------- --------- ----------
Total..................................... 774,392 944,062 1,589,844
Less accumulated depreciation and amortization...... (188,652) (341,992) (436,763)
--------- --------- ----------
Total............................................... $ 585,740 $ 602,070 $1,153,081
========= ========= ==========
</TABLE>
Accumulated depreciation on capitalized leases of equipment amounted to
approximately $57,000, $113,000 and $142,000 at December 31, 1994, December 31,
1995 and June 30, 1996, respectively.
6. NOTES PAYABLE TO BANKS
Notes payable to banks at December 31, 1994, consisted of two lines of
credit secured by equipment, each payable on demand, in the amount of $100,000
and $50,000. During 1995, these lines of credit were converted to long-term
debt.
7. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Note payable in increasing monthly installments of
$560 to $672 at an interest rate of 13% payable
monthly through March 1998. Collateralized by dental
equipment........................................... $ 21,769 $ 17,639 $ 13,626
Note payable in monthly installments of $314 at an
interest rate of 13% payable monthly through April
1997. Collateralized by dental equipment............ 8,470 5,880 3,794
Note payable in monthly installments of $186 at an
interest rate of 13% payable monthly through April
1997. Collateralized by dental equipment............ 5,132 3,618 2,714
Note payable in monthly installments of $825 at an
interest rate of 9%................................. 6,382 -- --
Note payable in monthly installments of $242 at an
interest rate of 7.75%.............................. 10,611 8,473 --
Note payable in monthly installments of $667 plus
interest equal to the bank's prime rate plus
2.5%................................................ 29,333 21,333 --
</TABLE>
F-14
<PAGE> 66
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Note payable in monthly installments of $746 plus
interest at 10% payable monthly through November
1997 at which time the remaining $16,622 becomes
due. Collateralized by bank accounts held with the
lender and by personal guarantees by two of the
majority stockholders of the Company. In addition, a
compensating balance equal to the amount due on the
note must be held with the lender. At June 30, 1996,
cash balance held with the lender totaled in excess
of the balance of the loan.......................... 35,000 28,841 25,763
Note payable in monthly installments of $1,042 plus
interest equal to the prime rate plus 2% (Prime was
8.25% at June 30, 1996) payable monthly through
December 1998. Collateralized by bank accounts held
with the lender and by personal guarantees of the
majority stockholders of the Company. The Bank has a
right of offset of any accounts maintained in the
Bank. At June 30, 1996, the cash balances with the
lender totaled in excess of the balance of the
loan. .............................................. 50,000 37,496 31,244
Note payable to a bank in monthly installments of
$1,005 through November 1998, at an interest rate of
9.25% per annum and is collateralized by computer
equipment. The Bank has the right of offset of any
accounts maintained in the Bank. At June 30, 1996
the Company had cash on hand at the Bank in excess
of the balance of the loan.......................... -- 30,693 25,740
Note payable to a bank in monthly installments of
$2,560 with interest at the bank's prime rate plus
2%. (Prime was 8.25% at June 30, 1996) The note is
personally guaranteed by two of the majority
stockholders of the Company. The note is
collateralized by the assets of the Company and the
Bank has a right of offset of any accounts
maintained in the Bank. At June 30, 1996, the
Company had cash on hand at the Bank in excess of
the balance of the loan............................. -- 100,000 89,671
Note payable to a bank in monthly installments of
$10,000 plus interest at the Bank's prime rate plus
2%. (Prime was 8.25% at June 30, 1996). The note is
personally guaranteed by two of the majority
stockholders of the Company. The note is
collateralized by the assets of the Company......... $ -- $100,000 $ 439,292
Note payable to Richard J. Shawn DMD in monthly
installments of $4,997 at an interest rate of 9%
beginning May 1997 payable monthly through April
1999................................................ -- -- 100,000
Note payable to Richard J. Shawn DMD in monthly
installments of $9,994 at an interest rate of 9%
beginning May 1997 payable monthly through April
1999................................................ -- -- 200,000
</TABLE>
F-15
<PAGE> 67
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Note payable to Richard J. Shawn DMD in monthly
installments of $17,744 at an interest rate of 9%
beginning May 1997 payable monthly through April
2003................................................ -- -- 900,000
-------- -------- --------
Total long-term debt.................................. 166,697 353,973 1,831,844
Less current maturities............................... (45,829) (99,161) (183,989)
-------- -------- --------
Long-term debt, excluding current maturities.......... $120,868 $254,812 $1,647,855
======== ======== ========
</TABLE>
The last three notes payable listed above totalling $1,200,000 at June 30,
1996 originated in connection with the purchase from Manrique discussed in
note 4. The notes are secured by the Company's interest in the Manrique
business and the goodwill associated therewith along with a collateral
assignment of leases for the related offices. Each of the notes are also
personally guaranteed by two of the majority shareholders of Coast.
Capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Capital lease obligations, at varying rates of imputed
interest from 15% to 21%, collateralized by lease
equipment, with an amortized cost of approximately
$180,000 and $174,000 and $171,000 at December 31,
1994 and 1995, and at June 30, 1996, respectively... $218,143 $254,107 $ 236,941
Less current portion of capital lease obligations..... (34,081) (69,578) (71,358)
-------- -------- ----------
Capital lease obligations, net of current portion..... $184,062 $184,529 $ 165,583
======== ======== ==========
</TABLE>
Scheduled maturities of long-term debt and payments on capital lease
obligations as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
OBLIGATIONS
LONG-TERM UNDER CAPITAL
DEBT LEASES
---------- --------------
<S> <C> <C>
1997......................................................... $ 183,989 $103,707
1998......................................................... 418,662 95,327
1999......................................................... 459,986 66,968
2000......................................................... 236,680 33,346
2001......................................................... 172,152 --
Thereafter................................................... 360,375 --
---------- --------
$1,831,844 $299,348
==========
Less amounts representing interest........................... 62,407
--------
$236,941
========
</TABLE>
8. INCOME TAXES
Since October 1992, the Company has elected to be treated as an S
Corporation for federal income tax purposes, with profits and losses generally
reportable by the stockholders in their individual income tax returns. Upon
completion of the public offering, the Company will terminate its status as an S
Corporation.
F-16
<PAGE> 68
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma income tax adjustment represents a provision for federal and
state income taxes at the statutory rate in effect for the periods presented (at
an effective rate of 39%) as if the Company had not been treated as an S
Corporation.
9. RELATED PARTY TRANSACTIONS
The Company periodically advances funds to/from the majority stockholders
and the P.A. The P.A. is wholly owned by a majority shareholder and director of
the Company. See notes 1 and 3 for a further description of the relationship
with the P.A. These advances are reflected on the balance sheet as notes
receivable from stockholders for $148,056, $125,579 and $165,841 at December 31,
1994, December 31, 1995 and June 30, 1996, respectively. The notes have a
maturity of five years and are being repaid in varying installments plus
interest at 5% to 8% per annum. Interest income relating to these amounts was
insignificant for all periods presented. Additionally, at June 30, 1996 the
Company advanced funds on a short term basis to Manrique (see note 4) and to the
P.A. totalling $180,508. These advances bear interest at 8%.
10. COMMITMENTS AND CONTINGENCIES
The Company primarily leases space for operation of its clinics under
several noncancelable operating leases expiring over the next seven years.
Rental expense for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 was $80,313, $117,432, $195,664, $91,152 and
$185,751, respectively.
Future minimum lease payments under these agreements as of June 30, 1996
are:
<TABLE>
<S> <C>
1997....................................................... $ 540,611
1998....................................................... 554,076
1999....................................................... 573,098
2000....................................................... 587,199
2001....................................................... 602,993
Thereafter................................................. 936,191
--------
$3,794,168
========
</TABLE>
In September, 1996 the Company entered into a lease of approximately three
and one-half years for office space for its corporate offices. The future
minimum lease payments in the above table include the effects of this new lease.
The Company has entered into employment agreements with three of its
officers, three of which are the majority shareholders of the Company. The terms
of the agreements are from three to five years.
11. STOCKHOLDERS' EQUITY
Effective April 1, 1996, the Board of Directors adopted, and the
stockholders of the Company approved, two stock incentive plans: the Stock
Option Plan (the "Stock Option") and the Affiliated Professionals Stock Plan
(the "Professionals Plan," and together with the Incentive Plan, "The Plans").
The purpose of The Plans is to provide directors, officers, key employees,
advisors and dental professionals employed by the P.A.'s (subject to approval
and reimbursement by the P.A.) with additional incentives by increasing their
proprietary interest in the Company or tying a portion of their compensation to
increases in the price of the Company's common stock. The aggregate number of
shares of common stock subject to the Incentive Plan and the Professionals Plan
is 450,000 shares and 450,000 shares, respectively. On October 1, 1996 the
Company granted 67,022 options under the Professionals Plan and 23,555 options
under the Stock Option Plan with an exercise price equal to the price of stock
in the proposed initial public offering of the Company's stock. The
F-17
<PAGE> 69
COAST DENTAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
options vest over three to five years; none are exercisable as of October 1,
1996. On April 1, 1996 the Company issued 120,000 shares to an officer of the
Company and recognized compensation of $27,674.
12. SUBSEQUENT EVENTS
On August 15, 1996, the Company entered into a revolving line of credit
agreement with Barnett Bank for $1,500,000. At September 30, 1996, $210,000 has
been advanced under this revolving line of credit in connection with the
acquisitions discussed below. This agreement contains covenants requiring
maintenance of certain financial ratios and restrictions on disposition of
assets, capital expenditures and payment of dividends.
On September 27, 1996 the Company and the P.A. entered into a purchase
agreement with Juan A. Soler ("Soler") whereby the Company acquired all of the
tangible assets of Soler's dental practice and The P.A. acquired the
professional assets, principally patient, files of the practice for a combined
purchase price of $110,000. The Company's portion of the purchase is
approximately $85,000 of which $35,000 has been allocated to the tangible assets
acquired and $50,000 has been allocated to the dental service agreement.
On September 30, 1996, the Company and the P.A. entered into a purchase
agreement with Dan Steele, P.A. ("Steele") whereby the Company acquired all of
the tangible assets of Steele dental practice and the P.A. acquired the
professional assets, principally patient files, of Steele for a combined
purchase price of $285,000. The Company's portion of the purchase is
approximately $251,000 of which $68,450 has been allocated to the tangible
assets acquired and $182,550 has been allocated to the dental service agreement
and a covenant not to compete.
On September 30, 1996 the Company and the P.A. entered into a purchase
agreement with Jerry L. Reynolds, P.A. ("Reynolds") whereby the Company acquired
all of the tangible assets of Reynolds dental purchase and the P.A. acquired the
professional assets, principally patient files, of Reynolds for a combined
purchase price of $225,000. The Company's portion of the purchase is $190,000 of
which $30,000 has been allocated to the tangible assets acquired and $160,000
has been allocated to the dental service agreement and a covenant not to
compete.
On October 1, 1996 the Company approved stock splits resulting in an
exchange of 1 share for 3.375 shares of Common Stock issued and outstanding.
Simultaneously, the par value of the common stock was changed from $.00001 to
$.001. All share and per share amounts have been retroactively adjusted for this
split. Additionally, the Company increased the authorized number of common
shares to 50,000,000.
F-18
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
Richard J. Shawn DMD, P.A.
We have audited the accompanying combined statements of operations and cash
flows of Richard J. Shawn DMD, P.A. and East Coast Dental Management, Inc. (the
"Company") for each of the three years in the period ended January 31, 1996.
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 statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations and of cash flows
for the Company for each of the three years in the period ended January 31, 1996
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Tampa, Florida
October 7, 1996
F-19
<PAGE> 71
RICHARD J. SHAWN DMD, P.A.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue.................................................... $3,686,457 $3,264,655 $2,910,268
Dentist and hygienists salaries............................ 884,444 702,078 670,472
---------- ---------- ----------
Dental Center Expenses:
Payroll and benefits..................................... 1,099,040 987,067 860,913
Dental supplies and lab fees............................. 424,903 351,638 200,656
Rent..................................................... 337,762 344,760 344,996
Advertising.............................................. 127,852 121,523 140,030
Depreciation............................................. 109,326 98,122 90,254
Uncollectible accounts expense........................... 17,920 11,284 13,970
Other.................................................... 158,731 151,831 157,188
---------- ---------- ----------
Total dental center expenses............................... 2,275,534 2,066,225 1,808,007
---------- ---------- ----------
Subtotal................................................... 526,479 496,352 431,789
---------- ---------- ----------
General and administrative expenses........................ 461,508 535,783 426,390
Depreciation and amortization.............................. 15,621 11,651 12,230
---------- ---------- ----------
Total general and administrative expenses.................. 477,129 547,434 438,620
---------- ---------- ----------
Operating income (loss).................................. 49,350 (51,082) (6,831)
Interest expense........................................... (48,452) (26,526) (13,843)
---------- ---------- ----------
Net income (loss).......................................... $ 898 $ (77,608) $ (20,674)
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-20
<PAGE> 72
RICHARD J. SHAWN DMD, P.A.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)............................................ $ 898 $ (77,608) $(20,674)
Adjustments to reconcile net income (loss) to net cash
provided by operations increase (decrease):.............
Depreciation............................................... 124,947 109,773 102,484
Increase in allowance for bad debts........................ 17,920 11,284 13,970
Change in accounts receivable.............................. (237,465) 39,305 (56,254)
Change in prepaids and other assets........................ (3,661) (2,202) 2,816
Change in accounts payable................................. 278,289 160,710 (26,463)
--------- -------- --------
Net cash provided by operating activities.................... 180,928 241,262 15,879
--------- -------- --------
Cash Flows from Investing Activities:
Property additions......................................... (236,733) (4,326) (44,654)
Increase in other assets................................... 14,594 273
--------- -------- --------
Net cash provided by (used in) investing activities.......... (236,733) 10,268 (44,381)
--------- -------- --------
Cash Flows From Financing Activities:
Repayment of long term debt................................ -- (132,451) (3,466)
Proceeds from loan from stockholder........................ 114,646 25,713
--------- -------- --------
Net cash provided by (used in) financing activities.......... 114,646 (132,451) 22,247
--------- -------- --------
Increase (Decrease) in Cash.................................. 58,841 119,079 (6,255)
Cash and cash equivalents at beginning of period............. -- 58,841 177,920
--------- -------- --------
Cash and cash equivalents at end of period................... $ 58,841 $ 177,920 $171,665
========= ======== ========
</TABLE>
See notes to combined financial statements.
F-21
<PAGE> 73
RICHARD J. SHAWN DMD, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JANUARY 31, 1996
1. DESCRIPTION OF BUSINESS
Richard J. Shawn DMD, P.A. and East Coast Dental Management, Inc. (the
"Company") are a professional association of dentists doing business through six
dental centers in Volusia County, Florida. The entities are both wholly-owned by
Richard J. Shawn.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The accompanying combined financial statements
have been prepared on the accrual basis of accounting.
Basis of Combination -- The operations of both entities indicated in note 1
are combined for reporting purposes due to their common ownership and business
activities. Intercompany balances are eliminated upon combination.
Cash equivalents -- The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Property and Equipment -- Depreciation of property and equipment is
calculated using the straight-line method over the estimated useful lives of the
assets ranging from 5 to 7 years. Equipment held under capital leases and
leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term of estimated useful life of the assets.
Uses of estimates. -- 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 disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimated.
3. INCOME TAXES
The Company has elected to be treated as an S Corporation for federal
income tax purposes, with profits and losses generally reportable by the sole
stockholder in his individual income tax return.
4. SUBSEQUENT EVENTS
The assets of the Company were purchased on April 1, 1996 by Coast Dental
Services, Inc. and The Coast Florida P.A.
F-22
<PAGE> 74
[DESCRIPTION]
OF
[INSIDE BACK COVER PAGE]
[PICTURES OF OUTSIDE OF
DENTAL CENTER, OFFICE
SCENES OF PATIENTS, AND
SCENE OF SMILING FAMILY]
<PAGE> 75
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY 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, THE SELLING STOCKHOLDERS, OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE 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 AN 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.
UNTIL , 1996, 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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 10
The Company................................ 12
Use of Proceeds............................ 13
Dividend Policy............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Consolidated Financial Data....... 16
Selected Unaudited Pro Forma Condensed
Consolidated Information................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 18
Business................................... 25
Management................................. 35
Certain Transactions....................... 40
Principal and Selling Stockholders......... 41
Description of Capital Stock............... 42
Shares Eligible for Future Sale............ 46
Underwriting............................... 48
Legal Matters.............................. 49
Experts.................................... 49
Additional Information..................... 49
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,000,000 Shares
[LOGO]
COAST DENTAL
SERVICES, INC.
Common Stock
---------------------
PROSPECTUS
---------------------
PRUDENTIAL SECURITIES INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
November , 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses payable by it in connection with the
Offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 8,364
NASD filing fee........................................................... 3,260
Nasdaq National Market listing fee........................................ 34,500
Printing expenses......................................................... 200,000
Accounting fees and expenses.............................................. 140,000
Legal fees and expenses................................................... 250,000
Fees and expenses (including legal fees) for qualifications under state
securities laws......................................................... 25,000
Registrar and Transfer Agent's fees and expenses.......................... *
Miscellaneous............................................................. *
--------
Total................................................................... $800,000
========
</TABLE>
- ---------------
* To be included by amendment to the Registration Statement.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
The Company intends to pay all expenses of registration with respect to shares
being sold by the Selling Stockholders hereunder, with the exception of
underwriting discounts and commissions.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
corporation, subject to certain limitations, to indemnify its directors and
officers against expenses (including attorneys' fees, judgments, fines and
certain settlements) actually and reasonably incurred by them in connection with
any suit or proceeding to which they are a party so long as they acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct to
have been unlawful. The Company's By-laws provide that the Company shall
indemnify its directors and such of its officers, employees and agents as it may
from time to time designate, to the fullest extent permitted by Section 145 of
the DGCL, as now existing or as may hereafter be amended.
Section 102 of the DGCL permits a Delaware corporation to include in its
certificate of incorporation a provision eliminating or limiting a director's
liability to a corporation or its stockholders for monetary damages for breaches
of fiduciary duty. The enabling statute provides, however, that liability for
breaches of the duty of loyalty, acts or omissions not in good faith or
involving intentional misconduct or knowing violation of the law, and the
unlawful purchase or redemption of stock or payment of unlawful dividends or the
receipt of improper personal benefits cannot be eliminated or limited in this
manner. The Company's Certificate of Incorporation includes a provision which
eliminates, to the fullest extent permitted by the DGCL, director liability for
monetary damages for breaches of fiduciary duty. In addition, the Board of
Directors of the Company has approved the execution by the Company of
indemnification agreements with the Directors and certain officers of the
Company, the form of which has been filed as an exhibit to this Registration
Statement.
The Company maintains directors' and officers' liability insurance.
II-1
<PAGE> 77
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March 1996, the Company issued an aggregate of 3,840,000 shares of
Common Stock in connection with its corporate reorganization. See "Certain
Transactions." This transaction was exempt from the registration requirements of
the Securities Act pursuant to Section 4(2).
As of January 1, 1996, the Company authorized the issuance 40,000
restricted shares of Common Stock as compensation to certain employees,
executive officers, and affiliated professionals, pursuant to the Plans. This
transaction was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ --------------------------------------------------------------------------
<C> <S> <C>
1.1** -- Form of Underwriting Agreement.
2.1 -- Asset Purchase Agreement dated April 1, by and among Adam Diasti, D.D.S.,
P.A., Coast Dental Services, Inc., Richard J. Shawn D.M.D., P.A., East
Coast Dental Management, Inc. and Richard J. Shawn, D.M.D.
3.1 -- Restated Certificate of Incorporation of Coast Dental Services, Inc.
3.2 -- Bylaws of Coast Dental Services, Inc.
4.1 -- Specimen of Coast Dental Services, Inc. Common Stock Certificate.
5.1** -- Opinion of Shumaker, Loop & Kendrick as to the Common Stock being
registered.
10.1 -- Employment Agreement between Coast Dental Services, Inc. and Terek Diasti.
10.2 -- Employment Agreement between Coast Dental Services, Inc. and Adam Diasti,
D.D.S.
10.3 -- Employment Agreement between Coast Dental Services, Inc. and Joseph R.
Smith.
10.4 -- Coast Dental Services, Inc. Stock Option Plan.
10.5 -- Coast Dental Services, Inc. Affiliated Professionals Stock Plan.
10.6 -- Services and Support Agreement dated October 1, 1996 between Coast Dental
Services, Inc. and Coast Florida, P.A.
10.7 -- Asset Purchase Agreement dated April 1, 1996 by and among Adam Diasti,
D.D.S., P.A., Coast Dental Services, Inc., Richard J. Shawn D.M.D., P.A.,
East Coast Dental Management, Inc. and Richard J. Shawn, D.M.D., filed as
Exhibit 2.1 to this Registration Statement and incorporated herein by
reference.
10.8 -- Promissory Note from Adam Diasti, DDS, P.A. and Adam Diasti, DDS, dated
June 30, 1996, payable to Coast Dental Services, Inc.
10.9 -- Business Loan Agreement dated August 15, 1996 between Coast Dental
Services, Inc. and Barnett Bank, N.A.
10.10 -- Form of Indemnification Agreement with officers and directors.
23.1** -- Consent of Shumaker, Loop & Kendrick (included in their opinion filed as
Exhibit 5.1).
23.2 -- Consent of Deloitte & Touche LLP independent certified public accountants.
27.1 -- Financial Data Schedule for year ended December 31, 1995 (for SEC use
only).
27.2 -- Financial Data Schedule for 6 months ended June 30, 1996 (for SEC use
only).
</TABLE>
- ---------------
** To be filed by amendment.
II-2
<PAGE> 78
(b) FINANCIAL STATEMENT SCHEDULES:
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto or the schedule is not required or inapplicable
under the related instructions.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange 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 the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
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 Registrant 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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, 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.
(2) For purposes of determining any liability under the Securities
Act, 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-3
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Clearwater, State of
Florida on October 7, 1996.
COAST DENTAL SERVICES, INC.
By: /s/ DR. TEREK DIASTI, DVM
------------------------------------
Dr. Terek Diasti, DVM
Chief Executive Officer
By: /s/ JOSEPH R. SMITH
------------------------------------
Joseph R. Smith,
Chief Financial Officer
(Principal Accounting Officer
and Principal Financial Officer)
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Terek Diasti and Joseph R. Smith his true and lawful attorneys-in-fact and
agents, for him and in his name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, and any registration statement filed pursuant to Rule
462(b) of the Securities Act of 1933, and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on October 7, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- -------------------------------
<S> <C>
/s/ DR. TEREK DIASTI, DVM Chief Executive Officer and
- --------------------------------------------- Chairman of the Board
Dr. Terek Diasti, DVM
/s/ DR. ADAM DIASTI, DDS President, Chief Operating
- --------------------------------------------- Officer and Director
Dr. Adam Diasti, DDS
/s/ JOSEPH R. SMITH Chief Financial Officer,
- --------------------------------------------- Secretary, Treasurer and
Joseph R. Smith Director
</TABLE>
II-4
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT DESCRIPTION NUMBERED PAGE
- ------ ---------------------------------------------------------------------- -------------
<C> <C> <S> <C>
1.1** -- Form of Underwriting Agreement.
2.1 -- Asset Purchase Agreement dated April 1, by and among Adam Diasti,
D.D.S., P.A., Coast Dental Services, Inc., Richard J. Shawn D.M.D.,
P.A., East Coast Dental Management, Inc. and Richard J. Shawn,
D.M.D...............................................................
3.1 -- Restated Certificate of Incorporation of Coast Dental Services,
Inc.................................................................
3.2 -- Bylaws of Coast Dental Services, Inc..................................
4.1 -- Specimen of Coast Dental Services, Inc. Common Stock Certificate......
5.1** -- Opinion of Shumaker, Loop & Kendrick as to the Common Stock being
registered..........................................................
10.1 -- Employment Agreement between Coast Dental Services, Inc. and Terek
Diasti..............................................................
10.2 -- Employment Agreement between Coast Dental Services, Inc. and Adam
Diasti, D.D.S.......................................................
10.3 -- Employment Agreement between Coast Dental Services, Inc. and Joseph R.
Smith...............................................................
10.4 -- Coast Dental Services, Inc. Stock Option Plan.........................
10.5 -- Coast Dental Services, Inc. Affiliated Professional Stock Plan........
10.6 -- Services and Support Agreement dated October 1, 1996 between Coast
Dental Services, Inc. and Coast Florida, P.A........................
10.7 -- Asset Purchase Agreement dated April 1, 1996 by and among Adam Diasti,
D.D.S., P.A., Coast Dental Services, Inc., Richard J. Shawn D.M.D.,
P.A., East Coast Dental Management, Inc. and Richard J. Shawn,
D.M.D., filed as Exhibit 2.1 to this Registration Statement and
incorporated herein by reference....................................
10.8 -- Promissory Note from Adam Diasti, DDS, P.A. and Adam Diasti, DDS,
dated June 30, 1996, payable to Coast Dental Services, Inc..........
10.9 -- Business Loan Agreement dated August 15, 1996 between Coast Dental
Services, Inc. and Barnett Bank, N.A................................
10.10 -- Form of Indemnification Agreement with officers and directors.........
23.1** -- Consent of Shumaker, Loop & Kendrick (included in their opinion filed
as Exhibit 5.1).....................................................
23.2 -- Consent of Deloitte & Touche LLP independent certified public
accountants.........................................................
27.1 -- Financial Data Schedule for year ended December 31, 1995 (for SEC use
only)...............................................................
27.2 -- Financial Data Schedule for six months ended June 30, 1996 (for SEC
use only)...........................................................
</TABLE>
- ---------------
** To be filed by amendment.
<PAGE> 1
Exhibit 2.1
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of the 1st day of April, 1996, by
and among ADAM DIASTI, D.D.S., P.A., a Florida professional association
("Diasti"), COAST DENTAL SERVICES, INC., a Delaware corporation ("Coast"),
RICHARD J. SHAWN, D.M.D., P.A., a Florida professional association ("Seller")
and RICHARD J. SHAWN, D.M.D., an individual ("Shawn").
W I T N E S S E T H:
WHEREAS, Seller is a professional dental practitioner with its
principal place of business located at 1610 International Speedway Boulevard,
Daytona Beach, Florida 32114 and with other business locations in Volusia and
Flagler Counties, Florida (the "Practice");
WHEREAS, Shawn is an individual residing at 22 Ormond Parkway, Ormond
Beach, Florida 32176, who is licensed to practice dentistry in the State of
Florida and is the sole owner of all of the equity interests of Seller;
WHEREAS, Coast offers comprehensive facilities, management assistance,
a uniform operational system and other services to professional dental
practitioners with its principal place of business at 25400 U.S. Highway 19,
Suite 225, Clearwater, Florida 34623;
WHEREAS, Diasti is a professional dental practitioner with its
principal place of business at 25400 U.S. Highway 19, Suite 225, Clearwater,
Florida 34623; and
WHEREAS, Coast and Diasti (together, the "Buying Parties") desire to
acquire and Seller desires to sell to the Buying Parties substantially all of
the assets of the Practice upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the respective covenants,
representations, warranties and agreements herein contained, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I - PURCHASE AND SALE
1.1 Sale of Assets. At the Closing (as defined in Section 2.1 hereof)
Seller shall (a) grant, sell, convey, assign, transfer and deliver to Coast,
upon and subject to the terms and conditions of this Agreement, all right, title
and interest of Seller in and to (i) the name "Volusia Dentalcare" and all
goodwill associated therewith, and (ii) substantially all of the assets,
properties and rights of Seller constituting the Practice or used therein
(except for patient lists and patient records) as set forth on SCHEDULE 1.1
annexed hereto and made a part hereof; and (b) grant, sell, convey, assign,
transfer and deliver to Diasti, upon and subject to the terms and
<PAGE> 2
conditions of this Agreement, all right, title and interest of Seller in and to
Seller's complete patient list, including names, addresses and telephone
numbers, and patient records (such assets, properties, rights, patient lists and
patient records are collectively referred to as the "Assets"). All Assets shall
be free and clear of all mortgages, liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever, except Permitted
Liens (as defined in Section 3.1(i) hereof).
1.1.1 Included Assets. The Assets shall include, without
limitation, the following assets, properties and rights of Seller used directly
or indirectly in the conduct of, or generated by or constituting, the Practice,
except as otherwise expressly set forth in Section 1.1.2 hereof:
a. all machinery, equipment, tools, vehicles,
furniture, furnishings, leasehold improvements, goods, and other
tangible personal property;
b. all inventory;
c. all supplies;
d. all leases, leasehold improvements and fixtures,
e. all prepaid items, unbilled costs and fees, and
accounts, notes and other receivables;
f. to the extent permitted by applicable law, all
rights under any written or oral contract, agreement, lease, plan,
instrument, registration, license, certificate of occupancy, other
permit or approval of any nature, or other document, commitment,
arrangement, undertaking, practice or authorization;
g. all rights under a patent, trademark, service
mark, trade name or copyright, whether registered or unregistered, and
any applications therefor;
h. all data bases used in the Practice or under
development;
i. all rights arising out of occurrences before or
after the Closing, including without limitation all rights under
express or implied warranties relating to the Assets;
j. all information, files, records, data, plans,
contracts and recorded knowledge, including patient and supplier lists,
employee records and patient records related to the foregoing and the
operation of the Practice; and
k. the name "Volusia Dentalcare."
-2-
<PAGE> 3
1.1.2 Excluded Assets. Notwithstanding the foregoing, the
Assets shall not include any of the following:
a. cash on hand or on account;
b. the corporate seals, certificates of
incorporation, minute books, stock books, tax returns, books of account
or other records having to do with the organization of Seller as a
professional association;
c. any employee loans or advances;
d. the rights to any of Seller's claims for any
federal, state, local, or foreign tax refunds; or
e. the rights which accrue or will accrue to Seller
under this Agreement.
1.2 The Purchase Price.
1.2.1 Purchase Price. The total purchase price to be paid by
the Buying Parties to Seller for the purchase of the Assets and payment to Shawn
for his entry into a consulting agreement and covenant not to compete is One
Million Eight Hundred Thousand Dollars ($1,800,000.00) (the "Purchase Price").
The Purchase Price shall be payable as follows: (i) at the Closing as partial
consideration for the purchase of Assets other than the patient list and patient
records, Coast shall pay Seller the sum of Three Hundred Thousand Dollars
($300,000.00) by wire transfer in immediately available funds to a bank account
of Seller as per written instructions of Seller given to Coast at least 24 hours
prior to the Closing; (ii) at the Closing as additional consideration for the
purchase of Assets other than the patient list and patient records, Coast shall
deliver to Seller one (1) promissory note in the aggregate principal amount of
Two Hundred Thousand Dollars ($200,000.00), substantially in the form of EXHIBIT
A annexed hereto and made a part hereof (the "Coast Note"); (iii) at the Closing
as consideration for the purchase of the patient list and patient records,
Diasti shall deliver to Seller one (1) promissory note in the aggregate
principal amount of Three Hundred Thousand Dollars ($300,000.00) substantially
in the form of EXHIBIT B annexed hereto and made a part hereof (the "Diasti
Note"), (iv) at the Closing as consideration for Shawn's entry into the
consulting agreement and covenant not to compete, Coast shall deliver to Shawn
one (1) promissory note in the aggregate principal amount of One Million Dollars
($1,000,000.00) substantially in the form of EXHIBIT C annexed hereto and made a
part hereof (the "Shawn Note"); the Coast Note, the Diasti Note and the Shawn
Note are hereinafter referred to as (the "Notes").
1.2.2 Allocation of Purchase Price. The Purchase Price and the
liabilities assumed by the Buying Parties in accordance with Section 1.3 hereof
and any non-recourse liabilities to which any Asset is subject as finally
determined shall be allocated among the Assets
-3-
<PAGE> 4
acquired hereunder as described on SCHEDULE 1.2.2 hereof. Each of Seller, Shawn,
Coast and Diasti hereby covenants and agrees that he or it will not take a
position that is in any way inconsistent with the terms of this Section 1.2.2 on
any income tax return, before any governmental agency charged with the
collection of any income tax, or in any judicial proceeding.
1.3 Assumption of Certain Liabilities and Contracts. The Buying Parties
shall not assume any responsibility or liability of any kind for any of the
debts, obligations, liabilities, expenses, taxes, contracts or commitments of
Seller, whether accrued, absolute, contingent or otherwise, except as expressly
set forth in SCHEDULE 1.3 hereto. From and after the Closing Date, the Buying
Parties agree to assume responsibility for the performance of the contracts
which are described in SCHEDULE 1.3 attached hereto and made a part hereof,
required to be performed after the Closing Date; provided, however, that the
Buying Parties shall have no responsibility to perform any such activities to
the extent not disclosed hereunder.
ARTICLE II - CLOSING, ITEMS TO BE DELIVERED,
THIRD PARTY CONSENTS AND FURTHER ASSURANCES
2.1 Closing. The closing (the "Closing") of the sale and purchase of
the Assets shall take place on April 22, 1996, at the offices of Shumaker, Loop
& Kendrick, 101 East Kennedy Boulevard, Suite 2800, Tampa, Florida 33602 or at
such other location as the parties shall mutually agree. The date of the Closing
is sometimes herein referred to as the "Closing Date."
2.2 Items to be Delivered at Closing. At the Closing and subject to the
terms and conditions herein contained:
(a) Seller shall deliver to the Buying Parties the following:
(i) such bills of sale with covenants of warranty,
assignments, endorsements, and other good and sufficient
instruments and documents of conveyance and transfer, in form
reasonably satisfactory to the Buying Parties and their
counsel, as shall be necessary and effective to transfer and
assign to and vest in the Buying Parties all of Seller's
right, title and interest in and to the Assets, including
without limitation, (A) good and valid title in and to all of
the Assets owned by Seller, (B) good and valid leasehold
interests in and to all of the Assets leased by Seller as
lessee, and (C) all of Seller's rights under all agreements,
contracts, commitments, instruments and other documents
included in the Assets to which Seller is a party or by which
it has rights on the Closing Date;
(ii) original instruments of consent or waiver duly
executed by third parties with respect to any contracts,
agreements, leases or other rights or obligations being
transferred to the Buying Parties hereunder and requiring a
consent or waiver therefore;
-4-
<PAGE> 5
(iii) a duly executed copy of a Management Agreement
(the "Management Agreement"), in the form annexed hereto as
EXHIBIT D; and
(iv) such other certificates and documents as the
Buying Parties or their counsel may reasonably request.
