<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File No. 000-21501
COAST DENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3136131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6200 COURTNEY CAMPBELL CAUSEWAY, SUITE 690
TAMPA, FLORIDA 33607
(Address of principal executive offices) (Zip Code)
(813)288-1999
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of outstanding Common Stock as of November 6,
1997: 7,603,630
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
================================================================================================================
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1996 1997
================================================================================================================
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 540,790 $49,250,609
Management fee receivable from P.A................................... 818,370 2,060,638
Notes receivable Manrique and P.A.................................... 354,568 --
Supplies and inventory............................................... 106,500 249,635
Prepaid expenses and other assets.................................... 26,560 299,488
----------- -----------
Total current assets............................................... 1,846,788 51,860,370
Property and equipment, net............................................ 1,802,285 4,931,648
Notes receivable from stockholders..................................... 177,898 --
Non-compete agreement, net of amortization of $82,778
and $177,895, respectively........................................... 1,028,622 982,132
Dental services agreement, net of amortization of $18,363
and $140,147, respectively........................................... 2,117,742 5,874,792
Capitalized offering costs............................................. 938,481 --
Other assets........................................................... 57,410 212,314
----------- -----------
Total assets....................................................... $ 7,969,226 $63,861,256
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 664,050 $ 1,221,794
Accrued offering costs............................................... 787,981 576,886
Other accrued expenses............................................... 403,747 708,902
Current maturities of debt.......................................... 807,001 376,117
----------- -----------
Total current liabilities.......................................... 2,662,779 2,883,699
Long-term debt, excluding current maturities........................... 3,842,296 645,961
Deferred tax liability................................................. -- 196,440
----------- -----------
Total liabilities.................................................. 6,505,075 3,726,100
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized,
none issued........................................................ -- --
Common stock, $.001 par value; 50,000,000 shares authorized,
3,500,000 and 7,607,000, shares issued and outstanding,
respectively....................................................... 3,500 7,607
Additional paid-in capital........................................... 25,174 58,325,779
Retained earnings.................................................... 1,435,477 1,801,770
----------- -----------
Total stockholders' equity......................................... 1,464,151 60,135,156
----------- -----------
Total liabilities and stockholders' equity......................... $ 7,969,226 $63,861,256
=========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
2
<PAGE> 3
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
=================================================================================================================
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1997 1996 1997
=================================================================================================================
<S> <C> <C> <C> <C>
Net revenue.................................. $1,991,303 $5,624,239 $5,341,815 $13,560,677
Dental Center expenses:
Staff salaries............................. 573,377 1,746,135 1,520,192 4,159,867
Dental supplies and lab fees............... 297,797 797,475 741,904 1,957,421
Other...................................... 473,669 1,227,241 1,254,509 2,863,432
---------- ---------- ---------- -----------
Total Dental Center expenses............. 1,344,843 3,770,851 3,516,605 8,980,720
---------- ---------- ---------- -----------
Gross profit............................. 646,460 1,853,388 1,825,210 4,579,957
General and administrative expenses.......... 231,984 633,266 717,934 1,527,794
---------- ---------- ---------- -----------
Operating profit......................... 414,476 1,220,122 1,107,276 3,052,163
Interest income (expense).................... (52,610) 116,535 (112,890) 230,916
---------- ---------- ---------- -----------
Income before income taxes................... 361,866 1,336,657 994,386 3,283,079
Income tax expense........................... -- 521,296 -- 1,138,380
---------- ---------- ---------- -----------
Net income................................... $ 361,866 $ 815,361 $ 994,386 $ 2,144,699
========== ========== ========== ===========
Pro forma income tax expense................. 141,128 -- 387,811 142,021
---------- ---------- ---------- -----------
Pro forma net income......................... $ 220,738 $ 815,361 $ 606,575 $ 2,002,678
========== ========== ========== ===========
Earnings per share........................... $ .10 $ .14 $ .28 $ .40
========== ========== ========== ===========
Pro forma earnings per share................. $ .06 $ .14 $ .17 $ .37
========== ========== ========== ===========
Weighted average number of shares outstanding 3,500,000 5,794,142 3,500,000 5,371,753
========== ========== ========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
3
<PAGE> 4
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
=============================================================================================================
ADDITIONAL
PAID-IN CAPITAL TOTAL
COMMON STOCK COMMON RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
=============================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCE ON JANUARY 1, 1997..... 3,500,000 $3,500 $ 25,174 $ 1,435,477 $ 1,464,151
