<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST NEW ENGLAND DENTAL CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8021 04 325 6557
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRY (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
85 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
(617) 742-4750
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER)
------------------------
DONALD E. STRANGE
FIRST NEW ENGLAND DENTAL CENTERS, INC.
85 DEVONSHIRE STREET
BOSTON, MASSACHUSETTS 02109
(617) 742-4750
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ARTHUR I. ANDERSON, P.C. LAWRENCE B. FISHER, ESQ.
MICHAEL L. BLAU, ESQ. ORRICK, HERRINGTON & SUTCLIFFE LLP
MCDERMOTT, WILL & EMERY 666 FIFTH AVENUE
75 STATE STREET, SUITE 1700 NEW YORK, NY 10103
BOSTON, MA 02109 (212) 506-5000
(617) 345-5000 (212) 506-5151 (FAX)
(617) 345-5077 (FAX)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
AMOUNT TO BE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE(2) FEE
<S> <C> <C>
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Common Stock ($0.01 par value)........................... $27,600,000 $8,364
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</TABLE>
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(1) INCLUDES SHARES WHICH THE UNDERWRITERS HAVE AN OPTION TO PURCHASE
TO COVER OVER-ALLOTMENTS, IF ANY.
(2) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE IN
ACCORDANCE WITH RULE 457(O).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 31, 1997
PROSPECTUS
[ ] SHARES
LOGO
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMMON STOCK
------------------------
All of the shares of Common Stock, $.01 par value per share,
offered hereby are being sold by First New England Dental Centers, Inc. (the
"Company"). Prior to this Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
Application has been made to include the Common Stock on the Nasdaq
National Market under the symbol "MOLR".
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 AND "DILUTION" ON PAGE 15.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Price to Proceeds to
Public Underwriting Company (2)
Discounts and
Commissions (1)
<S> <C> <C> <C>
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Per Share............................. $ $ $
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Total(3).............................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting expenses estimated at $ , which are payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock, on the same terms and
conditions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting".
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that delivery of the Common Stock will be made against payment
therefor at the offices of Furman Selz LLC, New York, New York on or about
, 1997.
------------------------
FURMAN SELZ PRUDENTIAL SECURITIES INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[Map of New England showing location of Dental Facilities]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information contained in the
Registration Statement, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits and
schedule thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
are qualified in all respects by such reference. A copy of the Registration
Statement, including the exhibits and schedule thereto, may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 500
West Madison Street, Suite 1400, Chicago, IL 60661 and Seven World Trade Center,
13th Floor, New York, NY 10048. Copies of such material may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission, and the address of such site is (http://www.sec.gov).
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year of the Company.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and combined financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. First New England Dental Centers, Inc.
("First Dental" or the "Company") is a dental practice management company. It
manages dental facilities (each, a "Dental Facility" and collectively, the
"Dental Facilities") at which it provides office space, support personnel,
information systems and management services to general dentists and specialists.
By law, First Dental does not employ any dentists to practice dentistry nor does
it otherwise control the practice of dentistry. The Company has entered into
Management Agreements (the "Management Agreements") with two dental professional
corporations (the "P.C.s"), pursuant to which dentists employed by the P.C.s
practice dentistry at the Company's Dental Facilities. As used in this
Prospectus, the "Network" shall mean the network for the provision of dental
services consisting of the Company, its Dental Facilities and the P.C.s. Unless
otherwise indicated, the information in this Prospectus (i) assumes that the
Underwriters' over-allotment option will not be exercised, and (ii) assumes an
initial public offering price per share of $ . All references herein to
industry financial and statistical information are based on trade articles and
industry reports that the Company believes to be reliable, although there can be
no assurance to that effect. This Prospectus contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of the Company, including statements under the captions "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business". These forward-looking statements are subject to
certain risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among other things, competitive conditions in the industry in which the Company
operates, and general economic conditions that are less favorable than expected.
Investors should carefully consider the information set forth under the heading
"Risk Factors".
THE COMPANY
First Dental is among the largest providers of dental practice management
services to multi-specialty dental practices in New England. The Company
currently manages 33 Dental Facilities in the states of Connecticut,
Massachusetts, New Hampshire, Rhode Island and Vermont, utilizing the services
of approximately 68 general dentists and 27 specialists. First Dental's
objective is to make each of its Dental Facilities a leading multi-specialty
dental care provider in the local market it serves. The Company seeks to enhance
the quality and profitability of each Dental Facility by increasing both patient
visits and the range of services offered, achieving operating efficiencies, and
consolidating and integrating the Dental Facilities within the Network. The
Company's goal is to establish a regional base in New England and, over time,
the Northeast Corridor.
The Health Care Financing Administration ("HCFA") has estimated the
aggregate domestic market for dental services in 1996 to be approximately $45.9
billion, representing approximately 4.2% of total health care expenditures in
the United States, and HCFA has projected that dental expenditures will reach
approximately $79.1 billion by the year 2005. Expenditures in the dental
services market grew at an annual compound rate of approximately 8.1% from 1980
to 1995, and are projected to grow at an annual compound rate of approximately
6.2% through the year 2005. The Company believes that the growth in dental
expenditures has resulted in part from an increase in the availability of dental
insurance, and from an increase in the demand for dental services, particularly
preventive and cosmetic dentistry. Although the market for dental services is
currently largely fragmented and has not yet undergone the consolidation
experienced in other parts of the health care industry, the Company believes
that dentistry is evolving away from the solo, general practitioner model
towards that of a multi-specialty group practice. According to the American
Dental Association ("ADA"), approximately 12.4% of dental practices in the
United States consisted of three or more dentists in 1995, an increase from
approximately 4.1% in 1991.