(b) Shawn shall deliver to the Buying Parties the following:
(i) a duly executed copy of an Employment Agreement
and Covenant Not to Compete (the "Employment Agreement), in
the form annexed hereto as EXHIBIT E which by virtue of the
substantial goodwill associated with the employment of Shawn
will contain a liquidated damages provision in the amount of
Five Hundred Thousand and no/100 Dollars ($500,000.00) if
Shawn leaves the employ of Diasti without cause or is
discharged for cause;
(ii) a duly executed copy of a Lease Agreement (the
"Lease Agreement), in the form annexed hereto as EXHIBIT F;
(iii) a duly executed copy of a Consulting Agreement
in the form annexed hereto as EXHIBIT G; and
(iv) such other certificates and documents as the
Buying Parties or their counsel may reasonably request.
Simultaneously with delivery of the items set forth in subsections (a) and (b)
of this Section 2.2, Seller shall take all such steps as may be required to put
the Buying Parties in actual possession and operating control of the Assets.
(c) The Buying Parties shall deliver to Seller the following:
(i) the portion of the Purchase Price due at Closing;
(ii) the Coast Note;
(iii) the Diasti Note;
(iv) a duly executed copy of the Management
Agreement; and
(v) such other certificates and documents as Seller
or its counsel may reasonably request.
-5-
<PAGE> 6
(d) The Buying Parties shall deliver to Shawn the following:
(i) the Shawn Note;
(ii) a duly executed copy of the Employment
Agreement;
(iii) a duly executed copy of the Lease Agreement;
(iv) a duly executed copy of the Consulting
Agreement; and
(v) such other certificates and documents as Shawn or
his counsel may reasonably request.
2.3 Further Assurances. Seller, from time to time after the Closing and
at the Buying Parties' request, will execute, acknowledge and deliver to the
Buying Parties such other instruments of conveyance and transfer and will take
such other actions and execute and deliver such other documents, certifications
and further assurances as the Buying Parties may reasonably require in order to
vest more effectively in the Buying Parties, or to put the Buying Parties more
fully in possession of, any of the Assets. Each of the parties hereto will
cooperate with the other and execute and deliver to the other parties hereto
such other instruments and documents and take such other actions as may be
reasonably requested from time to time by any other party hereto as necessary to
carry out, evidence and confirm the intended purposes of this Agreement.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. Seller hereby represents
and warrants to the Buying Parties that, except as set forth on the Schedules
attached hereto and made a part hereof, each of which exception shall
specifically identify and be limited to the relevant subsection hereof to which
it relates and shall be deemed to be a representation and warranty as if made
hereunder:
(a) Legal Power and Enforceable Obligations. Seller is a
professional association duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation.
Seller has the power, authority and legal right to own, lease and
operate the Assets, to conduct the Practice as currently conducted, and
to execute, deliver and perform this Agreement. This Agreement and all
the other documents and instruments required to be delivered by Seller
in accordance with the provisions hereof have been, or upon their
execution and delivery will have been, duly executed and delivered on
behalf of Seller and constitute, or will constitute, the legal, valid
and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms.
-6-
<PAGE> 7
(b) Validity of Contemplated Transactions. The execution,
delivery and performance of this Agreement by Seller do not and will
not violate, conflict with or result in the breach of any term,
condition or provision of, or require the consent of any other person
under (a) any existing law, ordinance, or governmental rule or
regulation to which Seller is subject, (b) any judgment, order, writ,
injunction, decree or award of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable to Seller,
(c) the Articles of Incorporation or By-Laws of Seller, or (d) any
mortgage, indenture, agreement, contract, commitment, lease, plan or
other instrument, document or understanding, oral or written, to which
Seller is a party, by which Seller may have rights or by which any of
the Assets may be bound or affected, or give any party with rights
thereunder the right to terminate, modify, accelerate or otherwise
change the existing rights or obligations of Seller thereunder. No
authorization, approval or consent of, and no filing with, any
governmental or regulatory official, body or authority is required in
connection with the execution, delivery or performance of this
Agreement by Seller or the sale to the Buying Parties of the Assets.
(c) No Third Party Options. There are no existing agreements
with, options or commitments to or rights of any person to acquire any
of the Assets or any interest therein.
(d) Condition of Tangible Assets. All buildings, structures,
facilities, equipment and other material items of tangible property and
assets included in the Assets are in good operating condition and
repair, subject to normal wear and maintenance, are usable in the
regular and ordinary course of business and conform to all applicable
laws, ordinances, codes, rules and regulations relating to their
construction, use and operation.
(e) Absence of Undisclosed Liabilities. Seller has no
liabilities or obligations with respect to the Practice, either direct
or indirect, matured or unmatured or absolute, contingent or otherwise,
except those liabilities incurred, consistently with past business
practice, in or as a result of the normal and ordinary course of
business and except for those liabilities disclosed in SCHEDULE 1.3
hereof. For purposes of this Agreement, the term "liabilities" shall
include, without limitation, any direct or indirect indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, fixed or unfixed, known or unknown,
asserted or unasserted, choate or inchoate, liquidated or unliquidated,
secured or unsecured.
(f) Books of Account. The books, records and accounts of
Seller maintained with respect to the Practice accurately and fairly
reflect, in reasonable detail, the transactions and the assets and
liabilities of Seller with respect to the Practice. Seller has not
engaged in any transaction, maintained any bank account or used any of
the funds of Seller in the conduct of the Practice except for
transactions, bank accounts and funds which have been and are reflected
in the normally maintained books and records of the Practice.
-7-
<PAGE> 8
(g) Taxes. Seller has filed all tax returns and forms required
to be filed, and has paid in full all taxes, estimated taxes, interest,
penalties, assessments and deficiencies which have become due, or will
do so prior to the Closing Date. Such returns and forms are true and
correct in all material respects, and Seller is not required to pay any
other tax except as shown on such returns. Seller is not a party to any
pending action or proceeding and, to Seller's knowledge, there is no
action or proceeding threatened by any government or authority against
Seller for the assessment or collection of any tax and no resolved
claim for assessment or collection of any tax has been asserted against
Seller. There is no pending proceeding to reduce the assessed valuation
of any portion of the Assets. Seller has delivered to the Buying
Parties a true and complete copy of its tax return for its fiscal year
ended December 31, 1994 together with all notes and schedules filed
therewith. Such tax return fairly presents the financial position of
Seller for the period covered thereby.
(h) Absence of Changes. Since December 31, 1994, Seller with
respect to the Practice has not:
(i) incurred any liabilities, other than liabilities
incurred in the ordinary course of business consistent with
past practice, or discharged or satisfied any lien or
encumbrance, or paid any liabilities, other than in the
ordinary course of business consistent with past practice, or
failed to pay or discharge when due any liabilities of which
the failure to pay or discharge has caused or will cause any
material damage or risk of material loss to Seller or any of
its assets or properties;
(ii) sold, encumbered, assigned or transferred any
assets or properties;
(iii) created, incurred, assumed or guaranteed any
indebtedness for money borrowed, or mortgaged, pledged or
subjected any of the Assets to any mortgage, lien, pledge,
security interest, conditional sales contract or other
encumbrance of any nature whatsoever;
(iv) made or suffered any amendment or termination of
any material agreement, contract, commitment, lease or plan to
which it is a party or by which it is bound, or canceled,
modified or waived any substantial debts or claims held by it
or waived any rights of substantial value, whether or not in
the ordinary course of business;
(v) suffered any damage, destruction or loss, whether
or not covered by insurance, materially and adversely
affecting the Practice and its related operations, assets,
properties, prospects or condition (financial or otherwise) or
suffered any repeated, recurring or prolonged shortage,
cessation or interruption of supplies or utility or other
services required to conduct the Practice;
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(vi) suffered any material adverse change in the
Practice and its related operations, assets, properties,
prospects or condition (financial or otherwise);
(vii) received notice or had knowledge of any actual
or threatened labor trouble, strike or other occurrence, event
or condition of any similar character which has had or might
have an adverse effect on the Practice or its related
operations, assets, properties, prospects or condition
(financial or otherwise);
(viii) increased or decreased the salaries or other
compensation of, or made any advance (excluding advances for
ordinary and necessary business expenses) or loan to, any of
its employees or made any increase in, or any addition to,
other benefits to which any of its employees may be entitled;
(ix) changed any of the accounting principles
followed by it or the methods of applying such principles; or
(x) entered into any transaction other than in the
ordinary course of business consistent with past practice.
(i) Title to Assets. Seller has and shall transfer to the
Buying Parties at the Closing good, valid and marketable title to all
of the Assets being sold and transferred hereunder, free and clear of
all mortgages, liens, pledges, security interests, charges, claims,
restrictions and other encumbrances and defects of title of any nature
whatsoever, except for those liens described in SCHEDULE 3.1(i)
attached hereto and made a part hereof ("Permitted Liens").
(j) Accounts Receivable. The accounts receivable of Seller
arising from the Practice are valid and genuine, have arisen out of
bona fide performances of services in the ordinary course of business
consistent with past practice, are not subject to valid defenses,
set-offs or counterclaims, and are collectible within sixty (60) days
after billing at the full recorded amount thereof.
(k) Compliance with Law; Authorizations. Seller has complied
in all material respects with, and is not in any material violation of,
any law, ordinance or governmental or regulatory rules or regulations,
whether federal, state, local or foreign, to which Seller's Practice
and its related operations, assets or properties is subject
("Regulations"). Seller owns, holds, possesses or lawfully uses in the
operation of its business all franchises, licenses, permits, easements,
rights, applications, filings, registrations and other authorizations
("Authorizations") which are material for it to conduct its Practice as
currently conducted or for the ownership and use of the assets owned or
used by Seller in the conduct of its business, free and clear of all
liens, charges, restrictions and encumbrances and in compliance with
all Regulations. All such Authorizations are listed and described in
SCHEDULE 3.1(k) attached hereto and made a part hereof. Seller is not
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<PAGE> 10
in default, nor has it received any notice of any claim of default,
with respect to any such Authorization. All such Authorizations are
renewable by their terms or in the ordinary course of business without
the need to comply with any special qualification procedures or to pay
any amounts other than routine filing fees. None of such Authorizations
will be adversely affected by the consummation of the transactions
contemplated hereby.
(l) Litigation. No litigation, including any arbitration,
investigation or other proceeding of or before any court, arbitrator or
governmental or regulatory official, body or authority is pending or,
to the best knowledge of Seller, threatened against Seller or relates
to the Assets or the transactions contemplated by this Agreement, the
Lease Agreement, the Employment Agreement, the Consulting Agreement or
the Management Agreement (the Lease Agreement, the Employment
Agreement, the Consulting Agreement and the Management Agreement are
collectively referred to herein as the "Related Agreements"), nor does
Seller know of any reasonably likely basis for any such litigation,
arbitration, investigation or proceeding, the result of which could
adversely affect Seller, the Assets or the transactions contemplated
hereby or thereby. Seller is not a party to or subject to the
provisions of any judgment, order, writ, injunction, decree or award of
any court, arbitrator or governmental or regulatory official, body or
authority which may adversely affect Seller, the Assets or the
transactions contemplated hereby.
(m) Labor Matters. Seller has not suffered any strike,
slowdown, picketing or work stoppage by any union or other group of
employees affecting the Practice. Seller is not a party to any
collective bargaining agreement, no such agreement determines the terms
and conditions of employment of any employee of Seller, no collective
bargaining agent has been certified as a representative of any of the
employees of Seller, and no representation campaign or election is now
in progress with respect to any of the employees of Seller. Seller has
complied and is in compliance in all material respects with all laws
and regulations relating to the employment of labor, including, without
limitation, provisions relating to wages, hours, collective bargaining,
occupational safety and health, equal employment opportunity and the
withholding of income taxes and social security contributions. Seller
has paid its employees all wages, commissions and accruals for earned
vacation, personal days and sick leave owing through the Closing Date.
The consummation of the transactions contemplated hereby will not cause
either of the Buying Parties to incur or suffer any liability relating
to, or obligation to pay, any severance, termination or other payment
to any person or entity and any such claim made against the Buying
Parties for reason of any termination or separation of any employee on
or before Closing, or otherwise resulting from the sale of the Assets
pursuant to this Agreement, shall be the sole responsibility of Seller.
Except as set forth in SCHEDULE 3.1(m) attached hereto and made a part
hereof, (i) no employee of Seller has any contractual right to
continued employment by Seller following the consummation of the sale
of the Assets pursuant to this Agreement; and (ii) the Buying Parties
shall be free to offer employment to such employees of Seller as the
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Buying Parties may determine and on such terms and conditions as the
Buying Parties may determine. Set forth in SCHEDULE 3.1(m) is an
accurate and complete list of all employees employed by Seller in the
Practice showing as to each the nature of the employee's job, years of
service, the amount or rate of compensation, all accruals of vacation,
personal days, sick leave, and any other benefits due the employee and
other matters which may be reasonably required by the Buying Parties.
(n) Availability of Documents. Seller has made available to
the Buying Parties copies of all documents including, without
limitation, all agreements, contracts, commitments, insurance policies,
leases, plans, instruments, undertakings, authorizations, permits,
licenses, trademarks, tradenames, service marks and applications
therefor listed in the Disclosure Schedule hereto or referred to
herein. Such copies are true and complete and include all amendments,
supplements and modifications thereto or waivers currently in effect
thereunder.
(o) Necessary Assets. The Assets include all rights and
property necessary to the conduct of the Practice by the Buying Parties
in the manner it is presently conducted by Seller and no property
excluded from the Assets hereof constitutes property or rights material
to the Practice.
(p) Conditions Affecting Seller. There is no fact, development
or threatened development with respect to the markets, products,
services, clients, patients, facilities, personnel, vendors, suppliers,
operations, assets or prospects of the Practice which are known to
Seller which would materially adversely affect the Practice or the
operations, prospects or condition (financial or otherwise) of Seller
considered as a whole, other than such conditions as may affect as a
whole the economy generally. Seller has used its best efforts to keep
available for the Buying Parties the services of the employees, agents,
patients and suppliers of Seller active in the conduct of the Practice.
Seller does not have any reason to believe that any loss of any
employee, agent, patient or supplier or other advantageous arrangement
will result because of the consummation of the transactions
contemplated hereby.
(q) Real Property. All real property (including, without
limitation, all interests in and rights to real property) and
improvements located thereon which are owned or leased by Seller and
used in connection with the Practice or included in the Assets (the
"Real Property") is listed on SCHEDULE 3.1(q) attached hereto and made
a part hereof. The use and operation of the Real Property is in
compliance in all material respects with all applicable building code,
environmental, zoning and land use laws, and other applicable local,
state and federal laws and regulations. No portion of the Real Property
is the subject of, or affected by, any condemnation or eminent domain
proceeding or any covenant or other restriction preventing or limiting
Seller's right to convey right, title and interest in the Real Property
or to use the Real Property for the various purposes for which the Real
Property is currently being used. Seller has
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<PAGE> 12
delivered to the Buying Parties true and complete copies of each lease
pursuant to which Seller leases any Real Property. Each such lease is
in full force and effect and has not been assigned, modified,
supplemented or amended. Neither Seller nor the landlord under any
lease is in material default of the terms of any such lease and, to
Seller's knowledge, no circumstances or state of facts currently exist
which, with the giving of notice or the passage of time or both would
permit the landlord under any lease to terminate such lease.
(r) Completeness of Disclosure. Neither this Agreement, nor
any Schedule, Exhibit, list, certificate or other instrument or
document furnished by Seller to the Buying Parties pursuant to this
Agreement, contains any untrue statement of a material fact or omits to
state any material fact required to be stated herein or therein or
necessary to make the statements and information contained herein or
therein not misleading. Seller has not failed to disclose to the Buying
Parties any event, condition or fact which Seller knows, or has
reasonable grounds to know, which may materially adversely affect the
Assets or the operations, prospects or condition (financial or
otherwise) of the Practice.
3.2 Representations and Warranties of the Buying Parties. The Buying
Parties represent and warrant to Seller as follows:
(a) Corporate Existence.
(i) Diasti is a professional association duly
organized, validly existing and in good standing under the
laws of the State of Florida.
(ii) Coast is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware.
(b) Corporate Power and Authorization. Each of the Buying
Parties has the power, authority and legal right to execute, deliver
and perform this Agreement, the Notes and the Related Agreements to
which they are parties. This Agreement, the Notes and the Related
Agreements have been duly executed and delivered by the Buying Parties
and constitute legal, valid and binding obligations of the Buying
Parties enforceable against the Buying Parties in accordance with their
respective terms.
(c) Validity of Contemplated Transactions. The execution,
delivery and performance by the Buying Parties of this Agreement, the
Notes and the Related Agreements do not and will not violate, conflict
with or result in the breach of any term, condition or provision of, or
require the consent of any other party under (a) any existing law,
ordinance, or governmental rule or regulation to which either of the
Buying Parties is subject, (b) any judgment, order, writ, injunction,
decree or award of any court, arbitrator or governmental or regulatory
official, body or authority which is applicable
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<PAGE> 13
to either of the Buying Parties, (c) the Certificate of Incorporation
or By-Laws of Coast, (d) the Articles of Incorporation or By-Laws of
Diasti, or (e) any mortgage, indenture, agreement, contract,
commitment, lease, plan or other instrument, document or understanding,
oral or written, to which either of the Buying Parties is a party or by
which either of the Buying Parties is otherwise bound. No
authorization, approval or consent of, and no registration or filing
with, any governmental or regulatory official, body or authority is
required in connection with the execution, delivery and performance of
this Agreement by the Buying Parties.
ARTICLE IV - CONDITIONS PRECEDENT TO THE CLOSING
4.1 Conditions Precedent to the Buying Parties' Obligations. All
obligations of the Buying Parties under this Agreement are subject to the
fulfillment or satisfaction, prior to or at the Closing, of each of the
following conditions precedent:
(a) Compliance with this Agreement. Seller and Shawn shall
have performed and complied with all agreements and conditions required
by this Agreement to be performed or complied with by it and/or him
prior to or at the Closing.
(b) Due Diligence. The Buying Parties shall have completed to
their satisfaction a due diligence review of Seller, the Practice and
the Assets, which shall include verification that the Practice has been
run in the ordinary course since December 31, 1994, and that the
Assets, liabilities, obligations, revenues, vendor relations, patient
relations, and tax liabilities of the Seller are as represented and
anticipated by the Buying Parties. The Seller agrees to cooperate and
make available to the Buying Parties, and the Buying Parties' employees
and accountants, all of the Seller's books and records and to make
available the Seller's officers, employees and agents in assisting the
Buying Parties to complete their due diligence investigations. The
Buying Parties may conduct their due diligence investigations from the
date first above written to, and including, the Closing Date.
(c) No Adverse Changes. No change other than as contemplated
or permitted by this Agreement, or other than in the ordinary course,
shall have occurred with respect to the business, operations, prospects
or condition (financial or otherwise) of the Practice or any of the
Assets, which shall have been material and adverse to Seller.
(d) Consents and Approvals. The Buying Parties shall have
received those written consents and approvals necessary or desirable
for the transfer of the Assets to the Buying Parties.
(e) Removal of Liens. Seller shall have obtained valid,
binding and enforceable releases, satisfactions and discharges of all
liens, charges and encumbrances affecting the Assets except for those
liens described in SCHEDULE 3.1(i) hereof.
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(f) Lease Agreement. Shawn shall have delivered an executed
copy of the Lease Agreement.
(g) Employment Agreement. Shawn shall have entered into the
Employment Agreement.
(h) Consulting Agreement. Shawn shall have entered into the
Consulting Agreement.
(i) Management Agreement. Seller shall have entered into the
Management Agreement.
4.2 Conditions Precedent to Seller's and Shawn's Obligations. All
obligations of Seller and Shawn under this Agreement are subject to the
fulfillment or satisfaction, prior to or at the Closing, of each of the
following conditions precedent:
(a) Compliance with this Agreement. The Buying Parties shall
have performed and complied with all agreements and conditions required
by this Agreement to be performed or complied with by them prior to or
at the Closing.
(b) The Notes. The Buying Parties shall have entered into the
Notes.
(c) Lease Agreement. Coast shall have entered into the Lease
Agreement.
(d) Employment Agreement. Diasti shall have entered into the
Employment Agreement.
(e) Consulting Agreement. Coast shall have entered into the
Consulting Agreement.
(f) Management Agreement. Coast shall have entered into the
Management Agreement.
4.3 Risk of Loss Prior to Closing. The risk of any loss, destruction or
other damage to the Assets, other than ordinary wear and tear, prior to the
completion of the Closing, shall be solely that of Seller.
ARTICLE V - INDEMNIFICATION
5.1 Indemnification Obligation of Seller. From and after the Closing,
Seller will reimburse, indemnify and hold harmless each of the Buying Parties
and their successors and assigns (an "Indemnified Buyer Party") against and in
respect of:
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<PAGE> 15
(a) any and all damages, losses, deficiencies, liabilities,
costs and expenses incurred or suffered by any Indemnified Buyer Party
that result from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller
of any nature whatsoever not disclosed in this Agreement and
expressly assumed by the Buying Parties;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings
or investigations against any Indemnified Buyer Party that
relate to Seller or the Practice in which the principal event
giving rise thereto occurred prior to the Closing Date or
which result from or arise out of any action or inaction of
Seller or any director, officer, employee, agent,
representative or subcontractor of Seller prior to the Closing
Date; or
(iii) any misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant on the part of
Seller or Shawn under this Agreement or the Related
Agreements, or from any misrepresentation in or omission from
any certificate, schedule, statement, document or instrument
furnished to the Buying Parties pursuant hereto or in
connection with the negotiation, execution or performance of
this Agreement, or the Related Agreements; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs
and other expenses (including, without limitation, reasonable legal
fees and expenses and court costs) incident to any of the foregoing or
to the enforcement of this Section 5.1.
Each of the Buying Parties shall have the right to set-off their
respective payment obligations under the Notes for any indemnification
obligations of Seller herein to the full extent of such indemnification
obligation and without regard to which of the Buying Parties has incurred or
suffered the loss or damage. Without limiting the foregoing, such right of
set-off shall apply to Diasti's right to recover liquidated damages from Shawn
pursuant to the Employment Agreement. The Seller's liability and obligation to
indemnify the Buying Parties and/or the Buying Parties' right to set-off against
the deferred portion of the Purchase Price shall not commence or accrue until
the Buying Parties, together or separately, have suffered or incurred aggregate
claims, losses or damages (including costs and attorneys' fees and expenses) in
excess of Ten Thousand and No/100 Dollars ($10,000.00) in any twelve (12) month
period, provided, however, that once such amount has been suffered or incurred
by the Buying Parties, the Seller's liability and obligation for indemnity
hereunder shall be from the first dollar of loss or damage. The Seller's
indemnification obligations set forth herein shall not include indemnification
of an Indemnified Buyer Party for such party's internal expenses relating to
employee time spent investigating and defending a matter or claim.
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5.2 Indemnification Obligation Of The Buying Parties. From and after
the Closing, the Buying Parties will reimburse, indemnify and hold harmless
Seller and its successors or assigns (an "Indemnified Seller Party") against and
in respect of:
(a) any and all damages, losses, deficiencies, liabilities,
costs and expenses incurred or suffered by any Indemnified Seller Party
that result from, relate to or arise out of any misrepresentation,
breach of warranty or non-fulfillment of any agreement or covenant on
the part of the Buying Parties under this Agreement, the Notes, or the
Related Documents, or from any misrepresentation in or omission from
any certificate, schedule, statement, document or instrument furnished
to Seller pursuant hereto or in connection with the negotiation,
execution or performance of this Agreement, the Notes or the Related
Agreements; and
(b) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs
and other expenses (including, without limitation, reasonable legal
fees and expenses) incident to any of the foregoing or to the
enforcement of this Section 5.2.
5.3 Procedure for Indemnification Claims. If at any time a claim shall
be made or threatened, or an action or proceeding shall be commenced or
threatened, against a party hereto (the "Aggrieved Party") which could result in
liability of the other party (the "Indemnifying Party") under its
indemnification obligations hereunder, the Aggrieved Party shall give to the
Indemnifying Party prompt notice of such claim, action or proceeding. Such
notice shall state the basis for the claim, action or proceeding and the amount
thereof (to the extent such amount is determinable at the time when such notice
is given) and shall permit the Indemnifying Party to assume the defense of any
such claim, action or proceeding (including any action or proceeding resulting
from any such claim). Failure by the Indemnifying Party to notify the Aggrieved
Party of its election to defend any such claim, action or proceeding within a
reasonable time shall be deemed a waiver by the Indemnifying Party of its right
to defend such claim, action or proceeding; provided, however, that the
Indemnifying Party shall not be deemed to have waived its right to contest and
defend against any claim of the Aggrieved Party for indemnification hereunder
based upon or arising out of such claim, action or proceeding.
If the Indemnifying Party assumes the defense of any such claim, action
or proceeding, the obligation of the Indemnifying Party as to such claim, action
or proceeding shall be limited to taking all steps necessary in the defense or
settlement thereof and, to the extent the Indemnifying Party is liable for
indemnification hereunder, to holding the Aggrieved Party harmless from and
against any and all losses, damages and liabilities caused by or arising out of
any settlement approved by the Indemnifying Party or any judgment or award
rendered in connection with such claim, action or proceeding. The Aggrieved
Party agrees to cooperate and make available to the Indemnifying Party all books
and records and such officers, employees and agents as are reasonably necessary
and useful in connection with the defense. The Aggrieved Party may participate,
at its expense, in the defense of such claim, action or proceeding provided
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that the Indemnifying Party shall direct and control the defense of such claim,
action or proceeding; provided, however, if in the reasonable opinion of the
Aggrieved Party any such claim, action or proceeding involves an issue or matter
which, if adversely determined, would have a materially adverse effect on the
Aggrieved Party, then the Aggrieved Party shall have the right to control the
defense or settlement of any such claim, action or proceeding and its reasonable
costs and expenses shall be included as a part of the indemnification obligation
of the Indemnifying Party. The Indemnifying Party shall not, with respect to any
such claim, action or proceeding, consent to the entry of any judgment or award,
or enter into any settlement, except with the prior written consent of the
Aggrieved Party, which consent shall not be unreasonably withheld; provided,
however, in the case of any such judgment, award or settlement for money, it
shall be a condition thereto that the Indemnifying Party shall acknowledge its
obligation to indemnify the Aggrieved Party pursuant to this Article V; and
provided, further, that any such judgment, award or settlement include, as an
unconditional term thereof, the release of the Aggrieved Party from all
liability by the third party claimant or plaintiff.
5.4 Payment. Upon the determination of the liability under Section 5.3
hereof, the appropriate party shall pay to the other, as the case may be, within
ten (10) days after such determination, the amount of any claim for
indemnification made hereunder. In the event that the Aggrieved Party is not
paid in full for any such claim pursuant to the foregoing provisions promptly
after the Indemnifying Party's obligation to indemnify has been determined in
accordance herewith, it shall have the right, notwithstanding any other rights
that it may have against any other person, firm or corporation, to set-off the
unpaid amount of any such claim against any amounts owed by it under this
Agreement, the Notes or the Related Agreements. The indemnification obligations
hereunder shall survive the consummation of the transactions described herein
and shall not be limited by any amount payable by the Buying Parties to Seller
under this Agreement, the Notes or the Related Agreements.
5.5 Compliance with Bulk Sales Laws. The Buying Parties and Seller
hereby waive compliance by the Buying Parties and Seller with the bulk sales law
and any other similar laws in any applicable jurisdiction in respect of the
transactions contemplated by this Agreement. Seller shall indemnify the Buying
Parties from, and hold them harmless against, any liabilities, damages, costs
and expenses resulting from or arising out of (i) the parties' failure to comply
with any of such laws in respect of the transactions contemplated by this
Agreement, or (ii) any action brought or levy made as a result thereof, other
than those liabilities which have been expressly assumed, on such terms as
expressly assumed, by the Buying Parties pursuant to this Agreement.
5.6 Other Rights and Remedies Not Affected. The indemnification rights
of the parties under this Article V are independent of and in addition to such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party
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hereto, including, without limitation the right to seek specific performance,
recision or restitution, none of which rights or remedies shall be affected or
diminished hereby.
ARTICLE VI - POST CLOSING MATTERS
6.1 Survival of Representations and Warranties. The representations,
warranties and indemnifications made by the parties in this Agreement relating
to any taxes, interest, penalties, assessments or deficiencies shall survive the
Closing for the period of the applicable statute of limitations. All other
representations, warranties, agreements and obligations made by the parties in
this Agreement or in any certificate, schedule, statement, document or
instrument furnished hereunder or in connection with the negotiation, execution
and performance of this Agreement shall survive the Closing for a period of
seven years. Notwithstanding any investigation or audit conducted before or
after the Closing Date or the decision of any party to complete the Closing,
each party shall be entitled to rely upon the representations and warranties set
forth herein and therein and each such representation and warranty shall be
deemed to be material.
6.2 Discharge of Business Obligations. From the date first above
written until Closing Date, Seller shall pay and discharge, in accordance with
past practice but not less than on a timely basis, all obligations and
liabilities incurred prior to the Closing Date in respect of the Practice.
6.3 Maintenance of Books and Records. Each of Seller and the Buying
Parties shall preserve until the fifth anniversary of the Closing Date all
records possessed or to be possessed by such party relating to any of the
assets, liabilities or business of the Practice prior to the Closing Date. After
the Closing Date, each party shall provide the other party with access, upon
prior reasonable written request specifying the need therefor, during regular
business hours, to (i) the officers and employees of such party and (ii) the
books of account and records of such party, but, in each case, only to the
extent relating to the assets, liabilities or business of the Practice prior to
the Closing, and the other party and its representatives shall have the right to
make copies of such books and records; provided, however, that the foregoing
right of access shall not be exercisable in such a manner as to interfere
unreasonably with the normal operations and business of such party; and further,
provided, that, as to so much of such information as constitutes trade secrets
or confidential business information of such party, the requesting party and its
officers, directors and representatives will use due care to not disclose such
information except (i) as required by law, (ii) with the prior written consent
of such party, which consent shall not be unreasonably withheld, or (iii) where
such information becomes available to the public generally, or becomes generally
known to competitors of such party, through sources other than the requesting
party, its affiliates or its officers, directors or representatives.
6.4 Payments Received. Seller and the Buying Parties each agree that
after the Closing they will hold and will promptly transfer and deliver to the
other, from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their best
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efforts not to convert such checks into cash) or other property that they may
receive on or after the Closing which properly belongs to the other party, and
will account to the other for all such receipts. From and after the Closing,
Coast shall have the right and authority to endorse without recourse the name of
Seller on any check or any other evidences of indebtedness received by Coast on
account of the Practice and the Assets transferred to Coast hereunder.
6.5 Insurance. Seller hereby grants the Buying Parties the right to
obtain insurance on the life of Shawn for the benefit of the Buying Parties and
at the Buying Parties' sole cost and expense, and Shawn agrees to execute all
documents and submit to all tests as shall be necessary in connection therewith.
The Buying Parties shall have the right to terminate such insurance at any time.
6.6 Additional Actions and Documents. From and after the Closing Date,
Seller and Shawn will take or cause to be taken such further actions, and
execute, deliver and file such further documents and instruments as the Buying
Parties may request from time to time to evidence transfer of the Assets to the
Buying Parties and to fully effectuate the purposes and terms of this Agreement.
ARTICLE VII - MISCELLANEOUS
7.1 Taxes. Seller shall pay all federal, state and local sales,
documentary and other transfer taxes, if any, due as a result of the purchase,
sale or transfer of the Assets in accordance therewith whether imposed by law on
Seller or the Buying Parties and Seller shall indemnify, reimburse and hold
harmless the Buying Parties in respect of the liability for payment of or
failure to pay any such taxes or the filing of or failure to file any reports
required in connection therewith.
7.2 Expenses. Except as otherwise provided in this Agreement, each
party hereto shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions hereof and the consummation of the
transactions contemplated hereby.
7.3 Contents of Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof.
It shall not be amended or modified, and no provision hereof shall be waived,
except by written instrument duly executed by each of the parties hereto. Any
and all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement.
7.4 Assignment and Binding Effect. This Agreement may not be assigned
by any party hereto without the prior written consent of the other parties.
Subject to the foregoing, all of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
permitted successors and assigns of the parties.
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<PAGE> 20
7.5 Waiver. No delay or failure on the part of either party in
exercising any right hereunder, and no partial or single exercise hereof, will
constitute a waiver of such right or of any other right hereunder.
7.6 Notices. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by overnight,
registered or certified mail, postage prepaid, as follows:
If to Coast or Diasti, to:
Coast Dental Services, Inc.
25400 U.S. Highway 19, Suite 225
Clearwater, Florida 34623
Attention: Adam Diasti
With a copy to:
Darrell C. Smith, Esquire
Shumaker, Loop & Kendrick
Suite 2800, Barnett Plaza
101 East Kennedy Blvd.
Tampa, Florida 33602
If to Seller or Shawn, to:
Richard J. Shawn, D.M.D., P.A.
22 Ormond Parkway
Ormond Beach, Florida 32176
Attention: Richard J. Shawn
With a copy to:
-------------------------------
-------------------------------
-------------------------------
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so personally delivered or three (3) business days after being
deposited in the U.S. mail.
-20-
<PAGE> 21
7.7 Governing Law. This Agreement shall be governed by and interpreted
and enforced in accordance with the laws of the State of Florida.
7.8 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and, in the case of Article V hereof, the other Indemnified
Parties, and their heirs, executors, administrators, legal representatives,
successors and assigns, and they shall not be construed as conferring any rights
on any other persons.
7.9 Headings, Gender and "Person". All section headings contained in
this Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement. Words used herein, regardless of the number and gender specifically
used, shall be deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine or neuter, as the context
requires. Any reference to a "person" herein shall include an individual, firm,
corporation, partnership, trust, governmental authority or body, association,
unincorporated organization or any other entity.
7.10 Schedules and Exhibits. All Schedules and Exhibits referred to
herein are intended to be and hereby are specifically made a part of this
Agreement.