Net proceeds from issuance of
common stock from initial
offering..................... 2,200,000 2,200 15,092,500 -- 15,094,700
Net proceeds from issuance of
common stock from
secondary offering........... 1,900,000 1,900 41,961,022 -- 41,962,922
Issuance of common stock upon
exercise of stock options.... 1,415 1 11,319 -- 11,320
Issuance of common stock upon
acquisition.................. 5,797 6 99,994 -- 100,000
Undistributed retained earnings
from S corporation........... -- -- 1,435,477 (1,435,477) --
Net income for the nine months
ended September 30, 1997..... -- -- -- 2,144,699 2,144,699
Net income from S corporation
prior to February 11, 1997... -- -- 342,929 (342,929) --
Distributions to stockholders.. -- -- (642,636) -- (642,636)
--------- ------ ----------- ----------- -----------
BALANCE ON SEPTEMBER 30, 1997.. 7,607,212 $7,607 $58,325,779 $ 1,801,770 $60,135,156
========= ====== =========== =========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
4
<PAGE> 5
COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
===============================================================================================================
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1997
===============================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 994,386 $ 2,144,699
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation....................................................... 151,452 379,050
Amortization....................................................... 55,640 216,901
Compensation in the form of common stock........................... 27,674 --
Forgiveness of notes receivable from stockholders.................. -- 177,898
Deferred income tax expense........................................ -- 196,440
Changes in operating assets and liabilities:
Increase in management fee receivable from P.A................... (400,787) (1,151,142)
(Increase) decrease in notes receivable from P.A................. (211,710) 224,041
Increase in supplies and inventory............................... (26,250) (143,135)
Increase in prepaid expenses and other assets.................... (22,622) (272,928)
Increase in accounts payable and accrued expenses................ 634,717 862,899
Increase in accrued offering expenses............................ -- 576,886
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................... 1,202,500 3,211,609
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (85,454) (2,373,413)
Acquired assets, including intangible assets......................... (2,517,488) (5,062,460)
Decrease (increase) in other assets.................................. 10,472 (115,504)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.......................... (2,592,470) (7,551,377)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial offering....................................... -- 16,368,000
Proceeds from secondary offering..................................... -- 42,655,000
Payment of capitalized costs......................................... -- (1,814,878)
Proceeds from long-term debt......................................... 2,185,541 --
Payments on long-term debt........................................... (226,601) --
Proceeds from exercise of stock options.............................. -- 11,320
Proceeds from issuance of common stock upon acquisition.............. -- 100,000
Proceeds from notes payable.......................................... -- 602,750
Payments on notes payable............................................ -- (4,126,413)
Payments on capital leases........................................... (50,430) (103,556)
Increase in notes receivable stockholders............................ (46,589) --
Distribution to stockholders......................................... (141,146) (642,636)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................... 1,720,775 53,049,587
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS.................................. 330,805 48,709,819
Cash and cash equivalents at beginning of period....................... 241,403 540,790
----------- -----------
Cash and cash equivalents at end of period............................. $ 572,208 $49,250,609
=========== ===========
Supplemental schedule of cash flow information:
Cash paid for interest............................................... $ 65,300 $ 132,428
=========== ===========
Cash paid for income taxes........................................... $ -- $ 1,040,000
=========== ===========
</TABLE>
See Condensed Notes to Financial Statements.
5
<PAGE> 6
COAST DENTAL SERVICES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The accompanying Condensed Financial Statements are unaudited and
should be read in conjunction with the audited Financial Statements and notes
thereto for the year ended December 31, 1996.
In the opinion of management, all adjustments necessary for a fair
presentation of such Condensed Financial Statements have been included. Such
adjustments consist only of normal recurring items. Certain amounts in the
Condensed Statements of Operations for the nine months ended September 30, 1997
have been reclassified to conform to the September 30, 1997 presentation.
Interim results are not necessarily indicative of results for a full year. The
Condensed Financial Statements and notes thereto are presented as permitted by
the Securities and Exchange Commission and do not contain certain information
included in the Coast Dental Services, Inc. (the "Company") annual Financial
Statements and notes thereto.
B. EARNINGS PER SHARE
Earnings per share for the quarter and nine months ended September 30,
1996 and 1997 were based on actual net income of the Company. The Company was an
S Corporation until February 11, 1997 and therefore income taxes were paid by
the individual shareholders. The Company automatically became a C Corporation
upon the consummation of the public offering.
The earnings per share of common stock for the quarter and nine months
ended September 30, 1996 and 1997 is computed on the basis of the weighted
average shares of common stock outstanding plus common stock equivalent shares
arising from dilutive stock options, using the treasury stock method. During the
period, dual presentation of earnings per share was not required because they
were either immaterial or antidilutive.
