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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 quarter ended September 30, 1999
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.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 59-3136131
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2502 ROCKY POINT DRIVE NORTH, SUITE 1000, TAMPA, FLORIDA 33607
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(Address of principal executive offices) (Zip Code)
(813) 288-1999
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(Registrant's telephone number, including area code)
Indicate 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 12, 1999:
6,399,384.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COAST DENTAL SERVICES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
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UNAUDITED
DECEMBER 31, SEPTEMBER 30,
1998 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $13,581,798 $ 2,360,184
Available-for-sale investments....................................... 13,785,320 10,553,828
Management fee receivable from Coast P.A............................. 5,235,035 8,735,264
Supplies, inventory and small tools.................................. 2,481,552 3,166,565
Prepaid expenses and other assets.................................... 1,096,871 837,815
Deferred tax asset................................................... 560,871 560,871
----------- -----------
Total current assets............................................... 36,741,447 26,214,527
Note receivable from Coast P.A., non-interest bearing.................. 529,218 529,218
Property and equipment, net............................................ 16,297,559 20,131,829
Non-compete agreement, net of amortization of $332,235
and $424,690, respectively........................................... 818,440 720,225
Dental services agreement, net of amortization of $619,233
and $1,177,769, respectively......................................... 15,870,936 18,288,300
Other assets........................................................... 1,244,175 1,922,379
----------- -----------
Total assets....................................................... $71,501,775 $67,806,478
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 2,320,536 $ 3,050,114
Other accrued expenses............................................... 1,172,100 2,006,532
Current maturities of debt and capital lease obligations............. 1,284,060 868,107
----------- -----------
Total current liabilities.......................................... 4,776,696 5,924,753
Long-term debt and capital lease obligations, excluding
current maturities................................................. 1,635,703 1,370,729
----------- -----------
Total liabilities.................................................. 6,412,399 7,295,482
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized,
none issued........................................................ -- --
Common stock, $.001 par value; 50,000,000 shares authorized,
7,621,758 and 6,402,958 shares issued and 7,618,184 and 6,399,384
shares outstanding, respectively................................... 7,622 6,404
Additional paid-in capital........................................... 59,908,285 53,412,897
Retained earnings.................................................... 6,603,397 8,670,717
----------- -----------
66,519,304 62,090,018
Less: Stock option receivable from Coast P.A.,
non-interest bearing ........................................... 1,429,928 1,579,022
----------- -----------
Total stockholders' equity................................ 65,089,376 60,510,996
----------- -----------
Total liabilities and stockholders' equity......................... $71,501,775 $67,806,478
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
2
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COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF INCOME - UNAUDITED
<TABLE>
<CAPTION>
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QUARTER ENDED, NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30
1998 1999 1998 1999
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<S> <C> <C> <C> <C>
Net revenue...................................... $9,201,631 $11,290,007 $24,562,118 $33,368,682
Dental Center expenses:
Staff salaries................................. 3,115,560 4,303,917 7,943,669 11,784,827
Dental supplies and lab fees................... 1,295,646 1,833,720 3,507,588 5,269,715
Advertising.................................... 539,874 619,166 1,483,937 2,201,653
Rent........................................... 1,126,039 1,740,727 2,845,743 4,859,152
Depreciation................................... 272,951 636,079 784,754 1,710,072
Other.......................................... 219,617 314,785 615,797 967,460
---------- ----------- ----------- -----------
Total Dental Center expenses................. 6,569,687 9,448,394 17,181,488 26,792,879
---------- ----------- ----------- -----------
Gross profit................................. 2,631,944 1,841,613 7,380,630 6,575,803
General and administrative expenses.............. 797,486 1,045,763 2,246,504 3,184,444
Development costs................................ 367,879 -- 1,303,636 --
Depreciation and amortization.................... 231,372 303,455 630,540 870,629
---------- ----------- ----------- -----------
Operating profit............................. 1,235,207 492,395 3,199,950 2,520,730
Interest (expense) income, net................... 349,106 134,803 1,338,025 540,911
---------- ----------- ----------- -----------
Income before income taxes....................... 1,584,313 627,198 4,537,975 3,061,641
Income tax expense............................... 448,553 188,149 1,429,755 994,321
---------- ----------- ----------- -----------
Income before cumulative effect of a change in
accounting principle........................... 1,135,760 439,049 3,108,220 2,067,320
Cumulative effect of a change in accounting
principle, net of income tax of $382,403....... -- -- 633,813 --
---------- ----------- ----------- -----------
Net income....................................... $1,135,760 $ 439,049 $ 2,474,407 $ 2,067,320
========== =========== =========== ===========
BASIC EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle........................... $ .15 $ .07 $ .41 $ .29
Cumulative effect of a change in accounting
principle...................................... -- -- .08 --
---------- ------------ ----------- ------------
Net income....................................... $ .15 $ .07 $ .33 $ .29
========== =========== =========== ============
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a change in
accounting principle........................... $ .15 $ .07 $ .40 $ .29
Cumulative effect of a change in accounting
principle...................................... -- -- .08 --
---------- ----------- ----------- ------------
Net income....................................... $ .15 $ .07 $ .32 $ .29
========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic.......................................... 7,621,758 6,595,640 7,617,963 7,076,687
========== =========== =========== ============
Diluted........................................ 7,672,458 6,595,693 7,712,796 7,076,863
========== =========== =========== ============
</TABLE>
See Notes to Condensed Financial Statements.
3
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COAST DENTAL SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
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NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 2,474,407 $ 2,067,320
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ............................................ 858,710 1,929,708
Amortization ............................................ 556,584 650,991
Deferred income tax (benefit) expense ................... (674,581) --
Changes in operating assets and liabilities:
Increase in management fee receivable from Coast P.A ..... (2,193,134) (3,500,229)
Increase in supplies, inventory and small tools .......... (1,198,677) (685,012)
Increase in prepaid expenses and other assets ............ 11,023 259,056
Increase in accounts payable and other accrued expenses .. 964,115 1,564,009
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 798,447 2,285,843
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................................... (8,196,405) (5,703,978)
Acquired assets, including intangible assets .............. (9,191,519) (3,030,140)
Sale of available-for-sale investments .................... -- 3,231,492
Increase in notes receivable from Coast P.A ............... (529,218) --
Increase in other assets .................................. (625,502) (678,204)
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NET CASH USED IN INVESTING ACTIVITIES ............... (18,542,644) (6,180,830)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options ................... 103,187 6,128
Purchase of treasury stock ................................ (86,349) (6,651,828)
Proceeds from long-term debt .............................. 5,240,500 374,332
Payments on long-term debt ................................ (481,874) (994,829)
Payments on capital leases ................................ (60,463) (60,430)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . 4,715,001 (7,326,627)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS ....................... (13,029,196) (11,221,614)
Cash and cash equivalents at beginning of period .......... 46,343,591 13,581,798
------------ ------------
Cash and cash equivalents at end of period ................ $ 33,314,395 $ 2,360,184
============ ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest .................................... $ 81,175 $ 140,856
============ ============
Cash paid for income taxes ................................ $ 1,792,500 $ 561,848
============ ============
Non-cash stock option receivable to Coast P.A ............. $ 641,862 $ 149,094
============ ============
</TABLE>
See Notes to Condensed Financial Statements.
4
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COAST DENTAL SERVICES, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying Condensed Financial Statements of Coast Dental
Services, Inc. (the "Company") are unaudited and should be read in conjunction
with the audited Financial Statements and notes thereto for the year ended
December 31, 1998.
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 Income for the quarter and nine months ended September
30, 1998 have been reclassified to conform to the quarter and nine months ended
September 30, 1999 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 Company's annual
Financial Statements and notes thereto.
NOTE 2 - EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, ("Statement
128") Earnings per Share, requires that the primary and fully diluted earnings
per share be replaced by basic and diluted earnings per share, respectively.
The basic calculation computes earnings per share based only on the weighted
average number of shares outstanding as compared to primary earnings per share
which included common stock equivalents. The diluted earnings per share
calculation is computed similarly to fully diluted earnings per share.
The basic earnings per common share is based on the weighted average
number of common shares outstanding during each period adjusted for actual
shares issued during the period.
The diluted earnings per common share is equal to the basic shares
plus the incremental shares outstanding as if all issued options were exercised
as of the end of the period. The number of incremental shares is determined
using the treasury stock methodology described in Statement 128.
NOTE 3 - INCOME TAXES
The Company is required to use Statement of Financial Accounting
Standards No. 109 ("Statement 109"), Accounting for Income Taxes. Under
Statement 109, the asset and liability method is used in accounting for income
taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
are measured using the current enacted tax rates and laws.
NOTE 4 - SIGNIFICANT EVENTS
The Company added six (6) internally developed Dental Centers during
the quarter ended September 30, 1999, three (3) in Florida, two (2) in Georgia,
and one (1) in Tennessee at an average cost of approximately $175,000 which
includes the cost of equipment, leasehold improvements, and working capital.
On April 1, 1999, the Company acquired the operations of Mid-Coast
Dental Services, Inc. ("MCDS") for $780,000 cash, $145,000 in notes and the
assumption of certain liabilities. The acquisition has been accounted for as a
purchase. The total cost has been allocated to the dental service agreement.
MCDS operations included eight Dental Centers opened at various times
throughout the last year. Prior to closing, MCDS had subleased the Dental
Center facilities from the Company. The Company has approximately $1.6 million
invested in the tangible assets of these eight Dental Centers in connection
with its development agreement with MCDS. These de novo Dental Centers, while
early stage, had a combined gross revenue run rate of approximately $2.1
million prior to the acquisition date. In connection with this acquisition, the
Company acquired the long-term management agreement between MCDS and Adam
Diasti D.D.S. & Associates, Inc., the terms of which are substantially similar
to the Services and Support Agreements with the Coast P.A. Adam Diasti, the
President of the Company, is the sole shareholder of Adam Diasti D.D.S. &
Associates, the professional corporation that employs MCDS's doctors and
hygienists.
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NOTE 5 - SUBSEQUENT EVENTS
During October 1999, the Company opened two internally developed
Dental Centers, one in Georgia and one in Tennessee, at an estimated cost of
approximately $175,000 each. This cost includes the cost of equipment,
leasehold improvements and working capital.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A. OVERVIEW
The Company opened its first Dental Center in May 1992. As of
September 30, 1999, the Company had 128 Dental Centers consisting of 63
internally developed and 65 acquired Dental Centers (including the eight de
novo's acquired from Mid-Coast Dental Services, Inc. ("MCDS").) The Company
derives its revenue through fees earned from the Company's managed professional
associations (collectively the "Coast P.A.") for providing management services
and support at the Dental Centers, located in Florida, Georgia, Tennessee and
Virginia. As of September 30, 1999, the Coast P.A employed 141 Coast Dentists.
The Company expects to expand the Coast Dental Network into new and existing
markets principally through the addition of internally developed and also
through select acquired Dental Centers.
Pursuant to the Services and Support Agreements with the Coast P.A.,
the Company provides management services and support to facilitate the
development and growth of Dental Centers. 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.