7.11 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and all of which counterparts when taken together shall constitute but
one and the same instrument.
7.13 Rules of Construction. The rules of construction which require the
terms of an agreement to be construed most strictly against the drafter of such
an agreement are hereby waived and relinquished by each party.
7.14 Prohibition on Marketing of Seller to Third Parties;
Confidentiality of Agreement. For a period of ninety (90) days from the date
first above written, the Seller will not, directly or indirectly, participate in
any discussions or negotiations regarding, or furnish to any person any
information whatsoever with respect to the disposition of the Practice or the
Assets or any securities or other proprietary interest of Seller either by sale,
joint venture or any other business combination. Seller further agrees that
during such ninety (90) day period, none of Seller's officers, directors or
employees will undertake or continue acquisition discussions with other parties
or otherwise disclose the Buying Parties' proposal to anyone other than the duly
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<PAGE> 22
authorized representatives of the Seller. The parties agree not to make any
public announcement with regard to the transaction contemplated by this
Agreement without the prior written consent of the other party until after the
Closing Date.
7.15 Brokerage. Each of the parties hereto represents and warrants to
the others that no broker is entitled to any commission, or similar fee, in
connection with the making and carrying out of this Agreement, except as
described in SCHEDULE 7.15 attached hereto and made a part hereof. The
commissions or fees of any broker described in SCHEDULE 7.15 shall be the sole
responsibility of Seller.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
"SELLER"
RICHARD J. SHAWN, D.M.D., P.A.
By: /s/ Richard J. Shawn
_______________________________
Richard J. Shawn, President
"SHAWN"
/s/ Richard J. Shawn
-------------------------------
Richard J. Shawn, D.M.D.
"COAST"
COAST DENTAL SERVICES, INC.
By: /s/ Terek Diasti
-------------------------------
Terek Diasti, President
"DIASTI"
ADAM DIASTI, D.D.S., P.A.
By: /s/ Adam Diasti
--------------------------------
Adam Diasti, President
-22-
<PAGE> 1
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
COAST DENTAL SERVICES, INC.
Coast Dental Services, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
I. The name of the Corporation is Coast Dental Services, Inc. and the
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on September 12, 1995.
II. Pursuant to Section 242 and 245 of the General Corporation Laws of
the State of Delaware ("GCL"), this Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
III. The text of the Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
1. NAME. The name of the Corporation is COAST DENTAL SERVICES,
INC.
2. ADDRESS AND REGISTERED AGENT. The address of the Corporation's
registered office in the State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. PURPOSE. The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the GCL.
4. AUTHORIZED SHARES. The total number of shares of all classes of
Capital Stock which the Corporation shall have the authority to issue is
52,000,000 shares, consisting of (i) 50,000,000 shares of common stock, $.001
par value per share (the "Common Stock"), and (ii) 2,000,000 shares of preferred
stock, $.001 par value per share (the "Preferred Stock"). The designation,
powers, preferences and relative participating, optional or other special rights
and the qualifications, limitations and restrictions thereof in respect of each
class of Capital Stock of the Corporation are as follows:
A. COMMON STOCK. Each holder of record of shares of Common
Stock shall be entitled to vote at all meetings of the stockholders and
shall have one vote for each share held by him of record. Subject to
the prior rights of the holders of all classes or series of stock at
the time outstanding having prior rights as to dividends, the holders
of shares of Common Stock shall be entitled to receive, when and as
declared by the Board of Directors of the
<PAGE> 2
Corporation (the "Board of Directors"), out of the assets of the
Corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
B. PREFERRED STOCK. Subject to the terms contained in any
designation of a series of Preferred Stock, the Board of Directors is
expressly authorized, at any time and from time to time, to fix, by
resolution or resolutions, the following provisions for shares of any
class or classes of Preferred Stock of the Corporation or any series of
any class of Preferred Stock:
(1) the designation of such class or series, the number of
shares to constitute such class or series which may be
increased or decreased (but not below the number of shares of
that class or series then outstanding) by resolution of the
Board of Directors, and the stated value thereof if different
from the par value thereof;
(2) whether the shares of such class or series shall have
voting rights, in addition to any voting rights provided by
law, and, if so, the terms of such voting rights;
(3) the dividends, if any, payable on such class or series,
whether any such dividends shall be cumulative, and, if so,
from what dates, the conditions and dates upon which such
dividends shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on any
shares of stock of any other class or any other series of the
same class;
(4) whether the shares of such class or series shall be
subject to redemption by the Corporation, and, if so, the
times, prices and other conditions of such redemption;
(5) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such class or series in,
the voluntary or involuntary liquidation, dissolution or
winding up, or upon any distribution of the assets, of the
Corporation;
(6) whether the shares of such class or series shall be
subject to the operation of a retirement or sinking fund and,
if so, the extent to and manner in which any such retirement or
sinking fund shall be applied to the purchase or redemption of
the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the
operation thereof;
<PAGE> 3
(7) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any
other class or any other series of the same class or any other
securities and, if so, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting
the same, and any other terms and conditions of conversion or
exchange;
(8) the limitations and restrictions, if any, to be
effective while any shares of such class or series are
outstanding upon the payment of dividends or the making of
other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or
shares of stock of any other class or any other series of the
same class;
(9) the conditions or restrictions, if any, upon the
creation of indebtedness of the Corporation or upon the issue
of any additional stock, including additional shares of such
class or series or of any other series of the same class or of
any other class;
(10) the ranking (be it pari passu, junior or senior) of
each class or series vis-a-vis any other class or series of any
class of Preferred Stock as to the payment of dividends, the
distribution of assets and all other matters; and
(11) any other powers, preferences and relative,
participating, optional and other special rights, and any
qualifications, limitations and restrictions thereof, insofar
as they are not inconsistent with the provisions of this
Restated Certificate of Incorporation, to the full extent
permitted in accordance with the laws of the State of Delaware.
The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding.'"
5. NAME AND MAILING ADDRESS OF INCORPORATOR. The name and mailing
address of the incorporator is Terek Diasti, 25400 U.S. Highway 19, Suite 225,
Clearwater, Florida 34623.
<PAGE> 4
6. NAMES AND MAILING ADDRESSES OF DIRECTORS. The powers of the
incorporator of the Corporation terminated upon the filing of the original
Certificate of Incorporation with the Secretary of State of the State of
Delaware and the names of the persons who serve as directors of the Corporation
until their successors are elected and qualify are as follows:
Dr. Terek Diasti
25400 U.S. Highway 19
Suite 225
Clearwater, Florida 34623
Dr. Adam Diasti
25400 U.S. Highway 19
Suite 225
Clearwater, Florida 34623
7. MANAGEMENT REPORTS. The following provisions are inserted for
the management of the business and for the conduct of the affairs of the
Corporation, and for further definition, limitation and regulation of the powers
of the Corporation and its directors and stockholders:
A. NUMBER, CLASS AND TERM. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of
Directors consisting of not less than two nor more than fifteen
directors, the exact number of directors to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the
directors then in office. The Board of Directors shall be divided into
three classes, designated Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors.
Immediately following the filing of the Certificate of Incorporation
with the Secretary of State of the State of Delaware, Terek Diasti and
Adam Diasti were designated to serve as Class II directors for a
two-year term and Terek Diasti and Adam Diasti shall be designated to
serve as Class III directors for a three-year term. At each annual
meeting of stockholders beginning in 1996, successors to the class of
directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as
possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires
and until his successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or
removal from office.
<PAGE> 5
B. VACANCIES. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any vacancy on the Board of Directors
that results from an increase in the number of directors may be filled
by a majority of the Board of Directors then in office, provided that a
quorum is present, and any other vacancy occurring in the Board of
Directors may be filled by a majority of the directors then in office,
even if less than a quorum is present, or by a sole remaining director.
Any director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide
with the remaining term of that class. Any director elected to fill a
vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his predecessor.
C. REMOVAL. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any director or the entire Board of
Directors, may be removed from office at any time, but only for cause
by an affirmative vote of the holders of a majority of the then
outstanding shares of Voting Stock (as defined in Section 11);
provided, however, that if a proposal to remove a director for cause is
made by or on behalf of an Interested Stockholder (as defined in
Section 11) or a director affiliated with an Interested Stockholder,
then, such removal shall require the affirmative vote of the holders of
a majority of the Disinterested Shares (as hereinafter defined). For
the purposes of this Section 7(C), "Disinterested Shares" means, as to
any Interested Stockholder, shares of Voting Stock held by stockholders
other than such Interested Stockholder.
D. RIGHTS OF PREFERRED STOCK. Notwithstanding the foregoing,
whenever the holders of any one or more classes or series of Preferred
Stock issued by the Corporation shall have the right, voting separately
by class or series, to elect directors at an annual or special meeting
of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of
this Restated Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this
Section 7 unless expressly provided by such terms.
E. BALLOT. Election of directors need not be by ballot unless
the By-Laws so provide.
F. POWERS. In addition to the powers and authorities
hereinabove or by statute expressly conferred upon them, the directors
are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation; subject,
nevertheless, to the provisions of the statutes of Delaware, of this
Restated Certificate of Incorporation, and to any
<PAGE> 6
By-Laws from time to time made by the stockholders; provided, however,
that no By-Law so made shall invalidate any prior act of the directors
which would have been valid if such By-Law had not been made.
G. CHANGES. The Board of Directors shall have the concurrent
power with the stockholders to make, alter, amend, change, add to or
repeal (collectively referred to as a "Change") the By-Laws of the
Corporation; provided, however, that any Change of the By-Laws must be
approved either by (i) a majority of the authorized number of directors
and, if one or more Interested Stockholders exist, by a majority of the
directors who are Continuing Directors (as defined in Section 11), or
(ii) the affirmative vote of the holders of not less than eighty
percent (80%) of the then outstanding shares of Voting Stock and, if
the Change is proposed by or on behalf of an Interested Stockholder or
a director affiliated with an Interested Stockholder, by the
affirmative vote of the holders of a majority of the Disinterested
Shares.
8. COMPROMISE. Whenever a compromise or arrangement is proposed
between the Corporation and its creditors or any class of them and/or between
the Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware, may, on the application (in
a summary way) of the Corporation or of any creditor of receivers appointed for
the Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of Section 279 of the GCL order a
meeting of the creditors or class of creditors, and/or of the stockholders of
the Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths (3/4) in value
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
9. WRITTEN ACTION. If the outstanding shares of the Common Stock
are held of record by more than twenty-five (25) shareholders, then no action
required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without a
meeting of such stockholders.
10. LIABILITY FOR MONETARY DAMAGES. No director shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty by such director as a director. Notwithstanding
the foregoing sentence, a director shall be liable to the extent provided by
applicable law (i) for breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the GCL
<PAGE> 7
or (iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Section 10 shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omission of such director occurring prior to
such amendment.
11. BUSINESS COMBINATION.
A. SPECIAL VOTE BY STOCKHOLDERS. In addition to any
affirmative vote required by law or this Restated Certificate of
Incorporation or the By-Laws of the Corporation, and except as
otherwise expressly provided in Section 11(B) of this Restated
Certificate of Incorporation, a Business Combination (as hereinafter
defined) with, or proposed by or on behalf of, any Interested
Stockholder (as hereinafter defined) or any Affiliate or Associate (as
hereinafter defined) of any Interested Stockholder or any person who
thereafter would be an Affiliate or Associate of such Interested
Stockholder shall require the affirmative vote of not less than
sixty-six and two thirds percent (66 2/3%) of the votes entitled to be
cast by the holders of all the then outstanding shares of Voting Stock,
voting together as a single class, excluding Voting Stock beneficially
owned by such Interested Stockholder. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that
a lesser percentage or separate class vote may be specified, by law or
in any agreement with any national securities exchange or otherwise.
B. REGULAR VOTE BY STOCKHOLDERS. The provisions of Section
11(A) of this Restated Certificate of Incorporation shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is
required by law or by any other provision of this Restated Certificate
of Incorporation or the By-Laws of the Corporation, or any agreement
with any national securities exchange, if all of the conditions
specified in either of the following Section 11(B)(1) or (B)(2) are
met, or in the case of a Business Combination not involving the payment
of consideration to the holders of the Corporation's outstanding
Capital Stock (as hereinafter defined), if the conditions specified in
the following Section 11(B)(1) are met:
(1) The Business Combination shall have been approved
either specifically or as a transaction which is within an
approved category of transactions, by a majority (whether such
approval is made prior to or subsequent to the acquisition of,
or announcement or public disclosure of the intention to
acquire, beneficial ownership of the Voting Stock that caused
the Interested Stockholder to become an Interested
Stockholder) of the Continuing Directors (as hereinafter
defined).
<PAGE> 8
(2) All of the following conditions shall have been met:
(a) The aggregate amount of cash and the Fair Market
Value (as hereinafter defined), as of the date of the
consummation of the Business Combination, of consideration
other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to
the highest amount determined under the following clauses (i)
and (ii): (i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of Common Stock in
connection with the acquisition by the Interested Stockholder
of beneficial ownership of shares of Common Stock (x) within
the two-year period immediately prior to the first public
announcement of the proposed Business Combination (the
"Announcement Date") or (y) in the transaction in which it
became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to the
Common Stock; and (ii) the Fair Market Value per share of
Common Stock on the Announcement Date or on the date on which
the Interested Stockholder became an Interested Stockholder
(the "Determination Date"), whichever is higher, as adjusted
for any subsequent stock split, stock dividend, subdivision or
reclassification with respect to the Common Stock.
(b) The aggregate amount of cash and the Fair Market
Value, as of the date of the consummation of the Business
Combination, of consideration other than cash to be received
per share by holders of shares of any class or series of
outstanding Capital Stock, other than Common Stock, shall be
at least equal to the highest amount determined under the
following clauses (i), (ii) and (iii): (i) (if applicable) the
highest per share price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) paid by or on
behalf of the Interested Stockholder for any share of such
class or series of Capital Stock in connection with the
acquisition by the Interested Stockholder of beneficial
ownership of shares of such class or series of Capital Stock
(x) within the two-year period immediately prior to the
Announcement Date, or (y) in the transaction in which it
became an Interested Stockholder, whichever is higher, in
either case as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to such
class or series of Capital Stock; (ii) the Fair Market Value
per share of such class or series of Capital Stock on the
<PAGE> 9
Announcement Date or on the Determination Date, whichever is
higher, as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect to such
class or series of Capital Stock; and (iii) (if applicable)
the highest preferential amount per share to which the holders
of shares of such class or series of Capital Stock would be
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation regardless of whether the Business Combination to
be consummated constitutes such an event.
(c) The consideration to be received by holders of a
particular class or series of outstanding Capital Stock shall
be in cash or in the same form as previously has been paid by
or on behalf of the Interested Stockholder in connection with
its direct or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Stock. If the
consideration so paid for shares of any class or series of
Capital Stock varied as to form, the form of consideration for
such class or series of Capital Stock shall be either cash or
the form used to acquire beneficial ownership of the largest
number of shares of such class or series of Capital Stock
previously acquired by the Interested Stockholder.
(d) After the Determination Date and prior to the
consummation of such Business Combination: (i) except as
approved by a majority of the Continuing Directors, there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) payable in accordance with the terms of any
outstanding Capital Stock; (ii) there shall have been no
reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any stock split, stock
dividend or subdivision of the Common Stock) except as
approved by a majority of the Continuing Directors; (iii)
there shall have been an increase in the annual rate of
dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
that has the effect of reducing the number of outstanding
shares of Common Stock, unless the failure so to increase such
annual rate is approved by a majority of the Continuing
Directors; and (iv) such Interested Stockholder shall not have
become the beneficial owner of any additional shares of
Capital Stock except as part of the transaction that results
in such Interested Stockholder becoming an Interested
Stockholder and except in a transaction that, after giving the
effect
<PAGE> 10
thereto, would not result in any increase in the Interested
Stockholder's percentage beneficial ownership of any class or
series of Capital Stock.
(e) After the Determination Date, such Interested
Stockholder shall not have received the benefit, directly or
indirectly (except proportionately as a stockholder of the
Corporation), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in
anticipation of or in connection with such Business
Combination or otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the
"Exchange Act") (or any subsequent provisions replacing such
Exchange Act, rules or regulations) shall be mailed to all
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed
pursuant to such Exchange Act or subsequent provisions). The
proxy or information statement shall contain on the first page
thereof, in a prominent place, any statement as to the
advisability (or inadvisability) of the Business Combination
that the Continuing Directors, or any of them, may choose to
make and, if deemed advisable by a majority of the Continuing
Directors, the opinion of an investment banking firm selected
by a majority of the Continuing Directors as to the fairness
(or unfairness) of the terms of the Business Combination from
a financial point of view to the holders of the outstanding
shares of Capital Stock other than the Interested Stockholder
and its Affiliates or Associates, such investment banking firm
to be paid a reasonable fee for its services by the
Corporation.
(g) Such Interested Stockholder shall not have made any
major change in the Corporation's business or equity capital
structure without the approval of a majority of the Continuing
Directors.
The provisions of this Section 11(B) shall be required to be met
with respect to every class or series of outstanding Capital
Stock, whether or not the Interested Stockholder has previously
acquired beneficial ownership of any shares of a particular class
or series of Capital Stock.
<PAGE> 11
C. DEFINITIONS. The following definitions shall apply with
respect to this Section 11:
(1) The term "Business Combination" shall mean: (i) any
merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (x) any Interested Stockholder
or (y) any other corporation (whether or not itself an
Interested Stockholder) which is or after such merger or
consolidation would be an Affiliate or Associate of an
Interested Stockholder; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition or security
arrangement, investment, loan, advance, guarantee, agreement
to purchase, agreement to pay, extension of credit, joint
venture participation or other arrangement (in one transaction
or a series of transactions) with or for the benefit of any
Interested Stockholder or any Affiliate or Associate of any
Interested Stockholder which, together with all other such
arrangements (including all contemplated future events), has
an aggregate Fair Market Value and/or involves aggregate
commitments of $1,000,000 or more or constitutes more than
five percent (5%) of the book value of the total assets (in
the case of transactions involving assets or commitments other
than Capital Stock) or five percent (5%) of the stockholders'
equity (in the case of transactions in Capital Stock) of the
entity in question (the "Substantial Part"), as reflected in
the most recent fiscal year-end consolidated balance sheet of
such entity existing at the time the stockholders of the
Corporation would be required to approve or authorize the
Business Combination involving the assets, securities and/or
commitments constituting any Substantial Part; (iii) the
adoption of any plan or proposal for the liquidation or
dissolution of the Corporation or for any amendment to the
Corporation's By-Laws or to this Restated Certificate of
Incorporation proposed by or on behalf of an Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder; (iv) any reclassification of securities
(including any reverse stock split), or recapitalization of
the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving an
Interested Stockholder) that has the effect, directly or
indirectly, of increasing the proportionate share of any class
or series of Capital Stock, or any securities convertible into
Capital Stock or into equity securities of any Subsidiary,
that is beneficially owned by any Interested Stockholder or
any Affiliate or Associate of any Interested Stockholder; or
(v) any agreement, contract or other arrangement providing for
any one or more of the actions specified in the foregoing
clauses (i) to (iv).
(2) The term "Capital Stock" shall mean all Capital Stock
of the Corporation authorized to be issued from time to time
under Section 4 of this Restated Certificate of Incorporation,
and the term "Voting Stock"
<PAGE> 12
shall mean all Capital Stock which by its terms may be voted
on all matters submitted to stockholders of the Corporation
generally.
(3) The term "person" shall mean any individual, firm,
corporation or other entity and shall include any group
comprised of any person and any other person with whom such
person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
(4) The term "Interested Stockholder" shall mean any
person (other than the Corporation or any Subsidiary and other
than any profit-sharing, employee stock ownership or other
employee benefit plan of the Corporation or any Subsidiary or
any trustee of or fiduciary with respect to any such plan when
acting in such capacity or any stockholder of the Corporation
prior to the adoption of this Restated Certificate of
Incorporation) who (a) is or has announced or publicly
disclosed a plan or intention to become the beneficial owner
of Voting Stock representing ten percent (10%) or more of the
votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock; or (b) is an Affiliate or
Associate (other than any stockholder prior to the adoption of
this Restated Certificate of Incorporation) of the Corporation
and at any time within the two-year period immediately prior
to the date in question was the beneficial owner of Voting
Stock representing ten percent (10%) or more of the votes
entitled to be cast by the holders of all then outstanding
shares of Voting Stock.
(5) A person shall be a "beneficial owner" of any Capital
Stock (a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b)
which such person or any of its Affiliates or Associates has,
directly or indirectly, (i) the right to acquire (whether such
right is exercisable immediately or subject only to the
passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding; or (c) which is beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Capital Stock. For the purpose
of determining whether a person is an Interested Stockholder
pursuant to Section 11(C)(4) of this Restated Certificate of
Incorporation, the number of shares of Capital Stock deemed to
be outstanding shall include shares deemed beneficially owned
by such person through application of this Section 11(C)(5),
but shall not include any
<PAGE> 13
other shares of Capital Stock that may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise
of conversion rights, warrants or options, or otherwise.
(6) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 under
the Exchange Act as in effect on the date of filing of this
Restated Certificate of Incorporation with the Secretary of
State of the State of Delaware (the term "registrant" in said
Rule 12b-2 meaning in this case the Corporation).
(7) The term "Subsidiary" means any company of which a
majority of any class of equity security is beneficially owned
by the Corporation; provided, however, that for purposes of
the definition of Interested Stockholder set forth in Section
11(C)(4) of this Restated Certificate of Incorporation, the
term "Subsidiary" shall mean only a company of which a
majority of each class of equity security is beneficially
owned by the Corporation.
(8) CONTINUING DIRECTOR. The term "Continuing Director"
means any member of the Board of Directors, while such person
is a member of the Board of Directors, who is not an Affiliate
or Associate or representative of the Interested Stockholder
and was a member of the Board of Directors prior to the time
that an Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director while
such successor is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the
Interested Stockholder and is recommended or elected to
succeed the Continuing Director by a majority of Continuing
Directors.
(9) FAIR MARKET VALUE. The term "Fair Market Value" means
(a) in the case of cash, the amount of such cash; (b) in the
case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a
share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such
stock is not listed on the New York Stock Exchange, on the
principal United States securities exchange registered, or, if
such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated
Quotations Systems or any similar system then in use, or, if
no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a
majority of the Continuing
<PAGE> 14
Directors in good faith; and (c) in the case of property other
than cash or stock, the Fair Market Value of such property on
the date in question as determined in good faith by a majority
of the Continuing Directors.
(10) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than
cash to be received" as used in Sections 11(B)(2)(a) and
11(B)(2)(b) of this Restated Certificate of Incorporation
shall include the shares of Common Stock and/or the shares of
any other class or series of Capital Stock retained by the
holders of such shares.
(D) AUTHORITY. A majority of the Continuing Directors shall
have the power and duty to determine for the purpose of this Section
11, on the basis of information known to them after reasonable inquiry,
all questions arising under this Section 11, including, without
limitation, (i) whether a person is an Interested Stockholder, (ii) the
number of shares of Capital Stock or other securities beneficially
owned by any person, (iii) whether a person is an Affiliate or
Associate of another, (iv) whether a Proposed Action (as hereinafter
defined) is with, or proposed by, or on behalf of an Interested
Stockholder or an Affiliate or Associate of an interested Stockholder,
(v) whether the assets that are the subject of any Business Combination
have, or the consideration to be received for the issuance or transfer
of securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregated Fair Market Value of $1,000,000 or more
and (vi) whether the assets or securities that are the subject of any
Business Combination constitute a Substantial Part. Any such
determination made in good faith shall be binding and conclusive on all
parties.
(E) FIDUCIARY OBLIGATION. Nothing contained in this Section 11
shall be construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
(F) NO DUTY TO APPROVE. The fact that any Business Combination
complies with the provisions of Section 11(B) of this Restated
Certificate of Incorporation shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors,
or any member thereof, to approve such Business Combination or
recommend its adoption or approval to the stockholders of the
Corporation, nor shall such compliance limit, prohibit or otherwise
restrict in any manner the Board of Directors, or any member thereof,
with respect to evaluations of, or actions and responses taken with
respect to, such Business Combination.
(G) PROPOSED ACTION. For the purposes of this Section 11, a
Business Combination or any proposal to amend, repeal or adopt any
provision of this Restated Certificate of Incorporation inconsistent
with this Section 11 (collectively,
<PAGE> 15
"Proposed Action") is presumed to have been proposed by, or on behalf
of, an Interested Stockholder or a person who thereafter would become
such if (i) after the Interested Stockholder became such, the Proposed
Action is proposed following the election of any director of the
Corporation who, with respect to such Interested Stockholder, would not
qualify to serve as a Continuing Director or (ii) such Interested
Stockholder, Affiliate, Associate or person votes for or consents to
the adoption of any such Proposed Action, unless as to such Interested
Stockholder, Affiliate, Associate or person, a majority of the
Continuing Directors makes a good-faith determination that such
Proposed Action is not proposed by or on behalf of such Interested
Stockholder, Affiliate, Associate or person, based on information known
to them after reasonable inquiry.
(H) AMENDMENT. Notwithstanding any other provisions of this
Restated Certificate of Incorporation or the By-Laws of the Corporation
(and notwithstanding the fact that a lesser percentage or separate
class vote may be specified by law, this Restated Certificate of
Incorporation or the By-Laws of the Corporation), the affirmative vote
of the holders of not less than sixty-six and two thirds percent (66
2/3%) of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock, voting together as a single class,
excluding Voting Stock beneficially owned by such Interested
Stockholder, shall be required to amend or repeal, or adopt any
provisions inconsistent with, this Section 11; provided, however, that
this Section 11(H) shall not apply to, and such sixty-six and two
thirds percent (66 2/3%) vote shall not be required for, any amendment,
repeal or adoption unanimously recommended by the Board of Directors if
all of such directors are persons who would be eligible to serve as
Continuing Directors within the meaning of Section 11(C)(8) of this
Restated Certificate of Incorporation.
12. SPECIAL MEETING OF STOCKHOLDERS. Special meetings of the
stockholders of the Corporation for any purpose or purposes may be called at any
time by the Chairman of the Board, the President or by a majority of the members
of the Board of Directors; provided, however, that where a proposal requiring
stockholder approval is made by or on behalf of an Interested Stockholder (as
defined in Section 11 of this Restated Certificate of Incorporation) or director
affiliated with an Interested Stockholder, or where an Interested Stockholder
otherwise seeks action requiring stockholder approval, then the affirmative vote
of a majority of the Continuing Directors (as defined in Section 11 of this
Restated Certificate of Incorporation) shall also be required to call a special
meeting of stockholders for the purpose of considering such proposal or
obtaining such approval. Such special meeting may not be called by any other
person or persons or in any other manner.
13. CHANGES. The Corporation reserves the right to Change (as
defined in Section 7 of this Restated Certificate of Incorporation) any
provision contained in this Restated Certificate of Incorporation or in the
By-Laws of the Corporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this
<PAGE> 16
reservation; provided, however, that subject to the powers and rights provided
for herein with respect to Preferred Stock issued by the Corporation, if any,
but notwithstanding anything else contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
eighty percent (80%) of the then outstanding shares of the Voting Stock, voting
together as a single class, shall be required to Change Sections 7, 8, 9, 10 and
12 of this Certificate of Incorporation.
IN WITNESS WHEREOF, Coast Dental Services, Inc., has caused this
Restated Certificate of Incorporation to be executed by Joseph R. Smith, its
authorized officer, this _____ day of September, 1996.
COAST DENTAL SERVICES, INC.
By: /s/ Joseph R. Smith
------------------------
Joseph R. Smith
Chief Financial Officer
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
COAST DENTAL SERVICES, INC.
Set forth below are the Bylaws of Coast Dental Services, Inc.,
a Delaware corporation (the "Corporation"), as adopted by the Board of Directors
of the Corporation effective as of SEPTEMBER 13, 1995.
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 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.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall beheld at such time and
place, either within or without the State of Florida, as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting. Written notice of the Annual Meeting stating the place, date and hour
of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting.
Section 3. Special Meeting. Special Meetings of Stockholders
shall be called as provided for by the Certificate of Incorporation. Written
notice of a Special Meeting stating the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called shall be given not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. Business transacted at all
special meetings shall be confined to the objects stated in the call.
Section 4. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote there at, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or presented at any meeting of the stockholders, the stockholders
entitled to vote thereof, present in person or
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<PAGE> 2
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. 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 noticed. 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 entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws (i) any question brought before
any meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat and (ii) each
stockholder represented at a meeting of stockholders shall be entitled to cast
one vote for each share of the capital stock entitled to vote thereat held by
such stockholder. Such votes may be cast in person or by proxy but no proxy
shall be voted on or after three years from its date, unless such proxy provides
for a longer period. The Board of Directors, in its discretion, or the officer
of the Corporation presiding at a meeting of stockholders, in his discretion,
may require that any votes cast at such meeting shall be cast by written ballot.
Section 6. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list 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 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 of the Corporation who is
present.
Section 7. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 6 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 8. Notice of Business. At any annual meeting of
stockholders, only such business shall be conducted as shall have been (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or to the direction of the Board of Directors, or (c) otherwise
properly brought before the annual meeting by a stockholder who is a stockholder
of record at the time of the giving of the notice provided for in this Section 8
of this Article II and who shall be entitled to vote at such meeting. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever
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<PAGE> 3
first occurs. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the reasons
for conducting such business at the meeting, (iii) the name and record address
of the stockholder proposing such business, (iv) the class or series and number
of shares of the Corporation which are owned beneficially or of record by the
stockholder and (v) a description of all arrangements or understandings between
the stockholder and any other person or persons (including their names) in
connection with the proposal of such business by the stockholder and any
material interest of the stockholder in such business, and (vi) a representation
that the stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 8 of this Article II; provided, however,
that nothing in this Section 8 of this Article II shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting in accordance with said procedure.
The officer of the Corporation presiding at the annual meeting
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the provisions of
this Section 8 of this Article II, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this Section 8 of this Article II, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 8 of this Article II.
ARTICLE III
Directors
Section 1. Number of Directors. In the absence of the Board of
Directors setting a different number, the number of directors shall be two (2).
No decrease in the number of directors shall shorten the term of any incumbent
director.
Section 2. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors at the annual meeting may be made at a meeting of stockholders by or
at the direction of the Board of Directors by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Article III. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received not later than the close of business on the 10th day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure
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<PAGE> 4
was made, whichever first occurs. Such stockholder's notice to the Secretary
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or employment
of the person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person, (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934, as amended, and (v) the consent of the
person to serve as a director of the Corporation, if so elected; and (b) as to
the stockholder giving the notice (i) the name and record address of
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are beneficially owned by the stockholder, (iii) a
description of all arrangements or understandings between the stockholder and
each proposed nominee and any other person pursuant to which the nominations are
to be made, (iv) a representation that the stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named and (v) certain
other information. The Corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The officer of the Corporation presiding at the meeting shall,
if the fact warrant, determine and declare to the meeting that a nomination was
not made in accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-laws directed or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
Notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman or Vice Chairman, if there be one, the President or by a
majority of the Board of Directors. Notice thereof stating the place, date and
hour of the meeting shall be given to each director either by mail not less than
forty-eight (48) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 5. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Director, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Actions of the Board. Unless otherwise provided by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board
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<PAGE> 5
of Directors or of any committee thereof may be taken without a meeting, if all
the 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 of the Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 of Article
III shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. 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 any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at such meeting of the Board of Directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum, (ii) the material facts as to his
or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholder entitled to vote thereon, and to the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted
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<PAGE> 6
in determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes the contract or transaction.
ARTICLE IV
Officers
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
and a Vice Chairman of the Board of Directors (each of whom must be a director)
and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and
other officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these By-laws.
The officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman and Vice Chairman of the Board of Directors,
need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first
meeting held after such Annual Meeting of Stockholders shall elect the officers
of the Corporation, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors must be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such actions as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
Section 4. Chairman. The Chairman, if present, shall preside
at all meetings of the stockholders and of the Board of Directors. The Chairman
of the Board of Directors shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-laws
or by the Board of Directors.
Section 5. Chief Executive Officer. The Chief Executive
Officer shall be the chief executive officer of the Corporation unless the Board
of Directors shall resolve otherwise. The Chief Executive Officer of the Board
of Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-laws or by the
Board of Directors.
Section 6. President/Chief Operating Officer. The President
shall be the chief operating officer of the Corporation unless the Board of
Directors shall resolve otherwise, and, as such, shall have
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general supervision and direction of the business and affairs of the
Corporation, subject to the control of the Vice Chairman of the Board and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. In the absence or disability of the Chairman and the Vice Chairman, or
if there be none, the President shall preside at all meetings of the
stockholders and the Board of Directors. The President shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these By-laws, the Vice Chairman or by the Board of
Directors.
Section 7. Vice President. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman or Vice Chairman of the Board of Directors), the Vice President
or the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Vice Chairman of the Board of Directors from time to time
may prescribe. If there be no Vice Chairman and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all powers of and be subject to the restrictions upon the President.
Section 8. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties of the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Vice Chairman or the Board
of Directors, under whose supervision he shall be. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
stockholders and special meetings of the Board of Directors, and if there be no
Assistant Secretary, then either the Vice Chairman or the Board of Directors may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 9. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and either valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Vice Chairman and the Board of Directors,
at its regular meetings, or when the Vice Chairman or the Board of Directors so
requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation in case of his death, resignation, retirement or removal from
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office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 10. Assistant Secretaries. Except as may be otherwise
provided in these By-laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Vice Chairman, the Board of Directors, the President, any Vice President, if
there be one, or the Secretary, and in the absence of the Secretary or in the
event of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
Section 11. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Vice Chairman, the Board of Directors, the
President, any Vice President, if there be one, or the Treasurer, and in the
absence of the Treasurer or in the event of his disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers from time
to time may be assigned to them by the Vice Chairman or the Board of Directors,
as the case may be. The Board of Directors may delegate to any other officer of
the Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
ARTICLE V
Stock
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, the
President or a Vice President and (ii) by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate issued, it may be issued by the Corporation with the same effect as
if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock
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to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the 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 may fix,
in advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. 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.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and 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 law.