C. SIGNIFICANT EVENTS
On July 11, 1997, the Company and Coast Florida, P.A. ("Florida P.A.")
entered into a purchase agreement with a dental practice in New Smyrna Beach,
Florida whereby the Company acquired all of the tangible assets of the dental
practice and the Florida P.A. acquired the professional assets, principally
patient lists, of the practice for a combined purchase price of $585,000. The
Company's portion of the purchase price is $440,750 of which $75,000 has been
allocated to the tangible assets acquired and $365,750 has been allocated to the
Services and Support Agreement.
On August 7, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Punta Gorda, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $300,000. The Company's portion of the
purchase price is $236,000 of which $80,000 has been allocated to the tangible
assets acquired and $156,000 has been allocated to the Services and Support
Agreement.
On August 29, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Cape Coral, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $420,000. The Company's portion of the
purchase price is approximately $320,000 of which $75,000 has been allocated to
the tangible assets acquired and $245,000 has been allocated to the Services and
Support Agreement.
On September 22, 1997, the Company completed its secondary offering of
Common Stock. The net proceeds to the Company from the sale of 1,900,000 shares
of Common Stock offered by the Company were $42.0 million (after deducting
underwriting discounts and commissions and offering expenses).
On September 24, 1997, the Company opened its first Dental Center in
the Atlanta, Georgia market. The Company currently has three internally
developed Dental Centers open and one under construction in the Atlanta market.
As part of the expansion into Georgia, the Company finalized with Coast Dental
Southeast P.A. ("Georgia P.A."), an affiliate of the Florida P.A., a services
and support agreement with terms substantially the same as the Services and
Support Agreement with the Florida P.A., and has agreed to a services and
support fee of 74% of the gross revenue of the Georgia Dental Centers.
During the quarter ended September 30, 1997, the Company entered into
non-cancelable lease agreements to open seven internally developed Dental
Centers in Florida and Georgia, of which five are presently open, at an average
cost of approximately $135,000, which includes the cost of equipment, leasehold
improvements, working capital and an agreed upon $50,000 payment
6
<PAGE> 7
(per Dental Center) to the respective P.A.'s to open the additional Dental
Centers thus expanding the Services and Support Agreement to include the new
internally developed Dental Centers.
D. SUBSEQUENT EVENTS
On October 1, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in North Fort Myers, Florida whereby
the Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $610,000. The Company's portion of the
purchase price is approximately $520,000 of which $75,000 has been allocated to
the tangible assets acquired and $445,000 has been allocated to the Services and
Support Agreement.
On October 3, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Apollo Beach, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $252,000. The Company's portion of the
purchase price is approximately $220,000 of which $70,000 has been allocated to
the tangible assets acquired and $150,000 has been allocated to the Services and
Support Agreement.
On October 15, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Fort Myers, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $562,500. The Company's portion of the
purchase price is approximately $477,500 of which $100,000 has been allocated to
the tangible assets acquired and $377,500 has been allocated to the Services and
Support Agreement.
On October 15, 1997, the Company and the Florida P.A. entered into a
purchase agreement with dental practice in Brandon, Florida whereby the Company
acquired all of the tangible assets of the dental practice and the Florida P.A.
acquired the professional assets, principally patient lists, of the practice for
a combined purchase price of $60,000. The Company's portion of the purchase
price is approximately $59,000 of which $20,000 has been allocated to the
tangible assets acquired and $39,000 has been allocated to the Services and
Support Agreement.
During October 1997, the Company entered into non-cancelable lease
agreements to open two internally developed Dental Centers in Florida at an
estimated cost of approximately $400,000, which includes the cost of equipment,
leasehold improvements, working capital and an agreed upon $50,000 payment (per
Dental Center) to the Florida P.A. to open the additional Dental Centers thus
expanding the Services and Support Agreement to include the new internally
developed Dental Centers.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A. OVERVIEW
Coast Dental Services, Inc. (the "Company") opened its first Dental
Center in May 1992 and since then, as of November 7, 1997, has opened 19
internally developed Dental Centers and added 36 acquired Dental Centers
located in central and northern Florida and Atlanta, Georgia. The Company
derives its revenue through fees earned from the Coast Florida P.A. ("Florida
P.A.") and Coast Dental Southeast P.A. ("Georgia P.A.") for providing
management services and support at the Dental Centers. As of November 7, 1997,
66 Coast Dentists were employed by the P.A's. The Company expects to expand
the Coast Dental Network in new and existing markets through the addition of
internally developed and acquired
Dental Centers.