The services and support fees paid to the Company by the Coast P.A. have ranged
from 65.0% to 76.0% of the Dental Centers' gross revenue, net of refunds and
discounts since October 1, 1996. As a result of an adjustment in services and
support fees approved by the Audit Committee, beginning in February 1999 the
services and support fees are expected to average between 71.0% and 73.0% over
the next several years. The Company is dependent upon the future success of the
Coast P.A. and the ability of the Coast P.A. to grow with the Company. The
services and support fees between the parties may be revised from time to time
based upon negotiations between the Audit Committee and the Coast P.A. The
Company pays, out of the services and support fee, all of the operating and
non-operating expenses incurred by the Coast P.A. at the Dental Centers, except
for the salaries and benefits of the Coast Dentists and dental hygienists. For
the period June 1, 1997 through January 31, 1999, the Company paid the Coast
P.A. the sum of $50,000 in connection with each internally developed Dental
Center it committed to open, in consideration for the Coast P.A.'s agreement to
expand the Services and Support Agreements to include the new internally
developed Dental Centers.
The Company opened one internally developed Dental Center in 1996,
nine in 1997, 26 in 1998 and fifteen in the nine months ended September 30,
1999 in Florida, Georgia, Tennessee and Virginia. The average cost to the
Company of an internally developed Dental Center is approximately $175,000,
which includes the cost of equipment, leasehold improvements and working
capital. The Company's growth strategy will continue to include acquisitions in
select areas; however, the percentage of internally developed Dental Centers,
as a percentage of all Dental Centers, is expected to continue to increase.
Management believes, in spite of a start up period which results in lower
margins, that the strategy of focusing on internally developed Dental Centers
is an effective long term use of its working capital providing for low cost
expansion. The Company also expects to continue to grow internally by adding
capacity at existing acquired and developed Dental Centers.
On April 1, 1999, the Company acquired the operations of MCDS. MCDS
operations include eight Dental Centers opened at various times throughout the
twelve months prior to the Company's acquisition. These Dental Centers were
internally developed by MCDS and are being integrated into the rest of the
Coast Dental network.
The Company has completed its roll out plan for the conversion of its
Dental Center software as of September 30, 1999. The estimated incremental
direct cost, including hardware, software and implementation costs, of the
software conversion in 1999 is approximately $750,000. The conversion has
slightly impacted revenues at Dental Centers as training has occurred.
Additionally, as part of the Company's long term plan, the Company is
continuing to enhance its field management structure. The Company has added
three regional operations vice presidents to oversee up to 40 Dental Centers in
a region. While management believes that this level of management will enhance
the profitability of the Company, there could be some pressure on the margins
in the short term until the benefits of additional management are realized.
The Company began to implement its announced share repurchase program
in February, 1999. As of September 30, 1999, the Company had repurchased
approximately 1,218,800 shares for approximately $6.7 million, thus reducing
cash and interest income during the quarter with a corresponding reduction of
the weighted average shares outstanding during the period. Management believes
that the share repurchase will have a positive impact on earnings per share in
subsequent quarters.
7
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As anticipated, the Company continued to experience short term effect
on its financial performance due to its large percentage of newer Dental
Centers, its software conversion program, and its expansion of the Company's
field management team, all of which are steps the Company believes are in the
best interest of the Company.
B. RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenue
(consisting of management fees derived pursuant to the Services and Support
Agreements), certain items in the Company's statements of operations for the
quarters and nine months indicated. The performance of the Company during these
quarters and nine months are not indicative of future financial results or
conditions.
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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1998 1999 1998 1999
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<S> <C> <C> <C> <C>
Net revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Dental Center expenses:
Staff salaries..................................... 33.9 38.1 32.3 35.3
Dental supplies and lab fees....................... 14.1 16.2 14.3 15.8
Advertising........................................ 5.9 5.5 6.0 6.6
Rent............................................... 12.2 15.4 11.6 14.6
Depreciation....................................... 3.0 5.7 3.3 5.0
Other.............................................. 2.4 2.9 2.5 2.9
----- ----- ----- -----
Total Dental Center expenses..................... 71.4 83.7 70.0 80.3
----- ----- ----- -----
Gross profit..................................... 28.6 16.3 30.0 19.7
General and administrative........................... 8.7 9.3 9.1 9.5
Development costs.................................... 4.0 -- 5.3 --
Depreciation and amortization........................ 2.5 2.7 2.6 2.5
----- ----- ----- -----
Operating profit................................. 13.4 4.4 13.0 7.6
Interest income...................................... 3.8 1.2 5.4 1.6
----- ----- ----- -----
Income before income tax expense..................... 17.2 5.7 18.5 9.2
Income tax expense................................... 4.9 1.7 5.8 2.9
----- ----- ----- -----
Income before cumulative effect of a change in
accounting principle............................... 12.3 3.9 12.7 6.2
Cumulative effect of a change in accounting principle -- -- 2.6 --
----- ----- ----- ----
Net income........................................... 12.3 3.9 10.1 6.2
===== ===== ===== =====
</TABLE>
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1998
Net Revenue. Net revenue increased 22.7% and 35.9% for the quarter and
nine months ended September 30, 1999, from $9.2 million to $11.3 million and
from $24.6 million to $33.4 million, respectively. This increase was primarily
due to the increase in net revenue attributable to the increase in Dental
Centers from 98 at September 30, 1998, to 128 at September 30, 1999. The
increases in net revenue are also primarily driven by increases in patient
visits. Patient visits increased 32.1% from 118,576 for the quarter ended
September 30, 1998, to 156,661 for the quarter ended September 30, 1999 and
27.5% from 309,596 for the nine months ended September 30, 1998, to 394,841 for
the nine months ended September 30, 1999. As of February 1, 1999, the Company
amended its services and support fees to 73.0%, thereby reducing net revenue as
a percent of gross revenue. Therefore, the Dental Center expenses listed below
represent a higher percentage of net revenue in 1999 than in 1998.
Staff Salaries. Staff salaries increased 38.1% and 48.4% for the
quarter and nine months ended September 30, 1999, from $3.1 million to $4.3
million and from $7.9 million to $11.8 million, respectively. This increase in
staff salaries was
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primarily caused by the continued increase in Dental Center regional management
and an increase in Dental Center staffing due to the addition of 30 internally
developed Dental Centers added over the last twelve months. Additionally, a
portion of the increase is attributable to the substantial amounts of
incremental overtime in the Dental Centers related to the roll out of the
Company's new Dental Center software.
Dental Supplies and Lab Fees. Dental supplies and lab fees increased
41.5% and 50.2% for the quarter and nine months ended September 30, 1999, from
$1.3 million to $1.8 million and from $3.5 million to $5.3 million,
respectively. This increase was primarily caused by the substantial increase in
the number of new affiliated dentists in the Dental Centers from 102 in the
quarter ended September 30, 1998 to 141 in the quarter ended September 30,
1999. These dentists generally take a few quarters to become familiar with and
begin to realize the cost savings typically available to Coast Dentists.
Advertising. Advertising expense increased 14.7% and 48.4% for the
quarter and nine months ended September 30, 1999, from $.5 million to $.6
million and from $1.5 million to $2.2 million, respectively. This increase was
caused primarily by implementation of television ads to the advertising mix
utilized by the Company.
Rent. Rent expense, which includes utilities and maintenance costs,
increased 54.6% and 70.8% for the quarter and nine months ended September 30,
1999, from $1.1 million to $1.7 million and from $2.8 million to $4.9 million,
respectively. This increase was caused primarily by the increasing square
footage of the new Dental Centers, the aggressive development schedule with 30
new internally developed Dental Centers added over the last twelve months and
the Company's growth into new markets.
Depreciation. Depreciation expense at the Dental Centers increased
133.0% and 117.9% for the quarter and nine months ended September 30, 1999,
from $.3 million to $.6 million and from $.8 million to $1.7 million,
respectively. The increase was directly attributable to the addition of 30
Dental Centers (30 of which are new internally developed Dental Centers) during
the last twelve months without the corresponding revenue associated with the
new Dental Centers.
Other Expenses. Other expenses increased 43.3% and 57.1% for the
quarter and nine months ended September 30, 1999, from $.2 million to $.3
million and from $.6 million to $1.0 million, respectively. This increase was
caused primarily by increases in insurance costs, credit card discounts and
other costs associated with the addition of the 30 Dental Centers during the
last twelve months.
General and Administrative Expenses. General and administrative
expenses increased 31.1% and 41.8% for the quarter and nine months ended
September 30, 1999, from $.8 million to $1.0 million and from $2.2 million to
$3.2 million, respectively. The additional corporate administrative staff and
new technology required due to the growth of the Company were the principal
causes of this increase. General and administrative expenses primarily consist
of expenses incurred at the corporate office.
Development Costs. Development costs decreased $.4 million and $1.3
million for the quarter and nine months ended September 30, 1999, in comparison
to the prior year. The decrease in development costs was primarily the
discontinuation of the $50,000 fee paid to the Coast P.A. in accordance with the
service and support agreement for each of the 14 internally developed Dental
Centers which Coast P.A. agreed to develop in 1998. The Company decided to
early adopt AICPA Statement of Position No. 98-5, Reporting on the Costs of
Start-Up Activities ("SOP 98-5") effective January 1, 1998. SOP 98-5 requires
all costs associated with the development of internally developed Dental
Centers be expensed as incurred. Effective February 1, 1999, the Company and
the Coast P.A. have amended the Services and Support Agreements to cancel the
$50,000 payment to the Coast P.A., in connection with each internally developed
Dental Center.
Depreciation and amortization. Depreciation and amortization expenses
increased 31.2% and 38.1% for the quarter and nine months ended September 30,
1999, from $.2 million to $.3 million and from $.6 million to $.9 million,
respectively. The addition of assets at the corporate headquarters and the
amortization of additional acquired dental service agreements and other
intangible assets caused this increase.
Interest income, net. Interest income, net decreased 61.4% and 59.6%
for the quarter and nine months ended September 30, 1999, from $.3 million to
$.1 million and from $1.3 million to $.5 million, respectively. This decrease
was caused primarily by a decrease of the Company's invested cash balances
which was primarily utilized for the Company's expansion of its Dental Centers
and to repurchase stock pursuant to its stock repurchase initiative.
Income Taxes. Income taxes decreased 58.1% and 30.5% for the quarter
and nine months ended September 30, 1999, from $.4 million to $.2 million and
from $1.4 million to $1.0 million, respectively. This decrease is a direct
result of the
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<PAGE> 10
lower earnings experienced during the periods. The effective tax rate increased
slightly during the quarter as compared to the same quarter in 1998 due to the
lower tax free interest income in 1999.
Cumulative effect of a change in accounting principle. Development
costs paid to Coast P.A. beginning in June 1997 related to the expansion of
dental offices into new and existing markets were accounted for as deferred
development costs. In 1998, the Company adopted SOP 98-5, changed its
accounting to charge such costs to expense as incurred, and recorded the
cumulative effect on retained earnings as of January 1, 1998 of approximately
$1.0 million ($.6 million net of tax).
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
$41.9 million (after deducting underwriting discounts and commissions and
offering expenses).
During the second quarter, the Company's $15.0 million revolving
credit facility with Bank of America, N.A. d/b/a Nations Bank, N.A., a National
Banking Association, successor by merger to Barnett Bank, N.A. ("Nations Bank")
expired. The Company has completed its new revolving credit facility with
Nations Bank for an aggregate of up to $20.0 million for the purpose of
acquisitions or the construction of new dental offices, capital expenditures
and short-term working capital. The Company has the entire $20.0 million
available for borrowing subject to normal loan covenants.
The Company has approximately $10.6 million in available-for-sale
investments, which are invested in tax-free municipal bonds with interest rates
ranging between 3.5% to 4.0%. Since the investments have ratings ranging from
A1 to AAA, the Company believes that these investments have a low market risk
and can easily be converted to cash, if needed.