ARTICLE VI
Notices
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by electronic facsimile, or telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these By-laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
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ARTICLE VII
General Provisions
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by each officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
Indemnification
Section 1. Power to Indemnify in Actions, Suits or Proceedings
Other Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify each director and any officer
or other person that the Board of Directors shall designate from time to time
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 (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director or officer of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in good faith and in a manner he 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 his conduct was
unlawful. The termination of any action, suit or 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 in which he 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 his conduct was unlawful.
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Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify each director and any officer or other
person that the Board of Directors shall designate from time to time who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the 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, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (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, officer or other person is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 1 or Section 2 of this Article VIII, as the case
may be. 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
action, suit or proceeding, or (ii) by the stockholders. To the extent, however,
that a director or officer of the Corporation has been successful in the merits
or otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selection with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4 of
this Article VIII shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 of this Article VIII shall
not be deemed to be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of conduct set forth
in Section 1 or Section 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any
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determination thereunder, any director or officer may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under Sections 1 and 2 of this Article VIII. The
basis of such indemnification by a court shall be a determination of such court
that indemnification of the director or officer is proper in the circumstances
because he has met the applicable standards of conduct as set forth in Section 1
or Section 2 of this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VIII nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 of this Article VIII shall be given
to the Corporation promptly upon the filing of such application. If successful,
in whole or in part, the director or officer seeking indemnification shall also
be entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding 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 he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, but as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 ad 2 of this Article VIII shall be made to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Section 1 or Section 2 of this Article VIII but whom the
Corporation has the power or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors and officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan
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or other enterprise, shall stand in the same position under the provisions of
this Article VIII with respect to the resulting or surviving corporation as such
indemnification relates to his acts while serving in any of the foregoing
capacities, of such constituent corporation, as he would have with respect to
such constituent corporation if this separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director or officer of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, 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. Any repeal or modification of this Article VIII
by the stockholders of the Corporation shall not adversely affect any rights to
indemnification and advancement of expenses existing pursuant to this Article
VIII with respect to any acts or omissions occurring prior to such repeal or
modification.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5 of
this Article VIII), the Corporation shall not be obligated to indemnify any
director or officer in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corporation.
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Exhibit 4.1
NUMBER SHARES
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
COAST DENTAL SERVICES, INC.
50,000,000 COMMON SHARES AT $.001 PAR VALUE
This Certifies that _________________________________________ is
hereby issued ___________________________________________ shares fully paid and
transferable only on the books of the Corporation by the holder hereof in
person or by an 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 its Corporate Seal to be
hereunto affixed this ___ day of ___________, 19____.
____________________________ ___________________________
Secretary President
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 1st day of October,
1996 (the "Agreement"), by and between COAST DENTAL SERVICE, INC., a Delaware
corporation, (the "Company"), and TEREK DIASTI, D.V.M. (the "Executive").
WHEREAS, the Company is presently engaged in the business of
providing dental practice management services and related services to dental
practice groups and other dental care providers;
WHEREAS, the Executive has had many years of experience with
the dental profession and is currently the Chief Executive Officer of the
Company;
WHEREAS, the Company wishes to assure itself of the continued
services of the Executive for the period provided in this Agreement and the
Executive is willing to serve in the employ of the Company for such period upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive
upon the terms and conditions herein contained, and the Executive hereby agrees
to accept such employment for the term described below. The Executive agrees to
serve as the Company's Chief Executive Officer and Chairman of the Board, and to
perform the duties and functions customarily performed by the Chief Executive
Officer of a publicly traded practice management corporation during the term of
this Agreement. In such capacity, the Executive shall report only to the
Company's Board of Directors, and shall have such powers and responsibilities
consistent with his position as the Board may assign to him.
Throughout the term of this Agreement, the Executive shall
devote his best efforts and substantially all of his business time and services
to the business and affairs of the Company.
2. TERM OF AGREEMENT
The five (5) year initial term of the Executive employment
under this Agreement shall commence as of October 1, 1996 (the "Effective
Date"). After the expiration of such initial five year employment period, the
term of the Executive's employment hereunder shall automatically be extended
without further action by the parties for successive one (1) year renewal terms,
provided that if either party gives the other party at least thirty (30) days
advance written notice of his or its intention to not renew this Agreement for
an additional term, the Agreement shall terminate upon the expiration of the
current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
<PAGE> 2
3. SALARY AND BONUS
(a) Salary. The Executive shall receive a base salary during
the term of this Agreement at a rate of not less than $150,000 per annum during
the first year of the term of this Agreement, and not less than $175,000 per
annum for subsequent years. This base salary shall be payable in installments
consistent with the Company's normal payroll schedule. The Compensation
Committee of the Board shall review this base salary at annual intervals, and
may adjust the Executive's annual base salary from time to time as the Committee
deems to be appropriate.
(b) Annual Bonus. The Executive shall also be eligible to
receive an annual incentive bonus from the Company for each fiscal year of the
Company during the term of this Agreement, in an amount up to 100 percent of his
annual base salary in effect on the last day of the year, with the actual amount
of such bonus to be determined by the Compensation Committee of the Company's
Board, based on the Company's achievement of such performance measures as the
Committee deems to be appropriate.
If, for any fiscal year of the Company, the annual bonus
anticipated to be payable for such fiscal year, when added to the Executive's
base salary and other remuneration from the Company for such fiscal year, is
expected to cause the total remuneration to the Executive for such fiscal year
to exceed $1,000,000, the Company's Compensation Committee shall follow the
following procedures with respect to the performance-based portion of the bonus
payable for such fiscal year:
(1) The performance goals for such bonus shall be
determined and approved by the Compensation Committee of the Board of
the Company, which for this purpose, shall be compromised solely of two
or more outside directors, during the first sixty (60) days of such
fiscal year;
(2) The material terms under which such annual bonus
is to be paid, including the performance goals, shall be disclosed to
shareholders and approved by a majority of the vote in a separate
shareholder vote before payment of such bonus is made;
(3) Before any payment of such annual bonus, the
Compensation Committee of the Board referred to above must certifies
that the performance goals and any other material terms were in fact
satisfied.
The provisions of this paragraph are intended to comply with and shall be
interpreted in accordance with the requirements of Section 162(m) of the
Internal Revenue Code, and accordingly, if the Compensation Committee of the
Board follows the foregoing requirements and the annual bonus is disapproved by
the Compensation Committee of the Board or the shareholders in accordance with
said requirements, the Executive shall not be paid the performance-based portion
of the bonus for the fiscal year at issue.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional
compensation and welfare and fringe benefits:
(a) Life and Disability Insurance. During the term of this
Agreement, the Company shall continue to maintain the same life insurance
coverage for the Executive in effect on the date of this Agreement, as well as a
disability policy for Executive with a monthly benefit in an amount of not less
than $90,000 per year, or, if less, the maximum amount for which a reputable
insurance broker mutually acceptable to the Company and the Executive will
provide a quote on standard terms. The Executive will submit to such medical
examination and supply such information as is necessary for the Company to
obtain such insurance coverage.
(b) Medical Insurance. The Company shall provide the Executive
and his dependents with health insurance coverage no less favorable than that
from time to time made available to other key employees.
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<PAGE> 3
(c) Educational Leave and Expenses. The Executive shall be
entitled to up to ten (10) days educational leave annually to devote to
continuing professional education or other attendance at other seminars related
to his professional development. The Company shall reimburse the Executive for
expenses of up to $3,000 per year incurred by the Executive while attending
educational meetings and for professional publications, association memberships,
and other materials related to medical management.
(d) Vacation. The Executive shall be entitled to up to five
weeks of vacation during each year during the term of this Agreement and any
extensions thereof, prorated for partial years.
(e) Business Expenses. The Company shall reimburse the
Executive for all reasonable expenses he incurs in promoting the Company's
business, including expenses for travel, entertainment of business associates
and similar items, upon presentation by the Executive from time to time of an
itemized account of such expenditures.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Executive shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
applicable generally to other officers, and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other key employees.
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment is
terminated by the Company during the term of this Agreement, the Executive shall
be entitled to receive his base salary accrued through the date of termination.
The Executive shall also receive any nonforfeitable benefits already earned and
payable to him under the terms of any deferred compensation, incentive or other
benefit plan maintained by the Company, payable in accordance with the terms of
the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Executive as described in paragraph (d), the Company shall
also be obligated to make a series of monthly payments to the Executive for each
month during the remaining term of this Agreement, but not less than twenty-four
(24) months. Each monthly payment shall be equal to one-twelfth (1/12th) of the
Executive's annual base salary, as in effect on the date of termination,
provided that if the Executive obtains a replacement position with any new
employer (including a position as an officer, employee, consultant, or agent, or
self-employment as a partner or sole proprietor), the payments shall be reduced
by all amounts the Executive receives as compensation for services performed
during such period.
(b) Disability. The Company shall be entitled to terminate
this Agreement, if the Board determines that the Executive has been unable to
attend to his duties for at least ninety (90) days because of a medically
diagnosable physical or mental condition, and has received a written opinion
from a physician acceptable to the Board that such condition prevents the
Executive from resuming full performance of his duties and is likely to continue
for an indefinite period. Upon such termination, the Company shall pay to
Executive a monthly disability benefit equal to one-twenty-fourth (1/24th) of
his current annual base salary at the time he became permanently disabled.
Payment of such disability benefit shall commence on the last day of the month
following the date of the termination by reason of permanent disability and
cease with the earliest of (i) the month in which the Executive returns to
active employment, either with the Company or otherwise, (ii) the end of the
initial term of this Agreement, or the current renewal term, as the case may be,
or (iii) the twenty-fourth month after the date of the termination. Any amounts
payable under this Section 5(b) shall be reduced by any amounts paid to the
Executive under any long-term disability plan or other disability program or
insurance policies maintained or provided by the Company.
(c) Termination for Cause. If the Executive's employment is
terminated by the Company for Cause, the amount the Executive shall be entitled
to receive from the Company shall be limited to his base salary accrued through
the date of termination, and any nonforfeitable benefits already earned and
payable to the Executive under the terms of deferred compensation or incentive
plans maintained by the Company.
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For purposes of this Agreement, the term "Cause" shall be
limited to (i) any action by the Executive involving willful disloyalty to the
Company, such as embezzlement, fraud, misappropriation of corporate assets or a
breach of the covenants set forth in Sections 9 and 10 below; or (ii) the
Executive being convicted of a felony; or (iii) the Executive being convicted of
any lesser crime or offense committed in connection with the performance of his
duties hereunder or involving moral turpitude; or (iv) the intentional and
willful failure by the Executive to substantially perform his duties hereunder
as directed by the Board (other than any such failure resulting from the
Executive's incapacity due to physical or mental disability).
(d) Voluntary Termination by the Executive. If the Executive
resigns or otherwise voluntarily terminates his employment before the end of the
current term of this Agreement, the amount the Executive shall be entitled to
receive from the Company shall be limited to his base salary accrued through the
date of termination, and any nonforfeitable benefits already earned and payable
to the Executive under the terms of any deferred compensation or incentive plans
of the Company.
For purposes of this paragraph, a resignation by the Executive
shall not be deemed to be voluntary if the Executive resigns during the period
of three months after the date he is (1) assigned to a position other than the
Chief Executive Officer or President of the Company (other than for Cause, or by
reason of permanent disability), (2) assigned duties materially inconsistent
with such position, or (3) directed to report to anyone other than the Company's
Board of Directors.
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the vesting
of any stock options or other awards granted to the Executive under the terms of
the Company's 1995 Stock Option Plan shall become immediately vested in full
and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the Company,
the Executive shall be entitled to receive as severance pay in lieu of the
monthly payments described in Section 5(a) above, a series of thirty-six (36)
equal monthly payments, each equal to one-twelfth (1/12th) of the sum of (i) the
Executive's annual base salary in effect at the time of the Change in Corporate
Control plus (ii) the annual bonus paid to the Executive with respect to the
last fiscal year of the Company ending prior to the Change in Corporate Control.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions of
more than thirty percent of the Company's outstanding Common Stock by
any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company into
or with another corporation in which the Company is not the surviving
entity, or any transfer or sale of substantially all of the assets of
the Company or any merger or consolidation of the Company into or with
another corporation in which the Company is the surviving entity and,
in connection with such merger or consolidation, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged
for other stock or securities of any other person, or cash, or any
other property.
(3) Any election of persons to the Board of Directors
which causes a majority of the Board of Directors to consist of persons
other than (i) persons who were members of the Board of Directors on
September 1, 1996, and (ii) persons who were nominated for election as
members of the Board by the Board of Directors (or a Committee of the
Board) at a time when the majority of the Board (or of such Committee)
consisted of persons who were members of the Board of Directors on
September 1, 1996; provided, that any person nominated for election by
the Board of Directors composed entirely of
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<PAGE> 5
persons described in (i) or (ii), or of persons who were themselves
nominated by such Board, shall for this purpose be deemed to have been
nominated by a Board composed of persons described in (i).
(4) Any person, or group of persons, announces a
tender offer for at least thirty percent (30%) of the Company's Common
Stock.
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock or other transaction approved by
the Company's Board of Directors shall be considered a Change in Corporate
Control.
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Executive as a result of a
Change in Corporate Control under this Section 6, or otherwise, shall be limited
to the maximum amount the Company would be entitled to deduct pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended.
7. DEATH
If the Executive dies during the term of this Agreement, the
Company shall pay to the Executive's estate a lump sum payment equal to the sum
of the Executive's base salary accrued through the date of death plus the total
unpaid amount of any bonuses earned with respect to the fiscal year of the
Company most recently ended. In addition, the death benefits payable by reason
of the Executive's death under any retirement, deferred compensation or other
employee benefit plan maintained by the Company shall be paid to the beneficiary
designated by the Executive in accordance with the terms of the applicable plan
or plans.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade secrets)
confidential, and that he will not (except with the Company's prior written
consent), while in the employ of the Company or thereafter, disclose any such
confidential information to any person, firm, corporation, association or other
entity, other than in furtherance of his duties hereunder, and then only to
those with a "need to know." The Executive shall not make use of any such
confidential information for his own purposes or for the benefit of any person,
firm, corporation, association or other entity (except the Company) under any
circumstances during or after the term of his employment. The foregoing shall
not apply to any information which is already in the public domain, or is
generally disclosed by the Company or is otherwise in the public domain at the
time of disclosure.
The Executive recognizes that because his work for the Company
will bring him into contact with confidential and proprietary information of the
Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that he will not, either during
the Employment Term or during the period of twenty-four (24) months from the
time the Executive's employment under this Agreement is terminated, engage in
any business activities on behalf of any enterprise which competes with the
Company in the business of managing dental practices in the State of Florida.
The Executive will be deemed to be engaged in such competitive business
activities if he participates in such a business enterprise as an employee,
officer, director, consultant, agent,
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<PAGE> 6
partner, proprietor, or other participant; provided that neither (i) the
ownership of no more than 2 percent of the stock of a publicly traded
corporation engaged in a competitive business, nor (ii) the practice of
dentistry on his own behalf, without management of other dentists' practices,
shall be deemed to be engaging in competitive business activities.
The Executive agrees that he shall not, for a period of one
year from the time his employment under this Agreement ceases (for whatever
reason), or, if later, during any period in which he is receiving monthly
severance payments under Section 5 or Section 6 of this Agreement,
(i) solicit any employee or full-time consultant of the
Company for the purposes of hiring or retaining such employee
or consultant, or
(ii) contact any present or prospective client of the Company
to solicit such a person to enter into a management contract
with any organization other than the Company or a related
entity.
For this purpose, the Executive shall be considered to be receiving monthly
severance payments under Section 6 of this Agreement during any period for which
he would have received such severance payments had they not been offset by
compensation received from a successor employer.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to temporary
and injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions in any action
or proceeding instituted in the United States District Court for the Western
District of Florida or in any court in the State of Florida having subject
matter jurisdiction. This provision with respect to injunctive relief shall not,
however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities of
the Executive, no such provision of this Agreement shall be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such extent as such court may judicially determine or indicate to be reasonable.
12. SEPARABILITY
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the assigns and successors
of the Company, but neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
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15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Executive has hereunto set his hand, as of the day and
year first above written.
Attest: COAST DENTAL SERVICES, INC.
/s/ Joseph R. Smith By /s/ Adam Diasti
- ----------------------------- -------------------------------------
Secretary Title: President
Witness: EXECUTIVE:
/s/ Terek Diasti
------------------------------------
Terek Diasti, D.V.M.
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<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 1st day of October,
1996 (the "Agreement"), by and between COAST DENTAL SERVICES, INC., a Delaware
corporation, (the "Company"), and ADAM DIASTI, D.D.S. (the "Executive").
WHEREAS, the Company is presently engaged in the business of
providing dental practice management services and related services to dental
practice groups and other dental care providers;
WHEREAS, the Executive has had many years of experience in the
dental profession and is currently the Chief Operating Officer and President of
the Company;
WHEREAS, the Company wishes to assure itself of the continued
services of the Executive for the period provided in this Agreement and the
Executive is willing to serve in the employ of the Company for such period upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive
upon the terms and conditions herein contained, and the Executive hereby agrees
to accept such employment for the term described below. The Executive agrees to
serve as the Company's Chief Operating Officer and President, and to perform the
duties and functions customarily performed by the Chief Operating Officer of a
publicly traded practice management corporation during the term of this
Agreement. In such capacity, the Executive shall report only to the Company's
Chief Executive Officer and Board of Directors, and shall have such powers and
responsibilities consistent with his position as the Board may assign to him.
Throughout the term of this Agreement, the Executive shall
devote his best efforts and substantially all of his business time and services
to the business and affairs of the Company.
2. TERM OF AGREEMENT
The five (5) year initial term of the Executive employment
under this Agreement shall commence as of October 1, 1996 (the "Effective
Date"). After the expiration of such initial five year employment period, the
term of the Executive's employment hereunder shall automatically be extended
without further action by the parties for successive one (1) year renewal terms,
provided that if either party gives the other party at least thirty (30) days
advance written notice of his or its intention to not renew this Agreement for
an additional term, the Agreement shall terminate upon the expiration of the
current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
<PAGE> 2
3. SALARY AND BONUS
(a) Salary. The Executive shall receive a base salary during
the term of this Agreement at a rate of not less than $150,000 per annum during
the first year of the term of this Agreement, and not less than $175,000 per
annum for subsequent years. this base salary shall be payable in installments
consistent with the Company's normal payroll schedule. The Compensation
Committee of the Board shall review this base salary at annual intervals, and
may adjust the Executive's annual base salary from time to time as the Committee
deems to be appropriate.
(b) Annual Bonus. The Executive shall also be eligible to
receive an annual incentive bonus from the Company for each fiscal year of the
Company during the term of this Agreement, in an amount up to 100 percent of his
annual base salary in effect on the last day of the year, with the actual amount
of such bonus to be determined by the Compensation Committee of the Company's
Board, based on the Company's achievement of such performance measures as the
Committee deems to be appropriate.
If, for any fiscal year of the Company, the annual bonus
anticipated to be payable for such fiscal year, when added to the Executive's
base salary and other remuneration from the Company for such fiscal year, is
expected to cause the total remuneration to the Executive for such fiscal year
to exceed $1,000,000, the Company's Compensation Committee shall follow the
following procedures with respect to the performance-based portion of the bonus
payable for such fiscal year:
(1) The performance goals for such bonus shall be
determined and approved by the Compensation Committee of the Board of
the Company, which for this purpose, shall be compromised solely of two
or more outside directors, during the first sixty (60) days of such
fiscal year;
(2) The material terms under which such annual bonus
is to be paid, including the performance goals, shall be disclosed to
shareholders and approved by a majority of the vote in a separate
shareholder vote before payment of such bonus is made;
(3) Before any payment of such annual bonus, the
Compensation Committee of the Board referred to above must certifies
that the performance goals and any other material terms were in fact
satisfied.
The provisions of this paragraph are intended to comply with and shall be
interpreted in accordance with the requirements of Section 162(m) of the
Internal Revenue Code, and accordingly, if the Compensation Committee of the
Board follows the foregoing requirements and the annual bonus is disapproved by
the Compensation Committee of the Board or the shareholders in accordance with
said requirements, the Executive shall not be paid the performance-based portion
of the bonus for the fiscal year at issue.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional
compensation and welfare and fringe benefits:
(a) Life and Disability Insurance. During the term of this
Agreement, the Company shall continue to maintain the same life insurance
coverage for the Executive in effect on the date of this Agreement, as well as a
disability policy for Executive with a monthly benefit in an amount of not less
than $90,000 per year, or, if less, the maximum amount for which a reputable
insurance broker mutually acceptable to the Company and the Executive will
provide a quote on standard terms. The Executive will submit to such medical
examination and supply such information as is necessary for the Company to
obtain such insurance coverage.
(b) Medical Insurance. The Company shall provide the Executive
and his dependents with health insurance coverage no less favorable than that
from time to time made available to other key employees.
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<PAGE> 3
(c) Educational Leave and Expenses. The Executive shall be
entitled to up to ten (10) days educational leave annually to devote to
continuing dental education or other attendance at other seminars related to his
professional development. The Company shall reimburse the Executive for expenses
of up to $3,000 per year incurred by the Executive while attending educational
meetings and for professional publications, association memberships, and other
materials related to medical management.
(d) Vacation. The Executive shall be entitled to up to five
weeks of vacation during each year during the term of this Agreement and any
extensions thereof, prorated for partial years.
(e) Business Expenses. The Company shall reimburse the
Executive for all reasonable expenses he incurs in promoting the Company's
business, including expenses for travel, entertainment of business associates
and similar items, upon presentation by the Executive from time to time of an
itemized account of such expenditures.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Executive shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
applicable generally to other officers, and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other key employees.
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment is
terminated by the Company during the term of this Agreement, the Executive shall
be entitled to receive his base salary accrued through the date of termination.
The Executive shall also receive any nonforfeitable benefits already earned and
payable to him under the terms of any deferred compensation, incentive or other
benefit plan maintained by the Company, payable in accordance with the terms of
the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Executive as described in paragraph (d), the Company shall
also be obligated to make a series of monthly payments to the Executive for each
month during the remaining term of this Agreement, but not less than twenty-four
(24) months. Each monthly payment shall be equal to one-twelfth (1/12th) of the
Executive's annual base salary, as in effect on the date of termination,
provided that if the Executive obtains a replacement position with any new
employer (including a position as an officer, employee, consultant, or agent, or
self-employment as a partner or sole proprietor), the payments shall be reduced
by all amounts the Executive receives as compensation for services performed
during such period.
(b) Disability. The Company shall be entitled to terminate
this Agreement, if the Board determines that the Executive has been unable to
attend to his duties for at least ninety (90) days because of a medically
diagnosable physical or mental condition, and has received a written opinion
from a physician acceptable to the Board that such condition prevents the
Executive from resuming full performance of his duties and is likely to continue
for an indefinite period. Upon such termination, the Company shall pay to
Executive a monthly disability benefit equal to one-twenty-fourth (1/24th) of
his current annual base salary at the time he became permanently disabled.
Payment of such disability benefit shall commence on the last day of the month
following the date of the termination by reason of permanent disability and
cease with the earliest of (i) the month in which the Executive returns to
active employment, either with the Company or otherwise, (ii) the end of the
initial term of this Agreement, or the current renewal term, as the case may be,
or (iii) the twenty-fourth month after the date of the termination. Any amounts
payable under this Section 5(b) shall be reduced by any amounts paid to the
Executive under any long-term disability plan or other disability program or
insurance policies maintained or provided by the Company.
(c) Termination for Cause. If the Executive's employment is
terminated by the Company for Cause, the amount the Executive shall be entitled
to receive from the Company shall be limited to his base salary accrued through
the date of termination, and any nonforfeitable benefits already earned and
payable to the Executive under the terms of deferred compensation or incentive
plans maintained by the Company.
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For purposes of this Agreement, the term "Cause" shall be
limited to (i) any action by the Executive involving willful disloyalty to the
Company, such as embezzlement, fraud, misappropriation of corporate assets or a
breach of the covenants set forth in Sections 9 and 10 below; or (ii) the
Executive being convicted of a felony; or (iii) the Executive being convicted of
any lesser crime or offense committed in connection with the performance of his
duties hereunder or involving moral turpitude; or (iv) the intentional and
willful failure by the Executive to substantially perform his duties hereunder
as directed by the Board (other than any such failure resulting from the
Executive's incapacity due to physical or mental disability).
(d) Voluntary Termination by the Executive. If the Executive
resigns or otherwise voluntarily terminates his employment before the end of the
current term of this Agreement, the amount the Executive shall be entitled to
receive from the Company shall be limited to his base salary accrued through the
date of termination, and any nonforfeitable benefits already earned and payable
to the Executive under the terms of any deferred compensation or incentive plans
of the Company.
For purposes of this paragraph, a resignation by the Executive
shall not be deemed to be voluntary if the Executive resigns during the period
of three months after the date he is (1) assigned to a position other than the
Chief Operating Officer or President of the Company (other than for Cause, or by
reason of permanent disability), (2) assigned duties materially inconsistent
with such position, or (3) directed to report to anyone other than the Company's
Chief Executive Officer or Board of Directors.
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the vesting
of any stock options or other awards granted to the Executive under the terms of
the Company's 1995 Stock Option Plan shall become immediately vested in full
and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the Company,
the Executive shall be entitled to receive as severance pay in lieu of the
monthly payments described in Section 5(a) above, a series of thirty-six (36)
equal monthly payments, each equal to one-twelfth (1/12th) of the sum of (i) the
Executive's annual base salary in effect at the time of the Change in Corporate
Control plus (ii) the annual bonus paid to the Executive with respect to the
last fiscal year of the Company ending prior to the Change in Corporate Control.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions of
more than thirty percent of the Company's outstanding Common Stock by
any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company into
or with another corporation in which the Company is not the surviving
entity, or any transfer or sale of substantially all of the assets of
the Company or any merger or consolidation of the Company into or with
another corporation in which the Company is the surviving entity and,
in connection with such merger or consolidation, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged
for other stock or securities of any other person, or cash, or any
other property.
(3) Any election of persons to the Board of Directors
which causes a majority of the Board of Directors to consist of persons
other than (i) persons who were members of the Board of Directors on
September 1, 1996, and (ii) persons who were nominated for election as
members of the Board by the Board of Directors (or a Committee of the
Board) at a time when the majority of the Board (or of such Committee)
consisted of persons who were members of the Board of Directors on
September 1, 1996; provided, that any person nominated for election by
the Board of Directors composed entirely of
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persons described in (i) or (ii), or of persons who were themselves
nominated by such Board, shall for this purpose be deemed to have been
nominated by a Board composed of persons described in (i).
(4) Any person, or group of persons, announces a
tender offer for at least thirty percent (30%) of the Company's Common
Stock.
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock or other transaction approved by
the Company's Board of Directors shall be considered a Change in Corporate
Control.
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Executive as a result of a
Change in Corporate Control under this Section 6, or otherwise, shall be limited
to the maximum amount the Company would be entitled to deduct pursuant to
Section 280G of the Internal Revenue Code of 1986, as amended.
7. DEATH
If the Executive dies during the term of this Agreement, the
Company shall pay to the Executive's estate a lump sum payment equal to the sum
of the Executive's base salary accrued through the date of death plus the total
unpaid amount of any bonuses earned with respect to the fiscal year of the
Company most recently ended. In addition, the death benefits payable by reason
of the Executive's death under any retirement, deferred compensation or other
employee benefit plan maintained by the Company shall be paid to the beneficiary
designated by the Executive in accordance with the terms of the applicable plan
or plans.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade secrets)
confidential, and that he will not (except with the Company's prior written
consent), while in the employ of the Company or thereafter, disclose any such
confidential information to any person, firm, corporation, association or other
entity, other than in furtherance of his duties hereunder, and then only to
those with a "need to know." The Executive shall not make use of any such
confidential information for his own purposes or for the benefit of any person,
firm, corporation, association or other entity (except the Company) under any
circumstances during or after the term of his employment. The foregoing shall
not apply to any information which is already in the public domain, or is
generally disclosed by the Company or is otherwise in the public domain at the
time of disclosure.
The Executive recognizes that because his work for the Company
will bring him into contact with confidential and proprietary information of the
Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that he will not, either during
the Employment Term or during the period of twenty-four (24) months from the
time the Executive's employment under this Agreement is terminated, engage in
any business activities on behalf of any enterprise which competes with the
Company in the business of managing dental practices in the State of Florida.
The Executive will be deemed to be engaged in such competitive business
activities if he participates in such a business enterprise as an employee,
officer, director, consultant, agent,
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<PAGE> 6
partner, proprietor, or other participant; provided that neither (i) the
ownership of no more than 2 percent of the stock of a publicly traded
corporation engaged in a competitive business, nor (ii) the practice of
dentistry on his own behalf, without management of other dentists' practices,
shall be deemed to be engaging in competitive business activities.
The Executive agrees that he shall not, for a period of one
year from the time his employment under this Agreement ceases (for whatever
reason), or, if later, during any period in which he is receiving monthly
severance payments under Section 5 or Section 6 of this Agreement,
(i) solicit any employee or full-time consultant of the
Company for the purposes of hiring or retaining such employee
or consultant, or
(ii) contact any present or prospective client of the Company
to solicit such a person to enter into a management contract
with any organization other than the Company or a related
entity.
For this purpose, the Executive shall be considered to be receiving monthly
severance payments under Section 6 of this Agreement during any period for which
he would have received such severance payments had they not been offset by
compensation received from a successor employer.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to temporary
and injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, to enforce such provisions in any action
or proceeding instituted in the United States District Court for the Western
District of Florida or in any court in the State of Florida having subject
matter jurisdiction. This provision with respect to injunctive relief shall not,
however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities of
the Executive, no such provision of this Agreement shall be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such extent as such court may judicially determine or indicate to be reasonable.
12. SEPARABILITY
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the assigns and successors
of the Company, but neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
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<PAGE> 7
15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Executive has hereunto set his hand, as of the day and
year first above written.
Attest: COAST DENTAL SERVICES, INC.
/s/ Joseph R. Smith By /s/ Terek Diasti
- ----------------------------- ------------------------------
Secretary Title: Chief Executive Officer
Witness: EXECUTIVE:
/s/ Adam Diasti
- ----------------------------- ----------------------------------
Adam Diasti, D.D.S.
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<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
AGREEMENT made this 11th day of February, 1996 between COAST DENTAL
SERVICES, INC., a Delaware corporation with its principal place of business at
25400 U.S. Highway 19, Suite 225, Clearwater, Florida 34623 (the "Company"), and
JOSEPH R. SMITH residing at 16412 Ashwood Drive, Tampa, Florida 33624 (the
"Employee").
WHEREAS, the Employee possesses skills and expertise which make him
valuable to the Company and which will contribute to the Company's future
success; and
WHEREAS, the Company desires to employ the Employee and the Employee
desires to serve in the employ of the Company upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency whereof is hereby acknowledged, the parties hereby agree as follows:
1. Employment, Acceptance and Term
1.1 Subject to the terms and conditions of this Agreement, the
Company hereby agrees to employ the Employee, and the Employee hereby agrees to
serve the Company, as its Chief Financial Officer for the term set forth in
Section 1.2 below.
1.2 The term of this Agreement shall be for a three (3) year
period commencing as of February 12, 1996 and ending on February 12, 1999. This
Agreement may be renewable by mutual agreement of the Company and the Employee
for subsequent terms of one (1) year by giving the Employee notice of such
renewal at least one hundred twenty (120) days prior to the end of any term
hereof. Notwithstanding the above, Employee agrees to be employed hereunder for
at least two (2) years after any public offering of the Company which occurs
during the initial term of this Agreement. Should Employee terminate this
Agreement without cause during such two (2) year period after any public
offering, the parties agree Employee shall pay liquidated damages of Two Hundred
Thousand Dollars ($200,000.00) for each complete year or portion of a year which
he does not work (maximum of 2 years) to the Company which the parties agree is
a reasonable amount to pay for such breach.
2. Duties and Authority
During the term of this Agreement, the Employee shall devote his full
time and energies to the business and affairs of the Company. The Employee shall
not accept any other employment during the term of this Agreement, nor shall he
permit such personal business interests as he may have to interfere with the
performance of his duties hereunder. The Employee agrees to use his best
efforts, skill and abilities to promote the Company's interests
<PAGE> 2
and to faithfully and diligently perform, to the best of his abilities, such
duties (consistent with his title as set forth in Section 1 hereof) as may from
time to time be assigned to him by the Company's Board of Directors and
President. All such services shall be rendered for and in consideration of the
compensation payable to the Employee under Section 3 hereof.
3. Compensation
3.1 Salary. During the term of this Agreement the Company
shall pay to the Employee, in equal semi-monthly installments, an annual salary
at a rate which shall equal One Hundred Twenty-Five Thousand Dollars
($125,000.00) during the first six months of employment hereunder and One
Hundred Fifty Thousand Dollars ($150,000.00) during the second six months of
employment hereunder. In the second and third year of the agreement, the annual
salary shall be One Hundred Sixty-Five Thousand Dollars ($165,000.00) and One
Hundred Eighty Thousand Dollars ($180,000.00) respectively. Notwithstanding the
above, in the event of a public offering by the Company, Employee's salary shall
be adjusted upward to such amount that is commensurate with that salary of a CFO
with a similarly sized public company.
3.2 Restricted Stock. Upon completion of a three month
probationary period which shall expire on May 13, 1996, the Company shall grant
to the Employee 121,954 shares of the Company's common stock, no par value per
share. Such shares shall be subject to restrictions and forfeitability on
transfer and other conditions as set forth in the Restricted Shares Agreement to
be entered into between the Company and the Employee, a form of which is
attached hereto and incorporated herein by reference. Should there be a
reorganization, stock split or other similar adjustments to the Company stock,
the amount of options shall be adjusted accordingly. This shall not however, be
considered protection against dilution in the event of issuances of stock by the
Company.
4. Expenses
4.1 The Company shall pay or reimburse the Employee for all
reasonable and necessary expenses incurred by the Employee and authorized by the
Company during the term of this Agreement in connection with the business of the
Company; provided, however, the Employee shall render to the Company a complete
and accurate accounting of all such expenses in accordance with the
substantiation requirements of Section 274 of the internal Revenue Code of 1986,
as amended.