Pursuant to the Services and Support Agreement with the Florida P.A.,
the Company provides management services and support to facilitate the
development and growth of Dental Centers. The operating expenses at the Dental
Centers, with the exception of compensation paid to the Coast Dentists and
dental hygienists, are expenses of the Company and are recognized as incurred.
Since October 1, 1996, the services and support fee paid to the Company by the
Florida P.A. is 76% of the Dental Centers' gross revenue. Prior to October
1996, the services and support fee paid to the Company averaged 78.5% of gross
revenue from which the Company paid the operating expenses incurred by the
Florida P.A., excluding certain costs incurred by the Florida P.A., primarily
dentist and hygienist salaries.
On September 24, 1997, the Company opened its first Dental Center in
the Atlanta, Georgia market. The Company currently has three internally
developed Dental Centers open and one under construction in the Atlanta market.
As part of the expansion into Georgia, the Company finalized with Georgia, P.A.,
an affiliate of the Florida P.A., a services and support agreement with terms
substantially the same as the Services and Support Agreement with the Florida
P.A., and has agreed to a services and support fee of 74% of the gross revenue
of the Georgia Dental Centers.
The Company added one internally developed Dental Center in December
1996. During the nine months ended September 30, 1997, the Company opened seven
internally developed Dental Centers in Florida and Georgia at an average cost of
approximately $135,000, which includes the cost of equipment, leasehold
improvements, working capital and an agreed upon $50,000 payment (per Dental
Center) to the respective P.A.'s to open the additional Dental Centers thus
expanding the Services and Support Agreement to include the new internally
developed Dental Centers.
During 1996, the Company and the Florida P.A. added 17 acquired Dental
Centers located in Florida. The combined purchase price for these acquired
Dental Centers was $5.3 million, consisting of $1.2 million in cash and $4.1
million in promissory notes. Had these acquisitions occurred at the beginning of
1996, the additional net revenue earned by the Company during 1996 would have
been $3.8 million for the period.
During the nine months ended September 30, 1997, the Company and the
Florida P.A. acquired a total of 15 Dental Centers located in central Florida.
The combined purchase price for these acquired Dental Centers was $5.2 million,
consisting of $3.4 million in cash, $1.5 million in promissory notes, $100,000
of the Company's common stock (5,797 shares) and the assumption of $171,000 in
liabilities. Had these acquisitions occurred at the beginning of 1996, the
additional net revenue earned by the Company would have been $6.1 million and
$2.3 million for 1996 and the nine months ended September 30, 1997,
respectively.
In October 1997, the Company and the Florida P.A. acquired a total of
four Dental Centers located in central and southwest Florida. The combined
purchase price of these Dental Centers was $1,484,500, consisting of $964,500 in
cash and $520,000 in promissory notes. Had these acquisitions occurred at the
beginning of 1996, the additional net revenue earned by the Company would have
been $1.5 million and $1.2 million for 1996 and the nine months ended September
30, 1997, respectively.
8
<PAGE> 9
B. RESULTS OF OPERATIONS
The following table summarizes percent of net revenue of the quarter
and nine months ended September 30, 1997 compared to the quarter and nine months
ended September 30, 1996 for selected operating items. The performance of the
Company during the period is not indicative of future financial results or
conditions.
<TABLE>
<CAPTION>
Percentage of Net Revenue
Quarter Ended September 30, Nine Months Ended September 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue.................................... 100.0% 100.0% 100.0% 100.0%
Dental Center expenses:
Staff salaries............................... 28.8 31.0 28.5 30.7
Dental supplies and lab fees................. 15.0 14.2 13.9 14.4
Other........................................ 23.8 21.8 23.5 21.1
----- ----- ----- -----
Total Dental Center expenses............... 67.6 67.0 65.9 66.2
----- ----- ----- -----
Gross profit............................... 32.4 33.0 34.1 33.8
General and administrative..................... 11.6 11.3 13.4 11.3
----- ----- ----- -----
Operating profit........................... 20.8 21.7 20.7 22.5
Interest income (expense)...................... (2.6) 2.1 (2.1) 1.7
----- ----- ----- -----
Income before income taxes..................... 18.2 23.8 18.6 24.2
Income tax expense............................. -- 9.3 -- 8.4
----- ----- ----- -----
Net income..................................... 18.2 14.5 18.6 15.8
===== ===== ===== =====
Pro forma income tax expense................... 7.1 -- 7.3 1.0
----- ----- ----- -----
Pro forma net income........................... 11.1% 14.5% 11.4% 14.8%
===== ===== ===== =====
</TABLE>
NET REVENUE
For the quarter and nine months ended September 30, 1996 and 1997, net
revenue increased $3,632,936 from $1,991,303 to $5,624,239 and $8,218,862 from
$5,341,815 to $13,560,677, respectively. These increases were primarily due to
the increase in net revenue attributable to the twelve comparable Dental Centers
(Dental Centers that were open throughout the periods being compared), the
sixteen acquired Dental Centers in 1996, the fifteen acquired Dental Centers in
1997 and the eight internally developed Dental Centers. Additionally, increases
in net revenue are primarily driven by increases in patient visits. Patient
visits for Comparable Dental Centers increased 14.0% from 26,042 to 29,689 and
23.7% from 52,386 to 64,804 for the quarter and nine months ended September 30,
1996 and 1997, respectively.