The Company added six internally developed Dental Centers during the
quarter ended September 30, 1999, three (3) in Florida, two (2) in Georgia and
one (1) in Tennessee at an average cost of approximately $175,000, which
includes the cost of equipment, leasehold improvements and working capital.
The cost of an acquired Dental Center is typically based upon in part
a negotiated percentage of the Dental Center's historical gross revenue.
Acquired Dental Centers typically generate sufficient cash flow to fund their
operations. The Company plans to finance the addition of internally developed
and acquired Dental Centers for the foreseeable future principally through
existing cash and expected cash flow from operations.
The Company completed the roll out of its Dental Center software
during the quarter ended September 30, 1999. The estimated incremental direct
cost, including hardware, software and implementation costs, of the software
conversion in 1999 is approximately $750,000. The Dental Center software being
installed is year 2000 compliant.
Many computer systems in use today were designed and developed using
two digits, rather than four, to specify the year. As a result, such systems
will recognize the 00 as 1900 instead of 2000. This could cause many computer
systems, computer applications and non-information systems to fail completely
or to create erroneous results unless corrective measures are taken.
The Company utilizes software and related computer technologies
essential to its operations that may be affected by the Year 2000 issue. In
1997, the Company created a Year 2000 committee tasked with evaluating the year
2000 issue and taking the appropriate actions. The year 2000 committee has
developed and implemented a comprehensive plan (the "Plan") to make its
information technology and non-information technology systems and applications
("IT Assets") year 2000 ready. The Plan covers the following phases: (i)
inventory of all IT Assets, (ii) assessment of repair or replacement
requirements, (iii) testing of IT Assets to determine correct manipulation of
dates and date-related data, (iv) verification that phases (i) through (iii)
were properly completed for all IT Assets, (v) verification of significant
third party year 2000 readiness and (vi) creation of contingency plans, to the
extent deemed necessary.
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<PAGE> 11
The first five phases of the Plan have been completed for the majority
of IT Assets that have been internally developed and a significant portion of
the first five phases have been completed for IT Assets that were developed by
third parties. The completion of the first five phases for third party
developed IT Assets is expected by November 30, 1999.
The Company surveyed third parties who provide both critical IT Assets
and non-information technology related goods and services (e.g. utility
companies, supply transportation companies and insurance companies) to (1)
evaluate their year 2000 compliance plans and state of readiness and (2)
determined whether a year 2000 related event will impede the ability of such
third parties to continue to provide such goods and services as the year 2000
approaches.
The Company has not yet completed phase (vi) of the Plan, but this
phase will be continuously monitored should the Company acquire more
information about the preparations of its third party vendors. Some risks
related to the year 2000 issue are beyond the control of the Company and its
third parties. For example, the Company does not believe that it can develop a
contingency plan which will protect the Company from a possible ripple effect
throughout the entire economy that could be caused by problems of others with
the year 2000 issue.
As of September 30, 1999, the costs associated with the year 2000
issue have been immaterial and the Company estimates that the future costs will
not have a material impact on the Company's financial condition or results of
operations. However, there can be no guarantee that the actual costs will not
differ materially from the costs estimated to be incurred by the Company. The
Company has funded the costs of implementing the Plan from its operations.
The Company cannot fully estimate the risks of its year 2000 issue,
however, to date, the Company has not identified any IT Assets that present a
material risk of not being year 2000 ready or for which a suitable alternative
cannot be implemented. Inspite of the plan, and the Companies effort to
identify the year 2000 issues, it is possible that the Company may identify IT
Assets that do present a risk of a year 2000 related disruption. It is also
possible that such a disruption could have a material adverse effect on the
financial condition and results of operations. Also, there can be no assurances
that third parties will be year 2000 compliant or that such third parties'
systems will not fail due to noncompliance and result in a disruption of
service to the Company which could in turn have a material adverse effect on
the Company's operations.
On February 10, 1999, the Company announced that its Board of
Directors authorized the repurchase of up to 500,000 shares of its outstanding
common stock. On March 25, 1999, the Company announced that its Board of
Directors authorized the increase of the previously announced share repurchase
program from 500,000 to 1,500,000 shares. The Company has been and will
continue to repurchase, for cash, its shares in the open market or in privately
negotiated transactions, from time to time, subject to market conditions. The
repurchase program will continue through February 9, 2000 unless sooner
terminated by the Board of Directors. No shares will be repurchased from the
Company's officers or directors. The Company intends to retire the repurchased
shares. As of October 22, 1999, the Company had repurchased 1,218,800 shares
for approximately $6.7 million.
The Company anticipates that for the balance of 1999, it will need to
spend approximately $2.5 million on capital expenditures, including new
internally developed Dental Centers, refurbishment and relocation of existing
Dental Centers and other capital equipment needs in both the Corporate office
and the Dental Centers.
Based upon the Company's anticipated capital needs for operations of
its business, general corporate purposes, the addition of Dental Centers,
repayment of certain debts and share repurchases, management believes that the
combination of the funds expected to be available under the Company's current
cash reserves, its anticipated 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 for the foreseeable future. It is anticipated by the Company
that future acquisitions and expansion will be funded primarily with cash on
hand, cash flow from operations and borrowings under the revolving line of
credit. In the event the Company expands at a more rapid rate, the Company
could finance growth through other credit sources, and where desirable, funding
from the sale of debt or equity securities.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation, Section C. Liquidity for further information
SPECIAL NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q, the quarterly report, 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 terms "Coast Dental Services,"
"company," "we," "our" and "us" refer to Coast Dental Services, Inc. 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 focus on the addition of internally
developed and certain select acquired Dental Centers in accordance
with the Company's growth strategy and the impact on short term
revenue and operating margins;
(ii) our liquidity and capital resources;
(iii) our financing opportunities and plans;
(iv) our future performance and operating results; and
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 to successfully add and integrate internally
developed Dental Centers;
(ii) any material inability to successfully identify, consummate and
integrate acquisitions at reasonable and anticipated costs;
(iii) any adverse effect or limitations caused by any governmental
regulations or actions;
(iv) any adverse effect on continued positive cash flow or our ability to
obtain acceptable financing in connection with our growth plans;
(v) any increased competition in business and in acquisitions;
(vi) inability to successfully conduct our business in newer markets;
(vii) any adverse impacts on our revenue or operating margins due to the
expected increase of internally developed Dental Centers, or to costs
associated with increased growth or increased managed care business
having lower margins;
(viii) the continued relationship with and success of our professional
association customers and their continued ability to grow in
conjunction with our growth;
(ix) any inability to meet or exceed analysts expectations in any future
period;
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(x) any material decrease in the services and support fees negotiated
between the audit committee and the Coast P.A.;
(xi) unanticipated costs and expenses resulting from our expansion which
impact margins;
(xii) any slow down in the number of patients or the services performed by
Dentists which impacts revenue;
(xiii) any material decrease in the number of Dentists available to service
patients, would affect productivity and impact overall revenue;
(xiv) any higher than anticipated seasonality resulting in a lower number of
patient visits in the Florida market in the summer months;
(xv) continued and increased negative effects on our business from the
conversion of our Dental Center software and
(xvi) the inability to add regional operations vice presidents and the
inability of such positions to positively impact operating results.
We undertake no obligation to publicly update or revise the forward
looking statements made in this Form 10-Q or annual report to reflect events or
circumstances after the date of this Form 10-Q and annual report or to reflect
the occurrence of unanticipated events.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits
See Exhibit Index.
(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 12, 1999.
COAST DENTAL SERVICES, INC.
By: /s/ TEREK DIASTI
-----------------------------------------
TEREK DIASTI
Chief Executive Officer, Chairman
of the Board Officer (Principal
Executive Officer)
(Principal Executive Officer)
By: /s/ WILLIAM H. GEARY
-----------------------------------------
WILLIAM H. GEARY
Vice President of Finance, Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
4.2* Business Loan Agreement dated August 15, 1996 by and among
Coast Dental Services, Inc. and Barnett Bank, N.A. [1]
4.3* First Amendment to Business Loan Agreement dated March 7,
1997 by and among Coast Dental Services, Inc. and Barnett
Bank, N.A. [2]
4.6 Amended and Restated Loan Agreement dated November 4, 1999 by
and among Coast Dental Services, Inc. and Bank of America,
N.A. d/b/a Nations Bank, N.A. (The Company is not filing any
instrument with respect to long-term debt that does not
exceed 10 percent of the total assets of the Company and the
Company agrees to furnish a copy of such instrument to the
Commission upon request.)
10.9* Business Loan Agreement dated August 15, 1996 by and among
Coast Dental Services, Inc. and Barnett Bank, N.A. [1]
10.13* First Amendment to Business Loan Agreement dated March 7,
1997 by and among Coast Dental Services, Inc. and Barnett
Bank, N.A. [2]
10.20 Amended and Restated Loan Agreement dated November 4, 1999 by
and among Coast Dental Services, Inc. and Bank of America,
N.A. d/b/a Nations Bank, N.A. and Third Renewal and
Replacement Revolving Promissory Note by and among Coast
Dental Services, Inc. and Bank of America, N.A. d/b/a Nations
Bank, N.A. incorporated by reference to Exhibit 4.6.
11.1 Computation of Per Share Earnings.
27 Financial Data Schedule for the quarter ended September 30,
1999 (for SEC use only.)
* Previously filed as an exhibit in the Company filing identified in the
endnote following the exhibit description and incorporated herein by reference.
[1] Registration Statement on Form S-1 filed on October 7, 1996 (File No.
333-13613.)
[2] Form 10-K filed on March 31, 1997.
15
<PAGE> 1
Exhibit 4.6
BANK OF AMERICA, N.A. D/B/A
NATIONSBANK, N.A.
AMENDED AND RESTATED LOAN AGREEMENT
This AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement") dated as of
the 4th day of November, 1999, is by and between BANK OF AMERICA, N.A. d/b/a
NATIONSBANK, N.A., a national banking association, successor by merger to
Barnett Bank, N.A., ("Lender") and COAST DENTAL SERVICES, INC., a Delaware
corporation ("Borrower").
WHEREAS, Borrower and Barnett Bank, N.A. ("Barnett") entered into a
certain Business Loan Agreement dated August 15, 1996 in connection with a
certain loan in the amount of $1,500,000.00 made by Barnett to Borrower, as
modified by a certain letter agreement between Borrower and Barnett dated
August 15, 1996; a certain First Amendment to Business Loan Agreement between
Borrower and Barnett dated effective as of March 7, 1997; and a Second
Amendment to Business Loan Agreement between Borrower and Barnett dated
effective as of November 24, 1997 (collectively, the "Loan Agreement")'
WHEREAS, Borrower has requested and Lender has agreed to modify and
increase the facility referenced in the Loan Agreement, such increased facility
to be evidenced by, inter alia, a certain Third Renewal and Replacement
Revolving Promissory Note, dated of even date herewith, in the amount of
$20,000,000.00;
WHEREAS, Borrower and Lender desire to amend and restate the Loan
Agreement in its entirety as hereinafter set forth;
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Lender and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. ACCOUNTING TERMS. All accounting terms not specifically defined
or specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied, with respect to the financial statements
referenced herein.
B. BORROWER: COAST DENTAL SERVICES, INC., a Delaware corporation.
C. BORROWER'S PLACE OF BUSINESS ADDRESS: 2502 Rocky Point Drive,
Suite 1000, Tampa, Florida 33607.
<PAGE> 2
D. CERCLA: The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as now or hereafter amended.
E. COLLATERAL. Lender shall take a blanket lien on all assets of
the Borrower and Guarantors (hereinafter defined), including accounts
receivable, chattel paper, inventory, equipment, general intangibles and all
replacements and substitutions thereof and proceeds thereof. In addition,
Lender will take a first priority security interest in the stock of all
Guarantors.