3
<PAGE> 5
The Company believes that individual dentists increasingly will seek to
affiliate with dental practice management organizations, such as the Company,
which offer specialized management, billing and accounting services, information
systems, and capital resources. Affiliating with a dental practice management
company allows the dentist to focus on the delivery of high quality patient care
rather than on administration. In addition, dental practice management companies
are attractive to individual and small-group dentists because they offer these
dentists the opportunity to obtain liquidity for the equity that they have built
in their practices while remaining affiliated with their practices. Moreover,
the Company's strategy for augmenting the capacity and productivity of a Dental
Facility is intended to increase or maintain the annual income of the dentist
whose practice the Company has acquired.
The Company believes that three major trends are transforming the face of
dentistry in the United States: increased emphasis on preventive and cosmetic
dentistry; development of multi-specialty group practices; and evolution from
direct payment to third-party reimbursement. First Dental's strategy is to take
advantage of these industry trends. Key elements of the Company's strategy
include: (i) actively acquiring additional Dental Facilities and expanding the
specialty services provided; (ii) capitalizing on economies of scale in
purchasing, advertising, and administration expenses; (iii) creating more
efficient practices and standardized quality-control protocols; (iv)
establishing relationships with managed care payors; (v) leveraging existing
patient bases and applying modern retail advertising and public relations
techniques to develop brand name awareness; and (vi) using state-of-the-art
management information systems. The Company intends to focus on delivering high
quality care and specialty services with higher margins to fee-for-service
payors and preferred provider organizations. By using its approach to managing
an integrated network of Dental Facilities, the Company believes it will enable
dentists to realize significantly greater productivity and profitability than
traditional individual and small-group dental practices.
The Company was incorporated in 1991 as Stanwich, Inc. but was inactive
prior to changing its name to First New England Dental Centers, Inc. in December
1994 and commencing operations in January 1995. The Company is a Delaware
corporation. Its executive offices are located at 85 Devonshire Street, Boston,
Massachusetts 02109, and its telephone number is (617) 742-4750.
4
<PAGE> 6
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THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... shares
Common Stock to be outstanding after
the Offering............................... shares(1)
Use of Proceeds.............................. The Company intends to use the net proceeds
from the Offering to acquire and expand
Dental Facilities and for general corporate
purposes, including working capital and the
repayment of outstanding indebtedness. See
"Use of Proceeds".
Risk Factors................................. The Common Stock offered hereby involves a
high degree of risk and immediate and
substantial dilution. See "Risk Factors" and
"Dilution".
Proposed Nasdaq National Market symbol....... "MOLR"
</TABLE>
- ---------------
(1) Assumes (i) the issuance of 30,750 shares of Common Stock which the Company
is obligated to issue to a stockholder, as partial consideration for the
acquisition of his dental practice in September 1996, on or prior to the
date the Offering commences, (ii) no exercise of any outstanding options or
warrants to purchase 1,081,911 shares of Common Stock at a weighted average
exercise price of $7.11 per share and (iii) no issuance of any of the
300,000 shares of Common Stock reserved under the Company's 1996 Stock Plan.
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(In thousands, except for share and per share amounts and other operating data)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1)
---------------------------- -----------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1995 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue................................................ $ 2,190 $ 9,054 $ 22,487 $ 19,412
Dental Facility expenses................................... 3,125 10,111 23,075 20,403
-------- ---------- ---------- ----------
Operating deficit.......................................... (935) (1,057) (588) (991)
General and administrative expenses........................ 1,124 1,890 1,509 2,060
Interest expense, net...................................... 51 252 552 528
-------- ---------- ---------- ----------
Net loss................................................... $ (2,110) $ (3,199) $ (2,649) $ (3,579)
======== ========== ========== ==========
Net loss per share......................................... $ (3.56) $ (.84) $ (1.68) $ (.88)
Weighted average shares outstanding........................ 592,822 3,798,721 1,561,705 4,080,729
======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
PRO FORMA,
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------ ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 141 $ 8,646 $
Working capital (deficit)................................................... (6,387) 1,764
Management Agreements, net.................................................. 9,708 13,428
Total assets................................................................ 14,997 28,633
Long-term debt and capital lease obligations, less current portion.......... 1,150 1,859
Total stockholders' equity.................................................. $4,810 $ 16,742 $
OTHER OPERATING DATA(4):
Dentists.................................................................... 71 95 95
Number of Dental Facilities................................................. 24 33 33
Number of States............................................................ 4 5 5
</TABLE>
- ---------------
(1) Pro Forma to give effect to all acquisitions as if they had occurred on
January 1, 1995. During the period October 1, 1996 through December 31,
1996, the Company acquired 11 Dental Facilities (the "Subsequent
Acquisitions"). See "Business -- Network Development -- Acquisitions to
Date", "Selected Unaudited Pro Forma Condensed Combined Financial
Information" and Notes 3 and 9 to the Company's Combined Financial
Statements.