DENTAL CENTER EXPENSES
For the quarter and nine months ended September 30, 1996 and 1997,
Dental Center expenses increased $2,426,008 from $1,344,843 to $3,770,851 and
$5,464,115 from $3,516,605 to $8,980,720, respectively.
Staff salaries increased $1,172,758 from $573,377 to $1,746,135 and
$2,639,675 from $1,520,192 to $4,159,867, for the quarter and nine months ended
September 30, 1996 and 1997, respectively. These increases were primarily caused
by an increase in staff salaries attributable to the twelve comparable Dental
Centers, the sixteen acquired Dental Centers in 1996, the fifteen acquired
Dental Centers in 1997 and the eight internally developed Dental Centers. Staff
salaries include the compensation paid to regional managers and 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 increased 2.2% from 28.8% to 31.0% and 2.2% from 28.5%
to 30.7% for the quarter and nine months, respectively. These increases were
caused primarily by the increase in staffing due to the addition of regional
management and internally developed and acquired Dental Centers which was
somewhat offset by staff levels at the twelve comparable Dental Centers
remaining constant, while net revenue increased. While an internally developed
Dental Center can operate with a relatively limited dental staff in the early
stages of its development, the services of a dentist, dental hygienist, dental
assistant and front desk manager are still necessary. As a result, staff
salaries as a percentage of net revenue will typically be higher in the first
six months of operation until 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 to six months following acquisition as
the Company implements the Coast Operating Model to increase productivity and
efficiency.
9
<PAGE> 10
Dental supplies and lab fees increased $499,678 from $297,797 to
$797,475 and $1,215,517 from $741,904 to $1,957,421, for the quarter and nine
months ended September 30, 1996 and 1997, respectively. These increases were
caused primarily by the increase in patient visits and dental services provided
at the twelve comparable Dental Centers, the sixteen acquired Dental Centers in
1996, the fifteen acquired Dental Centers in 1997 and the eight internally
developed Dental Centers. As a percentage of net revenue, dental supplies and
lab fees decreased .8% from 15.0% to 14.2% and increased .5% from 13.9% to 14.4%
for the quarter and nine months, respectively. Lab supplies as a percent of net
revenue will typically be higher in the first three to six months following
acquisition as the Company implements the Coast Operating Model which is
designed with the goal of increasing productivity and efficiency.
Other Dental Center expenses increased $753,572 from $473,669 to
$1,227,241 and $1,608,923 from $1,254,509 to $2,863,432, for the quarter and
nine months ended September 30, 1996 and 1997, respectively. These increases
were caused primarily by the increase in advertising, rent and depreciation
expense associated with the twelve comparable Dental Centers, sixteen acquired
Dental Centers in 1996, fifteen acquired Dental Centers in 1997 and the eight
internally developed Dental Centers. The advertising increase is caused by a
more aggressive advertising program for the acquired Dental Centers. As a
percentage of net revenue, other Dental Center expenses decreased 2.0% from
23.8% to 21.8% and 2.4% from 23.5% to 21.1% for the quarter and nine months,
respectively. These decreases were caused by increased economies of scale
associated with the increasing number of patient visits and market penetration.
GENERAL AND ADMINISTRATIVE EXPENSES
For the quarter and nine months ended September 30, 1996 and 1997,
general and administrative expenses increased $401,282 from $231,984 to $633,266
and $809,860 from $717,934 to $1,527,794, respectively. These increases were
caused primarily by professional fees increasing due to the change from a
private to a publicly-held company and corporate administrative salaries, rent
and insurance costs due to the growth of the Company. As a percentage of net
revenue, general and administrative expenses decreased .3% from 11.6% to 11.3%
and 2.1% from 13.4% to 11.3% for the quarter and nine months, respectively,
reflecting the continued economies of scale realized through the centralization
of Dental Center management.