F. CONSOLIDATED FUNDED DEBT. The term "Consolidated Funded Debt"
shall mean any liability or obligation for borrowed money that under GAAP is
required to be shown on the balance sheet as a liability. It is agreed that
Consolidated Funded Debt specifically includes, without duplication, the
following:
(i) indebtedness that is secured by any security interest on
property owned or in effect owned by the Borrower (such as
capitalized leases, asset securitization vehicles, conditional
sales contracts and similar title retention arrangements),
irrespective of whether or not the indebtedness secured thereby
shall have been assumed by the Borrower;
(ii) guaranties, endorsements (other than endorsement of
negotiable instruments for collection in the ordinary course of
business), and other contingent liabilities, whether direct or
indirect (such as by way of a letter of credit issued for the
account of the Borrower) in connection with the obligations, stock
or dividends of any person;
(iii) obligations under any contract providing for the making of
loans, advances, or capital contributions to any person in order to
enable such person primarily to maintain working capital, net
worth, or any other balance sheet condition or to pay debts,
dividends or expenses; and
(iv) obligations under any contract which, in economic effect,
is substantially equivalent to a guaranty, as determined in
accordance with GAAP.
In addition, Consolidated Funded Debt shall include the redemption amount with
respect to any stock of the Borrower to be redeemed within the 12-month period
following the date of this Agreement that is required under GAAP to be shown as
a liability on the Borrower's balance sheet. Attached as Exhibit A to this
Agreement is a current schedule of Borrower's Consolidated Funded Debt which is
represented by Borrower to be true and accurate in all respects.
G. CONSOLIDATED INDEBTEDNESS. Includes, without limitation, all
loans, together with all other obligations, debts and liabilities of Borrower
to Lender, or any one or more of them, as well as all claims by Lender against
Borrower, or any one or more of them; whether now or hereafter existing,
voluntary or involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others; whether Borrower may be obligated as a guarantor, surety or otherwise;
whether recovery upon such Consolidated Indebtedness may be or hereafter may
become barred by any statute of
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<PAGE> 3
limitations; and whether such Consolidated Indebtedness may be or hereafter may
become otherwise unenforceable.
H. CONSOLIDATED NET WORTH. Consolidated Net Worth of Borrower means
the total assets less total liabilities, as determined in accordance with GAAP.
I. EFFECTIVE DATE. The Effective Date of this Loan is November 4,
1999.
J. EVENTS OF DEFAULT. "Events of Default" means and includes,
without limitation, any of the events of default set forth below in Section 7
hereof.
K. FOUR-QUARTER PERIOD. Four Quarter Period means a period of four
full consecutive fiscal quarters of the Borrower and its subsidiaries, taken
together as one accounting period.
L. GUARANTORS. The loan shall be unconditionally and fully
guaranteed by any existing or future subsidiaries of Borrower ("Guarantors").
The Guarantors' obligations to Lender shall be joint and several with Borrower
and all other guarantors, if any, and shall be on such other written terms as
are acceptable to Lender, including but not limited to a Guaranty Agreement
executed by Guarantors within thirty (30) days from the date they are acquired
or established by the Borrower.
M. HAZARDOUS MATERIALS. Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products,
oil and asbestos.
N. LOAN. Any loan described in Section 2 hereof and any subsequent
loan which is subject to this Loan Agreement.
O. LOAN DOCUMENT(S). Loan Document(s) means this Loan Agreement and
any and all promissory notes executed by Borrower in favor of Lender and all
other documents, instruments, guarantees, certificates and agreements executed
and/or delivered by Borrower, any guarantor or third party in connection with
any Loan.
P. MATURITY DATE. The Maturity Date of the Loan is November 4,
2002.
Q. SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
R. SELLER FINANCING. Seller Financing means purchase money
financing in favor of a seller of an existing dental center to Borrower.
3
<PAGE> 4
2. LOAN.
A. REVOLVING LINE OF CREDIT. Subject to the terms and conditions of
this Agreement, provided no Event of Default exists, Lender agrees to provide
an unsecured revolving line of credit in the original principal amount of
$20,000,000.00 (the "Revolving Line of Credit").
(i) Borrower shall execute and deliver to Lender a Third
Renewal and Replacement Revolving Promissory Note in the original
principal sum of Twenty Million and No/100ths Dollars
($20,000,000.00) payable to the order of Lender and evidencing
Borrower's obligation to repay the Revolving Line of Credit (the
"Note"). The payment terms, interest rate and Maturity Date
applicable to the Loan are contained in the Note.
(ii) Advances on this Loan will be made by telephonic or written
communication from a person reasonably believed by Lender to be an
authorized representative of Borrower. Unless otherwise agreed by
Lender, all advances will be made to a demand deposit account
maintained with Lender in the name of Borrower.
(iii) Prior to the disbursement by Lender of any advances to
Borrower under the Revolving Line of Credit, Lender shall have
determined that (a) there shall exist no Event of Default; (b) the
representations and warranties contained in this Agreement shall be
true and correct as of the date of such advance; (c) there shall
have occurred no material adverse change in the financial condition
of Borrower; and (d) the prospect of payment or performance of the
Revolving Line of Credit has not been materially impaired.
B. STANDBY LETTERS OF CREDIT. Standby Letters of Credit may be
issued to the Borrower and/or the Guarantors of this Loan. However, any Standby
Letters of Credit issued on behalf of a Guarantor shall require a joint
application by the Borrower and the Guarantor. There shall be a sub-limit for
the issuance of Standby Letters of Credit in an amount not to exceed
$2,000,000.00. Such Standby Letters of Credit shall have duration of not more
than 12 months. No Standby Letter of Credit shall have an expiration date
(including all rights of the Borrower, Guarantor or any beneficiary named in
such Letter of Credit to require renewal) or payment date occurring later than
the earlier to occur of one year after the date of its issuance or the seventh
business day prior to the Maturity Date of the Loan.
C. QUARTERLY PAYMENTS. The Borrower shall pay to Lender quarterly
payments, in arrears, as follows:
(i) Unused Fee for Revolving Credit Facility. For the period
beginning on the Effective Date and ending on the Maturity Date,
the Borrower agrees to pay to the Lender, an unused fee charge of
.15%, multiplied by the average daily amount by which the Loan
exceeds the sum of (i) revolving credit outstanding; and (ii)
Letter of Credit outstandings. Such fees shall be due in arrears on
the last business day of each March, June, September and December
commencing December, 1999 to and on the Maturity Date.
Notwithstanding the foregoing, so long as Lender fails to make
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<PAGE> 5
available any portion of the Loan when requested, Lender shall not
be entitled to receive payment of its fee until Lender makes
available such portion.
(ii) Letter of Credit Facility Fees. Borrower shall pay to
Lender a fee on the aggregate amount available to be drawn on each
outstanding letter of credit at a rate equal to the applicable
margin percentage at the applicable quarter end, prorated by the
number of days outstanding for each quarter. Such fees shall be due
with respect to each Letter of Credit quarterly in arrears on the
last day of each March, June, September and December, the first
such payment to be made on the first such date occurring after the
date of issuance of a Letter of Credit.
3. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make
the initial loan advance and each subsequent loan advance under the Revolving
Line of Credit Agreement shall be subject to the fulfillment to Lender's
satisfaction of all of the conditions set forth in this Agreement and the
related documents.
A. LOAN DOCUMENTS. Lender shall have received, duly executed, all
loan documents and any other document and instruments necessary or advisable in
connection with the Loan, all of which shall be in a form and subsequent
satisfactory to the Lender and it's counsel.
B. FINANCING STATEMENTS. All financing statements, notices and
other documents and instruments deemed by Lender and it's counsel to be
necessary or advisable in connection with the Collateral described herein shall
have been recorded or filed in all necessary places, and sent to or received by
all necessary persons, as the case may be.
C. INSURANCE. Lender shall have received casualty insurance
policies on tangible personal property naming Lender as a loss payee thereunder
within ten (10) days of the Effective Date; and
D. SECURITY INTEREST. Lender shall have received Evidence
satisfactory to Lender as to the validity, enforceability and priority of
Lender's security interest therein, subject only to prior liens and other
exceptions as may be acceptable to Lender, in it's sole discretion.
E. OPINION OF COUNSEL. Lender shall have received a written opinion
of Borrower's counsel as to the validity and enforceability of the loan
documents and such other matters as Lender may reasonably require.
F. BORROWER'S AUTHORIZATION. Borrower shall have provided, in form
and substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and Loan
Documents, and such other authorizations and
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<PAGE> 6
other documents and instruments as Lender or its counsel, in their sole
discretion, may require.
G. FINANCIAL INFORMATION. Lender shall have received such owner's
financial or other information as it may reasonably require, including, without
limitation, satisfactory review of all Service and Support Agreements
(hereinafter defined) to which Borrower is a party.
H. PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender
all fees, charges and other expenses which are then due and payable as
specified in this Agreement or any related document.
I. REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in this Agreement and the Loan documents, and any document
or certificate delivered to Lender under this Agreement, are true and correct.
J. NO EVENT OF DEFAULT. There shall not exist at any time of any
advance a condition which would constitute an Event of Default under this
Agreement.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Lender as follows:
A. GOOD STANDING. Borrower is a Delaware corporation, duly
organized, validly existing and in good standing under the laws of Delaware and
Florida and has the power and authority to own its property and to carry on its
business in each jurisdiction in which Borrower does business.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document, and Borrower is in material
compliance with all laws and regulatory requirements to which it is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no material proceeding involving Borrower
pending or, to the knowledge of Borrower, threatened before any court or
governmental authority, agency or arbitration authority, except as disclosed to
Lender in writing and acknowledged by Lender prior to the date of this
Agreement. For purposes of this Section 4.D., a "material" proceeding or
lawsuit involving Borrower shall be any proceeding or lawsuit required by GAAP
to be disclosed on the Borrower's financial statements.
6
<PAGE> 7
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets, and
its assets are free and clear of liens, except those liens (i) granted to
Lender, or (ii) disclosed to Lender in writing prior to the date of this
Agreement and accepted by Lender.
G. TAXES. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate proceedings
and the Borrower has filed all tax returns which it is required to file.
H. FINANCIAL STATEMENTS. The financial statements that Borrower has
delivered to Lender have been prepared in accordance with GAAP applied on a
consistent basis throughout the period involved and fairly present Borrower's
financial condition as of the date or dates thereof, and there has been no
material adverse change in Borrower's financial condition or operations since
June 30, 1999. Borrower has no material contingent obligations except as
disclosed in such financial statements. All factual information furnished by
Borrower to Lender in connection with this Agreement and the other Loan
Documents is and will be accurate and complete on the date as of which such
information is delivered to Lender and is not and will not be incomplete by the
omission of any material fact necessary to make such information not
misleading.
I. ENVIRONMENTAL. The conduct of Borrower's business operations and
the condition of Borrower's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof
relating primarily to the environment or hazardous materials.
J. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA,"
the Hazardous Materials Transportation Act, 49 USC ss. 1801, et seq., The
Resource Conservation and Recovery Act, 42 USC ss. 6901, et seq., and other
applicable state or federal laws, rules or regulations adopted pursuant to any
of the foregoing (collectively, the "Environmental Laws"). Except as disclosed
to and acknowledged by Lender in writing, Borrower represents and warrants that
Borrower is unaware of any threatened or ongoing violation of any environmental
laws which has arisen from or is otherwise related to Borrower's operations,
any real property or improvements owned or operated by Borrower, or any
personal property of any kind owned, leased or otherwise used by Borrower.