(2) Pro Forma to reflect the Subsequent Acquisitions as if they had occurred on
September 30, 1996, and $11,249,517 in additional equity capital raised
through private placements subsequent to September 30, 1996.
(3) Pro Forma as adjusted to reflect: (i) the Subsequent Acquisitions as if they
had occurred on September 30, 1996; (ii) $11,249,517 in additional equity
capital raised through private placements subsequent to September 30, 1996;
and (iii) the sale of shares of Common Stock offered by the Company
hereby (at an assumed initial public offering price of $ per share) and the
initial application of the net proceeds therefrom as described under "Use of
Proceeds".
(4) Calculated at end of period.
- -------------------------------------------------------------------------------
5
<PAGE> 7
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the securities offered hereby. This Prospectus contains
forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth hereunder, and under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business", as well as in the Prospectus generally. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties that actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the risk factors set forth below and the matters set forth in this
Prospectus generally.
LIMITED OPERATING HISTORY; LOSSES
The Company has operated its current business only since January 1995 and
several of its executive officers and Directors have been with the Company for
less than one year. It has grown principally through acquisitions and is
pursuing a strategy of rapid growth. Results of operations for any particular
period are not necessarily indicative of results of operations for a full year
or predictive of future periods. For the year ended December 31, 1995, the
Company incurred a net loss of $2,110,000, and for the nine months ended
September 30, 1996, it incurred a net loss of $3,199,000. On a pro forma basis,
for the year ended December 31, 1995, the Company incurred a net loss of
$2,649,000 and for the nine months ended September 30, 1996, it incurred a net
loss of $3,579,000. There can be no assurance that the Company will become
profitable. See "Selected Combined Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING
Implementation of the Company's growth strategy requires significant
capital resources. Such resources will be needed to acquire additional Dental
Facilities and for the effective integration, operation, and expansion of the
Dental Facilities. The Company historically has used a combination of cash,
Common Stock, promissory notes and the assumption of certain liabilities as
consideration for the operating assets of dental practices and intends to
continue to do so. The Company expects that capital requirements over the next
several years will substantially exceed cash flow generated from operations, the
net proceeds of the Offering, and borrowings available under the Credit Facility
(hereinafter defined) or any successor credit facility. To finance capital
requirements, the Company anticipates that it will from time to time issue
additional equity securities and incur additional debt. Additional debt or
non-Common Stock equity financing could be required to the extent that the
Company's Common Stock fails to maintain a market value sufficient to warrant
its use for future financing needs. There can be no assurance that the Company
will be able to obtain additional required capital on satisfactory terms, if at
all. In particular, the Credit Facility contains certain restrictions on the
Company's ability to acquire additional Dental Facilities. The failure to raise
the funds necessary to finance its future cash requirements could materially
adversely affect the Company's ability to pursue its strategy and its results of
operations for future periods. If additional funds are raised through the
issuance of equity securities, dilution to the Company's existing stockholders
may result and, if additional funds are raised through the incurrence of debt,
such debt instruments will likely contain restrictive financial, maintenance and
security covenants. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's strategy involves, among other things, rapid growth through
acquisition of additional Dental Facilities. The Company acquired 9 Dental
Facilities in 1995, 15 Dental Facilities through September 30, 1996
(collectively, the "Acquisitions") and 11 Dental Facilities between October 1,
1996 and December 31, 1996. Substantially all of the Company's revenue is
derived from the Management Agreements through which the Company manages the
Dental Facilities; therefore, the Company's financial success will be
6
<PAGE> 8
dependent, in part, upon an increased number of Dental Facilities. There can be
no assurance that the Company will be successful in managing the combined
operations of the acquired Dental Facilities or be able to locate or acquire
other suitable acquisition candidates on acceptable terms, or that any other
operations that are acquired can be effectively and profitably integrated into
the Company. Additionally, the Company's ability to achieve its planned growth
is dependent upon its ability to hire, train and assimilate management and other
employees and its ability to adapt its purchasing, management information and
other systems to accommodate its expanded operations. There can be no assurance
that any future acquisition will not have a material adverse effect on the
Company's operating results, particularly during the period immediately
following such acquisition.
RISKS ASSOCIATED WITH EXPANSION OF DENTAL FACILITIES
The Company seeks to increase the revenues of the Dental Facilities by
improving efficiency through the provision of management services and by
expanding the Dental Facilities through the addition of general dentists,
specialists, and hygienists and dental assistants (the "Clinical Staff"),
equipment and services. Substantially all of the Company's revenue is derived
from the Management Agreements through which the Company manages the Dental
Facilities; therefore, the Company's success will be dependent, in part, upon
increasing the revenues of existing Dental Facilities. The Company is subject to
various risks associated with this growth strategy, including the risk that the
Company will be unable to successfully integrate Dental Facilities into the
Network, increase efficiency through its management of the existing Dental
Facilities, or attract and retain for the Dental Facilities a sufficient number
of qualified dentists, specialists and Clinical Staff to continue to expand the
Dental Facilities. See "Business".