INTEREST INCOME (EXPENSE)
The Company earned net interest income of $116,535 and $230,916 for the
quarter and nine months ended September 30, 1997, respectively versus a net
interest expense of $52,610 and $112,890 for the comparable periods in 1996. The
increase in interest income and decrease in interest expense were caused
primarily by an increase in interest earned on the Company's invested cash
equivalents and the repayment of notes payable issued as part of the
consideration for certain acquisitions.
INCOME TAXES
For the quarter and nine months ended September 30, 1997 income taxes
expense increased $521,296 and $1,138,380, respectively. These increases were
attributable to the change in corporate status. The Company was an S Corporation
until February 11, 1997 and therefore income taxes were paid by the individual
shareholders. The Company automatically became a C Corporation upon the
consummation of the public offering.
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C. LIQUIDITY AND CAPITAL RESOURCES
On February 11, 1997, the Company completed its initial public offering
of Common Stock. The net proceeds to the Company from the sale of the 2,200,000
shares of Common Stock offered by the Company were approximately $15.1 million
(after deducting underwriting discounts and commissions and offering expenses).
On September 22, 1997, the Company completed its secondary public offering of
Common Stock. The net proceeds to the Company from the sale of 1,900,000 shares
of Common Stock offered by the Company were approximately $42.0 million (after
deducting underwriting discounts and commissions and offering expenses). As of
November 7, 1997, the Company used a portion of the net proceeds from the two
offerings for the repayment of: (i) $4.6 million for notes payable utilized and
issued as consideration for acquisitions by the Company prior to the initial
public offering; (ii) $449,000 for equipment lease, note obligations and working
capital; (iii) $2.1 million for acquisitions during the second quarter of 1997;
(iv) $231,000 for internally developed Dental Centers during the second quarter
of 1997; (v) an aggregate of approximately $1.6 million for the acquisitions
noted below; and (vi) $1.4 million for internally developed Dental Centers noted
below. The Company has net proceeds of approximately $46.9 million remaining
from the two offerings.
The Company has a revolving credit facility with Barnett Bank of
Florida ("Barnett") which provides an aggregate of $5.0 million for general
working capital needs and expansion of Dental Centers. As of September 30, 1997,
the Company had available the entire $5.0 million for borrowing. Additionally,
the Company has a commitment from Barnett to expand the credit facility under
substantially the same terms to $15.0 million.
On July 11, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in New Smyrna Beach, Florida whereby
the Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $585,000. The Company's portion of the
purchase price is $440,750 of which $75,000 has been allocated to the tangible
assets acquired and $365,750 has been allocated to the Services and Support
Agreement.
On August 7, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Punta Gorda, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $300,000. The Company's portion of the
purchase price is $236,000 of which $80,000 has been allocated to the tangible
assets acquired and $156,000 has been allocated to the Services and Support
Agreement.
On August 29, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Cape Coral, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $420,000. The Company's portion of the
purchase price is approximately $320,000 of which $75,000 has been allocated to
the tangible assets acquired and $245,000 has been allocated to the Services and
Support Agreement.
During the quarter ended September 30, 1997, the Company entered into
non-cancelable lease agreements to open seven internally developed Dental
Centers in Florida and Georgia, of which five are presently open, at an average
cost of approximately $135,000, which includes the cost of equipment, leasehold
improvements, working capital and an agreed upon $50,000 payment (per Dental
Center) to the respective P.A.'s to open the additional Dental Centers thus
expanding the Services and Support Agreement to include the new internally
developed Dental Centers.
On October 1, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in North Fort Myers, Florida whereby
the Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $610,000. The Company's portion of the
purchase price is approximately $520,000 of which $75,000 has been allocated to
the tangible assets acquired and $445,000 has been allocated to the Services and
Support Agreement.
On October 3, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Apollo Beach, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $252,000. The Company's portion of the
purchase price is approximately $220,000 of which $70,000 has been allocated to
the tangible assets acquired and $150,000 has been allocated to the Services and
Support Agreement.
On October 15, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Fort Myers, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $562,500. The Company's portion of the
purchase price is approximately $477,500 of which $100,000 has been allocated to
the tangible assets acquired and $377,500
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<PAGE> 12
has been allocated to the Services and Support Agreement.
On October 15, 1997, the Company and the Florida P.A. entered into a
purchase agreement with a dental practice in Brandon, Florida whereby the
Company acquired all of the tangible assets of the dental practice and the
Florida P.A. acquired the professional assets, principally patient lists, of the
practice for a combined purchase price of $60,000. The Company's portion of the
purchase price is approximately $59,000 of which $20,000 has been allocated to
the tangible assets acquired and $39,000 has been allocated to the Services and
Support Agreement.