Borrower hereby (i) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (ii) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities,
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<PAGE> 8
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this Section of the Agreement or
as a consequence of any use, generation, manufacture, storage, disposal,
release or threatened release of a hazardous waste or substance on the
properties. The provisions of this Section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Loans and the
termination or expiration of this Agreement and shall not be effected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
K. YEAR 2000 COMPLIANCE. (i) Borrower has (A) begun analyzing the
operations of Borrower and, if applicable, its subsidiaries and affiliates that
could be adversely affected by failure to become Year 2000 compliant (that is,
that computer applications, embedded microchips and other systems will be able
to perform date-sensitive functions prior to and after December 31, 1999); and
(B) developed a plan for becoming Year 2000 compliant in a timely manner, the
implementation of which is on schedule in all material respects. Borrower
reasonably believes that it will become Year 2000 compliant for its operations
and those of its subsidiaries and affiliates on a timely basis except to the
extent that a failure to do so could not reasonably be expected to have a
material adverse effect upon the financial condition of Borrower. (ii) Borrower
is in the process of using its reasonable good faith efforts to ascertain that
all of its suppliers and vendors that are material to the operations of
Borrower or its subsidiaries and affiliates will be Year 2000 compliant for
their own computer applications except to the extent that a failure to do so
could not reasonably be expected to have a material adverse effect upon the
financial condition of Borrower. Borrower shall take all steps reasonably
necessary to ensure that such suppliers and vendors are Year 2000 compliant no
later than December 31, 1999; (iii) Borrower will promptly notify Lender in the
event Borrower determines that any computer application which is material to
the operations of Borrower, its subsidiaries or any of its material vendors or
suppliers will not be fully Year 2000 compliant on a timely basis, except to
the extent that such failure could not reasonably be expected to have a
material adverse effect upon the financial condition of Borrower.
L. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands
and agrees that Lender, without independent investigation, is relying on the
above representation and warranties in extending the Loans to Borrower.
Borrower further agrees that the foregoing representations and warranties shall
be continuing in nature and shall remain in full force and effect until such
time as Borrower's Consolidated Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided herein, whichever is
the last to occur.
5. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Lender
consents otherwise in writing (and without limiting any requirement of any
other Loan Document):
A. FINANCIAL COVENANTS. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a consistent basis
throughout the loan period involved except to the extent modified by the
following definitions:
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<PAGE> 9
Borrower shall not:
(i) Permit its ratio of consolidated total liabilities to
Consolidated Tangible Net Worth to exceed a maximum of
1.00 to 1.00 at any time.
(ii) Permit its ratio of Consolidated Funded Debt to
Consolidated EBITDA to exceed a maximum of (x) 2.25 to
1.00 at any time exclusive of any Seller Financing and (y)
2.75 to 1.00 at any time inclusive of any Seller
Financing. Consolidated EBITDA shall be defined as net
income plus interest expense plus tax expense plus
depreciation expense plus amortization expense and shall
be measured on a rolling four quarter basis. Consolidated
EBITDA shall exclude any nonrecurring or extraordinary
cash or noncash income.
(iii) Permit its Consolidated Fixed Charge Coverage Ratio to be
less than 2.50 to 1.00 at any time. This ratio shall be
defined as Consolidated EBITDA shall be measured on a
rolling four quarter basis less cash taxes, capital
expenditures, dividends paid, the cost of share
repurchases plus cash and cash equivalent on hand at the
end of the applicable fiscal quarter end all divided by
interest expense plus current maturity of long term debt
plus current maturities of capital leases. Cash and cash
equivalent on hand at the end of each fiscal quarter end
shall be incorporated into the Consolidated Fixed Charge
Coverage Ratio so long as the Borrower's cash balance is
in excess of $2,000,000.00. At such time as the cash and
cash equivalent on hand is less than $2,000,000.00 for two
consecutive fiscal quarters, this shall no longer be
incorporated into the Consolidated Fixed Charge Coverage
Ratio Calculation. Capital Expenditures shall not include
any cash outflow used for the purchase of acquiring dental
practices or any operational or capital expenditures
associated with funding the start-up of new dental
offices. In addition, current maturities of long-term
debts shall exclude any seller notes associated with the
acquisition of a dental practice so long as the Borrower
has cash and cash equivalent on hand at the applicable
quarter end of at least $2,000,000.00 in excess of the
amount of each Seller note.
B. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION.
Maintain a system of accounting satisfactory to Lender and in accordance with
GAAP applied on a consistent basis throughout the loan period involved, permit
Lender's officers or authorized representatives to visit and inspect Borrower's
books of account and other records at such reasonable times and as often as
Lender may desire, and pay the reasonable fees and disbursements of any
accountants or other agents of Lender selected by Lender for the foregoing
purposes. Unless written notice of another location is given to Lender,
Borrower's books and records will be located at Borrower's chief executive
office set forth above. All financial statements called for below shall
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<PAGE> 10
be prepared in form and content acceptable to Lender and by independent
certified public accountants acceptable to Lender.
In addition, Borrower will:
(i) Furnish quarterly to Lender, within 45 days following the
end of Borrower's fiscal quarter, internally prepared,
consolidated financial statements of the Borrower,
including a balance sheet and income statement, the form
of which may be equal to the format required by the SEC.
(ii) Furnish to Lender, annually, within 120 days following the
end of the Borrower's fiscal year, a consolidated balance
sheet and income statement prepared in accordance with
GAAP, on an audited basis, by an independent certified
public accountant acceptable to the Lender, including
statements of financial condition, income, cash flows and
changes in shareholder's equity.
(iii) All financial statements provided to Lender shall be
accompanied by a Certificate of Compliance signed by a
responsible officer or Borrower, which includes the
Borrower's computation of all restrictive covenants
defined hereunder accompanying the financial statements.
C. INSURANCE. Keep the Collateral constantly insured for the
benefit of Lender against all loss and damage in an amount not less than the
full insurable value thereof, such insurance to include fire and extended
coverage, as well as personal liability coverage, and Borrower covenants to
promptly pay all premiums for such insurance and to obtain endorsements to all
such policies showing Lender as loss payee without contribution by Lender
pursuant to the New York standard or other Lender clause satisfactory to
Lender, if Lender shall elect, the policies representing which shall be
delivered to and held by Lender as security for the payment of the indebtedness
and liability secured hereby. All sums recoverable on any such insurance
policies shall be made payable to Lender by a loss payable clause satisfactory
to Lender, to be attached to such policies. In the event any such insurance
policy shall expire during the life hereof, Borrower agrees to procure and pay
for renewal thereof, with the above requirements, replacing such expired
policy, and deposit the same with Lender, if Lender shall elect, together with
receipts showing payment in full of premiums therefor, ten (10) days prior to
the expiration date of such policy. In case of loss, Lender is hereby
authorized to adjust and settle any claim under any such policy and Lender is
authorized to collect and receipt for any such insurance money and to apply the
same, at Lender's option, in reduction of the indebtedness hereby secured,
whether due or not, or to allow Borrower to use such insurance money, or any
part thereof, in repairing the damage or restoring the Collateral without
affecting the lien hereof for the full amount secured hereby.
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D. EXISTENCE AND COMPLIANCE. Maintain its existence, good standing
and qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Lender in writing
of (i) any condition, event or act which comes to its attention that would or
might materially adversely affect Borrower's financial condition or operations
or Lender's rights under the Loan Documents, (ii) any litigation filed by or
against Borrower which Borrower is required to report in its financial
statements in accordance with GAAP, (iii) any event that has occurred that
would constitute an Event of Default under any Loan Documents and (iv) any
uninsured or partially uninsured loss through fire, theft, liability or
property damage in excess of an aggregate of $100,000.00.
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all material licenses, trademarks, privileges, permits,
franchises, certificates and the like necessary for the operation of its
business.
H. ENVIRONMENTAL. Immediately advise Lender in writing of (i) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting Borrower's business operations; and (ii) all
claims made or threatened by any third party against Borrower relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Borrower shall immediately notify Lender of any
remedial action taken by Borrower with respect to Borrower's business
operations. Borrower will not use or permit any other party to use any
Hazardous Materials at any of Borrower's places of business or at any other
property owned by Borrower except such materials as are incidental to
Borrower's normal course of business, maintenance and repairs and which are
handled in compliance with all applicable environmental laws. Borrower agrees
to permit Lender, its agents, contractors and employees to enter and inspect
any of Borrower's places of business or any other property of Borrower at any
reasonable times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including taking physical
samples) to insure that Borrower is complying with this covenant and Borrower
shall reimburse Lender on demand for the costs of any such environmental
investigation and audit. Borrower shall provide Lender, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials
used, generated, manufactured, stored or disposed of by Borrower's business
operations within five (5) days of the request therefore.
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I. LOAN PROCEEDS. Use all loan proceeds solely for acquisitions of
or construction of new dental centers, capital expenditures, short-term working
capital and general corporate purposes.
J. PERFORMANCE. Perform and comply with all terms, conditions and
provisions set forth in this Agreement and in the related documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of any
event which constitutes an Event of Default under this Agreement or under any
of the related documents.
K. OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present executive
and management personnel; provide written notice to Lender of any change in
executive personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting its properties, charters,
businesses and operations, including, without limitation, material compliance
with the Americans with Disabilities Act and requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.
6. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without
the prior written consent of Lender (and without limiting any requirement of
any other Loan Documents):
A. GUARANTY DEBT. Guaranty, assume or otherwise become responsible
for obligations of any other person, corporation or entity, whether on an
immediate or contingent basis, except for the endorsement of negotiable
instruments by Borrower, if any, in the ordinary course of business.
B. TRANSFER OF ASSETS OR CONTROL. Except as may be transacted by
Borrower in the ordinary course of business, sell, convey, assign, lease,
pledge or otherwise transfer any of Borrower's assets.
C. ENCUMBRANCES. Create, assume, or permit to exist any mortgage,
security deeds, pledge, lien, charge or other encumbrance on any of Borrower's
Assets, except (i) in favor of Lender, or (ii) created in the ordinary course
of business in an amount not exceeding $500,000.00; or (iii) Seller Financing
in an amount not exceeding $3,500,000.00. The term "Assets" shall mean all of
the tangible and intangible property, including, but limited to, accounts
receivable, chattel paper, inventory, equipment, furniture, fixtures,
leaseholds, trademarks, copyrights and patents owned by Borrower, Affiliates
and Subsidiaries or hereafter acquired and all replacements and substitutions
thereof and proceeds thereof.
Notwithstanding anything contained herein, the Borrower will be
permitted to incur cash outlays for the acquisition of existing dental
practices or the development of new dental offices of up to $8,000,000.00 in
any given fiscal quarter and up to $5,000,000.00 in any single transaction
without prior Lender approval. In the event of expenditures in excess of such
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amount, the Borrower shall be required to obtain approval from the Lender in
writing in advance and such approval by the Lender shall not be unreasonably
withheld.
D. EXTENSIONS OF CREDIT TO SUBSIDIARIES AND AFFILIATES. Loan,
invest or advance funds to subsidiaries or affiliates, except that arise in the
normal course of business where Borrower provides distribution, financial and
general business administration services to subsidiaries and affiliates.
E. SERVICES AND SUPPORT AGREEMENT. Terminate or materially and
adversely amend or modify any existing Services and Support Agreement. New
Services and Support Agreements shall be in substantially the same form as all
existing agreements.