4.2 Beginning with the second year of employment hereunder,
the Company shall reimburse the Employee for documented expenses incurred by the
Employee in maintaining his CPA certification and for membership in professional
associations in an amount not to exceed Five Hundred Dollars ($500.00).
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<PAGE> 3
5. Additional Benefits
During the term of this Agreement the Employee shall be allowed to
participate (subject to uniformly applicable requirements for participation) at
the Company's expense in any health, medical, disability, insurance or pension
plan made available by the Company for the benefit of its employees generally,
and shall be entitled to an annual vacation of two (2) weeks for the first year
hereof and three (3) weeks thereafter with full pay and allowances, to be taken
at such time or times as shall be mutually agreed between the Company and the
Employee.
6. Discharge for Cause
The Company shall have the right to terminate this Agreement and to
discharge the Employee at any time for "cause". As used herein, termination for
"cause" shall mean termination by action of the Company's Board of Directors
based upon conduct by the Employee which involves any of the following:
(i) conviction of a felony or other crime involving
moral turpitude;
(ii) the continued and habitual use of narcotics or
alcohol to an extent which materially impairs the Employee's performance of his
duties hereunder;
(iii) misappropriation by the Employee of funds or
property of the Company or any affiliate of the Company;
(iv) the knowing and continued violation of a
material term of this Agreement; or
(v) any other gross misconduct in the performance of,
or material failure or refusal of the Employee to perform, his duties in
accordance with this Agreement and the reasonable expectations and standards of
the Company.
7. Termination of Agreement
Notwithstanding the provisions of Section 1 hereof, this Agreement
shall terminate upon the happening of any one of the following events and the
Company shall have no obligations to the Employee hereunder for any period after
the effective date of such termination:
(i) automatically and without notice, if the Employee
shall die during the term hereof;
(ii) by resolution of the Company's Board of
Directors and upon not less than sixty (60) days' prior written notice to the
Employee if the Employee shall become "disabled" as defined in any group
disability policy maintained by the Company for the benefit
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<PAGE> 4
of its employees; provided that in the event of such termination, the Employee
shall be entitled to receive all compensation and benefits payable to him
pursuant to this Agreement until the date set forth in such notice;
(iii) automatically and without notice if the
Employee voluntarily terminates his employment with the Company without the
Company's consent;
(iv) upon termination of the Employee's employment
with the Company by mutual agreement between the Company and the Employee; or
(v) upon written notice to the Employee of action
taken by the Board of Directors of the Company to discharge the Employee for
"cause" pursuant to Section 6 of this Agreement, which notice shall specify the
reason for such discharge; provided, however, that if the Board notifies the
Employee of action taken to discharge the Employee for any of the reasons set
forth in either subsection (iv) or (v) of Section 6, the Employee shall have 30
days from receipt of such written notice to cure the specified deficiencies. If
the Board, in its sole discretion, is not satisfied that such deficiencies have
been cured, it shall so notify the Employee and the Employee shall be terminated
effective on the date of such notification.
8. Non-Competition
8.1 The Employee agrees that during his employment and for an
additional period following the termination of such employment equal to the
greater of one (1) year or one (1) year for each year of employment hereunder,
the Employee shall not, in any manner, directly or indirectly, as an officer,
director, stockholder, partner, associate, employee, consultant, owner, agent,
creditor, coventurer or otherwise, be or become interested in or be associated
with any other corporation, firm, business or person engaged within the United
States in the dental management business. The Employee's ownership, directly or
indirectly, of not more than three percent (3%) of the issued and outstanding
voting stock of any corporation engaged in the dental management business the
shares of which are regularly traded on a national securities exchange or on the
over-the-counter markets shall not be deemed to be a violation of the provisions
of this Section 8.
8.2 The Employee acknowledges that his skills and position are
unique and, therefore, that the breach by him of the provisions of Section 8.1
shall cause irreparable harm to the Company, which harm cannot be fully
redressed by the payment of damages to the Company. The Employee also
acknowledges that the dental management business may be carried on anywhere in
the United States and, therefore, that the duration and geographical scope of
Section 8.1 are reasonable under the circumstances. Accordingly, the Company
shall be entitled, in addition to any other right or remedy it may have, at law
or in equity, to an injunction, without the posting of any bond or other
security, enjoining or restraining the Employee from any violation or threatened
violation of Section 8.1, and the Employee hereby consents to the issuance of
such injunction. If any of the rights or restrictions contained or
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<PAGE> 5
provided for herein shall be deemed by a court of competent jurisdiction to be
unenforceable by reason of the extent, duration or geographical scope thereof or
any other provision of this Agreement, the parties hereto contemplate that the
court shall reduce such extent, duration, geographical scope or other provision
and enforce this Section 8 in its reduced form for all purposes in the manner
contemplated hereby. This Section 8 shall survive the termination of this
Agreement and of the Employee's employment hereunder.
9. Confidential Information; Non-Solicitation
9.1 The Employee agrees that he shall not at any time (whether
during the period of his employment with the Company or at any time thereafter)
use outside the scope of his employment hereunder or disclose to any person,
corporation, firm, partnership or other entity whatsoever, or to any officer,
director, stockholder, partner, associate, employee, agent or representative of
any thereof, any business plans, business methods, customer lists, or any other
confidential information or trade secrets of or relating to the Company or its
business (collectively, "Confidential Information"). The Employee acknowledges
that all Confidential Information is the exclusive property of the Company and
the Employee agrees to maintain the Confidential Information in strictest
confidence and use the Confidential Information solely in the performance of his
duties under this Agreement.
9.2 The Employee agrees that during the term of his employment
hereunder and for a period of one (1) year following the termination of such
employment, he shall not solicit, engage, hire, or employ any then present
employee of the Company or enter into any arrangement with any then present
employee of the Company for the purposes of terminating such employee's
employment with the Company.
9.3 The Company shall be entitled, in addition to any other
right and remedy it may have, at law or in equity, to an injunction, without the
posting of any bond or other security, enjoining or restraining the Employee
from any violation of Section 9.1 or 9.2 hereof, and the Employee hereby
consents to the issuance of such injunction. If any of the restrictions
contained herein shall be deemed by a court of competent jurisdiction to be
unenforceable by reason of the extent, duration or geographical scope thereof or
any other provision of this Agreement, the parties hereto contemplate that the
court shall reduce such extent, duration, geographical scope or other provision
and enforce this Section 9 in its reduced form for all purposes in the manner
contemplated hereby. This Section 9 shall survive the termination of this
Agreement and the Employee's employment hereunder.
10. Notices
All notices hereunder and other communications required or permitted to
be given to either party hereto shall be in writing and delivered by hand or
sent by overnight or by certified mail, return receipt requested, postage
prepaid, addressed to such party at its address referred to above, or at such
other address as such party may from time to time designate by written
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<PAGE> 6
notice to the other party hereto, given in accordance with the provisions of
this Section 10. Any such notice or other communication shall be deemed to have
been given on the date delivered by hand or the date actually received.
11. Waivers
No waiver by either party hereto of any breach of any provision of this
Agreement shall be deemed to constitute a waiver of any other breach of such
provision or a waiver of any breach of any other provision of this Agreement.
12. Agreement Compete; Amendments
There are no oral agreements or understandings with respect to or
affecting this Agreement and this Agreement may not be amended, supplemented,
cancelled or discharged except by a written instrument executed by the party to
be charged.
13. Non-Assignability
The respective rights and obligations hereunder of the parties hereto
are personal to such parties and shall not be transferred or assigned by them,
in whole or in part, to any other person, firm or corporation; provided that the
Company may assign this Agreement and the benefits hereunder without the consent
of the Employee, without being relieved from any liability hereunder, to any of
its direct or indirect "affiliates" or "associates" (as such terms are defined
in Rule 405 of the Rules and Regulations promulgated under the Securities Act of
1933).
14. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida applicable to agreements made and to be
performed entirely within such State.
15. Captions
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<PAGE> 7
All captions and headings herein contained are inserted for convenience
of reference only and shall not affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"COMPANY"
COAST DENTAL SERVICES, INC.
By: /s/ Terek Diasti
-----------------------------
Terek Diasti, President
"EMPLOYEE"
/s/ Joseph R. Smith
--------------------------------
Joseph R. Smith
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<PAGE> 1
Exhibit 10.4
COAST DENTAL SERVICES, INC.
STOCK OPTION PLAN
1. Purpose of the Plan. Coast Dental Services, Inc., a Delaware
Corporation (the "Company"), hereby adopts this Stock Option Plan (the "Plan")
providing for the granting of stock options, stock appreciation rights and
restricted shares to salaried employees (including officers) of the Company and
any Subsidiaries (as hereinafter defined). The general purpose of the Plan is to
promote the interests of the Company and its stockholders by providing to
employees of the Company and any Subsidiaries additional incentives to continue
and to increase their efforts with respect to, and to remain in the employ of,
the Company or any Subsidiaries.
2. Certain Definitions. In addition to the words and terms elsewhere
defined in this Plan, certain capitalized words and terms used in this Plan
shall have the meanings given to them by the definitions and descriptions in
this Section 2. Unless the context or use indicates another or different meaning
or intent, then such definition shall be equally applicable to both the singular
and plural forms of any of the capitalized words and terms herein defined. The
following words and terms are defined terms under this Plan:
2.1 Award means grants of an Option, SAR and/or Restricted
Shares under this Plan.
2.2 Board means the Board of Directors of the Company.
2.3 Cash Award means the amount of cash, if any, to be paid to
an employee pursuant to Section 7.4 hereof.
2.4 Code means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute thereto.
2.5 Committee means the Committee of the Board appointed
pursuant to Section 4 hereof.
2.6 Common Stock means the Common Stock, par value $.00001 per
share, of the Company.
2.7 Company means Coast Dental Services, Inc., a Delaware
corporation.
2.8 Exchange Act means the Securities Exchange Act of 1934, as
amended from time to time, or any successor statute or statutes
thereto.
2.9 Exercise Periods shall have the meaning ascribed thereto
in Section 6.5 hereof.
2.10 Fair Market Value of a share of Common Stock shall mean
the fair market value on the date of the grant of the option as
determined in good faith by the Board.
<PAGE> 2
In the event that the Company is publicly held, it shall mean the
average of the reported closing bid and asked prices of a share of
Common Stock as reported on a national securities exchange or the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), or the
over-the-counter market as reported by NASDAQ or as furnished by a
broker-dealer regularly making a market in the Common Stock as selected
by the Board, as the case may be; provided that the Fair Market Value
of a share of Common Stock under the Exchange Act shall be deemed to be
no greater than the price to the public as indicated on the cover page
of the final prospectus relating to the initial public offering of
shares of Common Stock.
2.11 Holder means an employee of the Company or a Subsidiary
who has received an Award under this Plan.
2.12 ISO means an incentive stock option within the meaning of
Section 422(b), or any successor section, of the Code.
2.13 Maturity Value means, unless the Board shall determine
otherwise, the average of the Fair Market Value of a share of Common
Stock for a period of 60 consecutive trading days ending on the
Valuation Date with respect to each award of Restricted Shares, or if
the Valuation Date is not a trading day, the 60 consecutive trading
days prior thereto.
2.14 Nonqualified Stock Option means a stock option that does
not qualify as an ISO.
2.15 Option means any option granted under this Plan.
2.16 Plan means this Stock Option Plan of the Company.
2.17 Restricted Shares means shares of Common Stock awarded to
an employee of the Company or a Subsidiary pursuant to Section 7
hereof.
2.18 Restricted Share Agreement means the agreement specified
in Section 12 hereof.
2.19 Restriction Period means a period of time beginning on
the date of each award of Restricted Shares and ending on the Valuation
Date with respect to each such award.
2.20 Retained Distributions means distributions with respect
to Restricted Shares that are retained by the Company pursuant to
Section 7.3 hereof.
2.21 SARs shall mean stock appreciation rights as defined in
Section 6.5 hereof.
2.22 SEC means the Securities and Exchange Commission.
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<PAGE> 3
2.23 Stock Option Agreement means the agreement specified in
Section 12 hereof.
2.24 Subsidiary means any present or future subsidiary of the
Company as such term is defined in Section 424(f), or any successor
section, of the Code.
2.25 Total Disability means a permanent and total disability
as defined in Section 22(e)(3) of the Code.
2.26 Valuation Date with respect to any Restricted Shares
awarded hereunder means the date designated in the Restricted Shares
Agreement with respect to each award of Restricted Shares pursuant to
Section 7.1 hereof.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
hereof and this Section 3, the maximum aggregate number of shares of Common
Stock which may be issued upon exercise of Options and SARs and which may be
granted as Restricted Shares under the Plan shall be 450,000. Such shares may
be, in whole or in part, authorized and unissued shares of Common Stock or
issued shares of Common Stock which shall have been reacquired by the Company.
If any Option shall expire or terminate for any reason without having been
exercised (or without having been considered to have been exercised as provided
in Sections 6.5 and 6.6 hereof) in full, the unexercised shares subject thereto
shall again be available for purposes of the Plan. In addition, any Restricted
Shares which are forfeited by the terms of the Plan or any Restricted Shares
Agreement shall again become available for purposes of the Plan.
4. Administration.
4.1 Powers. The Plan shall be administered by the Board.
Subject to the express provisions of the Plan, the Board shall have
plenary authority, in its discretion, to grant Options and award
Restricted Shares under the Plan and to determine the terms and
conditions (which need not be identical), of all Options and Restricted
Shares granted or awarded under the Plan, including, without
limitation, (i) the purchase price, if any, of each Restricted Shares
and of each share of Common Stock under an Option, (ii) the individuals
to whom, and the time or times at which, Options and Restricted Shares
shall be granted or awarded, (iii) the number of shares to be subject
to each Option or award of Restricted Shares, (iv) whether an Option
shall be an ISO or a Nonqualified Stock Option, (v) when an Option can
be exercised and whether in whole or in installments, (vi) the time or
times and the conditions subject to which Restricted Shares shall
become vested and any Cash Awards shall become payable, and (vii) the
form, terms and provisions of any Stock Option Agreement and Restricted
Shares Agreement evidencing a grant of Options or Awards of Restricted
Shares hereunder (which terms may be amended, subject to Section 15
hereof). In making such determinations, the Board may take into account
the nature of the services rendered by the respective employees, their
present and potential contributions to the success of the Company and
its Subsidiaries and such other factors as the Board in its discretion
shall deem relevant. Subject to the express provisions of the Plan, the
Board shall have plenary authority to interpret the Plan, to prescribe,
amend and rescind the rules and regulations relating to it and to make
all other determinations deemed necessary or advisable for the
administration of the Plan.
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<PAGE> 4
The determinations of the Board on the matters referred to in this
Section 4 shall be conclusive.
4.2 Delegation to Committee. Notwithstanding anything to the
contrary contained herein, the Board may at any time, or from time to
time, appoint a Committee of at least two members, who shall be members
of the Compensation Committee of the Board (or such other persons as
the Board may designate), each of whom shall be a "disinterested
person" within the meaning set forth in Rule 16b-3 as promulgated by
the SEC under the Exchange Act, or any successor definition adopted by
the SEC, and delegate to the Committee the authority of the Board to
administer the Plan. Upon such appointment and delegation, the
Committee shall have all the powers, privileges and duties of the
Board, and shall be substituted for the Board, in the administration of
the Plan, except the power to appoint members of the Committee and to
terminate, modify or amend the Plan. The Board may from time to time
appoint members of the Committee in substitution for or in addition to
members previously appointed, may fill vacancies in the Committee and
may discharge the Committee. The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and
places as its shall deem advisable. A majority of its members shall
constitute a quorum and all determinations shall be made by a majority
of such quorum. Any determination reduced to writing and signed by a
majority of the members shall be fully as effective as if it had been
made by a majority vote at a meeting duly called and held.
5. Eligibility. Options and Restricted Shares may be awarded only to
salaried employees (including officers), whether or not employed on a full-time
basis, of the Company and its Subsidiaries. A director of the Company or of a
Subsidiary who is not also an officer or employee of the Company or of one of
its Subsidiaries will not be eligible to receive any Awards under the Plan. No
ISO shall be granted to any employee who, at the time the ISO is granted, owns
(or is considered as owning within the meaning of Section 424(d), or any
successor section, of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of any
Subsidiary, unless at the time the ISO is granted the option price is at least
110% of the Fair Market Value of the Common Stock subject to the ISO and the ISO
by its terms is not exercisable after the expiration of five years from the date
it is granted. Awards may be made to employees who hold or have held Options
and/or Restricted Shares under this Plan or any other plans of the Company. An
employee who has received Awards under this Plan may be granted additional
Options and Restricted Shares under this Plan or any other Plan.
6. Options.
6.1 Option Prices. Except as otherwise specifically provided in
Section 5 hereof, the purchase price of the Common Stock under each
Option shall be determined by the Board, but shall not be less than
100% of the Fair Market Value of the Common Stock at the time of the
granting of such Option in the case of each ISO.
6.2 Term of Options. Except as otherwise specifically provided
in Section 5 hereof, the term of each Option shall be for such period
as the Board shall determine, but not more than ten years from the date
of grant in the case of each ISO, and, except as set forth in Section 9
hereof, shall expire upon termination of employment with the Company or
any Subsidiary.
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<PAGE> 5
6.3 Exercise of Options. Unless otherwise provided in the Stock
Option Agreement, an Option granted under the Plan shall be exercisable
in whole, or in part, at any time during the term of the Option.
Payment shall be made in cash or, unless otherwise provided in the
Stock Option Agreement, in whole shares of Common Stock already owned
by the Holder of the Option or, unless otherwise provided in the Stock
Option Agreement, partly in cash and partly in such Common Stock. Such
notice shall state that the Holder of the Option elects to exercise the
Option, the number of shares in respect of which it is being exercised
and the manner of payment for such shares, and shall either (i) be
accompanied by payment of the full purchase price of such shares or
(ii) fix a date (not more than 10 business days from the date of
exercise) for the payment of the full purchase price of such shares.
Cash payments shall be made by wire transfer, certified or bank check
or personal check, in each case payable to the order of the Company;
provided, however, that the Company shall not be required to deliver
certificates for shares with respect to which an Option is exercised
until the Company has confirmed the receipt of good and available funds
in payment of the purchase price thereof. Common Stock payments (valued
at the Fair Market Value of a share of Common Stock on the date of
exercise) shall be made by delivery of stock certificates in negotiable
form. If certificates representing Common Stock are used to pay all or
part of the purchase price of an Option, separate certificates shall be
delivered by the Company representing the same number of shares as each
certificate so used, and an additional certificate shall be delivered
representing any additional shares to which the Holder of the Option is
entitled as a result of the exercise of the Option. Except as provided
in Section 9 hereof, no Option may be exercised at any time unless the
Holder thereof is then an employee of the Company or of a Subsidiary.
The Holder of an Option shall have none of the rights of a stockholder
with respect to the shares subject to the Option until such shares
shall be transferred to the Holder upon the exercise of the Option.
6.4 ISOs. Notwithstanding anything to the contrary contained
herein, but subject to Section 8 hereof, in the case of ISOs, the
aggregate Fair Market Value (determined at the time the Option is
granted) of the shares of Common Stock covered by ISOs which first
become exercisable in any calendar year under the Plan by any
individual employee (and under all other plans of the Company or any
Subsidiary which provide for the granting of ISOs) shall not exceed
$100,000.
6.5 SARs. The Board may (but shall not be obligated to) grant
SARs pursuant to the provisions of this Section 6.5 to the Holder of
any Option granted under the Plan (hereinafter in this Section 6.5
called a related Option) with respect to all or a portion of the shares
subject to the related Option. An SAR may only be granted concurrently
with the grant of the related Option. Subject to the terms and
provisions of this Section 6.5, each SAR shall be exercisable only at
the same time and to the same extent the related Option is exercisable,
and in no event after the termination or exercise of the related
Option. Notwithstanding the foregoing, no SAR may be exercised within a
period of six months after the date of grant of the SAR. SARs granted
under the Plan shall be exercisable in whole or in part by notice to
the Company. Such notice shall state that the Holder of the SARs elects
to exercise the SARs, the number of shares in respect of which the SARs
are being exercised and the form of payment the Holder requests.
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<PAGE> 6
Subject to the terms and provisions of this Section 6.5, upon
the exercise of SARs, the Holder thereof shall be entitled to receive
from the Company consideration (in the form hereinafter provided) equal
in value to the excess of the Fair Market Value as of the date of
exercise of the SARs of each share of Common Stock with respect to
which such SARs have been exercised over the option price per share of
Common Stock subject to the related Option. Upon the exercise of an
SAR, the Holder may specify the form of consideration to be received by
such Holder, which shall be in shares of Common Stock (valued at Fair
Market Value on the date of exercise of the SAR), or in cash, or partly
in cash and partly in shares of Common Stock as the Holder shall
request; provided, however, that the Board in its sole discretion may
disapprove the form of consideration requested and instead authorize
the payment of such consideration in shares of Common Stock (valued as
aforesaid), or in cash, or partly in cash and partly in shares of
Common Stock. Any election by the Holder of an SAR to receive cash in
full or partial settlement of the SAR, as well as any exercise of an
SAR for such cash, shall be made only during the period beginning on
the third business day following the date of release of the financial
data specified in paragraph (e)(1)(ii) of Rule 16b-3, or any successor
thereto, under the Exchange Act and ending on the twelfth business day
following such date (the "Exercise Period"). Unless the Board
determines otherwise, the number of SARs which may exercised for cash,
or partly for cash and partly for shares of Common Stock, during any
Exercise Period may not exceed twenty percent of the aggregate number
of shares of Common Stock originally subject to the related Option (as
such original number, without giving effect to the exercise of any
portion of the related Option, shall have been retroactively adjusted
by application of the adjustment(s), if any, determined in accordance
with Section 13 hereof or the corresponding provisions of any
outstanding Stock Option Agreement), but such SARs shall be exercisable
only to the extent the related Option is exercisable. For purposes of
this Section 6.5, the date of exercise of an SAR shall mean the date on
which the Company shall have received notice from the Holder of the SAR
of the exercise of such SAR, except that, upon exercise during the
Exercise Period of an SAR granted in tandem with a Nonqualified Stock
Option, the date of exercise of such SAR shall be deemed to be the date
during the Exercise Period on which the highest reported closing sales
price of share of Common Stock as reported on the Composite Tape
occurred and the Fair Market Value of such shares shall be deemed to be
such highest reported closing sales price.
Upon the exercise of SARs, the related Option shall be
considered to have been exercised to the extent of the number of shares
of Common Stock with respect to which such SARs are exercised, and
shall be considered to have been exercised to that extent for purposes
of determining the number of shares of Common Stock available for the
grant of Options under the Plan. Upon the exercise or termination of
the related Option, the SARs with respect to such related Option shall
be considered to have been exercised or terminated to the extent of the
number of shares of Common Stock with respect to which the related
Option was so exercised or terminated.
The provisions of Sections 4, 6.2 and 9 through 22 of the Plan
(to the extent that such provisions are applicable to Options) shall
also be applicable to SARs unless the context otherwise requires. The
effective date of the grant of an SAR shall be the date on which the
Board approves the grant of such SAR. Each grantee of an SAR shall be
notified promptly of the grant of an SAR.
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<PAGE> 7
Notwithstanding anything to the contrary contained in this
Section 6.5, SARs shall not be exercisable unless at the time of the
exercise of an SAR the Holder of the related Option shall then be,
directly or indirectly, subject to Section 16(b), or any successor
thereto, of the Exchange Act.
6.6 Nontransferability of Options. No Options shall be
transferable otherwise than by will or the laws of descent and
distribution, and an Option may be exercised during the lifetime of the
Holder thereof only by such Holder. A breach by the Holder of any of
the restrictions, terms or conditions provided in the Plan or in the
Holder's Stock Option Agreement will cause the Options covered thereby
to be terminated.
7. Restricted Shares.
7.1 Valuation Date and Price. The Board shall designate a
Valuation Date with respect to each award of Restricted Shares and may
prescribe restrictions, terms and conditions applicable to the vesting
of such Restricted Shares in addition to those provided in this Plan.
The Board shall determine the price, if any, to be paid by the Holder
for the Restricted Shares.
7.2 Issuance of Restricted Shares. Restricted Shares, when
issued, will be represented by a stock certificate or certificates
registered in the name of the Holder to whom such Restricted Shares
shall have been awarded. During the Restriction Period, certificates
representing the Restricted Shares and any securities constituting
Retained Distributions shall bear a restrictive legend to the effect
that ownership of the Restricted Shares (and such Retained
Distributions), and the enjoyment of all rights appurtenant thereto,
are subject to the restrictions, terms and conditions provided in the
Plan and the applicable Restricted Shares Agreement. Such certificates
shall be deposited by such Holder with the Company, together with stock
powers or other instruments of assignment, each endorsed in blank,
which will permit transfer to the Company of all or any portion of the
Restricted Shares and any securities constituting Retained
Distributions that shall be forfeited or that shall not become vested
in accordance with the Plan and the applicable Restricted Shares
Agreement.
7.3 Restrictions. Restricted Shares shall constitute issued
and outstanding shares of Common Stock for all corporate purposes. The
Holder will have the right to vote such Restricted Shares, to receive
and retain all regular cash dividends, and such other distributions as
the Board may in its sole discretion designate, paid or distributed on
such Restricted Shares and to exercise all other rights, powers and
privileges of a Holder of Common Stock with respect to such Restricted
Shares, with the exception that (i) the Holder will not be entitled to
delivery of the stock certificate or certificates representing such
Restricted Shares until the Restriction Period shall have expired and
unless all other vesting requirements with respect thereto shall have
been fulfilled; (ii) the Company will retain custody of the stock
certificate or certificates representing the Restricted Shares during
the Restriction Period; (iii) other than regular cash dividends and
such other distributions as the Board may in its sole discretion
designate, the Company will retain custody of all distributions
("Retained Distributions") made or declared with respect to the
Restricted Shares (and such Retained Distributions will be subject to
the same restrictions, terms and conditions as are applicable to the
Restricted Shares) until
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<PAGE> 8
such time, if ever, as the Restricted Shares with respect to which such
Retained Distributions shall have been made, paid or declared shall
have become vested, and such Retained Distributions shall not bear
interest or be segregated in separate accounts; (iv) the Holder may not
sell, assign, transfer, pledge, exchange, encumber or dispose of the
Restricted Shares or any Retained Distributions during the Restriction
Period; and (v) a breach of any restrictions, terms or conditions
provided in the Plan or established by the Board with respect to any
Restricted Shares or Retained Distributions will cause a forfeiture of
such Restricted Shares and any Retained Distributions with respect
thereto.
7.4 Cash Awards. In connection with any award of Restricted
Shares, the Board may authorize the payment of a cash amount to the
Holder of such Restricted Shares at any time after such Restricted
Shares shall have become vested; provided, however, that the amount of
the cash payment, if any, that a Holder shall be entitled to receive
shall not exceed 100% of the aggregate Maturity Value of the Restricted
Shares awarded to such Holder hereunder. Such Cash Awards shall be
payable in accordance with such additional restrictions, terms and
conditions as shall be prescribed by the Board and shall be in addition
to any other salary, incentive, bonus or other compensation payments
which Holder shall be otherwise entitled or eligible to receive from
the Company.
7.5 Completion of Restriction Period. On the Valuation Date
with respect to each award of Restricted Shares, and the satisfaction
of any other applicable restrictions, terms and conditions (i) all or
part of such Restricted Shares shall become vested, (ii) any Retained
Distributions with respect to such Restricted Shares shall become
vested to the extent that the Restricted Shares related thereto shall
have become vested, and (iii) any Cash Award to be received by the
Holder with respect to such Restricted Shares shall become payable, all
in accordance with the terms of the applicable Restricted Shares
Agreement. Any such Restricted Shares and Retained Distributions that
shall not have become vested shall be forfeited to the Company and the
Holder shall not thereafter have any rights (including dividend and
voting rights) with respect to such Restricted Shares and Retained
Distributions that shall have been so forfeited.
8. Acceleration of Options and Restricted Shares. Notwithstanding any
contrary waiting period or installment period in any Stock Option Agreement or
any Restriction Period in any Restricted Shares Agreement or in the Plan, each
outstanding Option granted under the Plan shall, except as otherwise provided in
the Stock Option Agreement, become exercisable in full for the aggregate number
of shares covered thereby, and each Restricted Share, except as otherwise
provided in the Restricted Shares Agreement, shall vest unconditionally, in the
event (i) the Board (or, if approval of the Board is not required as a matter of
law, the stockholders of the Company) shall approve (a) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the Holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (b) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (c) the adoption of any plan or proposal for
the liquidation or dissolution of the Company, or (ii) any person (as such term
is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), corporation
or other entity (other than the Company or any employee benefit plan sponsored
by the Company or any Subsidiary) (a) shall purchase any
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<PAGE> 9
Common Stock of the Company (or securities convertible into the Company's Common
Stock) for cash, securities or any other consideration pursuant to a tender
offer or exchange offer, without the prior consent of the Board, and (b) shall
become the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
20 percent or more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the election of directors
(calculated as provided in paragraph (d) of such Rule 13d-3 in the case of
rights to acquire the Company's securities), or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the entire Board shall cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by the Company's
stockholders of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period. Any transaction referred to in the foregoing clause (i) is herein called
an Approved Transaction, any purchase pursuant to a tender offer or exchange
offer or otherwise as described in the foregoing clause (ii) is herein called a
Control Purchase and the cessation of individuals constituting a majority of the
Board as described in the foregoing clause (iii) is herein called a Board
Change. The Stock Option Agreement and Restricted Shares Agreement evidencing
Options or Restricted shares granted under the Plan may contain such provisions
limiting the acceleration of the exercise of Options and the acceleration of the
vesting of Restricted Shares as provided in this Section 8 as the Board deems
appropriate to ensure that the penalty provisions of Section 4999 of the Code,
or any successor thereto in effect at the time of such acceleration, will not
apply to any stock or cash received by the Holder from the Company.
9. Termination of Employment.
9.1 Death of Holder. If a Holder shall die during the
Restriction Period with respect to any Restricted Shares or prior to
the exercise of any Option, then:
(a) unless otherwise provided in a Restricted Shares
Agreement, the Restriction Period applicable to each award of
Restricted Shares shall be deemed to have expired and all such
Restricted Shares and Retained Distributions shall become
vested and any Cash Award payable pursuant to the applicable
Restricted Shares Agreement shall be adjusted in such manner
as provided in the Restricted Shares Agreement;
(b) unless otherwise provided in a Stock Option
Agreement, the waiting period or installment period in any
Stock Option Agreement shall be deemed to have expired and
each outstanding Option granted under the Plan shall become
exercisable in full for the aggregate number of shares covered
thereby;
(c) in the case of either an ISO or a Nonqualified
Stock Option, if the Holder dies while employed by the Company
or a Subsidiary, then such Option (subject to clause (g)
below) may be exercised by the legatee(s) or personal
representative(s) of such Holder at any time within three
years after such Holder's death;
(d) in the case of either an ISO or a Nonqualified
Stock Option, if the Holder's employment with the Company or
any Subsidiary
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<PAGE> 10
was terminated due to Total Disability and such Holder dies
within one year after termination of employment, then such
Option (subject to clause (g) below) may be exercised by the
legatee(s) or personal representative(s) of such Holder at any
time during the remainder of the period during which such
Holder would have been able to exercise such Option had the
Holder not died;
(e) in the case of either an ISO or a Nonqualified
Stock Option, if the Holder retires pursuant to any retirement
plan of the Company or a Subsidiary or in the absence of a
retirement plan a Holder retires and the Board determines that
such Holder should have the benefit of this clause (e) and
such Holder dies during the period after retirement when such
Option was still exercisable by such Holder, then such Option
(subject to clause (g) below) may be exercised by the
legatee(s) or personal representative(s) during the remainder
of the period during which such Holder would have been able to
exercise such Option had the Holder not died;
(f) in the case of either an ISO or a Nonqualified
Stock Option, if the Holder dies within three months after
termination of employment and clauses (d) and (e) are not
applicable, then such Option (subject to clause (g) below) may
be exercised by the legatee(s) or personal representative of
such Holder at any time within one year after such Holder's
death; and
(g) the exercise of Options after the termination of
employment of the Holder for any reason is subject to the
following: (i) no Option may be exercised after the expiration
date of such Option; (ii) only Options exercisable by the
Holder at the time of such termination (after taking into
account the provisions of clause (b) above) may be exercised
after such termination; and (iii) any Stock Option Agreement
may provide a shorter period of time for the exercise of
Options than provided in clauses (c) through (f) above.
9.2 Total Disability. If a Holder's employment with the Company
or any Subsidiary shall terminate during the Restriction Period with
respect to any Restricted Shares or prior to the exercise of any Option
as a result of Total Disability; then:
(a) in the case of Restricted Shares, Section 9.1(a)
above shall apply; and
(b) in the case of either an ISO or a Nonqualified
Stock Option, such Option (subject to Section 9.1(g) above)
may be exercised by such Holder (or his or her personal
representative(s)) at any time within one year after such
termination of employment; provided, however, that unless
otherwise provided in a Stock Option Agreement the waiting
period or installment period of any Stock Option Agreement
shall be deemed to have expired and each outstanding Option
granted under
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<PAGE> 11
the Plan shall become exercisable in full for the aggregate
number of shares covered thereby from and after the date of
such termination of employment.
9.3 Retirement. If a Holder's employment with the Company or
any Subsidiary shall terminate during the Restriction Period with
respect to any Restricted Shares or prior to the exercise of any Option
as a result of retirement pursuant to any retirement plan of the
Company or any Subsidiary or in the absence of a retirement plan upon
such Holder's retirement the Board determines that such Holder should
have the benefit of this Section 9.3, then:
(a) unless the Board determines otherwise, in the
case of Restricted Shares, all Restricted Shares, Retained
Distributions and rights to any Cash Awards will be forfeited;
(b) in the case of an ISO, such ISO (subject to
Section 9.1(g) above) may be exercised at any time within
three months after such Holder's termination of employment;
and
(c) in the case of a Nonqualified Stock Option, such
Option (subject to Section 9.1(g) above) may be exercised at
any time within three years after such Holder's termination of
employment.