RELIANCE ON CERTAIN PERSONNEL AND RELATIONSHIPS
The success of the Company depends on the continued services of certain
members of the Company's senior management who are responsible for implementing
the Company's business strategy. The loss of the services of one or more of
these individuals could have a material adverse effect on the Company's
business. See "Management".
COMPETITION
The dental practice management segment of the health care industry is in
its formative stage. The Company expects the dental practice management segment
to develop in a manner similar to that of the physician practice management
segment, which began evolving in the early 1980s and is currently highly
competitive. In addition, the Company expects that the provision of
multi-specialty dental services at convenient locations will become increasingly
more common. The Company is aware of several dental management companies that
are currently operating in the Northeast Corridor. Companies with dental
practice management businesses similar to that of the Company, which currently
operate in other parts of the country, may begin targeting New England or other
areas of the Northeast Corridor in the future. Such competitors may be better
capitalized or otherwise enjoy competitive advantages which may make it
difficult for the Company to compete against them or to acquire additional
Dental Facilities on terms acceptable to the Company. As the Company seeks to
expand its operations beyond New England, it is likely to face competition from
dental practice management companies which have already established a strong
business presence in such locations.
The business of providing general dental, orthodontic and other specialty
dental services is highly competitive in the markets in which the Network
operates. Competition may include practitioners who have more established
practices and reputations. The Network also competes against such established
practices in the retention and recruitment of general dentists, specialists and
Clinical Staff to staff the Dental Facilities and to accommodate the growth of
such sites. If the availability of dentists begins to decline in New England or
other areas of the Northeast Corridor, the Network may find it more difficult to
attract qualified dentists to staff the Dental Facilities. There can be no
assurance that the Network will be able to compete effectively against other
existing practices or against new single or multi-specialty dental practices
that enter its markets, or to compete against such other practices in the
recruitment of qualified dentists. See "Business -- Competition".
7
<PAGE> 9
RELIANCE ON SELLING DENTISTS; AVAILABILITY OF DENTISTS
Most dentists practicing at the Dental Facilities have entered into
employment agreements with the P.C. operating in such dentist's state. The
employment agreements with dentists who have sold their practice assets to the
Company (each, a "Selling Dentist") generally are for an initial term of five
years, and are terminable only for cause. Some employment agreements are
terminable by the Selling Dentists without cause, and some agreements are
renewable for an additional five-year term at the sole option of the Selling
Dentists. Although the Network will endeavor to renew the employment agreements,
in the event that a significant number of Selling Dentists terminates or does
not renew their employment agreements, the Company could be materially adversely
affected. See "Business -- Affiliation Structure".
RISKS ASSOCIATED WITH MANAGEMENT AGREEMENTS
A substantial portion of the Company's assets consist of the Management
Agreements relating to the operation of Dental Facilities. At September 30,
1996, the Company's balance sheet reflected $9,708,000 allocable to the
Management Agreements, a substantial portion of the Company's $14,997,000 in
total assets at such date. The Company expects the amount allocable to the
Management Agreements on its balance sheet to increase in the future in
connection with additional acquisitions. This change will have an adverse impact
on earnings as the Management Agreements are amortized. In the event of any sale
or liquidation of the Company or a portion of its assets, there can be no
assurance that the value of the Management Agreements will be realized. In
addition, the Company continually evaluates whether events and circumstances
have occurred that indicate any portion of the remaining balance of the amount
allocable to the Management Agreements may not be recoverable. When factors
indicate that the amount allocable to the Management Agreements should be
evaluated for possible impairment, the Company may be required to reduce the
carrying value of the Management Agreements, which could have a material adverse
effect on the results of operations of the Company during the periods in which
such reduction is recognized.
GOVERNMENT REGULATION
Federal Regulation
The dental industry is extensively regulated at both the federal and state
levels. Many of the federal laws apply only to dental services which are
reimbursed under the Medicare or Medicaid programs. Because very little dental
care is currently provided by Medicare and Medicaid, the Company derives very
little revenue from these programs. Therefore, the current impact of these laws
is negligible. However, there can be no assurance that the reach of these laws
will not be expanded in the future to cover services reimbursable by any payor.
If these laws were to be expanded in such a manner, they could have a material
adverse effect on the Company.
The federal fraud and abuse statute prohibits, subject to certain safe
harbors, the payment or receipt of remuneration in return for, or in order to
induce, referrals for items or services which are reimbursable under Medicare or
Medicaid. Federal laws also impose significant penalties for false or improper
billings or inappropriate coding for dental services, and impose restrictions on
dentists' referrals for certain designated health services to entities with
which they have financial relationships. Violations of these federal laws may
result in substantial civil or criminal penalties for individuals or entities,
including exclusion from participation in the Medicare and Medicaid programs.
Such exclusion or penalties, if applied to the dentists at the Dental
Facilities, could have a material adverse effect upon the Company.
Proposed federal regulations also govern physician incentive plans
associated with certain managed care organizations that offer risk-based
Medicare or Medicaid contracts. These regulations define physician incentive
plans to include any compensation arrangements (such as capitation arrangements,
bonuses, and withholds) that place the dentist at substantial financial risk.