7. EVENTS OF DEFAULT. The following (provided the same are not cured by
Borrower within the applicable grace or cure period) shall be Events of Default
hereunder by Borrower:
A. Any representation or warranty made in this Agreement shall
prove to be false or misleading in any material respect; or
B. Any report, certificate (including but not limited to any
certification of the correctness of the articles of incorporation or bylaws of
any of the corporate entities which constitute Borrower), financial statement
or other document furnished in connection with this Agreement or the loans made
pursuant hereto, shall prove to be false or misleading in any material respect;
or
C. Failure to make payment of any installment of principal or
interest on the Note, as and when due and payable (subject to applicable grace
periods, if any); or
D. Borrower shall otherwise fail to make any payment due to Lender
under the Note, this Agreement or any of the other loan documents executed by
Borrower with regard to the Loan within five (5) days of the date due; or
E. The occurrence of a default under the Note, or any of the other
Loan Documents executed by Borrower with regard to the Loan within five (5)
days of the date due; or
F. Breach of any other covenant, condition, or agreement made by
Borrower pursuant to this Agreement if such breach shall continue for a period
of thirty (30) days after delivery of notice thereof to Borrower or the
occurrence of a default thereunder; or
G. Should a custodian, as that term is defined in Bankruptcy Code,
be appointed for or take possession of any or all of the assets of Borrower or
any Guarantor or should Borrower or any Guarantor either voluntarily or
involuntarily become subject to any insolvency proceeding, proceeding to
dissolve Borrower or any Guarantor, proceeding to have a receiver appointed or
should Borrower or any Guarantor make an assignment for the benefit of
creditors, or should there be an attachment, execution, or other judicial
seizure of all or any portion of Borrower's or any Guarantor's assets, and, if
involuntary, is not discharged within sixty (60) days; or
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H. Dissolution or termination of the existence of Borrower; or
I. Borrower shall be a debtor, either voluntarily or involuntarily,
under (as the term debtor is defined in) Bankruptcy Code, which, if
involuntary, is not discharged within sixty (60) days; or
J. Should any uninsured judgment(s) in excess of $250,000.00
annually in the aggregate be entered against the Borrower provided that such
judgment(s) are not satisfied or bonded off within thirty (30) days.
Borrower recognizes and acknowledges that any default on any payment,
or a portion thereof, due under the Note, or to be made under any other Loan
Document, will result in losses and additional expenses to Lender in servicing
the Consolidated Indebtedness evidenced hereby in handling delinquent payments,
and losses due to Lender's loss of the use of funds not timely received, and in
frustration of Lender's ability to meet its other loan commitments. Borrower
further acknowledges that in the event of any such default, Lender would be
entitled to damages for the detriment approximately caused thereby, but that it
would be extremely difficult and impractical to ascertain the extent of compute
such damages. Therefore, if for any reason Borrower fails to pay any interest
payment due under the Note, or fail to pay any amount due under any of the Loan
Documents, other than payment of the principal balance due on the Maturity
Date, for a period of fifteen (15) days after the same is required to be paid
hereunder or thereunder, Borrower shall pay to Lender immediately, in addition
to such delinquent payment, an amount equal to four (4%) of the amount of each
delinquent payment ("Past-Due Charge"). However, if the delinquent payment
results from the Lender failing to debit Borrower's deposit account in
accordance with the provisions contained in the Note, the Past-Due Charge shall
be waived by Lender unless the Lender's failure to debit Borrower's account was
due to the fact that there were insufficient funds in the Borrower's account.
If payment of the principal amount hereof is not made on the Maturity Date, the
principal balance due Lender under the Note on such Maturity Date shall bear
simple interest after the Maturity Date until paid in full at a per annum rate
equal to the lesser of (a) eighteen percent (18%) per annum or (b) the highest
interest rate permitted to be charged by Lender, if any such limit is
applicable, per annum ("Default Rate"). If a judgement is entered on the
Consolidated Indebtedness evidenced by the Note, the judgement shall bear
interest at the Default Rate until paid in full. It is the intention of the
parties that this provision controls over any contrary provision in Section
55.03, Florida Statutes (1997). Borrower acknowledges that the Past-Due Charge
and Default Rate agreed to hereunder represent the reasonable estimate of those
damages which would be incurred by Lender and a fair return to Lender for the
loss of the use of the funds not timely received by Borrower, on account of a
default by Borrower as herein specified, established by Borrower and Lender
through good faith consideration of the facts and circumstances surrounding the
transaction contemplated under the Note as of the date hereof, but that such
Past-Due Charge and Default Rate are in addition to, and not in lieu of, any
other right or remedy available to Lender, as specified in the Note or this
Agreement. Notwithstanding anything to the contrary contained in this
Agreement, if any applicable law prescribes the imposition of a late charge in
the amount of the Past-Due Charge herein specified, or limits the Default Rate
of interest that may be charged to a rate less than the
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<PAGE> 15
Default Rate herein specified, the maximum charge or rate permitted by such law
shall be charged by Lender for purposes of this section.
8. REMEDIES UPON DEFAULT. If an event of default shall occur, Lender
shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.
9. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower: Coast Dental Services, Inc.
2502 Rocky Point Drive
Suite 1000
Tampa, Florida 33607
Attn: CFO
With a
Copy to: Darrell C. Smith, Esq.
Shumaker, Loop & Kendrick
101 E. Kennedy Blvd.
Suite 2800
Tampa, Florida 33602
Lender: Bank of America, N.A. d/b/a NationsBank, N.A.,
successor by merger to Barnett Bank, N.A.
101 E. Kennedy Boulevard
Tampa, Florida 33602
Attn. Sadahri Berry, Vice President
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means, upon delivery.
10. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Lender's in-house counsel if permitted by applicable law), incurred by
Lender in connection with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) all other costs and attorneys' fees
incurred by Lender for which Borrower is obligated to reimburse Lender in
accordance with the terms of the Loan Documents.
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11. MISCELLANEOUS. Borrower and Lender further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted to
Lender under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all other
rights of Lender, and no delay in exercising any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on Borrower in any case
shall, of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. APPLICABLE LAW. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of Florida and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
an officer of Lender, and then shall be effective only in the specified
instance and for the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to the benefit of Lender,
its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective
without Lender's prior written consent, nor shall it relieve Borrower of any
obligations hereunder. There is no third party beneficiary of this Loan
Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Lender shall be in
form and content satisfactory to Lender and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or
validity of any other provision herein and the invalidity or unenforceability
of any provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
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<PAGE> 17
F. INDEMNIFICATION. Notwithstanding anything to the contrary
contained in Section 11G., Borrower shall indemnify, defend and hold Lender and
its successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs) arising from or
in any way related to any of the transactions contemplated hereby, including
but not limited to actual or threatened damage to the environment, agency costs
of investigation, personal injury or death, or property damage, due to a
release or alleged release of Hazardous Materials, arising from Borrower's
business operations, any other property owned by Borrower or in the surface or
ground water arising from Borrower's business operations, or gaseous emissions
arising from Borrower's business operations or any other condition existing or
arising from Borrower's business operations resulting from the use or existence
of Hazardous Materials, whether such claim proves to be true or false. Borrower
further agrees that its indemnity obligations shall include, but are not
limited to, liability for damages resulting from the personal injury or death
of an employee of the Borrower, regardless of whether the Borrower has paid the
employee under the workmen' s compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term
"property damage" as used in this paragraph includes, but is not limited to,
damage to any real or personal property of the Borrower, the Lender, and of any
third parties. The Borrower's obligations under this paragraph shall survive
the repayment of the Loan and any deed in lieu of foreclosure or foreclosure of
any Deed to Secure Debt, Deed of Trust, Security Agreement or Mortgage securing
the Loan.
G. INTEREST. Anything contained herein, the Note, or any other
document executed pursuant to this Agreement, notwithstanding, if for any
reason the effective rate of interest on any advances shall exceed the minimum
lawful rate of interest, the effective rate of interest shall be deemed reduced
to and shall be such maximum lawful rate, and any sums of interest which have
been collected in excess of such maximum lawful rate shall be applied by Lender
as a credit against the unpaid principal amount due thereunder.
H. STAMPS AND FEES. Borrower shall pay all federal and state stamps
or taxes, or other fees and charges, if any, payable or determined to be
payable by reason of the execution, delivery or issuance of this Agreement, the
Note, or the making of any advance from time to time, whether they be payable
upon execution or recurring from time to time, and Borrower agrees to indemnify
and hold harmless Lender against any and all liability in respect therefore.
Lender agrees to hold the Note outside the State of Florida throughout the term
of the loan.
I. ASSIGNMENT. This Agreement and the right of Borrower to receive
Loans hereunder may not be assigned by Borrower.
J. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of the Lender to make any advances under the Line
shall not have expired.
K. TIME IS OF THE ESSENCE. Time is of the essence in the
performance of this Agreement.
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L. CAPTION HEADINGS. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Agreement.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
OF ANY BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN
THE COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR
UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT,
AGREEMENT OR DOCUMENT; OR (II) BE A WAIVER BY LENDER OF THE PROTECTION AFFORDED
TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE RIGHT OF LENDER HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY
REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT
18
<PAGE> 19
OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. LENDER MAY EXERCISE SUCH SELF
HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER
THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
13. NOTICE OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT, EACH PARTY
REPRESENTS AND AGREES THAT: (A) THIS WRITTEN LOAN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES; (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES; AND (C) THIS WRITTEN LOAN AGREEMENT MAY BE CONTRADICTED BY
EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS AND
UNDERSTANDINGS BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the
date first above written.
"Lender"
BANK OF AMERICA, N.A. d/b/a/ NATIONSBANK, N.A.,
a national banking association, successor by
merger to Barnett Bank, N.A.
By: /s/ Brian Reeves
-------------------------------------------
Brian Reeves,
Senior Vice President
"Borrower"
COAST DENTAL SERVICES, INC..,
a Delaware corporation
By: /s/ Terek Diasti
-------------------------------------------
Terek Diasti,
Chief Executive Officer
(Corporate Seal)
STATE OF GEORGIA
COUNTY OF
19
<PAGE> 20
Bank of America, N.A d/b/a
NationsBank, N.A.
THIRD RENEWAL AND REPLACEMENT
REVOLVING PROMISSORY NOTE
Date: Effective as of November 4, 1999 [ ] New [x] Renewal
Amount $20,000,000.00 Maturity Date: November 4, 2002
<TABLE>
<CAPTION>
Bank: Borrower:
<S> <C>
Bank of America, N.A. d/b/a NationsBank, N.A., a national banking COAST DENTAL SERVICES, INC., a Delaware corporation
association, successor by merger to Barnett Bank, N.A. 2502 Rocky Point Drive
101 East Kennedy Blvd. - 5th Floor Suite 1000
Attn. Commercial Banking Tampa, Florida 33607
Tampa, Florida, 33602
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally promises to pay to
the order of Bank, its successors and assigns, without setoff, at its offices
indicated at the beginning of this Note, or at such other place as may be
designated by Bank, the principal amount of Twenty Million and 00/100ths
Dollars ($20,000,000.00), or so much thereof as has been advanced hereunder,
together with interest on the unpaid principal balance from time to time
outstanding from the date of each advance of principal, as hereinafter stated.