During October 1997, the Company entered into non-cancelable lease
agreements to open two internally developed Dental Centers at an estimated cost
of approximately $400,000, which includes the cost of equipment, leasehold
improvements, working capital and an agreed upon $50,000 payment (per Dental
Center) to the Florida P.A. to open the additional Dental Centers thus
expanding the Services and Support Agreement to include the new internally
developed Dental Centers.
Based upon the Company's anticipated capital needs for operations of
its business, general corporate purposes, the addition of Dental Centers and
repayment of certain debts, management believes that the combination of the
funds expected to be available under the Company's current cash reserves,
revolving line of credit and cash flow from operations should be sufficient to
meet the Company's funding requirements to conduct its operations and for
further implementation of its growth strategy and current plans through at least
1998. Thereafter, it is anticipated by the Company that future acquisitions and
expansion will be funded primarily with cash flow from operations, borrowings
under the Barnett Agreement, other credit sources, and where desirable, funding
from the sale of debt or equity securities.
SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q, press releases and certain information provided
periodically in writing or orally by the Company's officers or its agents
contain statements which constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act, as amended and Section 21E of the
Securities Exchange Act of 1934. The words "expect", "believe", "goal", "plan",
"intend", "estimate" and similar expressions and variations thereof if used are
intended to specifically identify forward-looking statements. Those statements
appear in a number of places in this Form 10-Q and in other places,
particularly, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," 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) the successful expansion of the Coast Dental Network
in new and existing markets through the addition of internally developed and
acquired Dental Centers in accordance with the Company's growth strategy; (ii)
the Company's liquidity and capital resources and (iii) the Company's financing
opportunities and plans. Investors and 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 factors that might cause such differences include, among others,
the following: (i) any material inability of the Company to successfully
identify, consummate and integrate acquisitions at reasonable and anticipated
costs to the Company; (ii) any material inability of the Company to successfully
internally develop Dental Centers; (iii) any adverse effect or limitations
caused by Governmental regulations; (iv) any adverse effect on the Company's
continued positive cash flow and abilities to obtain acceptable financing in
connection with its growth plans; (v) any increased competition in business and
in acquisitions; (vi) inability of the Company to successfully conduct its
business in Georgia, a new market; (vii) any adverse impacts on the Company's
margins due to costs associated with increased growth or increased managed care
business having lower margins and (viii) the continued relationship with and
success of the Company's professional association customers. The Company
undertakes no obligation to publicly update or revise the forward looking
statements made in this Form 10-Q to reflect events or circumstances after the
date of this Form 10-Q or to reflect the occurrence of unanticipated events.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities during the Third Quarter
During the quarter ended September 30, 1997, the Company issued
non-negotiable promissory notes to sellers as part of the purchase price in
connection with the Company's purchase of the allowable assets of certain dental
practices as follows: On July 11, 1997, the Company issued a non-negotiable
promissory note in the amount of $55,750 and $100,000 of the Company's Common
Stock (approximately 5,797 shares) to James Davis, DDS; on August 7, 1997, the
Company issued a non-negotiable promissory note in the amount of $86,000 to
Damon & Greider, P.A. and on August 29, 1997, the Company issued a
non-negotiable promissory note in the amount of $110,000 to CE McClaran, DMD.
The Company does not believe that the promissory notes issued in these
transactions are a "security" as defined by Section 2(1) of the Securities Act.
However, in the event the promissory notes are deemed to be a security these
transactions were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) because they did not involve any public offering.
(d) Use of Proceeds
Incorporated herein by reference to Part I, Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
Section C, "Liquidity and Capital Resources" of this Form 10-Q with respect to
the Company's use of proceeds for its February and September 1997 public
offerings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated herein by reference to Part II, Item 4 of the Report on
Form 10-Q filed for the quarter ended
June 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.14 Services and Support Agreement dated September 29, 1997
between Coast Dental Services, Inc. and Coast Dental
Southeast P.A.
27 Financial Data Schedule for the quarter ended September 30,
1997 (for SEC use only).
(b) Reports on Form 8-K.
None.
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<PAGE> 14
COAST DENTAL SERVICES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tampa,
State of Florida on November 14, 1997.
COAST DENTAL SERVICES, INC.
By: /s/ DR. TEREK DIASTI, DVM
---------------------------
DR. TEREK DIASTI, DVM
Chief Executive Officer, Chairman of the Board
Officer (Principal Executive Officer)
By: /s/ JOSEPH R. SMITH
---------------------------
JOSEPH R. SMITH
Chief Financial Officer
(Principal Accounting Officer)
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<PAGE> 1
EXHIBIT 10.14
SERVICES AND SUPPORT AGREEMENT
THIS SERVICES AND SUPPORT AGREEMENT, dated as of September 29, 1997, by
and between COAST DENTAL SERVICES, INC., a Delaware corporation ("CDS"), and
COAST DENTAL SOUTHEAST, P.A., a Georgia professional association (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 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)
employed by the Dental Practice Entity (the "Dentists") at each separate
location where the Dental Practice Entity operates ("Dental Centers");
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 any and all provisions of Georgia
Statutes and regulations relating to the practice of Dentistry; 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 laws and
regulations in the state of Georgia 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.