Where applicable, the regulations generally require disclosure to the federal
government or, upon request, to a Medicare beneficiary or Medicaid recipient
regarding financial incentives, that may directly or indirectly have the effect
of reducing or limiting services furnished to patients covered by the Medicare
or Medicaid programs, and require the dentist to obtain stop-loss insurance to
limit the dentist's exposure to such financial risk. The regulations
specifically prohibit
8
<PAGE> 10
physician incentive plans which involve payments made directly to induce the
limitation or reduction of medically necessary covered services. It is unclear
how the Company will be affected in the future by the interplay of these laws
and regulations.
The Company may also be subject to Medicare rules governing billing agents.
These rules prohibit a billing agent from receiving a fee based on a percentage
of Medicare collections and may require Medicare payments for the services of
the dentists to be made directly to the dentist providing the services or to a
lock-box account opened in the name of the applicable P.C.
Federal regulations also allow state licensing boards to revoke or restrict
a dentist's license in the event such dentist defaults in the payment of a
government-guaranteed student loan, and further allow the Medicare program to
offset such overdue loan payments against Medicare income due to the defaulting
dentist's employer. The Company cannot assure compliance by Network dentists
with the payment terms of their student loans, if any.
The Company's revenues from all insurers, including governmental insurers,
are subject to significant regulation. Under certain "reassignment" rules, the
Company may not be able to require the dentists to assign their third-party
payor revenues unless certain conditions are met. In addition, under certain
"incident to" rules, the Company may not be able to receive reimbursement for
services provided by certain ancillary Clinical Staff members unless certain
conditions are met.
State Regulation
Many states, including Connecticut, Massachusetts, New Hampshire, Rhode
Island and Vermont, in which all of the Company's Dental Facilities are located,
have fraud and abuse laws which are similar to the federal law, and in many
cases apply to referrals for items or services reimbursable by any insurer, not
just by Medicare and Medicaid. A number of states, including each of the states
in which the Company operates Dental Facilities, also impose significant
penalties for false claims for dental services. Many states, including each of
the states in which the Company operates Dental Facilities, either prohibit or
require disclosure of self-referral arrangements and impose penalties for the
violation of these laws. Many states, including Massachusetts, New Hampshire,
Rhode Island and Vermont, also prohibit dentists from splitting fees with
non-dentists. Under such laws, the Company is prohibited from being paid for its
management services in a manner related to the revenues of the practice.
The laws of many states, including each of the states in which the Company
operates Dental Facilities, prohibit, either by specific provisions or as a
matter of general policy, non-dental entities, such as the Company, from
practicing dentistry, from employing dentists and, in certain circumstances,
dental assistants, or from exercising control over the provision of dental
services.
Some states, including Massachusetts, require "clinics" to be licensed, and
may define clinics to include dental practices that are owned or controlled in
whole or in part by non-dentists. Many states limit the ability of a person
other than a licensed dentist to own or control equipment or offices used in a
dental practice. The laws of some states prohibit the advertising of dental
services under a trade or corporate name and require all advertisements to be in
the name of the dentist. A number of states also regulate the content of
advertisements of dental services and the use of promotional gift items. These
laws and their interpretations vary from state to state and are enforced by the
courts and by regulatory authorities with broad discretion.
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care contracts. As the
Company or the P.C.s contract with third-party payors, including self-insured
plans, on a capitation or other basis under which the Company assumes financial
risk, the Company or the P.C.s may become subject to state insurance laws. To
the extent that the Company or the P.C.s are determined to be engaged in the
business of insurance, the Company may be required to change the method of
payment from third-party payors and the Company's revenues may be materially
adversely affected.
Some of the Dental Facilities currently offer a variety of dental care
products for sale to patients. These sales currently constitute a negligible
percentage of the Company's revenues. In the future, these sales may
9
<PAGE> 11
constitute a larger, albeit still small, percentage of First Dental's revenues.
Some states, including Massachusetts, Rhode Island and Vermont, prohibit
dentists from promoting the sale of drugs, devices, appliances or goods and
services in such a manner as to exploit the patient for the financial gain of
the dentist. There can be no assurance that these laws will not be interpreted
in such a way as to have an adverse effect on this element of the Company's
operations.
Although the Company believes its operations as currently conducted are in
material compliance with existing applicable laws, there can be no assurance
that the Company's contractual arrangements with the P.C.s and the dentists will
not be successfully challenged as violating federal or state fraud and abuse,
self-referral, false claims, fee splitting, insurance, facility licensure or
certificate of need laws or that the enforceability of such arrangements will
not be limited as a result of such laws. In addition, there can be no assurance
that the business structure under which the Company operates, or the advertising
strategy the Company employs, will not be deemed to constitute the unlicensed
practice of dentistry or the operation of an unlicensed clinic or health care
facility. The Company has not sought judicial or regulatory interpretations with
respect to the way it conducts its business. There can be no assurance that a
review of the business of the Company and the P.C.s by courts or regulatory
authorities will not result in a determination that could materially adversely
affect their operations or that the regulatory environment will not change so as
to restrict the Company's existing or future operations. Any such development
could substantially limit the potential market for the Company's management
services. In the event that any legislative measures, regulatory provisions or
rulings, or judicial decisions restrict or prohibit the Company from carrying on
its business or from expanding the operations of the Company to certain
jurisdictions, structural and organizational modifications of the Company's
organization and arrangements may be required, which could have a material
adverse effect on the Company's business, financial condition and results of
operations, or the Company may be required to cease operations. See
"Business -- Government Regulation".