9.4 Termination by Company for Cause. If a Holder's employment
within the Company or any Subsidiary shall be terminated by the Company
or such Subsidiary during the Restriction Period, with respect to any
Restricted Shares or prior to the exercise of any Option for cause (for
these purposes, cause shall have the meaning ascribed thereto in any
employment agreement to which such Holder is a party or, in the absence
thereof, shall include but not be limited to, insubordination,
dishonesty, incompetence, moral turpitude, other misconduct of any kind
and the refusal to perform his or her duties and responsibilities for
any reason other than illness or incapacity; provided, however, that if
such termination occurs within 12 months after an Approved Transaction,
Control Purchase or Board Change, termination for cause shall only mean
a felony conviction for fraud, misappropriation or embezzlement), then:
(a) all Options held by such Holder shall immediately
terminate; and
(b) such Holder's rights to all Restricted Shares,
Retained Distributions and any Cash Awards shall be forfeited
immediately.
9.5 Termination by Company without Cause. If during the
Restriction Period with respect to any Restricted Shares or prior to
the exercise of any Option, a Holder's employment with the Company or
any Subsidiary shall be terminated by the Company or Subsidiary without
cause as the same may be defined in any employment agreement to which
the Holder is a party or in the absence thereof, as determined by the
Board), then:
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<PAGE> 12
(a) in the case of Restricted Shares, the provisions
of Section 9.1(a) above shall apply; and
(b) in the case of either an ISO or a Nonqualified
Stock Option, such Option (subject to Section 9.1(g) above)
held by such Holder may be exercised at any time within three
months after such Holder's termination of employment.
9.6 Termination for Other Reason. If during the Restriction
Period with respect to any Restricted Shares or prior to the exercise
of any Option, a Holder's employment with the Company or any Subsidiary
shall be terminated for any reason other than as set forth in Sections
9.1 through 9.5 above, then:
(a) all such Holder's Rights to Restricted Shares,
Retained Distributions and any Cash Awards shall be forfeited
immediately; and
(b) in the case of either an ISO or a Nonqualified
Stock Option, the provisions of Section 9.5(b) above shall
apply.
9.7 General. A leave of absence, unless otherwise determined by
the Board prior to the commencement thereof, shall not be considered a
termination of employment, provided the leave of absence does not
exceed ninety days. If a leave of absence does exceed ninety days then
the employee's employment shall be considered terminated on the
ninety-first day of the leave of absence unless the Board determines
otherwise. Awards made under this Plan shall not be affected by any
change of employment so long as the Holder continues to be an employee
of the Company or a Subsidiary.
10. Right of Company to Terminate Employment. Nothing contained in the
Plan or in any Award shall confer on any Holder any right to continue in the
employ of the Company or any of its Subsidiaries or interfere in any way with
the right of the Company or a Subsidiary to terminate the employment of the
Holder at any time, with or without cause.
11. Nonalienation of Benefits. No right or benefit under the Plan shall
be subject to anticipation, alienation, sale, assignment, hypothecation, pledge,
exchange, transfer, encumbrance or charge, and any attempt to anticipate, sell,
assign, hypothecate, pledge, exchange, transfer, encumber or charge the same
shall be void. No right or benefit hereunder shall in any manner be liable for
or subject to the debts, contracts, liabilities or torts of the person entitled
to such benefit.
12. Written Agreement. Each award of Restricted Shares and any right to
a Cash Award hereunder shall be evidenced by a Restricted Shares Agreement and
each grant of an Option shall be evidenced by a Stock Option Agreement, each in
such form and containing such terms and provisions not inconsistent with the
provisions of the Plan as the Board from time to time shall approve. The
effective date of the granting of an Option shall be the date on which the Board
approves the granting of such Option. Each grantee of an Option or Restricted
Shares shall be notified promptly of such grant and a written Stock Option
Agreement and/or Restricted Shares Agreement shall be promptly executed and
delivered by the Company and the grantee, provided that such grant Options or
Restricted Shares shall terminate if such written agreement is not signed by
such grantee (or his or her attorney) and delivered to the Company within 60
days after the date the Board approved such grant. Any such written agreement
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<PAGE> 13
may contain provisions as the Board deems appropriate to ensure that the penalty
provisions of Section 4999 of the Code, or any successor thereto, will not apply
to any stock or cash received by the Holder from the Company.
13. Adjustments Upon Changes in Capitalization. The Stock Option
Agreements and Restricted Shares Agreements evidencing Awards may contain such
provisions as the Board shall determine to be appropriate for the adjustment of
the number and class of all Restricted Shares and the terms applicable to any
Cash Awards and the number and class of shares subject to each outstanding
Option and the option prices thereof in the event of changes in the outstanding
Common Stock of the Company by reason of any stock dividend, distribution,
split-up, recapitalization, combination or exchange of shares, merger,
consolidation or liquidation and the like, and, in the event of any such change
in the outstanding Common Stock of the Company, the aggregate number and class
of shares available under the Plan shall be appropriately adjusted by the Board,
whose determination shall be conclusive.
14. Right of First Refusal. The Stock Option Agreements and Restricted
Shares Agreements may contain such provisions as the Board shall determine to
the effect that if a Holder elects to sell all or any shares of Common Stock
that such Holder acquired upon the exercise of an Option or upon the vesting of
Restricted Shares awarded under the Plan, then such Holder shall not sell such
shares unless such Holder shall have first offered in writing to sell such
shares to the Company at Fair Market Value on a date specified in such offer
(which date shall be at least three business days and not more than ten business
days following the date of such offer). In any such event, certificates
representing shares issued upon exercise of Options and the vesting of
Restricted Shares shall bear a restrictive legend to the effect that
transferability of such shares are subject to the restrictions contained in the
Plan and the applicable Stock Option Agreement or Restricted Shares Agreement
and the Company may cause the registrar of its Common Stock to place a stop
transfer order with respect to such shares.
15. Termination and Amendment. Unless the Plan shall theretofore have
been terminated as hereinafter provided, no Awards may be made under the Plan
after September, 2001. The Board may at any time prior to September, 2001
terminate the Plan, and the Board may at any time also modify or amend the Plan
in such respects as it shall deem advisable; provided, however, that the Board
may not, without the approval of the Holders of a majority of the voting
securities of the Company present, either in person or by proxy, and entitled to
vote at a meeting (i) materially increase (except as provided in Section 13
hereof) the maximum number of shares which may be issued under the Plan, (ii)
materially modify the requirements as to eligibility for participation in the
Plan, or (iii) materially increase the benefits accruing to participants under
the Plan. No termination, modification or amendment of the Plan or any
outstanding Restricted Shares Agreement or Stock Option Agreement may, without
the consent of the employee to whom any Award shall theretofore have been
granted, adversely affect the rights of such employee with respect to such
Award.
16. Effectiveness of the Plan. The Plan shall become effective upon the
unanimous written consent of the stockholders of the Company entitled to vote
thereon.
17. Government and Other Regulations. The obligation of the Company
with respect to Awards shall be subject to (i) all applicable laws, rules and
regulations and such approvals by any governmental agencies as may be required,
including, without limitation, the effectiveness of a registration statement
under the Securities Act of 1933, as amended, and (ii) the rules and regulations
of any securities exchange on which the Common Stock may be listed.
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<PAGE> 14
18. Withholding. The Company's obligation to deliver shares of Common
Stock or to pay cash upon the exercise of any Nonqualified Stock Option or any
SAR granted under the Plan and to deliver stock certificates or to pay cash upon
the vesting of Restricted Shares or Cash Awards shall be subject to applicable
Federal, state and local tax withholding requirements. Federal, state and local
withholding tax due upon the exercise of any Nonqualified Stock Option and upon
the vesting of Restricted Shares may be paid in shares of Common Stock upon such
terms and conditions as the Board shall determine; provided, however, that the
Board in its sole discretion may disapprove such payment and require that such
taxes be paid in cash.
19. Separability. If any of the terms or provisions of this Plan
conflict with the requirements of Rule 16b-3 under the Exchange Act (as the same
shall be amended from time to time) and/or Section 422 of the Code (as the same
shall be amended from time to time), then such terms or provisions shall be
deemed inoperative to the extent they so conflict with the requirements of said
Rule 16b-3, and/or with respect to ISOs, Section 422 of the Code.
With respect to ISOs, if this Plan does not contain any
provision required to be included herein under Section 422 of the Code (as the
same shall be amended from time to time), such provision shall be deemed to be
incorporated herein with the same force and effect as if such provision had been
set out at length herein.
20. Non-Exclusivity of the Plan. Neither the adoption of the Plan by
the Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options and the awarding of
stock and cash otherwise than under the Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
21. Exclusion from Pension and Profit-Sharing Computation. By
acceptance of an Award, each Holder shall be deemed to have agreed that the
award of Restricted Shares and any right to a Cash Award and the grant of any
Option and the exercise thereof or of any SAR are special incentive compensation
and that they will not be taken into account as "salary" or "compensation" or
"bonus" in determining the amount of any payment under any pension, retirement
or other qualified employee benefit plan of the Company or any Subsidiary. In
addition, each beneficiary of a deceased Holder shall be deemed to have agreed
that such Award will not affect the amount of any life insurance coverage
provided by the Company on the life of the Holder which is payable to such
beneficiary under any life insurance plan covering employees of the Company or
any Subsidiary.
22. Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
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<PAGE> 1
Exhibit 10.5
COAST DENTAL SERVICES, INC.
AFFILIATED PROFESSIONALS STOCK PLAN
I. PURPOSE.
The purpose of this Coast Dental Services, Inc. Affiliated
Professionals Stock Plan is to promote the growth and profitability of Coast
Dental Services, Inc. (the "Corporation") by providing key dental and other
medical professionals employed by professional associations which have entered
into long-term management contracts with the Corporation with additional
incentives to enter into and continue long-term relationships with the
Corporation, and to provide such affiliated medical professionals with an
opportunity to acquire an equity interest in the Corporation.
The Affiliated Professionals Stock Plan has been approved by
the Board of Directors effective as of April 1, 1996.
II. DEFINITIONS.
The following terms shall have the meanings shown:
2.1 "Affiliated Professional" means an dentist or other medical
professional employed by a Professional Association.
2.2 "Board of Directors" means the Board of Directors of the
Corporation.
2.3 "Change of Control" means any event described in Section 7.1.
2.4 "Code" means the Internal Revenue Code of 1986, as the same shall
be amended from time to time.
2.5 "Committee" means the Committee provided for in Article X of the
Plan.
2.6 "Common Stock" means the common stock, par value $.00001 per share,
of the Corporation, except as provided in Section 8.2 of the Plan.
2.7 "Date of Grant" means the date specified by the Committee on which
a grant of Options, SARs or a grant or sale of Restricted Shares shall become
effective, which shall not be earlier than the date on which the Committee takes
action with respect thereto.
2.8 "Fair Market Value" means the fair market value of a share of
Common Stock as determined by the Committee by reference to the closing price
quotation, or, if none, the average of the bid and asked prices, reported as of
the most recent available date with respect to the sale of Common Stock.
2.9 "Option Agreement" means a written agreement between the
Corporation and an Affiliated Professional who has been granted Options under
this Plan.
2.10 "Option Price" means, with respect to any Option (or related SAR),
the amount designated in a Participant's Option Agreement as the price per share
he or she will be required to pay to exercise the Option and acquire the shares
subject to such Option.
2.11 "Options" means any rights to purchase shares of Common Stock
granted pursuant to Article IV of this Plan.
<PAGE> 2
2.12 "Plan" means this Coast Dental Services, Inc. Affiliated
Professionals Stock Plan, as the same may be amended from time to time.
2.13 "Professional Association" means any professional association or
other medical or eye care practice group which has entered into a long-term
management or service agreement with the Corporation.
2.14 "Reload Option Rights" means the right to have additional Options
automatically granted to the Participant upon the exercise of his or her
Options, as granted pursuant to Section 4.5 of this Plan.
2.15 "Restricted Stock" means shares of Common Stock that are issued to
eligible Affiliated Professionals and made subject to restrictions in accordance
with Article VI of the Plan.
2.16 "SARs" shall mean stock appreciation rights granted pursuant to
Article V of the Plan.
III. ELIGIBILITY.
3.1 Participation. The Committee may grant Options, SARs and/or awards
of Restricted Stock under this Plan to Affiliated Professionals. In granting
such awards and determining their form and amount, the Committee shall give
consideration to the value to the Corporation of a long-term relationship with
the Affiliated Professional's professional association, the Affiliated
Professional's potential contributions to profitability and sound growth of the
professional association and the Corporation and such other factors as the
Committee may, in its discretion, deem relevant.
IV. OPTIONS.
4.1 Terms and Conditions. The Committee may, in its sole discretion,
from time to time grant Options to any Affiliated Professional selected by the
Committee pursuant to Section 3.1. The grant of an Option to an eligible
Affiliated Professional shall be evidenced by a written Option Agreement in
substantially the form approved by the Committee. Such Option shall be subject
to the following express terms and conditions and to such other terms and
conditions, not inconsistent with the terms of this Plan, as the Committee may
deem appropriate.
(a) Shares Covered. The Committee shall, in its discretion,
determine the number of shares of Common Stock to be covered by the Options
granted to any Participant. The maximum number of shares of Common Stock with
respect to which Options may be granted to any Participant during any one
calendar year is [100,000] shares.
(b) Exercise Period. The term of each Option shall be for such
period as the Committee shall determine, but for not more than ten years from
the Date of Grant thereof. The Committee shall also have the discretion to
determine when each Option granted hereunder shall become exercisable, and to
prescribe any vesting schedule limiting the exercisability of such Options as it
may deem appropriate.
(c) Option Price. The Option Price payable for the shares of
Common Stock covered by any Option shall be determined by the Committee, but
shall in no event be less than the par value of Common Stock. The Option Price
may be less than the Fair Market Value of Common Stock on the Date of Grant only
if the Committee determines that special circumstances warrant a lower exercise
price.
(d) Exercise of Options. A Participant may exercise his or her
Options from time to time by written notice to the Corporation of his or her
intent to exercise the Options with respect to a specified number of shares. The
specified number of shares will be issued and transferred to the Participant
upon receipt by the Corporation of (i) such notice and (ii) payment in full for
such shares, and (iii) receipt of any payments required to satisfy the
Corporation's tax withholding obligations pursuant to Section 8.3.
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<PAGE> 3
(e) Payment of Option Price Upon Exercise. Each Option
Agreement shall provide that the Option Price for the shares with respect to
which an Option is exercised may be paid to the Corporation at the time of
exercise, in the form of (i) cash, (ii) delivery to the Corporation of whole
shares of Common Stock already owned by the Participant, valued at their Fair
Market Value on the day immediately preceding the date of exercise, (iii) at the
discretion of the Committee, a promissory note secured by a pledge of the shares
of Common Stock, or (iv) a combination of any of the above equal to the Option
Price for the shares.
(f) Cashless Exercises. Alternatively, the Committee may
permit the Participant to exercise an Option by delivery of a signed,
irrevocable notice of exercise, accompanied by payment in full of the Option
Price by the Participant's stockbroker and an irrevocable instruction to the
Corporation to deliver the shares of Common Stock issuable upon exercise of the
Option promptly to the Participant's stockbroker for the Participant's account,
provided that at the time of such exercise, such exercise would not be illegal
under the federal securities laws, including laws governing margin loans.
4.2 Effect of Termination.
(a) If the management agreement between the Corporation and
the Professional Association which employs a Participant is terminated, or if
the Participant ends his employment relationship with such Professional
Association for any reason other than retirement, disability or death, his or
her Options shall terminate immediately upon the date of the termination, unless
the Committee decides in its sole discretion, to waive this termination and
amends the Participant's Option Agreement to so provide.
(b) Any Option Agreement may, in the Committee's sole
discretion, include such provisions as the Committee deems advisable with
respect to the Participant's right to exercise the Option subsequent to
retirement or other voluntary termination of employment with his or her
Professional Association, or subsequent to termination of such employment by
reason of total and permanent disability; provided, that, in no event shall any
Option be exercisable after the fixed termination date set forth in the
Participant's Option Agreement pursuant to Section 4.1(b).
(c) Any Option Agreement may, in the Committee's sole
discretion, provide that, in the event of the Participant's death while he or
she has the right to exercise his or her Options, the Options may be exercised
(to the extent they had become exercisable prior to the time of the
Participant's death), during such period of up to one year after date of the
Participant's death as the Committee deems to be appropriate, by the personal
representative of the Participant's estate, or by the person or persons to whom
the Options shall have been transferred by will or by the laws of descent and
distribution.
4.3 Nonstatutory Stock Options. The Options granted under this Plan are
not intended to constitute incentive stock options qualifying under Code Section
422.
4.4 Authority to Waive Restrictions on Exercisability. The Committee
may, in its sole discretion, determine at any time that all or any portion of
the Options granted to a Participant under the Plan shall, notwithstanding any
restrictions on exercisability imposed pursuant to Section 4.1(b), become
immediately exercisable in full. The Committee may make such further adjustments
to the terms of such Options as it may deem necessary or appropriate in
connection therewith.
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<PAGE> 4
4.5 Non-Assignability. Options granted under this Plan shall generally
not be assignable or transferable by the Participant, except by will or by the
laws of descent and distribution, or as described in the next paragraph.
Notwithstanding the foregoing, the Committee may, in its discretion,
permit a Participant to transfer all or a portion of his or her Options to
members of his or her immediate family, to trusts for the benefit of members of
his immediate family, or to family partnerships in which immediate family
members are the only partners, provided that the Participant may receive no
consideration for such transfers, and that such Options shall still be subject
to termination in accordance with Section 4.2 above in the hands of the
transferee.
4.6 Reload Options. The Committee may, in its discretion, also grant a
Participant Reload Option Rights with respect to his or her Options. If a
Participant who has been granted Reload Option Rights with respect to Options,
exercises his or her Options by paying the Option Price by delivering previously
owned shares of Common Stock, as authorized under Section 4.1(e) above, the
Participant shall automatically be granted additional Options on the same terms
for the number of shares delivered to pay such Option Price; provided, however,
that the term of any Reload Option shall not extend beyond the term of the
Option originally exercised.
V. STOCK APPRECIATION RIGHTS.
5.1 Grant of SARs. The Committee may, in its discretion, from time to
time grant stock appreciation rights to a Participant in connection with Options
granted under this Plan. Participants granted SARs shall be entitled to receive
upon exercise thereof, in cash or Common Stock as provided in Paragraph 5.3(c),
the difference between the Fair Market Value of the Common Stock on the day
preceding the exercise date and the Option Price of the underlying Option. SARs
may be granted with respect to all or part of the Common Stock under a
particular Option, except as otherwise expressly provided herein.
5.2 Tandem Options. SARs shall entitle the Participant holding the
related Option, upon exercise, in whole or in part, of the SARs, to receive
payment in the amount and form determined pursuant to Paragraph 5.3(c). SARs may
be exercised only to the extent that the related Option has not been exercised.
The exercise of SARs shall result in a pro rata surrender of the related Option
to the extent that the SARs have been exercised.
5.3 Terms and Conditions. The grant of SARs shall be evidenced by
including provisions with respect to such SARs in the Participant's Option
Agreement in a form approved by the Committee. Such SARs shall be subject to the
following express terms and conditions and to such other terms and conditions,
not inconsistent with the terms of the Plan, which the Committee may deem
appropriate.
(a) SARs shall be exercisable at such time or times and to the
extent, but only to the extent, that the Option to which they relate shall be
exercisable.
(b) SARs (and any Option related thereto) shall in no event be
exercisable during the first six months after the date of grant and such rights
shall not be transferable other than by will or by the laws of descent and
distribution and shall be exercisable during the Participant's lifetime only by
the Participant.
(c) Upon exercise of SARs, the Participant shall be entitled
to receive an amount equal in value to the difference between the Option Price
and the Fair Market Value per share of Common Stock on the day preceding the
exercise date, multiplied by the number of shares in respect of which the SARs
shall have been exercised. Such amount shall be paid in the form of (i) cash,
(ii) shares of Common Stock with a Fair Market Value on the day preceding the
exercise date equal to such amount or (iii) a combination of cash and shares of
Common Stock, all as determined by the Committee.
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<PAGE> 5
(d) In no event shall an SAR be exercisable at a time when the
Option Price of the underlying Option is greater than the Fair Market Value of
the shares subject to the related Option.
VI. RESTRICTED STOCK.
6.1 Rights As A Shareholder. The Committee may, in its discretion,
grant a Participant an award consisting of shares of Restricted Stock. At the
time of the award, the Committee shall cause the Company to deliver to the
Participant, or to a custodian or an escrow agent designated by the Committee, a
certificate or certificates for such shares of Restricted Stock, registered in
the name of the Participant. The Participant shall have all the rights of a
stockholder with respect to such Restricted Stock, subject to the terms and
conditions, including forfeiture or resale to such Corporation, if any, as the
Committee may determine to be desirable pursuant to Section 6.3 of the Plan. The
Committee may designate the Corporation or one or more of its executive officers
to act as custodian or escrow agent for the certificates.
6.2 Awards and Certificates.
(a) A Participant granted an award of Restricted Stock shall
not be deemed to have become a stockholder of the Corporation, or to have any
rights with respect to such shares of Restricted Stock, until and unless such
Participant shall have executed a restricted stock agreement or other instrument
evidencing the award and delivered a fully executed copy thereof to the
Corporation and otherwise complied with the then applicable terms and conditions
of such award.
(b) When a Participant is granted shares of Restricted Stock,
the Company shall issue a stock certificate or certificates in respect of shares
of Restricted Stock. Such certificates shall be registered in the name of the
Participant, and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such award substantially in the
following form:
"The transferability of the shares of stock
represented by this Certificate are subject to the terms and
conditions (including forfeiture) of a Restricted Stock
Agreement entered into between the registered owner and Coast
Dental Services, Inc. A copy of such Agreement is on file in
the offices of the Secretary of the Company, 25400 U.S.
Highway 19, Suite 225, Clearwater, Florida 34623."
(c) Except as may be otherwise determined by the Committee (or
as required in order to satisfy the tax withholding obligations imposed under
Section 10.3 of this Plan), Participants granted awards of Restricted Stock
under this Plan will not be required to make any payment or provide
consideration to the Corporation other than the rendering of services.
6.3 Restrictions and Forfeitures. Restricted Stock awarded to a
Participant pursuant to this Article VI shall be subject to the following
restrictions and conditions:
(a) During a period set by the Committee of not less than one
(1) year, but not more than eight (8) years, commencing with the date of an
award (the "Restriction Period"), the Participant will not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded to him or her.
Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(b) Except as provided in Section 6.3(a), the Participant
shall have with respect to the Restricted Stock all of the rights of a
stockholder of the Corporation, including the right to vote the shares and
receive dividends and other distributions.
(c) Subject to the provisions of Section 6.3(d), upon any
termination of the management contract between the Corporation and the
Participant's Professional Association during the Restriction Period for any
reason, or in the event of any termination of the Participant's employment with
the Professional
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<PAGE> 6
Association, all shares of Restricted Stock with respect to which the
restrictions have not yet expired shall be forfeited to the Corporation, or, in
the case of shares of Restricted Stock sold to the Participant, repurchased at
the initial purchase price by the Corporation.
(d) In the event of a Participant's retirement from his or her
employment with a Professional Association, permanent total disability, or
death, or in cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interests of the
Corporation, waive in whole or in part any or all remaining restrictions with
respect to such Participant's Restricted Stock.
(e) Notwithstanding the other provisions of this Section 6.3,
the Committee may adopt rules which would permit a gift by a Participant of
shares of Restricted Stock to a spouse, child, stepchild, grandchild or to a
trust the beneficiary or beneficiaries of which shall be either such a person or
persons or the Participant, provided that the Restricted Stock so transferred
shall be similarly restricted.
(f) Any attempt to dispose of shares of Restricted Stock in a
manner contrary to the restrictions set forth herein shall be ineffective.
(g) Nothing in this Section 6.3 shall preclude a Participant
from exchanging any Restricted Stock for any other shares of the Common Stock
that are similarly restricted.
VII. CHANGE IN CONTROL TRANSACTIONS.
7.1 Change in Control. For purposes of this Plan, a "Change in Control"
shall include any of the events described below:
(a) The acquisition in one or more transactions of more than
thirty percent of the Corporation's outstanding Common Stock, or the equivalent
in voting power of any classes or classes of securities of the Corporation
entitled to vote in elections of directors by any corporation, or other person
or group (within the meaning of Section 14(d)(3) of the Securities Exchange Act
of 1934, as amended);
(b) Any merger or consolidation of the Corporation into or
with another corporation in which the Corporation is not the surviving entity,
or any transfer or sale of substantially all of the assets of the Corporation or
any merger or consolidation of the Corporation into or with another corporation
in which the Corporation is the surviving entity and, in connection with such
merger or consolidation, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for other stock or securities of the
Corporation or any other person, or cash, or any other property.
(c) Any election of persons to the Board of Directors which
causes a majority of the Board of Directors to consist of persons other than (i)
persons who were members of the Board of Directors on September 1, 1996, and
(ii) persons who were nominated for election as members of the Board by the
Board of Directors (or a Committee of the Board) at a time when the majority of
the Board (or of such Committee) consisted of persons who were members of the
Board of Directors on September 1, 1996; provided, that any person nominated for
election by the Board of Directors composed entirely of persons described in (i)
or (ii), or of persons who were themselves nominated by such Board, shall for
this purpose be deemed to have been nominated by a Board composed of persons
described in (i).
(d) Any person, or group of persons, announces a tender offer
for at least thirty percent (30%) of the Corporation's Common Stock.
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<PAGE> 7
7.2 Effect of Change in Control. In the event of a pending or
threatened Change in Control, the Committee may, in its sole discretion, take
any one or more of the following actions with respect to all Participants:
(i) Accelerate the exercise dates of any outstanding
Options, and make all outstanding Options fully vested and
exercisable;
(ii) Waive all or any portion of the vesting
requirements or other conditions associated with a Restricted
Stock Award;
(iii) Grant Stock Appreciation Rights to the holders
of outstanding Options;
(iv) Pay cash to any or all Option holders in
exchange for the cancellation of their outstanding Options;
(v) Make any other adjustments or amendments to the
Plan and outstanding Options, or Restricted Stock Awards
and/or substitute new Options or other awards.
VIII. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK.
8.1 Number of Shares of Common Stock.
(a) Shares of Common Stock which may be issued to Affiliated
Professionals pursuant to Options, SARs, or Restricted Stock awards granted
under the Plan may be either authorized and unissued shares of Common Stock or
of Common Stock held by the Corporation as treasury stock. The number of shares
of Common Stock reserved for issuance under this Plan on the date of any grant
shall not exceed 450,000 shares of Common Stock, or, if greater, 5.0 percent of
the total number of shares of Common Stock then outstanding, subject to such
adjustments as may be made pursuant to Section 8.2.
(b) For purposes of Section 8.1(a), upon the exercise of an
Option or SAR, the number of shares of Common Stock available for future
issuance under the Plan shall be reduced by the number of shares actually issued
to the Optionee, exclusive of any shares surrendered to the Company as payment
of the Option price.
(c) Any shares of Common Stock subject to an Option which for
any reason is cancelled, terminates unexercised or expires, except by reason of
the exercise of a related SAR, shall again be available for issuance under the
Plan.
(d) In the event that any award of Restricted Stock is
forfeited, cancelled or surrendered for any reason, the shares of Common Stock
constituting such Restricted Stock award shall again be available for issuance
under the Plan.
8.2 Adjustments of Stock. In the event of any change or changes in the
outstanding Common Stock of the Corporation by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination
or any similar transaction, the Committee shall adjust the number of shares of
Common Stock which may be issued under this Plan, the number of shares of Common
Stock subject to Options theretofore granted under this Plan, the Option Price
of such Options, the number of SARs theretofore granted in conjunction with an
Option, the number of shares of Restricted Stock and make any and all other
adjustments deemed appropriate by the Committee in such manner as the Committee
deems appropriate to prevent substantial dilution or enlargement of the rights
granted to a participating employee.
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<PAGE> 8
New option rights may be substituted for the Options granted
under the Plan, or the Corporation's duties as to Options and SARs outstanding
under the Plan may be assumed by a Parent or Subsidiary, by another corporation
or by a parent or subsidiary (within the meaning of Section 425 of the Code) of
such other corporation, in connection with any merger, consolidation,
acquisition, separation, reorganization, liquidation or like occurrence in which
the Corporation is involved. In the event of such substitution or assumption,
the term Common Stock shall thereafter include the stock of the corporation
granting such new option rights or assuming the Corporation's duties as to such
Options or SARs.
IX. MISCELLANEOUS.
9.1 General Restriction. Any Option, SAR, or Restricted Stock award
granted under this Plan shall be subject to the requirement that, if at any time
the Committee shall determine that any registration of the shares of Common
Stock, or any consent or approval of any governmental body, or any other
agreement or consent, is necessary as a condition of the granting of an Option
or other award, or the issuance of Common Stock in satisfaction thereof, such
Common Stock will not be issued or delivered until such requirement is satisfied
in a manner acceptable to the Committee.
9.2 Withholding Taxes.
(a) If the Committee determines that the Corporation has any
tax withholding obligation with respect to an Affiliated Professional, the
Committee shall have the right to require that Participant to remit to the
Corporation an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any shares of Common Stock
under the Plan.
(b) The Corporation shall have the right to withhold from
payments made in cash to a Participant under the terms of the Plan, an amount
sufficient to satisfy any federal, state and local withholding tax requirements
imposed with respect to such cash payments.
(c) Amounts to which the Corporation is entitled pursuant to
Section 9.2(a) or (b), may be paid, at the election of the Participant and with
the approval of the Committee, either (i) paid in cash, (ii) withheld from any
compensation payable to the Participant by the Corporation, including cash
payments made under this Plan, or (iii) in shares of Common Stock otherwise
issuable to the Participant upon exercise of an Option or SAR, that have a Fair
Market Value on the date on which the amount of tax to be withheld is determined
(the "Tax Date") not less than the minimum amount of tax the Corporation is
required to withhold. A Participant's election to have shares of Common Stock
withheld that are otherwise issuable shall be in writing, shall be irrevocable
upon approval by the Committee, and shall be delivered to the Corporation prior
to the Tax Date with respect to the exercise of an Option or SAR.
9.3 Investment Representation. If the Committee determines that a
written representation is necessary in order to secure an exemption from
registration under the Securities Act of 1933, the Committee may demand that the
Participant deliver to the Corporation at the time of any exercise of any Option
or SAR, or at time of the transfer of shares of Restricted Stock, any written
representation that Committee determines to be necessary or appropriate for such
purpose, including but not limited to a representation that the shares to be
issued are to be acquired for investment and not for resale or with a view to
the distribution thereof. If the Committee makes such a demand, delivery of a
written representation satisfactory to the Committee shall be a condition
precedent to the right of the Participant to acquire such shares of Common
Stock.
9.4 Non-Uniform Determinations. The Committee's determinations under
this Plan (including without limitation its determinations of the persons to
receive Options, SARs, or awards of Restricted Stock, the form, amount and
timing of such awards and the terms and provisions of such awards) need not be
uniform and may be made by it selectively among Participants who receive, or are
eligible to receive, awards under this Plan, whether or not such Participants
are similarly situated.
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<PAGE> 9
9.5 No Rights as Shareholders. Participants granted Options or SARs
under this Plan shall have no rights as shareholders of the Corporation as
applicable with respect thereto unless and until certificates for shares of
Common Stock are issued to them.
9.6 Transfer Restrictions. The Committee may determine that any Common
Stock to be issued by the Corporation upon the exercise of Options or SARs shall
be subject to such further restrictions upon transfer as the Committee
determines to be appropriate.
X. ADMINISTRATION OF THE PLAN.
10.1 Administrative Committee.
(a) The Plan shall be administered by a Committee appointed by
the Board of Directors from time to time. The members of the Committee shall
serve at the pleasure of the Board of Directors. Persons appointed to be members
of the Committee need not be directors or qualify as "disinterested" within the
meaning of SEC Rule 16b-3.
(b) The Committee shall have the authority, in its sole
discretion, from time to time: (i) to grant Options, SARs, or shares of
Restricted Stock to eligible Affiliated Professionals, as provided for in this
Plan; (ii) to prescribe such limitations, restrictions and conditions upon any
such awards as the Committee shall deem appropriate; (iii) to determine the
periods during which Options may be exercised and to accelerate the
exercisability of outstanding Options or SARs, or the vesting of Restricted
Stock, as it may deem appropriate; (iv) to modify, cancel, or replace any prior
Options or other awards and to amend the relevant Option Agreements or
Restricted Stock Agreements with the consent of the affected Participants,
including amending such agreements to amend vesting schedules, extend exercise
periods or increase or decrease the Option Price for Options, as it may deem to
be necessary; and (v) to interpret the Plan, to adopt, amend and rescind rules
and regulations relating to the Plan, and to make all other determinations and
to take all other action necessary or advisable for the implementation and
administration of the Plan. A majority of the Committee shall constitute a
quorum, and the action of a majority of members of the Committee present at any
meeting at which a quorum is present, or acts unanimously adopted in writing
without the holding of a meeting, shall be the acts of the Committee.
(c) All actions taken by the Committee shall be final,
conclusive and binding upon any eligible Participant or other Affiliated
Professional. No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any award thereunder.
XI. AMENDMENT AND TERMINATION.
11.1 Amendment or Termination of the Plan. The Board of Directors may
at any time terminate this Plan or any part thereof and may from time to time
amend this Plan as it may deem advisable; provided, however the Board of
Directors shall obtain stockholder approval of any amendment for which
stockholder approval is required under any stockholder approval requirements
imposed on the Corporation by any applicable law or by the listing rules of any
stock exchange on which the Common Stock is listed. The termination or amendment
of this Plan shall not, without the consent of the employee, affect any
Participant's rights under an award previously granted.
11.2 Term of Plan. Unless previously terminated pursuant to Section
10.1, the Plan shall terminate on January 1, 2006, the tenth anniversary of the
date on which the Plan became effective, and no Options, SARs, or awards of
Restricted Stock may be granted on or after such date.