<PAGE> 2
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. Subject to the foregoing,
CDS will consult with and advise the Dental Practice Entity on the Dental
Centers' staffing needs and on the hiring and employment of the Dental Centers'
staff. CDS will employ all of the Dental 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 Dental
Centers' staff to reward individuals for contributing to increased productivity
in the Dental 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 each Dental
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 Dental
Centers' staff in the use of information to produce financial and operational
information concerning the Dental Centers' business operations. CDS will analyze
such information on an ongoing basis and consult with the Dental Practice Entity
on enhancing the Dental Centers' productivity. CDS will provide or arrange for
all accounting and bookkeeping services related to the Dental 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 Georgia
Dentists and Dental Hygienists Statutes and Regulations.
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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 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 each Dental
Center; and (vi) paying all Dental 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 Dental 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
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<PAGE> 4
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:
(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 Dental 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 Dental
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 Dental 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 set forth in the Georgia Statutes and Regulations relating to the
practice of Dentistry.
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<PAGE> 5
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, ordinances and all
standards of dental and dental care. It is expressly acknowledged by the parties
that the dental practice conducted at each Dental 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 Dental Center. The Dental
Practice Entity shall ensure that each dentist to provide dental services to
patients is licensed by the state in which each Dental 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
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<PAGE> 6
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 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 each Dental 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 equaling 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.
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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";
(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 Dental
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 Dental 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 Dental 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) "Dental Center Expenses" shall mean all operating and
non-operating expenses incurred in the operation of
the Dental Center, including, without limitation:
(a) Salaries, benefits, and other direct costs
of all employees of CDS at the Dental
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 Dental 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 Dental
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;
-7-
<PAGE> 8
(f) Malpractice insurance expenses and dentist
recruitment expenses;
(g) Other expenses incurred by CDS in carrying
out its obligations under this Agreement.
"Dental 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.
3.4 Internally Developed Dental Centers. As an inducement to the
Dental Practice Entity to extend this Services and Support Agreement to each
separate dental office location ("Dental Center") internally developed by the
Dental Practice Entity during the pendency of this Agreement, CDS shall pay to
the Dental Practice Entity the sum of $50,000.00, or such other sum as
negotiated in good faith between the parties, within thirty (30) days of
commitment to the opening of such new internally developed Dental Center.
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 Dental 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 Dental
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 Dental Center premises and operations.
4.3 Tail Insurance Coverage. The Dental Practice Entity will cause
each individual Dentist
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<PAGE> 9
providing services at the Dental Center to enter into an agreement with the
dental 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 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.
-9-
<PAGE> 10
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;
(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 Dental 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
-10-
<PAGE> 11
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 Dental
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
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 each
Dental 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.
-11-
<PAGE> 12
(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.
-12-
<PAGE> 13
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 health care 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.
6200 Courtney Campbell Causeway
Suite 690
Tampa, Florida 33607
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 Dental Southeast, P.A.
Dental Practice Entity: 6200 Courtney Campbell Causeway
Suite 690
Tampa, Florida 33607
or to such other address as either party shall notify the other.
-13-
<PAGE> 14
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.
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 Georgia. 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
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<PAGE> 15
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 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.
WITNESSES AS TO BOTH PARTIES THE DENTAL PRACTICE ENTITY:
COAST DENTAL SOUTHEAST, P.A.
/s/ Adam Diasti
----------------------------------------
By: Adam Diasti
- ---------------------------- Title: President
- ----------------------------
CDS:
COAST DENTAL SERVICES, INC.
By: /s/ Terek Diasti
-------------------------------------
Terek Diasti, Chief Executive Officer
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<PAGE> 16
EXHIBIT "A"
MONTHLY SERVICES AND
SUPPORT FEE PERCENTAGE
Seventy-four percent (74%)
of Center Monthly Gross Revenues
-16-
<PAGE> 17
EXHIBIT "B"
LIQUIDATED DAMAGES
The liquidated damages payable by the Dental Practice Entity to the
Company shall be that sum which is equal to $2,000,000.00 per Dentist employed
by the Dental Practice Entity at the time of termination of the Agreement.
-17-
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