This is a Revolving Promissory Note evidencing borrowings up to the
principal sum shown above, but notwithstanding such face amount of this Note,
the actual indebtedness from time to time evidenced hereby shall be the sum of
all advances by Bank to Borrower hereunder, less the aggregate amount of all
principal payments made under this Note by Borrower to Bank, it being the
intent hereof and the purpose of this Note to provide a revolving line of
credit which the Borrower may draw against and which Bank will advance from
time to time, at it's sole discretion, and which the Borrower shall repay in
whole or in part from time to time as provided hereinafter, provided however,
that the total principal amount outstanding hereunder shall not ever exceed the
face amount of this Note.
[THIS NOTE CONTAINS SOME PROVISIONS PRECEDED BY BOXES. IF A BOX IS MARKED, THE
PROVISION APPLIES TO THIS TRANSACTION; IF IT IS NOT MARKED, THE PROVISION DOES
NOT APPLY TO THIS TRANSACTION.]
1. RATE.
[ ] PRIME RATE. The Rate shall be the Prime Rate, plus ______________________
percent, per annum. The "Prime Rate" is the fluctuating rate of interest
established by Bank from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Bank as an
index and may or may not at any time be the best or lowest rate charged by Bank
on any loan.
THIS INSTRUMENT WAS MADE, EXECUTED AND DELIVERED OUTSIDE THE STATE OF FLORIDA,
AND NO FLORIDA DOCUMENTARY STAMP TAX IS DUE HEREON IN ACCORDANCE WITH F.A.C.
12B-4.053(35)
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
1
<PAGE> 21
Bank of America, N.A. d/b/a
NationsBank, N.A.
[ ] FIXED RATE. The Rate shall be fixed at _______ percent per annum.
[X] LIBOR RATE. The interest rate on this Note is subject to change from time
to time based on the Libor Rate for each Interest Period plus the applicable
Margin Percentage (hereinafter defined). The Libor Rate for each Interest
Period shall mean the offered rate for deposits in United States dollars in the
London Interbank market for a one month period which appears on the Telerate
Screen Page 3750 as of 11:00 a.m. (London time) on the day that is two London
Banking days (as defined herein) preceding the first Banking Business Day (as
defined herein) of the Interest Period. If at least two such offered rates
appear on the Telerate Screen Page 3750, the rater will be the arithmetic mean
of such offered rates. The Bank may, in its discretion, use any other publicly
available index or reference rate showing rates offered for United States
dollar deposits in the London Interbank market as of the applicable date. In
addition a, the Bank may, in its discretion, use rater quotations for daily or
annual periods in lieu of quotations for substantially equivalent monthly
periods.
The applicable Margin Percentage shall be defined as follows:
(i). If the Consolidated Funded Debt to Consolidated EBITDA Ratio
(hereinafter defined) is less than 1:1, then the Margin Percentage
shall be one and twenty five one-hundredths percent (1.25%);
(ii). If the Consolidated Funded Debt to Consolidated EBITDA Ratio is
equal to or greater than 1:1, but less than 1.50:1, then the Margin
Percentage shall be one and fifty one-hundredths percent (1.50%); and
(iii). If the Consolidated Funded Debt to Consolidated EBITDA Ratio is
equal to or greater than 1.50:1, but less than 2.75:1, then the Margin
Percentage shall be one and seventy-five one hundredths percent
(1.75%).
"BUSINESS BANKING DAY" shall mean each day other than a Saturday, a Sunday or
any holiday on which commercial banks in Jacksonville, Florida are closed for
business.
"CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EBITDA RATIO" shall mean a ratio
which is equal to Borrower's funded debt divided by CONSOLIDATED EBITDA (as
defined in Section 5(A)(ii) of the Amended and Restated Loan Agreement of even
date herewith, i.e. net income plus interest expense plus tax expense plus
depreciation expense plus amortization expense and measured on a rolling four
quarter basis.) Consolidated EBITDA shall exclude any nonrecurring or
extraordinary cash or noncash income.
"INTEREST PERIOD" shall mean each period commencing on each Interest Rate
Adjustment Date and ending on the next Interest Rate Adjustment Date.
"INTEREST RATE ADJUSTMENT DATE" shall mean (a) the 4th day of November, 1999
and the 4th day of each month thereafter with respect to the Libor Rate and (b)
the 45th day following the end of the Borrower's fiscal quarter as described in
Section 5(b) of the Loan Agreement (as hereinafter defined) with respect to the
Margin Percentage
"LONDON BANKING DAY" shall mean each day other than a Saturday, a Sunday or any
holiday on which commercial banks in London, England are closed for business.
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
2
<PAGE> 22
Bank of America, N.A. d/b/a
NationsBank, N.A.
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges
in excess of the maximum permitted by the applicable law of the State of
Florida. Any payment in excess of such maximum shall be refunded to Borrower or
credited against principal, at the option of Bank.
2. ACCRUAL METHOD. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder).
3. RATE CHANGE DATE. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. If the Rate is to change on any other date or at any
other interval, the change shall be the 4th day of each month. In the event any
index is discontinued, Bank shall substitute an index determined by Bank to be
comparable, in its sole discretion.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
[X] MONTHLY INTEREST PAYMENTS. Commencing on the 4th day of December,
1999, and continuing on the 4th day of each month thereafter through the
Maturity Date, Borrower shall pay all accrued interest at the LIBOR Rate set
forth above.
[X] BALLOON PAYMENT. Notwithstanding anything to the contrary herein,
the entire unpaid outstanding principal balance, together with any accrued
interest, shall be due and payable November 4, 2002 (the "Maturity Date").
[ ] PRINCIPAL PLUS ACCRUED INTEREST PAYMENTS. Commencing on ______________, and
continuing on the same day of each month thereafter through and including the
Maturity Date, Borrower shall pay to Bank a principal payment in the amount of
___________________, plus all accrued interest; with a final payment of all
unpaid principal and accrued interest due on ____________________.
[ ] FIXED PRINCIPAL AND INTEREST. Principal and interest shall be paid in
consecutive equal installments of $______ payable [ ] monthly, [_] quarterly or
[_] , commencing on ________, and continuing on the [x] same day, [_] last day
of each successive month, quarter or other period (as applicable) thereafter,
with a final payment of all unpaid principal and interest due thereon on
________. If, on any payment date, accrued interest exceeds the installment
amount set forth above, Borrower will also pay such excess as and when billed.
[_] SINGLE PRINCIPAL PAYMENT. Principal shall be paid in full in a single
payment on ____________________, 19_______. Interest thereon shall be paid [_]
at maturity, or else [_] monthly, [_] quarterly or [_] __________________,
commencing on ___________, 19__, and continuing on the [_] same day, [_] last
day of each successive month, quarter or other period (as applicable)
thereafter, with a final payment of all unpaid interest at the stated maturity
of this Note.
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
3
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Bank of America, N.A. d/b/a
NationsBank, N.A.
[ ] OTHER. _____________________________________________________
5. AUTOMATIC PAYMENT.
[X] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number _____________________
__________. This authorization shall not affect the obligation of Borrower to
pay such sums when due, without notice, if there are insufficient funds in such
account to make such payment in full on the due date thereof, or if Bank fails
to debit the account.
6. WAIVERS, CONSENTS AND COVENANTS. Borrower, (the "Obligor"): (a) waives
presentment, demand, protest, notice of demand, notice of intent to accelerate,
notice of acceleration of maturity, notice of protest, notice of nonpayment,
notice of dishonor, and any other notice required to be given under the law to
Obligor in connection with the delivery, acceptance, performance, default or
enforcement of this Note; (b) consents to all delays, extensions, renewals or
other modifications of this Note, or waivers of any term hereof or the failure
to act on the part of Bank, or any indulgence shown by Bank (without notice to
or further assent from Obligor), and agrees that no such action, failure to act
or failure to exercise any right or remedy by Bank shall in any way affect or
impair the obligations of Obligor or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note; and (c) agrees to pay,
on demand, all costs and expenses of collection or defense of this Note,
including, without limitation, reasonable attorney's and paralegal's fees,
including fees related to any suit, mediation or arbitration proceeding, out of
court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
7. INDEMNIFICATION. Obligor agrees to promptly pay, indemnify and hold Bank
harmless from all State and Federal taxes of any kind and other liabilities
with respect to or resulting from the execution and/or delivery of this Note or
any advances made pursuant to this Note.
8. PREPAYMENT. Borrower shall have the right, provided that it is not in
default under this Note, to prepay the principal balance of this Note, in whole
or in part, at any time, upon payment of all interest and other sums then due
and payable pursuant to the provisions of this Note. If this Note is satisfied
as of any LIBOR Roll-Over Date, or if the Prime Rate is then in effect, no
prepayment premium shall be payable with respect to any portion of the
principal balance of this Note. However, if the LIBOR Rate is in effect and the
prepayment is not effected on a LIBOR Roll-Over Date, then Bank may require, in
its sole discretion, that Borrower pay to Bank contemporaneously with any such
prepayment of this Note, a sum equal to the amount of the prepayment multiplied
by a per annum interest rate equal to the difference between the LIBOR Rate
applicable thereto, and the 360 day equivalent interest yield (hereinafter call
the "REINVESTMENT RATE") on any United States Treasury obligations selected by
Bank in an aggregate amount approximately equal to the outstanding principal
balance of this Note, and with a maturity comparable to the LIBOR Roll-Over
Date applicable thereto calculated over a period of time from the date of
prepayment to and including such LIBOR Roll-Over Date. If the LIBOR Rate being
prepaid is equal or less than the Reinvestment Rate, no prepayment premium
shall be due. Any payment of the principal balance of this Note after
acceleration of the maturity date of this Note, or the commencement of any
proceedings to enforce this Note or the Loan Agreement, shall be deemed a
voluntary prepayment for the purposes of this paragraph shall be payable with
respect thereto based upon the LIBOR Rate applicable to this Note immediately
prior to such default and acceleration. Bank shall certify to Borrower the
amount and basis of determination of such prepayment premium, it being agreed
that (i) the calculation of such prepayment premium may be based on any United
States Treasury obligations selected by Bank in its sole discretion and (ii)
Bank shall not be obligated or required to have
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
4
<PAGE> 24
Bank of America, N.A. d/b/a
NationsBank, N.A.
actually reinvested the prepaid principal balance of this Note in any such
United States Treasury obligations as a condition precedent to receiving a
prepayment premium calculated as aforesaid. Borrower shall, upon receipt of
such certification and contemporaneously with any such prepayment of the
principal balance of this Note, remit to Bank the prepayment premium, if any,
due in connection therewith as calculated pursuant to the provisions of this
paragraph. Bank shall not be obligated to accept any prepayment of the
principal balance of this Note unless it is accompanied by the prepayment
premium, if any, due in connection therewith as calculated pursuant to the
provisions of this paragraph.
9. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency charge
shall be imposed in an amount not to exceed four percent (4%) of the unpaid
portion of any payment that is more than fifteen days late.
10. CROSS DEFAULT. A default under this Note shall be and constitute a default
under any and all other notes or other evidence of indebtedness and any
instruments of security in which Borrower is liable and of which the Bank is
the holder. A default under any and all other note(s) or other evidence of
indebtedness or any instruments of security in which Borrower is liable and of
which Bank is the holder shall also constitute a default under this Note.
11. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of Obligor
to Bank, under this Note; (b) the resignation or withdrawal of Mr. Terek Diatsi
from his current position with Borrower, or a change in his status as an active
participant in the day to day operations of Borrower, as determined by Bank in
its sole discretion; (c) the commencement of a proceeding against Obligor for
dissolution or liquidation, the voluntary or involuntary termination or
dissolution of Obligor; or (d) the merger or consolidation of Obligor with or
into another entity where Obligor is not the survivor; (e) the insolvency of,
the business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, the assignment for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtor's relief law or the filing of a petition for any adjustment of
indebtedness, composition or extension by or against Obligor; (f) the
determination by Bank that any material representation or warranty made to Bank
by Obligor in any Loan Documents or otherwise is or was, when it was made,
untrue in any material respect or materially misleading; (g) the failure of
Obligor to timely deliver such financial statements, including tax returns,
other statements of condition or other information, as Bank shall request from
time to time; (h) the entry of a judgment against Obligor in excess of
$500,000.00; (i) the seizure or forfeiture of, or the issuance of any writ of
possession, garnishment or attachment, or any turnover order for any property
of Obligor in excess of $100,000.00; (j) the determination by Bank that a
material adverse change has occurred in the financial condition of Obligor; or
(k) the failure of Borrower's business to comply in any material respect with
any law or regulation controlling its operation.
12. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the maximum rate allowed by law (the
"Default Rate"). The provisions herein for a Default Rate shall not be deemed
to extend the time for any payment hereunder or to constitute a "grace period"
giving Obligor a right to cure any default. At Bank's option, any accrued and
unpaid interest, fees or charges may, for purposes of computing and accruing
interest on a daily basis after the due date of the Note or any installment
thereof, be deemed to be a part of the
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
5
<PAGE> 25
Bank of America, N.A. d/b/a
NationsBank, N.A.
principal balance, and interest shall accrue on a daily compounded basis after
such date at the Default Rate provided in this Note until the entire
outstanding balance of principal and interest is paid in full. Upon a default
under this Note, Bank is hereby authorized at any time, at its option and
without notice or demand, to set off and charge against any deposit accounts of
any Obligor (as well as any money, instruments, securities, documents, chattel
paper, credits, claims, demands, income and any other property, rights and
interests of any Obligor), which at any time shall come into the possession or
custody or under the control of Bank or any of its agents, affiliates or
correspondents, any and all obligations due hereunder. Additionally, Bank shall
have all rights and remedies available under each of the Loan Documents, as
well as all rights and remedies available at law or in equity. Any judgment
rendered on this Note shall bear interest at the highest rate of interest
permitted pursuant to Chapter 687, Florida Statutes.
13. NON-WAIVER. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of
Bank's rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligor to Bank
in any other respect at any other time.
14. APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of Florida. In any litigation in
connection with or to enforce this Note, Obligor irrevocably consents to and
confers personal jurisdiction on the courts of the State of Florida or the
United States located within the State of Florida and expressly waive any
objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law. The interest rate charged on this
Note is authorized by Chapter 655, Florida Statutes and Section 687.12, Florida
Statutes.
15. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other
provision herein and the invalidity or unenforceability of any provision of
this Note or of the Loan Documents to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
16. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of
Borrower and Bank and their respective successors, assigns, heirs and personal
representatives, provided, however, that no obligations of Borrower hereunder
can be assigned without prior written consent of Bank.
17. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
18. SECURITY. This Note is secured by a certain Amended and Restated Loan
Agreement, executed on even date herewith by Borrower and Bank, which
instrument (the "Loan Agreement"), together with the other loan documents
executed in connection with the Note are sometimes herein collectively referred
to as the "Loan Documents".
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
6
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Bank of America, N.A. d/b/a
NationsBank, N.A.
19. INCREASE AND REPLACEMENT. This Note constitutes an increased revolving
credit availability of $5,000,000.00 to the Borrower (for a total of
$20,000,000.00) and increases, replaces and supersedes that certain Second
Renewal and Replacement Revolving Promissory Note executed by Borrower in favor
of Barnett Bank, N.A. dated November 24, 1997 in the original principal amount
of $15,000,000.00 and that certain First Renewal and Replacement Revolving
Promissory Note executed by Borrower in favor of Barnett Bank, N.A., dated
March 7, 1997, in the original principal amount of $5,000,000.00.
20. COMPLIANCE AGREEMENT. For and in consideration of the funding or renewal of
this loan by Bank, the Borrower hereby agrees to cooperate or re-execute any
and all loan documentation deemed necessary or desirable in Bank's discretion,
in order to correct or to adjust for any clerical errors or omissions contained
in any document executed in connection with this loan.
21. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING
A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT, OR IF THERE IS REAL PROPERTY COLLATERAL, IN THE COUNTY WHERE SUCH
REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S. WHO WILL
APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES
OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT
OR DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
7
<PAGE> 27
Bank of America, N.A. d/b/a
NationsBank, N.A.
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANK MAY FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
22. YEAR 2000 REPRESENTATIONS AND WARRANTIES. (1) Borrower has (i) begun
analyzing the operations of Borrower and its subsidiaries and affiliates that
could be adversely affected by failure to become Year 2000 compliant (that is,
that computed applications, embedded microchips and other systems will be able
to perform date-sensitive functions prior to and after December 31, 1999); and
(ii) developed a plan for becoming Year 2000 compliant in a timely manner, the
implementation of which is on schedule in all material respects. Borrower
reasonably believed that it will become Year 2000 compliant for its operations
and those of its subsidiaries and affiliates on a timely basis except to the
extent that a failure to do so could not reasonably be expected to have a
material adverse effect upon the financial condition of Borrower. (2) Borrower
reasonably believes any suppliers and vendors that are material to the
operations of Borrower or its subsidiaries and affiliates will be Year 200
compliant for their own computer applications except to the extent that a
failure to do so could reasonably be expected to have a material effect upon
the financial condition of Borrower. (3) Borrower will promptly notify Bank in
the event Borrower determines that any computer application which is material
to the operations of Borrower, its subsidiaries or any of its material vendors
or suppliers will not be fully Year 2000 compliant on a timely basis, except to
the extent that such failure could not reasonably be expected to have a
material adverse effect upon the financial condition of Borrower.
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE
USED PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE AND HEREBY EXECUTES THIS NOTE UNDER SEAL AS OF THE
DATE HERE ABOVE WRITTEN.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTION DATE: Effective as of November 4, 1999.
COAST DENTAL SERVICES, INC.,
a Delaware corporation
By: /s/ Terek Diasti
------------------------------------------
Terek Diasti,
Chief Executive Officer
(Corporate Seal)
STATE OF GEORGIA
COUNTY OF _____________
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial}
8
<PAGE> 28
Bank of America, N.A. d/b/a
NationsBank, N.A.
The foregoing instrument was acknowledged before me this ___ day of
November, 1999, by Terek Diasti, as Chief Executive Officer of COAST DENTAL
SERVICES, INC., a Delaware corporation, on behalf of the corporation. He is
personally known to me -- OR has produced __________________________________ --
as identification.
___________________________________
Notary Public
(NOTARY SEAL) ___________________________________
(Type, Stamp or Print Name)
My commission expires:
Bank of America, N.A. d/b/a NationsBank, N.A.
Florida [Commercial]
9
<PAGE> 29
FINANCIAL COVENANTS
<TABLE>
<CAPTION>
<S> <C>
Borrower: Coast Dental Services, Inc. Lender: Bank of America, N.A.
a Delaware corporation d/b/a NationsBank, N.A., a national
2502 Rocky Point Drive banking association, successor by merger to
Suite 1000 Barnett Bank, N.A.
Tampa, Florida 33607 P.O. Box 40329
Jacksonville, Florida 32203-0329
</TABLE>
This FINANCIAL COVENANTS attached to and by this reference is made a part of
the Third Renewal and Replacement Revolving Promissory Note dated of even date
herewith, and executed in connection with a loan between Lender and Borrower.
COMPLIANCE WITH LOAN DOCUMENTS. Borrower acknowledges that its timely and
complete compliance with all of the terms and conditions contained in the
documents evidencing and securing the loan obligation is material consideration
for the loan. Borrower's failure to timely and completely comply with each and
every term and condition contained in the documents evidencing and securing the
loan is, at Lender's option, an event of default under the loan. In addition to
all other rights and remedies Lender has, Lender may, in its sole discretion,
elect to waive such default or to forbear to exercise its rights and remedies
for such default and may charge Borrower a fee for agreeing to do so.
FINANCIAL STATEMENT. Borrower acknowledges and agrees that Lender's ability to
monitor and evaluate the status of the loan is dependent upon Borrower timely
providing financial information required therein. In addition to all other
rights and remedies Lender has, should Borrower fail to timely provide the
financial information, including declaring the loan to be in default, Lender
may charge Borrower a late fee of up to 10 basis points (.1%) of the
outstanding principal balance or committed loan amount, whichever is greater,
not to be less than $500.00. The charging and/or payment of the fee is not a
waiver of the Borrower's continuing obligation to provide the required
financial information.
THIS FINANCIAL COVENANT IS EXECUTED ON November 4, 1999.
BORROWER:
Coast Dental Services, Inc., a Delaware corporation
By: /s/ Terek Diasti
-----------------------------------------
Terek Diasti,
Chief Executive Officer
LENDER:
Bank of America, N.A. d/b/a NationsBank, N.A.,
a national baking association, successor by
merger to Barnett Bank, N.A.
By: /s/ Brian Reeves
-----------------------------------------
Brian Reeves,
Senior Vice President
<PAGE> 1
COAST DENTAL SERVICES, INC.
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income before cumulative effect of a
change in accounting principle................. $ 1,135,760 $ 439,049 $3,108,220 $2,067,320
Cumulative effect of a change in accounting
principle...................................... -- -- 633,813 --
----------- ---------- ---------- ----------
Net income....................................... $ 1,135,760 $ 439,049 $2,474,407 $2,067,320
=========== ========== ========== ==========
SHARES:
Basic weighted average number of shares
outstanding.................................... 7,621,758 6,595,640 7,617,963 7,076,687
Additional shares issuable under stock
options for diluted earnings per share......... 50,700 53 94,833 176
----------- ---------- ---------- ---------
Diluted weighted average number of
shares outstanding............................. 7,672,458 6,595,693 7,712,796 7,076,863
BASIC EARNINGS PER SHARE:
Income before cumulative effect of a
change in accounting principle................. $ .15 $ .07 $ .41 $ .29
Cumulative effect of a change in accounting
principle...................................... -- -- .08 --
---------- ---------- ---------- ----------
Net income....................................... $ .15 $ .07 $ .33 $ .29
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of a
change in accounting principle................. $ .15 $ .07 $ .40 $ .29
Cumulative effect of a change in accounting
principle...................................... -- -- .08 --
---------- ---------- ---------- ----------
Net income....................................... $ .15 $ .07 $ .32 $ .29
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,360,184
<SECURITIES> 10,553,828
<RECEIVABLES> 8,735,264
<ALLOWANCES> 0
<INVENTORY> 3,166,565
<CURRENT-ASSETS> 26,214,527
<PP&E> 24,645,889
<DEPRECIATION> (4,514,060)
<TOTAL-ASSETS> 67,806,478
<CURRENT-LIABILITIES> 7,295,482
<BONDS> 2,238,836
0
0
<COMMON> 6,404
<OTHER-SE> 60,504,592
<TOTAL-LIABILITY-AND-EQUITY> 67,806,478
<SALES> 33,368,682
<TOTAL-REVENUES> 33,368,682
<CGS> 0
<TOTAL-COSTS> 26,792,879
<OTHER-EXPENSES> 4,055,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,044
<INCOME-PRETAX> 3,061,641
<INCOME-TAX> 994,321
<INCOME-CONTINUING> 2,067,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,067,320
<EPS-BASIC> .29
<EPS-DILUTED> .29
</TABLE>