BROAD DISCRETION OF MANAGEMENT IN APPLYING PROCEEDS OF OFFERING
The Company intends to use the net proceeds of the Offering to finance the
acquisition of Dental Facilities, to finance expansion of the operations of
existing and future Dental Facilities, for working capital (including the
discharge of indebtedness), and for other general corporate purposes.
Accordingly, the Company's management will have broad discretion in applying the
net proceeds of the Offering. See "Use of Proceeds".
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS
The health care industry, including the dental services market, is
experiencing a trend toward cost containment, as government and managed-care
payors seek to impose lower reimbursement rates upon providers. The Company
believes that this trend will continue and will increasingly affect dental
services, resulting in a reduction in per-patient and per-procedure revenue from
historical levels. Significant reductions in payments to dentists or other
changes in reimbursement by governmental or third-party payors for dental
services could have a material adverse effect on the Company.
Part of the Company's growth strategy involves obtaining managed care
contracts, including both preferred provider organization ("PPO") and capitated
arrangements. PPO arrangements reduce the fees paid to providers for providing
specific dental treatments and usually restrict member choice to a select panel
of providers. Capitation contracts, under which the participating dentist
receives a fixed monthly capitation payment for each plan member, shift much of
the risk of providing care from the payor to the provider. In contrast, under
traditional indemnity or "fee-for-service" insurance arrangements, the insurance
company pays whatever reasonable charges are billed for dental services
provided. To date, 12 managed care payors have contracts with dentists at
various Dental Facilities, including seven PPO arrangements and five capitation
contracts.
There can be no assurance that the Company will be able to negotiate future
PPO or capitation arrangements on satisfactory terms or that the fees offered in
current PPO and capitation arrangements will not be reduced to levels
unsatisfactory to the Company. Moreover, to the extent that costs incurred by
the
10
<PAGE> 12
Network in providing services to patients covered by capitated contracts exceed
the revenues under such contracts, the Company may be materially adversely
affected. See "Business -- Government Regulation".
POSSIBLE EXPOSURE TO PROFESSIONAL LIABILITY
In recent years, dentists and other participants in the health care
industry have become subject to an increasing number of lawsuits alleging
malpractice and related legal theories. Although the Company believes that
general dentists to date have typically been subject to lower monetary claims
for professional liability than that experienced by providers of general
medicine, some of these lawsuits involve large claims and significant defense
costs. Such suits, if successful, could result in substantial damage awards that
may exceed the limits of insurance coverage. The Company provides practice
management services; it does not engage in the practice of dentistry, or control
the practice of dentistry by the P.C.s or the dentists or their compliance with
regulatory requirements directly applicable to providers. Nevertheless, there
can be no assurance that the Company will not become subject to litigation in
the future as a result of the dental services provided by the dentists assisted
by the Clinical Staff or by such Clinical Staff. The Company maintains
professional malpractice and general liability insurance for itself and
maintains professional liability insurance covering the Clinical Staff. The
Company generally is a named insured under such policies and is indemnified
under each of the Management Agreements by the P.C.s for liabilities resulting
from the performance of dental services. Certain types of risks and liabilities
are not covered by insurance, however, and there can be no assurance that
coverage will continue to be available upon terms satisfactory to the Company or
that the coverage will be adequate to cover losses. Malpractice insurance,
moreover, can be expensive and varies from state to state. Successful
malpractice claims asserted against the dentists, the P.C.s or the Company could
have a material adverse effect on the Company. See "Business -- Insurance".
CONCENTRATION OF OWNERSHIP
Upon completion of the Offering, the current principal shareholders,
executive officers and Directors of the Company will collectively own
approximately % of the outstanding shares of Common Stock. Accordingly, some
of these persons may have the ability to influence the Company's Board of
Directors and, therefore, the business, policies, and affairs of the Company.
See "Principal Stockholders" and "Description of Capital Stock".
ACQUISITION UNWINDS
Certain of the Selling Dentists have the right to elect to terminate their
employment agreements with the P.C.s , repurchase their dental practice assets
from the Company at fair market value, and reacquire the site of the Dental
Facility in the event that one or more of the following occurs: (1) the Company
or the P.C. employing the Selling Dentist commits a material breach of the
Selling Dentist's employment agreement, asset purchase agreement, or lease; (2)
First Dental fails to pay when due the promissory notes issued in connection
with the acquisition of the Selling Dentist's practice assets; or (3) the
Company or the P.C. fails to meet timely its payroll or other accounts payable
obligations. The Dental Facilities subject to these unwind provisions for the
nine months ended September 30, 1996 accounted for 57% of the Company's gross
revenues pro forma to give effect to the Acquisitions and the Subsequent
Acquisitions as if they had occurred on January 1, 1995. If a significant number
of dentists were to exercise such rights, the Company could be materially
adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market following
the Offering, or the perception that such sales could occur, could materially
adversely affect prevailing market prices of the Common Stock and could impair
the future ability of the Company to raise capital through the sale of its
equity securities. The Company is unable to make any prediction as to the
effect, if any, that future sales of Common Stock or the availability of Common
Stock for sale may have on the market price of the Common Stock prevailing from
time to time. Certain existing stockholders, including 21 Selling Dentists, have
the right to require the Company to register their Common Stock from time to
time.