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<PAGE> 1
Exhibit 10.6
SERVICES AND SUPPORT AGREEMENT
THIS SERVICES AND SUPPORT AGREEMENT, dated as of October 1, 1996, by
and between COAST DENTAL SERVICES, INC., a Delaware corporation ("CDS"), and
COAST FLORIDA P.A., a Florida professional services corporation (the "Dental
Practice Entity").
RECITALS:
WHEREAS, CDS is a company which provides facilities, equipment,
administrative and business advice, services and support to entities engaged in
the practice of dentistry;
WHEREAS, the Dental Practice Entity desires to engage CDS to provide
facilities (individually and collectively the "Centers"), equipment,
administrative and business advice, and services and support so that the Dental
Practice Entity can focus on furnishing high quality dental care to the general
public through the services of the dentists(s) affiliated with the Dental
Practice Entity (the "Dentists");
WHEREAS, the Dental Practice Entity and CDS mutually desire to enter
into a relationship under the terms of this Agreement to assist the Dental
Practice Entity as set forth herein;
WHEREAS, the parties agree to follow any and all provisions of Chapter
466 of the Florida Statutes, as amended; and
WHEREAS, the parties agree that the Dentists shall maintain complete
care, custody and control over the practice of dentistry and all dental
equipment being used for the provision of dental services;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
I. RESPONSIBILITIES AND OBLIGATIONS OF CDS
1.1 General. CDS shall provide the Dental Practice Entity with
comprehensive administrative and business services and support as set forth
herein. The Dental Practice Entity hereby contracts with CDS and agrees that
CDS shall have all power and authority reasonably necessary to carry out CDS's
duties under this Agreement, subject to the requirements of the Florida Dental
Act relating to the retention of control by dentists over the practice of
dentistry and the equipment they use in their practice.
1.2 Facilities and Equipment. The parties expressly agree that
all equipment, office space, facilities, and materials provided by CDS to the
Dental Practice Entity hereunder shall be provided to the Dental Practice
Entity by CDS under an arrangement pursuant to which the Dental Practice Entity
shall maintain complete care, custody, and control of the foregoing. Subject
to the foregoing, CDS agrees to provide or arrange for on behalf of the Dental
Practice Entity the offices, facilities, furnishings, equipment, and related
services and, on an ongoing basis, shall provide for the maintenance and upkeep
of the foregoing.
1.3 Personnel and Payroll. The parties expressly acknowledge and
agree that the Dental Practice Entity shall exercise control over all decisions
relating to office personnel and hours of practice.
<PAGE> 2
Subject to the foregoing, CDS will consult with and advise the Dental Practice
Entity on the Centers' staffing needs and on the hiring and employment of the
Centers' staff. CDS will employ all of the Centers' staff, except for the
Dentists and dental hygienists, if any, as required by the Dental Practice
Entity. Additionally, CDS will be responsible for staff scheduling and for the
performance of all payroll and payroll accounting functions in accordance with
Dental Practice Entity's instructions. CDS will advise the Dental Practice
Entity on the establishment of incentive and profit sharing plans for the
Centers' staff to reward individuals for contributing to increased productivity
in the Center.
1.4 Business Systems, Procedures and Forms. In consultation with
the Dental Practice Entity, CDS will recommend and implement where approved by
the Dental Practice Entity standard business systems and procedures for the
Center developed by CDS. CDS will provide training to the Centers' staff in
the implementation of such systems and business procedures. CDS shall
additionally provide the Dental Practice Entity with and train the Centers'
staff in the use of standardized business forms. The Dental Practice Entity
expressly acknowledges and agrees that it will have no property rights in the
foregoing systems, procedures and forms, and further agrees that such systems,
procedures, and forms will be deemed to constitute Confidential Information
within the meaning of Section 2.7 hereof and subject to the restrictions on the
use, appropriation, and reproduction of such Confidential Information provided
for in Section 2.7. Notwithstanding anything contained herein, it is
understood that the Dentists are to make all judgments and have complete
control regarding the care of patients, patient's records and the patient care
procedures utilized therefor.
1.5 Purchasing, Accounts Payable and Inventory Control. CDS will
order all general business inventory and supplies required by the Center. The
inventory and supplies related to the actual practice of dentistry will also be
ordered by CDS, but the actual type of inventory and supplies are to be
approved by the Dental Practice Entity. CDS will be solely responsible for the
Dental Practice Entity's accounts payable function.
1.6 Information Systems and Accounting. In consultation with the
Dental Practice Entity, CDS will establish, maintain, and train the Centers'
staff in the use of information to produce financial and operational
information concerning the Centers' business operations. CDS will analyze such
information on an ongoing basis and consult with the Dental Practice Entity on
enhancing the Centers' productivity. CDS will provide or arrange for all
accounting and bookkeeping services related to the Centers' operations,
provided that such services are incurred in the ordinary course of business.
1.7 Legal Compliance and Services. CDS will be responsible for
monitoring compliance with all rules, regulations and ordinances applicable to
the Centers' business operations, and shall arrange for all legal services
reasonably required by the Center, but excluding those necessitated by
allegations related to the actual practice of dentistry or professional
malpractice. The Dental Practice entity shall be fully responsible for
ensuring compliance with all safe and reasonable dental practices and shall
indemnify and hold harmless CDS for any and all liability, damages and claims
associated with any incorrect or negligent dental practice or any violations of
the Florida Dentist Statute, Chapter 466.
1.8 Marketing. The parties expressly acknowledge and agree that
the Dental Practice Entity shall exercise control over all policies and
decisions relating to pricing, credit, refunds, warranties and advertising.
Subject to the foregoing, and in accordance with applicable laws, regulations
and ethical standards, in consultation with the Dental Practice Entity, CDS
will assist in developing a marketing plan to promote the Dentist's
professional services and, upon approval of the Dental Practice Entity, shall
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provide marketing support services to implement the same. Such marketing plan
may include newspaper yellow pages, radio and television advertising, and
direct marketing to employers, insurance companies, and other payors. Marketing
support services include training the Dental Practice Entity's personnel
concerning marketing techniques, providing written materials that may be used
in marketing, and providing technical assistance to the Dental Practice
Entity's personnel engaged in direct marketing efforts such as administrative
support and assistance in contract negotiation and implementation. CDS shall
not perform direct marketing to potential sources of business, but shall
provide assistance to the Dental Practice Entity's personnel who perform any
such direct marketing as set forth above. All marketing activities hereunder
shall be conducted in compliance with all applicable laws and regulations
governing advertising by the dental profession.
1.9 Planning. CDS will provide advisory services to the Dental
Practice Entity regarding the establishment of dental offices in new locations.
1.10 Financial Services. CDS will be responsible for (i)
assistance in billing and collection of Payments for all professional services
rendered by the Dentist(s) or clinical staff to patients, with all such billing
and collecting to be done for the Dental Practice Entity; (ii) receiving
payments from patients, insurance companies and all other third party payors;
(iii) taking possession of and endorsing in the name of the Dental Practice
Entity any notes, checks, money orders, insurance payments and other
instruments received in payment for professional services rendered; (iv)
performance of all payroll functions; (v) preparing and submitting to the
Dentist monthly operating data and quarterly financial reports with respect to
the operations of the Center; and (vi) paying all Center Expenses, as set forth
in Section 3.1. CDS and the Dental Practice Entity agree that the Dental
Practice Entity shall be responsible for any accounts receivables for
professional services rendered by the Dental Practice Entity.
1.11 Operational Matters. To the extent not prohibited by
applicable law and except as otherwise provided in this Agreement, CDS shall
have discretion on all operational matters of the Center.
1.12 Disbursement of Funds.
(i) All monies collected for the Dental Practice Entity
by CDS pursuant to Section 1.10 above shall be
deposited into an account (the "Dental Practice
Entity Account") with a bank whose deposits are
insured with the Federal Deposit Corporation. The
Dental Practice Entity Account shall contain the name
of the "Dental Practice Entity," but CDS shall make
all disbursements therefrom. In connection with the
billing, collection and disbursement services to be
provided by CDS under this Agreement, Dental Practice
Entity hereby grants to CDS an exclusive irrevocable
special power of attorney coupled with an interest
and appoints CDS as Dental Practice Entity's
exclusive true and lawful agent and attorney-in-fact.
Upon the request of CDS, Dental Practice Entity shall
execute any additional documents or instruments as
may be necessary to evidence or effect the special
power of attorney granted to CDS by Dental Practice
Entity. CDS shall account for all monies so
disbursed from the Dental Practice Entity Account.
From the funds collected and deposited by CDS in the
Dental Practice Entity Account, CDS shall make the
following disbursements promptly when payable in the
order set forth below:
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(a) All sums due and payable by CDS, as Center
Expenses, as defined in Article III hereof,
as well as fees payable to CDS pursuant to
Article III hereof.
(b) All remaining sums owed to CDS from Dental
Practice Entity.
(c) The remainder shall be paid to the Dental
Practice Entity.
(ii) In the event the funds in the Dental Practice Entity
Account will, at any time, be insufficient to cover
current expenses, the Dental Practice Entity shall
immediately, upon notification, provide sufficient
funds to CDS to cover the same. CDS shall notify the
Dental Practice Entity and CDS may advance to the
Dental Practice Entity the necessary funds to pay
current expenses for the benefit of the Dental
Practice Entity, which advances will be deemed to be
loans to the Dental Practice Entity to be repaid upon
such terms and at such rate of interest as agreed to
by the Dental Practice Entity and CDS, which
indebtedness shall be deemed a Center Expense for
purposes of Article III hereof.
1.13 Records. CDS will maintain on behalf of the Dental Practice
Entity all files and records relating to the business operations of the Center,
including but not limited to accounting, billing, and collection records.
However, the parties expressly acknowledge and agree that patient records shall
at all times be and remain the property of and under the control of the
Dentists and shall be stored at the Dental Practice Entity's facilities so that
they are readily accessible for patient care. The management of all files and
records shall comply with applicable state and federal statutes. CDS shall use
its reasonable efforts to preserve the confidentiality of patient medical
records and use information contained in such records only for the limited
purpose necessary to perform the services set forth herein.
1.14 Covenant Not to Compete. CDS agrees that during the term of
this Agreement, CDS will not provide services and support for any other dental
practice market area where the Centers covered by this Agreement are located
(the "Area of Dominant Influence") without the express written consent of the
Dental Practice Entity.
1.15 Non-Interference. CDS shall not influence or otherwise
interfere with the exercise of a Dentists independent professional judgment and
shall not exercise any control over any of the prohibited activities
specifically defined in Section 466.0285, Florida Statutes.
II. OBLIGATIONS OF THE DENTAL PRACTICE ENTITY
2.1 Employment of Dentists and Rendering of Patient Care. Dental
Practice Entity shall be solely responsible for the employment and professional
supervision of all Dentist(s) affiliated with the Dental Practice Entity and
all dental care rendered to patients shall be rendered by such Dentist(s).
Additionally, the Dental Practice Entity shall be solely responsible for the
employment of dental hygienists, if any, and for the professional supervision
of such hygienists in their rendering of patient care.
2.2 Professional Services. The Dental Practice Entity shall use
and occupy the offices and facilities exclusively for the practice of dental
services, and shall comply with all applicable local rules,
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ordinances and all standards of dental and dental care. It is expressly
acknowledged by the parties that the dental practice conducted at the Center
shall be conducted solely by the Dentists associated with the Dental Practice
Entity, and no other dentist shall be permitted to use or occupy the Center.
The Dental Practice Entity shall ensure that each dentist to provide dental
services to patients is licensed by the state in which the Center is located.
In the event that any disciplinary, medical malpractice or other actions are
initiated against any such dentist, the Dental Practice Entity shall
immediately inform CDS of such action and the underlying facts and
circumstances to the degree such information is not confidential by law. The
Dental Practice Entity agrees to cooperate with and participate in quality
assurance/utilization review programs established by licensed dental
professional retained by CDS or mandated by accreditation and/or standards
applicable to the practice of dentistry. Deficiencies discovered in the
performance of any personnel or in the quality of professional services shall
be reported immediately to CDS, and appropriate steps shall be taken by the
Dental Practice Entity at once to remedy such deficiencies.
2.3 Records. The Dental Practice Entity will keep or cause to be
kept accurate, complete and timely medical and other records of all patients.
Such records shall be sufficient to enable CDS, on behalf of the Dental
Practice Entity, to obtain payment for the services provided by the Dentist.
2.4 Certain Expenses and Reimbursements. The Dental Practice
Entity shall be solely responsible for the cost of professional licensure fees
and board certification fees, membership and professional associations, and
continuing professional education incurred by the Dentist. The Dental Practice
Entity agrees to reimburse CDS for the value of any grants or awards by CDS to
any professional employee of Dental Practice Entity under CDS's Affiliated
Professional Stock Option Plan, which must be approved in advance by the Dental
Practice Entity, as calculated under the Black-Scholes Models or
a similar model selected by CDS. In addition, the Dental Practice Entity shall
be responsible for any other expenses and reimbursements set forth in this
Agreement as the responsibility of the Dental Practice Entity.
2.5 Professional Insurance Eligibility. Throughout this
agreement, the Dental Practice Entity shall maintain professional liability
insurance insuring each of its Dentists in amounts and through companies
reasonably acceptable to CDS. Dental Practice Entity agrees to provide copies
to CDS of insurance policies immediately upon request.
2.6 [RESERVED]
2.7 Confidentiality. The Dental Practice Entity agrees and
acknowledges that all materials provided by CDS to the Dental Practice Entity
constitute "Confidential Information" and disclosed in confidence and with the
understanding that it constitutes valuable business information developed by
CDS at great expenditures of time, effort, and money. The Dental Practice
Entity further agrees that it shall not, directly or indirectly, without the
express written consent of CDS, use or disclose such Confidential Information
for any purpose than in connection with the services to be rendered hereunder.
The Dental Practice Entity further agrees: (i) to keep strictly confidential
and hold in trust all Confidential Information and not disclose such
Confidential Information to any third party, including its affiliates without
the express prior written consent of CDS; and (ii) to impose this obligation of
Confidentiality on its affiliates, partners, employees and independent
contractors. The Dental Practice Entity acknowledges that the disclosure of
Confidential Information to it by CDS is done in reliance upon its
representations and covenants in this Agreement. Upon expiration or
termination of this agreement by either party for any reason whatsoever, the
Dental Practice Entity shall immediately return and shall cause its affiliates,
partners, shareholders and independent contractors to immediately return to CDS
all Confidential
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Information, and the Dental Practice Entity will not, and will cause its
affiliates, partners, employees and independent contractors not to, thereafter
use, appropriate or reproduce such Confidential Information. The Dental
Practice Entity further expressly acknowledges and agrees that any such use,
appropriation, or reproduction of any such Confidential Information by any of
the foregoing after the expiration or termination of this Agreement will result
in the injury to CDS, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, CDS, in addition to any other remedies or damages
available to it, shall be entitled to injunctive or other equitable relief
without the necessity of proving actual damages but such rights to relief shall
not preclude CDS from other remedies which may be available to it hereunder.
2.8 Employment Agreement. The parties recognize that the services
to be provided by CDS are feasible only if the Dental Practice Entity operates
an active dental practice to which it and each dentist associated with the
Dental Practice Entity devote their full time and attention. The Dental
Practice Entity will use its best efforts to cause each individual Dentist who
is or becomes employed at the Center after the date hereof to enter into an
employment agreement, which will provide, among other things, that in the event
of a breach of a Dentist's agreement that the Dentist shall not compete with
the Dental Practice Entity, for a period of two years after termination of
employment, and in the event of a breach, the Dental Practice Entity will be
entitled to receive liquidated damages equalling the greater of (a) such
Dentist's income, as shown on the W-2 form prepared by the Dentist, for the
most recent year; or (b) $300,000. The Dental Practice Entity shall use its
best efforts to enforce the agreement not-to-compete and collect the amount of
liquidated damages from the breaching Dentist. Any liquidated damages
collected by the Dental Practice Entity shall be considered Gross Revenue (as
hereinafter defined). CDS shall be a third party beneficiary of each employment
agreement entered into between the Dental Practice Entity and an individual
Dentist.
2.9 Exclusivity. Dental Practice Entity agrees that during the
term of this Agreement that CDS shall have the exclusive right to provide
services and support to any other dental practice opened by Dental Practice
Entity after the date of this Agreement under mutually agreeable terms similar
to the terms of this Agreement and that no other entity or person may provide
services and support similar to CDS's to Dental Practice Entity unless CDS, in
its sole discretion, consents in writing to the same.
2.10 Operations. The Dental Practice Entity agrees not to cease
operations, change its form of entity or change its ownership during the term
of this Agreement.
III. FINANCIAL ARRANGEMENTS
3.1 Service and Support Fee: CDS shall receive fees as follows,
subject to the provisions of Section 3.4 below:
(i) a Service and Support fee (the "S&S Fee") equal to
the sum of that percentage of the Centers' monthly
Gross Revenue set forth in Exhibit "A ";
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(ii) except as otherwise provided, the amounts to be paid
to CDS under this Section 3.1 shall be payable
monthly. The amounts shall be estimated based upon
the previous month's operating results of the Center.
Adjustments to the estimated payments shall be made
to reconcile actual amounts due under this Section
3.1, by the end of the following month. Upon
preparation of quarterly financial statements, final
adjustments to the service fee for the quarter shall
be made and any additional payments owing to CDS or
the Dental Practice Entity shall then be made. Any
audit adjustments shall be reflected in the
calculations for the fourth quarter.
3.2 Center Expenses. So long as the Dentist Practice Entity is in
full compliance with the terms hereof, CDS shall be responsible for the payment
of all Center Expenses, as defined below, during the term of this Agreement by
the Dental Practice Entity, unless otherwise agreed to by the parties hereto.
3.3 Definitions. For the purposes of this Agreement, the
following definitions shall apply:
(i) "Center Expenses" shall mean all operating and
non-operating expenses incurred in the operation of
the Center, including, without limitation:
(a) Salaries, benefits, and other direct costs of
all employees of CDS at the Center, including
dental assistants (but excluding all Dentists
and Dental Hygienists);
(b) Direct costs of all employees or consultants
of CDS who provide services at or in
connection with the Center required for
improved clinic performance, such as work
management, materials management, purchasing,
charge and coding analysis, and business
office consultation;
(c) Corporate overhead charges or any other
expenses of CDS or any corporation affiliated
with CDS other than the kind of items listed
above;
(d) Personal property and intangible taxes
assessed against CDS's assets used in
connection with the operation of the Center,
commencing on the date of this Agreement;
(e) Interest expense on indebtedness incurred by
CDS to finance any of its obligations
hereunder or services provided hereunder;
(f) Malpractice insurance expenses and dentist
recruitment expenses;
(g) Other expenses incurred by CDS in carrying
out its obligations under this Agreement.
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"Center Expenses" shall not include:
(h) Any federal or state income taxes;
(i) Any bad debt and related expense; and
(j) Any expenses which are expressly designated
herein as expenses or responsibilities of the
Dental Practice Entity.
(ii) "Gross Revenue" shall mean all fees and charges
recorded or booked each month (net of adjustments) by
or on behalf of the Dental Practice Entity as a
result of professional dental services personally
furnished to patients by the Dentist or Hygienists
and other fees or income generated in their capacity
as a professional prior to any adjustments.
IV. INSURANCE AND INDEMNITY
4.1 Insurance to be Maintained by the Dental Practice Entity.
Throughout the term of this Agreement, the Dental Practice Entity shall
maintain comprehensive professional liability insurance with limits of not less
than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per dentist providing services at the Center and a separate limit
for the Dental Practice Entity. The Dental Practice Entity shall be
responsible for all such liabilities in excess of the limits of such policies.
CDS agrees to negotiate for and cause premiums to be paid with respect to such
insurance. Premiums and deductibles with respect to such policies shall be a
Center Expense.
4.2 Insurance to be Maintained by CDS. Throughout the term of
this Agreement, CDS will use reasonable efforts to provide and maintain, as a
Center Expense, (a) comprehensive professional liability insurance for any
professional employees of CDS, except for Dentists and Hygienists, with limits
as determined reasonable by CDS; and (b) comprehensive general liability and
property insurance covering the Center premises and operations.
4.3 Tail Insurance Coverage. The Dental Practice Entity will
cause each individual Dentist providing services at the Center to enter into an
agreement with the Dental Practice Entity that upon termination of such Dental
Practice Entity's relationship with the Dentist, for any reason, tail insurance
coverage will be purchased by each Dentist. Such provisions may be contained
in employment agreements, restrictive covenant agreements or other agreements
entered into by the Dental Practice Entity and the individual Dentists, and the
Dental Practice Entity hereby covenants with CDS to enforce such provisions
relating to the tail insurance coverage or to provide such coverage at the
expense of the Dental Practice Entity.
4.4 Additional Insureds. The Dental Practice Entity and CDS agree
to use their reasonable efforts to have each other named as an additional
insured on the others respective professional liability insurance programs.
4.5 Indemnification. The Dental Practice Entity shall indemnify,
hold harmless and defend CDS, its officers, directors, shareholders 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
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the performance of medical or dental services or the performance of any
intentional acts, negligent acts or omissions by the Dental Practice Entity
and/or its affiliates, its shareholders, agents, employees and/or
subcontractors (other than CDS) during the term of this Agreement. CDS shall
indemnify, hold harmless and defend the Dental Practice Entity, directors,
shareholders 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 CDS and/or its shareholders, agents, employees and/or
subcontractors (other than the Dental Practice Entity) during the term of this
Agreement.
V. TERM AND TERMINATION
5.1 Term of Agreement. This Agreement shall be for a forty (40)
year term commencing on the date hereof which term shall automatically renew
annually unless earlier terminated pursuant to the terms hereof.
5.2 Termination by the Dental Practice Entity. The Dental
Practice Entity may terminate this Agreement as follows:
(i) In the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of
creditors by CDS, or upon other action taken or
suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by
CDS, except for the filing of a petition in
involuntary bankruptcy against CDS which is dismissed
within thirty (30) days thereafter, the Dental
Practice Entity may give written notice of the
immediate termination of this Agreement.
(ii) In the event CDS shall materially default in the
performance of any duty or obligation imposed upon it
by this Agreement and such default shall continue for
a period of ninety (90) days after written notice
thereof has been given to CDS by the Dental Practice
Entity, the Dental Practice Entity may terminate this
Agreement.
5.3 Termination by CDS. CDS may immediately terminate this
Agreement at its discretion, upon written notice, as follows:
(i) If the Dental Practice Entity becomes insolvent by
reason of its inability to pay its debts as they
mature; is adjudicated bankrupt or insolvent; files a
petition in bankruptcy, reorganization or similar
proceeding under the bankruptcy laws of the United
States or shall have such a petition filed against it
which is not discharged within thirty (30) days; has
a receiver or other custodian, permanent or
temporary, appointed for its business, assets or
property; makes a general assignment for the benefit
of creditors; has its bank accounts, property or
accounts attached; has execution levied against its
business or property; or voluntarily dissolves or
liquidates or has a petition filed for corporate
dissolution and such petition is not discussed with
thirty (30) days;
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(ii) If the Dental Practice Entity fails to comply with
any provision of this Agreement, or any other
agreement with CDS, and does not correct such failure
within 30 days after written notice of such failure
to comply is delivered by CDS; or
(iii) If CDS determines that any applicable state or
federal legislation, regulation or rule may have an
adverse effect on CDS's rights, remedies or
discretion under this Agreement.
5.4 Rights and Obligations After Termination. The parties agree
that it may be difficult, if not impossible, to determine the amount of
monetary damages that CDS would incur in the event of termination of this
Agreement pursuant to Section 5.3, or termination by Dental Practice Entity,
prior to the expiration of the term of this Agreement. However, the parties do
agree that the monetary loss to CDS would be substantial. Accordingly, in the
event of termination of this Agreement pursuant to Section 5.3 or by Dental
Practice Entity, Dental Practice Entity agrees to pay to CDS liquidated damages
in accordance with Exhibit "B" of this Agreement. If upon termination of this
Agreement CDS consents in writing within ten (10) days to the Dental Practice
Entity retaining possession of the Centers and/or equipment, the amount of
liquidated damages payable to CDS set forth in Exhibit "B" shall be decreased
by 20% and Dental Practice Entity shall also assume all debts, obligations,
contracts, and payables of CDS which relate solely to the performance of CDS's
obligations under this Agreement. The Dental Practice Entity shall pay the
liquidated damages amounts owed to CDS within thirty (30) days of written
notice from CDS as to the amounts owed.
5.5 Limitation of Liability. In no event shall CDS be liable to
the Dental Practice Entity for any indirect, special or consequential damages
or lost profits, arising out of or related to this Agreement or the performance
or breach thereof, even if CDS has been advised of the possibility thereof.
5.6 Patient Records. Upon termination of this Agreement, the
Dental Practice Entity shall retain all patient dental records. During the
term of this Agreement, and thereafter, the Dental Practice Entity or its
designee shall have reasonable access during normal business hours to the
Dental Practice Entity's and CDS's records, including, but not limited to,
records of collections, expenses and disbursements as kept by CDS in performing
CDS's obligations under this Agreement, and the Dental Practice Entity may copy
any or all such records.
VI. ADVISORY BOARD
6.1 Formation and Operation of the Advisory Board. The parties
hereby establish a Advisory Board which shall be responsible for providing
dispute resolution on certain matters and for developing and implementing
management and administrative policies for the overall operation of the
Centers. The Advisory Board shall consist of two (2) members. CDS shall
designate, in its sole discretion, one (1) member of the Advisory Board.
Dental Practice Entity shall designate, in its sole discretion, one (1) member
of the Advisory Board. The Advisory Board members selected by the Dental
Practice Entity shall be full-time employees of the Dental Practice Entity
engaged in the practice of dentistry. Each party's representatives to the
Advisory 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
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Advisory Board shall be the act of the Advisory Board. In the event of a voting
deadlock, a person mutually agreed upon by CDS and Dental Practice Entity shall
be temporarily appointed to the Advisory Board within five (5) days for the sole
purpose of casting a deciding vote. The decisions, resolutions, actions, or
recommendations of the Advisory Board shall be implemented by CDS or Dental
Practice Entity as appropriate.
6.2 Duties and Responsibilities of the Advisory Board. The
Advisory Board shall review, evaluate and make recommendations concerning the
following matters:
(a) Capital Improvements and Expansion. Any renovation
and expansion plans and capital equipment expenditures with respect to the
Center shall be reviewed by the Advisory Board which shall make recommendations
to CDS with respect to proposed changes therein. Such renovation and expansion
plans and capital equipment expenditures shall be based upon economic
feasibility, dental support, productivity and then current market conditions.
(b) Ancillary Services. The Advisory Board shall advise
CDS and Dental Practice Entity with respect to Dental Practice Entity provided
ancillary services concerning the pricing, access to and quality of such
services.
(c) Provider and Payor Relationships. The Advisory Board
shall review and make recommendations to CDS and Dental Practice Entity
regarding the establishment or maintenance of relationships with institutional
health care providers and third-party payors. The Advisory Board shall also
advise CDS and Dental Practice Entity concerning discounted fee schedules,
including capitated fee arrangements, and shall allocate revenue generated from
capitation contracts.
(d) Strategic Planning. The Advisory Board shall advise
CDS concerning development of long-term strategic planning objectives for the
Centers.
(e) Capital Expenditures. The Advisory Board shall
advise CDS concerning the priority of major capital expenditures.
(f) Fee Dispute Resolution. At the request of CDS, the
Advisory Board shall advise CDS with respect to any dispute concerning a
set-off or reduction in Service and Support Fees.
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(g) Grievance Referrals. The Advisory Board shall
consider and make recommendations to CDS and Dental Practice Entity regarding
grievances pertaining to matters not specifically addressed in this Services
and Support Agreement as referred to it by CDS or Dental Practice Entity's
Board of Directors.
Notwithstanding any contrary provision of this Agreement, it is
acknowledged and agreed that recommendations of the Advisory Board are intended
for the advice and guidance of CDS and Dental Practice Entity and that the
Advisory Board does not have the power to bind CDS and Dental Practice Entity.
Where discretion with respect to any matter is vested in CDS or Dental Practice
Entity under the terms of this Agreement, CDS or Dental Practice Entity as the
case may be, shall have ultimate responsibility for the exercise of such
discretion, notwithstanding any recommendations of the Advisory Board. CDS and
Dental Practice Entity shall, however, take such recommendations of the
Advisory Board into account in good faith in the exercise of such discretion.
6.3 Dental Decisions. Despite the above listing of activities and
areas of interest, all dental decisions and related decisions required by
applicable law to be made solely by dentists will be made solely by the
Dentists, but non-dental members of the Advisory Board may participate in the
discussion process. The dental members of the Advisory Board shall have
exclusive authority to review and resolve issues related to:
(a) Types and levels of dental services to be provided;
(b) Recruitment of dentists and dental hygienists to the
Dental Practice Entity, including the specific qualifications and specialties
of recruited dentists and dental hygienists;
(c) Fee schedules;
(d) Any dental related functions; and
(e) Any other decisions required by applicable law to be
made solely by dentists and not by non- dentists.
6.4 Meetings of the Advisory Board. The Advisory Board shall meet
on a regular basis as mutually agreed by the parties. A special meeting of the
Advisory Board may be called by either the Dental Practice Entity or CDS upon
five (5) business days notice.
VII. INDEPENDENT CONTRACTOR
7.1 Dental Practice Entity's Control Over Professional Services.
Notwithstanding the duties and responsibilities granted to CDS herein, CDS and
the Dental Practice Entity agrees that the affiliated Dentist, personally or
through any of his professional employees or agents, shall have complete
control or supervision over the provision of all professional services, with
the sole authority to direct the professional, and ethical aspects of his
dental practice and to select the course of treatment for a patient or the
manner in which such treatment is carried out. CDS will have no authority,
directly or indirectly, to perform, and will not perform, any dental function,
nor shall CDS have any care, custody or control over the use of any dental
equipment being used for the provision of dental services or the practice of
dentistry.
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7.2 Independent Relationship. The Dental Practice Entity and CDS
intend to act and perform as independent contractors, and the provisions hereof
are not intended to create any partnership, joint venture, agency or employment
relationship between the parties. The Dental Practice Entity will not have any
claim under this Agreement, or otherwise, against CDS for vacation pay, sick
leave, unemployment insurance, worker's compensation, disability benefits or
employee benefits of any kind.
7.3 Other Professionals. No provision of this Agreement is
intended to limit CDS's right, authority, or ability under applicable law to
contract with other physicians, or to employ, contract with, or enter into any
partnership or joint venture with any healthcare professional.
VIII. GENERAL PROVISIONS
8.1 Assignment. CDS shall have the right to assign its rights
hereunder to any person, firm or corporation under common control with CDS.
Except as set forth above, neither CDS nor the Dental Practice Entity shall
have the right to assign their respective rights and obligations hereunder
without the written consent of the other party. Subject to this provision,
this Agreement shall be binding upon the parties hereto, and their successors
and assigns.
8.2 Whole Agreement; Modification. There are no other agreements
or understandings, written or oral, between the parties regarding this
Agreement, the Exhibits and the Schedules, other than as set forth herein. The
Agreement shall not be modified or amended except by a written document
executed by both parties to this Agreement, and such written modification(s)
shall be attached hereto.
8.3 Notices. All notices required or permitted by this Agreement
shall be in writing and shall be addressed as follows:
To CDS: Coast Dental Services, Inc.
25400 U.S. Highway 19, Suite 225
Clearwater, Florida 34623
Attn: Terek Diasti
With a copy to: Darrell C. Smith, Esquire
c/o Shumaker, Loop & Kendrick
101 E. Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
To the Coast Florida P.A.
Dental Practice Entity: 25400 U.S. Highway 19, Suite 225
Clearwater, Florida 34623
or to such other address as either party shall notify the other.
8.4 Waiver of Provisions. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
-13-
<PAGE> 14
8.5 Governing Law. The validity, interpretation and performance
of this Agreement shall be governed by and construed in accordance with the
laws of the state of Florida. The parties acknowledge that CDS is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of dentistry. To the extent any act or
service required of CDS in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of
dentistry, the performance of said act or service by CDS shall be deemed waived
and forever unenforceable and the provisions of Section 8.12 shall be
applicable.
8.6 Events Excusing Performance. Neither party shall be liable to
the other party for failure to perform any of the services required herein in
the event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies or other events over which that party has no control for so long as
such events continue, and for a reasonable period of time thereafter.
8.7 Compliance with Applicable Laws. Both parties shall comply
with all applicable federal, state and local laws, regulations and restrictions
in the conduct of their obligations under this Agreement.
8.8 Severability. The provisions of this Agreement shall be
deemed severable and if any portion shall be held invalid, illegal or
unenforceable for any reason, the remainder of this Agreement shall be
effective and binding upon the parties.
8.9 Additional Documents. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by
the other party to implement or complete such party's obligations pursuant to
this Agreement.
8.10 Attorneys' Fees. If legal action is commenced by either party
to enforce or defend its rights under this Agreement, the prevailing party in
such action shall be entitled to recover its costs and reasonable attorneys'
fees in addition to any other relief granted.
8.11 Confidentiality. Neither party hereto shall disseminate or
release to any third party any information regarding any provision of this
Agreement, or any financial information regarding the other (past, present or
future) that was obtained by the other in the course of the negotiation of this
Agreement or 'in the course of the performance of this Agreement, without the
other party's written approval; provided, however, the foregoing shall not
apply to information which is required to be disclosed by law including
securities laws, or pursuant to court order.
8.12 Contract Modifications For Legal Events. In the event any
state or federal laws or regulations, now existing or enacted or promulgated
after the effective date of this Agreement, are interpreted by judicial
decision, a regulatory agency or legal counsel for both parties in such a
manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, the Dental Practice Entity and CDS shall amend
this Agreement as necessary to comply with the same. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between the Dental Practice Entity and CDS, or CDS shall
have the right to terminate this agreement immediately upon written notice to
Dental Practice Entity.
8.13 Remedies Cumulative. Except as set forth in Section 5.4, no
remedy set forth in this Agreement or otherwise conferred upon or reserved to
any party shall be considered exclusive of any other
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<PAGE> 15
remedy available to any party, but the same shall be distinct, separate and
cumulative and may be exercised from time to time as often as occasion may
arise or as may be deemed expedient.