11
<PAGE> 13
After giving effect to the shares of Common Stock offered hereby, upon the
closing of this Offering, the Company will have outstanding shares of
Common Stock. Of these shares, the shares ( shares if the
Underwriters' over-allotment option is exercised in full) of Common Stock sold
in this Offering will be freely tradable without restriction or limitation under
the Securities Act, except for shares purchased by "affiliates" of the Company,
as that term is defined under the Securities Act. The remaining 5,836,474 shares
are "restricted securities" within the meaning of Rule 144 as promulgated under
the Securities Act. Beginning 270 days after the date of this Prospectus (or
earlier for certain limited transactions with the consent of Furman Selz LLC on
behalf of the Underwriters), 1,462,400 restricted shares will become eligible
for sale in the public market upon the expiration of lock-up agreements between
the Underwriters and the holders of such shares, subject to compliance with Rule
144. See "Shares Eligible for Future Sale" and "Underwriting".
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of approximately $[ ] per share in pro forma net
tangible book value from the initial public offering price. The per share net
tangible book value of the Common Stock may be further diluted through the
Company's use of Common Stock to acquire additional Dental Facilities. See
"Dilution".
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to the Offering there has been no public market for the Common Stock.
Accordingly, there can be no assurance that an active trading market will
develop or be sustained upon completion of the Offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The trading prices of the Company's Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, material announcements by the Company, governmental
regulatory action, general conditions in the health care industry, or other
events or factors, many of which are beyond the Company's control.
The offering price of the Common Stock offered hereunder was determined by
negotiations between the Representatives of the Underwriters and the Company. In
determining the offering price of the Common Stock, the Company and the
Representatives considered several factors, including estimates of the Company's
business potential and prospects, the Company's capital structure, the current
market price of other publicly-traded companies in the dental practice
management or similar health care services businesses, and the general condition
of the securities markets. Nevertheless, the offering price of the Common Stock
may bear no direct relation to the net book value, assets or earnings of the
Company and may not be indicative of the price at which the Common Stock will
trade after completion of the Offering.
The stock market has experienced extreme price and volume fluctuations,
which have particularly affected the market prices of many health care services
companies and which have often been unrelated to the operating performance of
such companies. The Company's operating results in future quarters may be below
the expectations of securities analysts and investors. In such event, the price
of the Common Stock would likely decline, perhaps substantially. See
"Underwriting".
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby (assuming an initial public offering price of $ per
share) are estimated to be $ million ($ million if the over-allotment
option granted to the Underwriters is exercised in full), after deducting
underwriting discounts and commissions and estimated expenses of the Offering
payable by the Company. The Company intends to use the net proceeds of the
Offering as follows: (i) approximately $ million to finance the acquisition of
additional Dental Facilities, (ii) approximately $ million to finance
expansion of the operations of existing and future Dental Facilities, (iii)
reduction of $ million outstanding under its $5.0 million Revolving Line of
Credit (the "Credit Facility") with Fleet National Bank ("Fleet Bank") which
bears interest at two and one-half percent (2 1/2%) above Fleet Bank's Prime
Rate and matures on June 14, 1997, plus payment of a fee of 2 1/2% of the amount
of the Credit Facility available at that time, and (iv) the balance (including
additional net proceeds received from the exercise of the Underwriters'
over-allotment option, if any) for working capital and other general corporate
purposes. The Company may also use a portion of the net proceeds of the Offering
for the acquisition of technology or assets complementary to the Company's
business, although no such acquisitions are currently being negotiated. As of
September 30, 1996, outstanding borrowings under the Credit Facility were
approximately $3,694,000, and such borrowings had been used primarily for
acquisitions and general working capital. The interest rate under the Credit
Facility at September 30, 1996 was 10.75% per annum. The Company has received a
commitment letter from Fleet Bank to increase the amount of the Credit Facility
to the lesser of $20 million or 50% of the proceeds of the Offering on more
favorable terms, and to extend its term, subject to consummation of the
Offering. The foregoing represents the Company's best estimates based upon its
current plans and certain assumptions regarding the results of the Company's
future operations and industry and general economic conditions. If actual
results or conditions differ from assumptions, the Company may find it necessary
or advisable to reallocate some of the proceeds within the above-described
categories or to use portions thereof for other purposes. Pending use for the
purposes described above, the Company intends to invest the net proceeds in
short-term, investment-grade, interest-bearing securities. For information
concerning the terms of the Credit Facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
and does not anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain all earnings, if any, for use in the
Company's operations and the expansion of its business. In addition, the Company
is currently restricted under the terms of its Credit Facility from paying any
dividends to stockholders without the prior written consent of Fleet Bank. Any
future determination with respect to payment of dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's results of operations, financial condition and capital
requirements, the terms of any then existing indebtedness, general business
conditions, and such other factors the Board of Directors deems relevant. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, pro forma to reflect the Subsequent Acquisitions as if they
occurred at September 30, 1996 and $11,249,517 in additional equity capital
raised through private placements subsequent to September 30, 1996, and pro
forma as adjusted to reflect the sale of the shares of Common Stock offered by
the Company hereby (assuming an initial public offering price of $ per
share), after deducting underwriting discounts and commissions and estimated
expenses payable by the Company and the initial application of the estimated net
proceeds therefrom. This table should be read in conjunction with the combined
financial statements and related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents....................................... $ 141 $ 8,646 $
====== ======= =======
Current portion of long-term debt and capital lease
obligations(1)................................................ 1,373 2,343 2,343
====== ======= =======
Long-term debt including capital lease obligations, less current
portion(1).................................................... 1,150 1,859 1,859
Stockholders' equity............................................