8.14 Language Construction. The language in all parts of this
Agreement be construed, in all cases, according to parties acknowledge that
each party and its counsel have reviewed and revised this Agreement and that
the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
8.15 No Obligation to Third Parties. None of the obligations and
duties of CDS or the Dental Practice Entity under this Agreement shall in any
way or in any manner be deemed to create any obligation of CDS or of the Dental
Practice Entity to, or any rights in, any person or entity not a party to this
Agreement.
8.16 Legal Representation. The law firm of Shumaker, Loop &
Kendrick represents CDS in this matter and not the Dental Practice Entity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
THE DENTAL PRACTICE ENTITY:
/s/ Adam Diasti
-------------------------------------
By: Adam Diasti
Title: President
CDS:
COAST DENTAL SERVICES, INC.
By: /s/ Terek Diasti
------------------------------------
Terek Diasti, Chief Executive Officer
-15-
<PAGE> 1
Exhibit 10.8
Form A293 PROMISSORY NOTE
$52,921.00 Dated June 30, 1996
Principal Amount State of
FOR VALUE RECEIVED, the undersigned hereby jointly and severally
promise to pay to the order of Coast Dental Services, Inc., the sum of Fifty-Two
Thousand, Nine Hundred and Twenty One Dollars ($__________________), together
with interest thereon at the rate of 8% per annum on the unpaid balance.
Said sum shall be paid in the manner following:
Payable in full in Two (2) years.
All payments shall be first applied to interest and the balance to
principal. This note may be prepaid, at any time, in whole or in part, without
penalty. All prepayments shall be applied in reverse order of maturity.
This note shall at the option of any holder hereof be immediately due
and payable upon the failure to make any payment due hereunder within days of
its due date.
In the event this note shall be in default, and placed with an attorney
for collection, the undersigned agree to pay all reasonable attorney fees and
costs of collection. Payments not made within five (5) days of due date shall be
subject to a late charge of % of said payment. All payments hereunder shall
be made to such address as may from time to time be designated by any holder
hereof.
The undersigned and all other parties to this note, whether as
endorsers, guarantors or sureties, agree to remain fully bound hereunder until
this note shall be fully paid and waive demand, presentment and protest and all
notices thereto and further agree to remain bound, notwithstanding any
extension, renewal, modification, waiver, or other indulgence by any holder or
upon the discharge or release of any obligor hereunder or to this note, or upon
the exchange, substitution, or release of any collateral granted as security for
this note. No modification or indulgence by any holder hereof shall be binding
unless in writing; and any indulgence on any one occasion shall not be an
indulgence for any other or future occasion. Any modification or change of
terms, hereunder granted by any holder hereof, shall be valid and binding upon
each of the undersigned, notwithstanding the acknowledgement of any of the
undersigned, and each of the undersigned does hereby irrevocably grant to each
of the others a power of attorney to enter into any such modification on their
behalf. The rights of any holder hereof shall be cumulative and not necessarily
successive. This note shall take effect as a sealed instrument and shall be
cumulative and not necessarily successive. This note shall take effect as a
sealed instrument and shall be construed, governed and enforced in accordance
with the laws of the State first appearing at the head of this note. The
undersigned hereby execute this note as principals and not as sureties.
Signed in the presence of: ADAM DIASTI, P.A.
__________________________ By:____________________________
Witness Adam Diasti, President
__________________________
Witness
<PAGE> 1
Exhibit 10.9
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,500,000.00 08-15-1996 04000062812 A100 36 936
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
<TABLE>
<S> <C> <C> <C>
BORROWER: Coast Dental Services, Inc. LENDER: BARNETT BANK, N.A.
25400 US Highway 19 N, Suite 225 P.O. BOX 40329
Clearwater, FL 34623 JACKSONVILLE, FL 32203-0329
====================================================================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT between Coast Dental Services, Inc. ("Borrower")
and BARNETT BANK, N.A. ("Lender") is made and executed on the following terms
and conditions. Borrower has received prior commercial loans from lender or
has applied to Lender for a commercial loan or loans or other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees that:
(a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at
all times shall be subject to Lender's sole judgment and discretion; and (c)
all such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of August 15, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement,
as this Business Loan Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
BORROWER. The word "Borrower" means Coast Dental Services, Inc.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without
limitation all property and assets granted as collateral security for
a Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time and the regulations and
published interpretations thereof.
<PAGE> 2
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 2
LOAN NO 04000062812 (CONTINUED)
================================================================================
EVENT OF DEFAULT. The words "Event of Default" mean and include
without limitation any of the Events of Default set forth below in the
section titled "EVENTS OF DEFAULT."
GAAP. The word "GAAP" means generally accepted accounting principles
consistently applied.
GRANTOR. The word "Grantor" means and includes without limitation
each and all of the persons or entities granting a Security Interest
in any Collateral for the Indebtedness, including without limitation
all Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now existing, contemporaneously with or hereafter incurred or
created and any renewals, modifications, extensions, substitutions or
consolidations thereof, voluntary or involuntary incurred, secured
or unsecured, absolute or contingent, liquidated or unliquidated;
determined or undetermined, whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or
as guarantor, surety, or otherwise; whether recovery upon the
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may
become otherwise unenforceable.
LENDER. The word "Lender" means BARNETT BANK, N.A., its successors
and assigns.
LOAN. The word "Loan" or "Loans" means and includes any and all
loans, advances, interest, costs, fees, documentary stamp tax and/or
intangible taxes, debts, overdraft indebtedness, leases, drafts,
letters of credit, credit cards, and business services from Lender to
Borrower, whether now existing, contemporaneously with, or hereafter
incurred or created and any renewals, modification, extensions,
substitutions or consolidations thereof, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
NOTE. The word "Note" means Borrower's promissory note or notes, if
any, evidencing Borrower's Loan obligations in favor of Lender, as
well as any renewal, extension, modification, consolidation,
substitute, replacement or refinancing note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet
due or being contested in good faith; (c) liens of materialmen,
mechanics, warehousemen, or carriers, or other like liens arising in
the ordinary course of business and securing obligations which are not
yet delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this Agreement or permitted to be incurred under the paragraph
of this Agreement titled "Indebtedness and Liens"; (e) liens and
security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those
liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the net
value of Borrower's assets.
-2-
<PAGE> 3
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 3
LOAN NO 04000062812 (CONTINUED)
================================================================================
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien or title retention contract,
lease or consignment intended as a security device, or any other
security or lien interest whatsoever, whether created by law,
contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting Lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any guaranties described below.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties
set forth in this Agreement, in the Related Documents, and in any
document or certificate delivered to Lender under this Agreement are
true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance
a condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
-3-
<PAGE> 4
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 4
LOAN NO 04000062812 (CONTINUED)
================================================================================
ORGANIZATION. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the state of
Borrower's incorporation and is validly existing and in good standing
in all states in which Borrower is doing business. Borrower has the
full power and authority to own its properties and to transact the
businesses in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a foreign corporation and
is in good standing in all states in which the failure to so qualify
would have a material adverse effect on its businesses or financial
condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower; do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation of,
or constitute a default under (a) any provision of its articles of
incorporation or organization, or bylaws, or any agreement or other
instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower and each
information, exhibit or report supplied to Lender by Borrower, its
agents or accountants truly and completely disclosed Borrower's
financial condition as of the date of the statement in accordance with
GAAP, and there has been no material adverse change in Borrower's
financial or business condition or operations subsequent to the date
of the most recent financial statement supplied to Lender and none are
imminent or threatened. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Borrower acknowledges and agrees that Lender is relying on all such
financial information in entering into, continuing, renewing or
extending any Loan.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective
terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled
in Borrower's legal name, and Borrower has not used, or filed a
financing statement under, any other name for at least the last five
(5) years. Additionally, Borrower and Borrower's real and personal
properties comply fully with all laws, ordinances, statutes, codes and
requirements of the Americans with Disabilities Act of 1990.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substances," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq., the Resource Conservation and Recovery
Act, 49 U.S.C. Section 6901, et seq., or other applicable state or
Federal laws, rules, or regulations adopted pursuant to any of the
foregoing. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership, lease or use of any real or personal
properties and the Collateral, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under, or
about any of the properties. (b) Borrower has no knowledge of, or
reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened
release of any hazardous waste or substance by any prior owners or
occupants of any of the properties or the Collateral, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other
-4-
<PAGE> 5
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 5
LOAN NO 04000062812 (CONTINUED)
================================================================================
authorized user of any of the properties or the Collateral shall use,
generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, or about any of the properties
or the Collateral; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of
the properties with this section of the Agreement. Any inspections or
tests made by Lender shall be at Borrower's expense and for Lender's
purposes only and shall not be construed to create any responsibility
or liability on the part of Lender to Borrower or to any other person.
The representations and warranties contained herein are based on
Borrower's due diligence in investigating the Collateral and the
properties for hazardous wastes and substances. Borrower hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to fully and promptly pay,
perform, discharge and defend, indemnify and hold harmless Lender
against any and all claims, orders, demands, causes of action,
proceedings, judgments, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership
or interest in the properties or the Collateral, whether or not the
same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination or
expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claims, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened, and no other
event has occurred which may materially adversely affect Borrower's
financial condition or properties, other than litigation, claims, or
other events, if any, that have been disclosed to and acknowledged by
Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be filed, have been
filed, and all taxes, assessments and other governmental charges have
been paid in full, except those presently being or to be contested by
Borrower in good faith in the ordinary course of business and for
which adequate reserves have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
BINDING EFFECT. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance
with their respective terms.
PERMITS. Borrower possesses and will continue to possess all permits,
licenses, copyrights, trademarks, trade names, patents and rights
thereto to conduct its business and its business does not conflict or
violate any valid rights of others with respect to the foregoing.
-5-
<PAGE> 6
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 6
LOAN NO 04000062812 (CONTINUED)
================================================================================
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes and will not purchase or
carry margin stock (within the meaning of Regulations G, T and U of
the Board of Governors of the Federal Reserve System).
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects with
all applicable requirements of law and regulations, and (i) no
Reportable Event nor Prohibited Transaction (as defined in ERISA) has
occurred with respect to any such plan, (ii) Borrower has not
withdrawn from any such plan or initiated steps to do so, and (iii) no
steps have been taken to terminate any such plan.
LOCATION OF BORROWER'S OFFICES AND RECORDS. The chief place of
business of Borrower and the office or offices where Borrower keeps
its records concerning the Collateral is located at 25400 US Highway
19 N, Suite 225, Clearwater, FL 34623.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purpose of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's indebtedness shall be
paid in full, or until this Agreement shall be terminated in the
manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
DEPOSIT ACCOUNTS. Maintain its primary banking accounts with Lender.
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all
litigation and claims and all threatened litigation and claims
affecting Borrower or any Guarantor which could materially affect the
financial condition of Borrower or the financial condition of any
Guarantor.
UPDATES. Promptly inform Lender in writing of details of all
litigation, legal or administrative proceedings, investigation or
other action of similar nature, pending or threatened against
Borrower, at any time during the term of this Agreement, which in part
or in whole may or will render any of the above representations and
warranties no longer true, accurate and correct in each and every
respect. Borrower will bring such details to Lender's attention, in
writing, within thirty (30) days from the date Borrower acquires
knowledge of same.
FINANCIAL RECORDS. Maintain its books and records in accordance with
GAAP and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
-6-
<PAGE> 7
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 7
LOAN NO 04000062812 (CONTINUED)
================================================================================
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but
in no event later than one hundred twenty (120) days after the end of
each fiscal year, Borrower's balance sheet and income statement,
statement of cash flow and notes to statements for the year ended,
audited by a certified public accountant satisfactory to Lender, and,
as soon as available, but in no event later than thirty (30) days
after the end of each month, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer
or other officer or person acceptable to Lender. All financial
reports required to be provided under this Agreement shall be prepared
in accordance with GAAP and certified by Borrower as being true and
correct. Provide to Lender annually for each individual Borrower or
Guarantor, if any, signed and dated personal financial statements on
Lender's forms and, immediately after filing, the personal income tax
return filed for the past calendar year. Simultaneously with the
financial information required herein of Borrower, the same
information of all corporate or partnership guarantors, if any,
prepared in accordance with GAAP.
Promptly after the furnishing thereof, provide Lender with copies of
any statement or report furnished to any other party pursuant to the
terms of any indenture, loan, credit, or similar agreement and not
otherwise required to be furnished to Lender pursuant to any other
section of this Agreement.
Promptly after the sending or filing thereof, provide Lender with
copies of all proxy statements, financial statements and reports which
Borrower sends to its stockholders, and copies of all regular,
periodic, special reports, and all registration statements which
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any
national securities exchange.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants
and ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of
not less than:
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C>
AS OF 12/31/96 $550,000.00
</TABLE>
CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than
the following level:
<TABLE>
<CAPTION>
PERIOD REQUIREMENT
------ -----------
<S> <C>
EACH FISCAL YEAR END. 1.25 TO 1.00
</TABLE>
-7-
<PAGE> 8
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 8
LOAN NO 04000062812 (CONTINUED)
================================================================================
FIXED CHARGE RATIO. Maintain a ratio of Adjusted Net Income
to Fixed Charges of not less than:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
EACH FISCAL YEAR END. 1.15 TO 1.00
</TABLE>
For purposes of this Agreement and to the extent the following terms
are utilized in this Agreement, the term "Tangible Net Worth" shall
mean Borrower's total assets excluding all intangible assets
determined in accordance with GAAP (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements at book
value) of Borrower less total Debt. The term "Debt" shall be
determined in accordance with GAAP. The term "Subordinated Debt"
shall mean indebtedness and liabilities of Borrower which have been
subordinated by written agreement to indebtedness owed by Borrower to
Lender in form and substance acceptable to Lender. The term "Working
Capital" shall mean Borrower's current assets at lower of cost or
current market value less amounts due from any officer, director,
shareholder or any entity related by common control or ownership,
excluding prepaid expenses, less Borrower's current liabilities. The
term "Liquid Assets" shall mean Borrower's cash on hand, marketable
securities, bank deposits and Borrower's receivables. The term
"Adjusted Net Income" means net income after taxes plus depreciation,
amortization, lease expense, and interest expense. The term "Fixed
Charges" mean interest expense plus lease expense, current maturities
of long-term debt and current maturities of capital leases. The term
"Cash Flow" shall mean net income after taxes, and exclusive of
extraordinary gains and income, plus depreciation and amortization.
The term "Senior Debt" shall mean Debt less Subordinated Debt. The
term "Capital Funds" shall mean Tangible Net Worth plus Subordinated
Debt. Except as provided above, all computations made to determine
compliance with the requirements contained in this paragraph shall be
made in accordance with GAAP and certified by Borrower as being true
and correct.
INSURANCE. Maintain fire and other risk insurance, business
interruption, theft, public liability insurance, and such other
insurance in such amounts and covering such risks as are usually
covered by businesses engaged in the same or a similar business and
similarly situated with respect to Borrower's properties and
operations, in form, coverages and with insurance companies reasonably
acceptable to Lender. Borrower, upon request of Lender, will deliver
to lender from time to time the policies or certificates of insurance
in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least thirty (30) days'
prior written notice to Lender. In connection with all policies
covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such loss
payable or other endorsements as Lender may require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral. The cost of such appraisal
shall be paid by Borrower.
-8-
<PAGE> 9
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 9
LOAN NO 04000062812 (CONTINUED)
================================================================================
GUARANTIES. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, on Lender's form,
and in the amounts and by the guarantors named below:
<TABLE>
<CAPTION>
GUARANTORS AMOUNTS
---------- -------
<S> <C>
ADAM DIASTI UNLIMITED
TIM DIASTI UNLIMITED
ADAM DIASTI, P.A. UNLIMITED
TEREK DIASTI UNLIMITED
</TABLE>
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and
any other party and notify Lender immediately in writing of any
default in connection with any other such agreements.
LOAN PROCEEDS. Use all loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind an nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income or profits. Provided, however,
Borrower will not be required to pay and discharge any such
assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books
adequate reserves with respect to such contested assessment, tax,
charge, levy, lien or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish
to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate
governmental official to deliver to Lender at any time a written
statement of any assessments, taxes, charges, levies, liens and claims
against Borrower's properties, income or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
OPERATIONS. Substantially maintain its present executive and
management personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefits plans, and
continue to engage in an efficient and economical manner in a business
of the same general type as now conducted by it, provided, however,
that nothing contained in this Agreement shall prevent Borrower from
discontinuing any part of Borrower's business, if in Borrower's
opinion, this discontinuance is in the best interests of Borrower and
not disadvantageous to Lender.
-9-
<PAGE> 10
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 10
LOAN NO 04000062812 (CONTINUED)
================================================================================
MAINTENANCE. Maintain, keep and preserve Borrower's buildings and
properties and every part thereof in good repair, working order, and
condition and from time to time make all needful and proper repairs,
renewals, replacements, additions, betterments and improvements
thereto, so that at all times the efficiency thereof shall be fully
preserved and maintained, ordinary wear and tear excepted.
INSPECTION. Permit employees or agents of Lender at any reasonable
time to inspect any and all collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's books,
accounts and records and to make copies and memoranda of Borrower's
books, accounts and records. If Borrower now or at any time hereafter
maintains any records (including without limitation computer generated
records and computer software programs for the generation of such
records) in the possession of a third party, Borrower, upon request of
Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of
any records it may request, all at Borrower's expense, and discuss the
affairs, finances and accounts of Borrower with Lender.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender upon Lender's request a compliance certificate executed by
borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of
the certificate, no default or Event of Default has occurred, or has
occurred and is continuing under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) except for trade debt incurred in the
normal course of business, purchase money security interests (for
which the maximum aggregate amount which may be incurred annually is
$200,000.00); operating leases (for which the maximum aggregate amount
which may be paid annually is $10,000,000.00), and indebtedness to
Lender contemplated by this Agreement, create, incur or assume
additional indebtedness for borrowed money, including capital leases,
in excess of U.S. $200,000.00, (b) sell, transfer, mortgage, assign,
pledge, lease, grant a security interest in or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender and except for Borrower's accounts as
allowed as a permitted lien.
-10-
<PAGE> 11
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 11
LOAN NO 04000062812 (CONTINUED)
================================================================================
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, wind up, liquidate, merge, reorganize,
transfer, acquire or consolidate with any other entity, change
ownership, dissolve, transfer or sell or acquire Collateral or assets
out of the ordinary course of business, or (c) pay, declare, set
aside, or allocate any dividends in cash or other property, on
Borrower's stock (however, if Borrower is a Subchapter S corporation,
Borrower may make distributions to each shareholder which is necessary
to pay for any personal income tax liability incurred by that
shareholder as a direct result of profits generated by the Subchapter
S corporation) or purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance
money or assets (except to shareholders or officers of Borrower and in
which the aggregate amount outstanding at any time may not exceed
$200,000.00), (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) assume, endorse, be liable for or
incur any agreement or obligation as surety or guarantor.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or
any other loan with Lender; or (e) Lender in good faith deems itself insecure
even though no Event of Default shall have occurred.
DIVIDEND LIMITATIONS. Notwithstanding anything to the contrary contained in
the Negative Covenants Section, Subsection "Continuity of Operations", clause
(c) above, Lender will permit a maximum aggregate annual amount of 50.00% of
annual net income to be paid in dividends.
ADDITIONAL FINANCIAL RATIO. Notwithstanding anything contrary contained in
this document, Tangible Net Worth shall be a minimum of $550,000.00 as of
12/31/96 and must increase by a minimum of 50.00% of annual net income
thereafter.
RIGHT OF SETOFF. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge, withdraw or setoff all sums owing on this Agreement
against any and all the accounts set forth below in the Accounts section
without prior demand or notice to Borrower.
ACCOUNTS. Borrower grants to Lender a contractual possessory security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
of Borrower's right, title and interest in and to, Borrower's deposits, accounts
(whether checking, savings, or some other account), or securities now or
hereafter in the possession of or on deposit with Lender or with any Barnett
Banks, Inc. affiliate or subsidiary including without limitation all accounts
held jointly with someone else and all accounts Borrower may open in the future,
excluding however all IRA, Keogh, and trust accounts.
EVENTS OF DEFAULT. If any of the following events shall occur each shall
constitute an Event of Default under this Agreement:
DEFAULT ON INDEBTEDNESS. An event of default as defined in any Loan
or Note or demand for full payment of any Loan or Note.
-11-
<PAGE> 12
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 12
LOAN NO 04000062812 (CONTINUED)
================================================================================
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or
to perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of
the Related Documents.
FALSE STATEMENTS. Any warranty, representation, or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as
a going business, insolvency, appointment of a receiver for any part
of Borrower's property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding
under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR PROCEEDINGS. Commencement of foreclosure proceedings, whether
by judicial proceeding, self-help, repossession or any other method, by
any creditor of Borrower, any creditor of any grantor of collateral for
the Loan. This includes a garnishment, attachment, or levy on or of any
of Borrower's deposit accounts with Lender.
FORFEITURE. The filing of formal charges under any federal or state
law against any Borrower which forfeiture is the penalty. However,
this Event of Default shall not apply if there is a good faith dispute
by Borrower as to the validity or reasonableness of the claim which is
the basis of the proceeding, and if Borrower gives Lender written
notice of the proceeding and furnishes reserves or a surety bond for
the proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor
dies or becomes incompetent.
INSECURITY. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and
-12-
<PAGE> 13
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 13
LOAN NO 04000062812 (CONTINUED)
================================================================================
an election to make expenditures or to take action to perform an obligation of
Borrower or of any Grantor shall not affect Lender's right to declare a default
and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as
to the matters set forth in this Agreement and supersedes all prior
understandings and correspondence, oral or written, with respect to
the subject matter hereof. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
CONTINUING AGREEMENT. This Agreement is a continuing agreement and
shall continue in effect notwithstanding that from time to time, no
Indebtedness may exist.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers, whether
related or unrelated to Lender. Lender may provide, without any
limitation whatsoever, to any one or more purchasers, or potential
purchasers any information or knowledge Lender may have about Borrower
or about any other matter relating to the Loan, and Borrower hereby
waives any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of
such participation interests. Borrower also agrees that the purchasers
of any such participation interests will be considered as the absolute
owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interest may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of
Lender's out-of-pocket expenses, including reasonable attorneys' fees,
incurred in connection with the preparation, execution, enforcement
and collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help
collect the Loans and to enforce this Agreement, and Borrower will pay
that amount. This includes, subject to any limits under applicable
law, Lender's reasonable attorneys' fees and Lender's legal expenses,
whether or not there is a lawsuit, including reasonable attorneys'
fees for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), appeals and any anticipated
post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall
be given in writing and shall be effective when actually delivered or
when deposited with a nationally recognized overnight courier or
deposited in the United States registered or certified mail, first
class, postage prepaid, return receipt requested, addressed to the
party to whom the notice is to be given at the address shown above;
notification by facsimile is specifically not allowed. Any party may
change its address for notices under this Agreement by giving formal
written notice to the other parties, specifying that the purpose of
the notice
-13-
<PAGE> 14
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 14
LOAN NO 04000062812 (CONTINUED)
================================================================================
is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any
Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower agrees to keep Lender informed at all times of
Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or circumstances. If
feasible, any such offending provision shall be deemed to be modified
to be within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and
all other provisions of this Agreement in all other respects shall
remain valid and enforceable.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or
on behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent
of Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
TIME. Time is of the essence in the performance of this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any
right shall operate as a waiver of such right or any other right. A
waiver by Lender of a provision of this Agreement shall not prejudice
or constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing
between Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's right or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever
the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is
required, and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
AUGUST 15, 1996.
BORROWER
Coast Dental Services, Inc.
By: ____________________________________
Terek Diasti, President
-14-
<PAGE> 15
08-15-1996 BUSINESS LOAN AGREEMENT PAGE 15
LOAN NO 04000062812 (CONTINUED)
================================================================================
LENDER:
BARNETT BANK, N.A.
By: ____________________________________
Authorized Officer
-15-
<PAGE> 1
Exhibit 10.10
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Indemnification
Agreement"), effective as of the ____ day of _______, 19__, is made and entered
into by and between Coast Dental Services, Inc., a Delaware corporation (the
"Company"), and __________________________, an individual (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and
attract as directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the
Company;
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
and officers of public companies in today's environment;
WHEREAS, the Certificate of Incorporation of the Company
requires the Company to indemnify and advance expenses to its directors and
officers to the full extent permitted by law, and the Indemnitee has been
serving and continues to serve as a director and/or officer of the Company in
part in reliance of such Certificate of Incorporation; and,
WHEREAS, in recognition of Indemnitee's need for
substantial protection against personal liability in order to enhance
Indemnitee's continued service to the Company in an effective manner and
Indemnitee's reliance on the aforesaid Certificate of Incorporation, and in part
to provide Indemnitee with specific contractual assurance that the protection
promised by such Certificate of Incorporation will be available to Indemnitee
(regardless of, among other things, any amendment to or revocation of such
Certificate of Incorporation or any changes in the composition of the Company's
Board of Directors or acquisition transaction relating to the Company, the
Company wishes to provide in this Indemnification Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent (whether partial or complete) permitted by law and as set forth in this
Indemnification Agreement and, to the extent insurance is obtained, for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies.
NOW, THEREFORE, in consideration of the premises, the
mutual promises, covenants and conditions herein contained, Indemnitee
continuing to serve the Company directly, or at its request, another enterprise
and for other good and valuable considerations, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto intending to be legally bound
hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to the words and
terms elsewhere defined in this Indemnification Agreement, certain capitalized
words and terms used in this Indemnification Agreement shall have the meanings
given to them by the definitions and descriptions in this Section 1 unless the
context or use indicates another or different meaning or intent, and such
definitions shall be equally applicable to both the singular and plural forms of
any of the capitalized words and terms herein defined. The following words and
terms are defined terms under this Indemnification Agreement:
1.1 Change in Control. "Change in Control" shall mean
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either (i) the then
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by
virtue of
<PAGE> 2
the exercise of a conversion privilege), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation,
if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection
(c) of this Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more
than 60% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger
or consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions, as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting
from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 30% or more of the
Outstanding Company Common Stock or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale
or other disposition of all or substantially all of the assets of
the Company, other than to a corporation, with respect to which
following such sale or other disposition, (A) more than 60% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Voting Securities, as the case may be,
(B) no Person (excluding the Company and any employee benefit plan
(or related trust) of the Company or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 30% or more of the Outstanding
Company Common Stock or Outstanding Voting Securities,
-2 -
<PAGE> 3
as the case may be) beneficially owns, directly or indirectly, 30%
or more of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (C) at least a majority
of the members of the board of directors of such corporation were
members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or
other disposition of assets of the Company.
For purposes of this Agreement, common stock shall mean
ordinary shares of the Company as the case may be.
1.2 Claim. "Claim" shall mean any threatened, pending or
completed action, suit or proceeding, or any inquiry or
investigation, whether instituted by the Company or any other party,
that Indemnitee in good faith believes might lead to the institution
of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
1.3 Expenses. "Expenses" shall mean attorneys' fees and
all other costs, expenses and obligations paid or incurred in
connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a
witness in or participate in any Claim relating to any Indemnifiable
Event.
1.4 Indemnifiable Event. "Indemnifiable Event" shall
mean any event or occurrence related to the fact that Indemnitee is
or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of any anything done or not done by
Indemnitee in any such capacity.
1.5 Independent Legal Counsel. "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in
accordance with the provisions of Section 3, who shall not have
otherwise been retained by or performed services for the Company or
Indemnitee within the last five years (other than with respect to
matters concerning the rights of Indemnitee under this
Indemnification Agreement or of other indemnities under similar
indemnity agreements).
1.6 Reviewing Party. "Reviewing Party" shall mean (i)
the Board of Directors of the Company by a quorum consisting of
directors who were not parties to such Claim or (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by Independent Legal Counsel.
1.7 Voting Securities. "Voting Securities" shall mean
any securities of the Company which vote generally in the election
of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT. In the event
Indemnitee was, is or becomes a party to or witness or other participant in, or
is threatened to be made a party to or witness or other participant in, a Claim
by reason of (or arising in part out of) an Indemnifiable Event, the Company
shall indemnify Indemnitee to the fullest extent permitted by law as soon as
practicable but in any event no later than thirty days after written demand is
presented to the Company, against any and all Expenses, judgments, fines,
penalties and amounts paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in respect of such
Expenses, judgments, fines, penalties or amounts paid in settlement) of such
Claim. If so requested by Indemnitee, the Company shall advance (within two
business days of such request) any and all Expenses to Indemnitee (an "Expense
Advance"). Notwithstanding the foregoing, (i) the obligations of the Company
under this Section 2 shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion in any case in which the
Independent Legal Counsel is involved) that Indemnitee would not be permitted to
be indemnified under applicable law and (ii) the obligation of the Company to
make an Expense Advance pursuant to this Section 2 shall
-3 -
<PAGE> 4
be subject to the condition that, if, when and to the extent that the Reviewing
Party determines that Indemnitee would not be permitted to be so indemnified
under applicable law, the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that, Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as to
which all rights of appeal therefrom have been exhausted or lapsed). If there
has not be a Change in Control, the Reviewing Party shall be selected by the
Board of Directors and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
the Reviewing Party shall be the Independent Legal Counsel referred to in
Section 3 hereof. If there has been no determination by the Reviewing Party or
if the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation in any court in the State of Florida
having subject matter jurisdiction thereof and in which venue is proper seeking
an initial determination by the court or challenging any such determination by
the Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there
is a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity
payments and Expense Advances under this Agreement or any other agreement or
Company By-law now or hereafter in effect relating to Claims for Indemnifiable
Events, the Company shall seek legal advice only from Independent Legal Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
the Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company
shall indemnify Indemnitee against any and all expenses (including attorneys'
fees) and, if requested by Indemnitee, shall (within two business days of such
request) advance such expenses to Indemnitee which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Indemnification Agreement
or any other agreement or the Company's Certificate of Incorporation now or
hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled
under any provision of this Indemnification Agreement to indemnification by the
Company for some or a portion of the Expenses, judgments, fines, penalties and
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Indemnification Agreement, to the extent that Indemnitee
has been successful on the merits or otherwise in defense of any or all Claims
relating in whole or in part to an Indemnifiable Event or in defense of any
issue or matter therein, including dismissal without prejudice, Indemnitee shall
be indemnified against all Expenses incurred in connection therewith.
-4 -
<PAGE> 5
6. BURDEN OF PROOF. In connection with any determination
by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
7. NO PRESUMPTIONS. For purposes of this Indemnification
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief.
8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee
hereunder shall be in addition to any other rights Indemnitee may have under the
Company's Certificate of Incorporation or otherwise. To the extent that a change
in the Delaware General Corporation Law and every statutory modification or
re-enactment thereof (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Company's Certificate of Incorporation and this Indemnification Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by this
Indemnification Agreement the greater benefits so afforded by such change.
9. LIABILITY INSURANCE. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
10. PERIOD OF LIMITATIONS. No legal action shall be
brought and no cause of action shall be asserted by or in the right of the
Company against Indemnitee or Indemnitee's spouse, heirs, executors or personal
or legal representatives after the expiration of two (2) years from the date of
accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such two (2) year period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
11. AMENDMENTS, ETC. No supplement, modification or
amendment of this Indemnification Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Indemnification Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
12. SUBROGATION. In the event of payment under this
Indemnification Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall execute all
papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be
liable under this Indemnification Agreement to make any payment in connection
with any Claim made against Indemnitee to the extent Indemnitee has otherwise
actually received payment (under any insurance policy, the Company's Certificate
of Incorporation or otherwise) of the amounts otherwise indemnifiable hereunder.
14. BINDING EFFECT, ETC. This Indemnification Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors; assigns, including any direct
-5 -
<PAGE> 6
or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company; spouses; heirs;
executors and personal and legal representatives. This Indemnification Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
an officer or director of the Company or of any other enterprise at the
Company's request.
15. SEVERABILITY. The provisions of this Indemnification
Agreement shall be severable in the event that any of the provisions hereof
(including any provision within a single section, paragraph or sentence) is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable in any respect, and the validity and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired and shall remain enforceable to the fullest extent
permitted by law.
16. GOVERNING LAW. This Indemnification Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Florida applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed
this Indemnification Agreement this ____ day of ____________, 19__.
COAST DENTAL SERVICES, INC.
By:_____________________________________
Its:____________________________________
And:____________________________________
Its: Secretary
________________________________________
-6 -
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Coast Dental Services,
Inc. on Form S-1 of our reports relating to the financial statements of Coast
Dental Services, Inc. and the combined financial statements of Richard J. Shawn
DMD, P.A. dated October 7, 1996, appearing in the Prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Tampa, Florida
October 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF COAST DENTAL SERVICES, INC. FOR THE YEAR ENDED DECEMBER
31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 241,403
<SECURITIES> 0
<RECEIVABLES> 130,113
<ALLOWANCES> 0
<INVENTORY> 41,250
<CURRENT-ASSETS> 415,552
<PP&E> 602,070
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,197,552
<CURRENT-LIABILITIES> 583,552
<BONDS> 439,341
0
0
<COMMON> 388
<OTHER-SE> 174,271
<TOTAL-LIABILITY-AND-EQUITY> 1,197,552
<SALES> 3,324,668
<TOTAL-REVENUES> 3,324,668
<CGS> 0
<TOTAL-COSTS> 2,353,076
<OTHER-EXPENSES> 696,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,339
<INCOME-PRETAX> 224,311
<INCOME-TAX> (89,725)
<INCOME-CONTINUING> 134,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,586
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF COAST DENTAL SERVICES, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-01-1996
<CASH> 507,166
<SECURITIES> 0
<RECEIVABLES> 476,761
<ALLOWANCES> 0
<INVENTORY> 67,500
<CURRENT-ASSETS> 1,058,317
<PP&E> 1,153,081
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,449,685
<CURRENT-LIABILITIES> 902,940
<BONDS> 1,813,438
0
0
<COMMON> 4,000
<OTHER-SE> 729,307
<TOTAL-LIABILITY-AND-EQUITY> 3,449,685
<SALES> 3,350,512
<TOTAL-REVENUES> 3,350,512
<CGS> 0
<TOTAL-COSTS> 2,171,762
<OTHER-EXPENSES> 485,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,280
<INCOME-PRETAX> 632,520
<INCOME-TAX> 246,683
<INCOME-CONTINUING> 385,837
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385,837
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