Common Stock, $.01 par value 10,000,000 shares authorized;
4,351,738 shares issued and outstanding actual;
5,805,724 shares issued and outstanding pro forma; and
[ ]
shares issued and outstanding pro forma, as
adjusted................................................... 44 58 (2)
Additional paid-in capital.................................... 9,830 21,747 (2)
Shares issuable(3)............................................ 246 246 --
Accumulated deficit........................................... (5,309) (5,309) (5,309)
------ ------- -------
Total stockholders' equity...................................... 4,811 16,742
------ ------- -------
Total capitalization.................................. $5,961 $18,601 $
====== ======= =======
</TABLE>
- ---------------
(1) See Note 5 to Combined Financial Statements of the Company for information
concerning long-term debt.
(2) Assumes (i) the issuance of the shares issuable as described in footnote (3)
hereof, (ii) no exercise of any outstanding options or warrants to purchase
1,081,911 shares of Common Stock, at a weighted average exercise price of
$7.11 per share and (iii) no issuance of any of the 300,000 shares of Common
Stock reserved under the Company's 1996 Stock Plan. See "Description of
Capital Stock".
(3) Based upon 30,750 shares of Common Stock which the Company is obligated to
issue to a stockholder, as partial consideration for the acquisition of his
dental practice in September 1996, on or prior to the date this Offering
commences.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company at September 30, 1996,
after giving effect to the $11,249,517 in additional equity capital raised
through private placements subsequent to September 30, 1996 and the Subsequent
Acquisitions, was $3,313,650 or $0.57 per share. Pro forma net tangible book
value per share represents the amount of the Company's total pro forma tangible
assets, less total pro forma liabilities, divided by the number of pro forma
shares of Common Stock outstanding. After giving effect to the sale by the
Company of [ ] shares of Common Stock offered hereby at an assumed
initial public offering price of $[ ] per share (after deducting
Underwriters' discounts and commissions and estimated offering expenses), the
pro forma net tangible book value of the Company at September 30, 1996 would
have been approximately $[ ] per share. This represents an immediate
increase of $[ ] per share to existing stockholders and an immediate
dilution of $[ ] per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share before the Offering..... $0.57
Increase in net tangible book value per share attributable to new
public investors................................................. $
-----
Pro forma net tangible book value per share after the Offering........ $
------
Dilution per share to new investors................................... $
======
</TABLE>
The following table summarizes, on a pro forma basis at September 30, 1996,
after giving effect to the $11,249,517 in additional equity capital raised
through private placements subsequent to September 30, 1996 and the Subsequent
Acquisitions, the differences between the number of shares of Common Stock
purchased from the Company, the total consideration received (before deducting
Underwriters' discounts and commissions and estimated offering expenses), and
the average price per share for existing stockholders and the investors
purchasing shares of Common Stock in the Offering (based upon an assumed initial
public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 5,836,474 % $22,496,377 % $3.85
New investors........................... % %
--------- --- ----------- --- -----
Total......................... 100% $ % $
========= === =========== === =====
</TABLE>
The foregoing tables assume (i) the issuance of 30,750 shares of Common
Stock which the Company is obligated to issue to a stockholder, as partial
consideration for the acquisition of his dental practice in September 1996, on
or prior to the date the Offering commences, (ii) no exercise of any outstanding
options or warrants to purchase 1,081,911 shares of Common Stock at a weighted
average exercise price of $7.11 per share and (iii) no issuance of any of the
300,000 shares of Common Stock reserved under the Company's 1996 Stock Plan.
15
<PAGE> 17
SELECTED COMBINED FINANCIAL INFORMATION
The following selected combined financial information presented under the
captions "Statement of Operations Data" for the year ended December 31, 1995 and
the nine months ended September 30, 1996 and "Balance Sheet Data" as of December
31, 1995, and September 30, 1996 are derived from the combined financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants.
The combined financial statements as of December 31, 1995 and September 30,
1996 and for the year ended December 31, 1995 and the nine months ended
September 30, 1996 and the report thereon are included elsewhere in this
Prospectus.
Results of operations for interim periods are not necessarily indicative of
results for the full year. The Company's acquisitions during the periods
reflected in the selected combined financial data materially affect the
comparability of that information from one period to another.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue.................................................. $ 2,190 $ 9,054
Dental Facility expenses..................................... 3,125 10,111
-------- ----------
Operating deficit............................................ (935) (1,057)
General and administrative expenses.......................... 1,124 1,890
Interest expense, net........................................ 51 252
-------- ----------
Net loss..................................................... $ (2,110) $ (3,199)
======== ==========
Net loss per share........................................... $ (3.56) $ (.84)
======== ==========
Weighted average shares outstanding.......................... 592,822 3,798,721
======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 43 $ 141
Working capital (deficit).................................... (1,683) (6,387)
Management Agreements, net................................... 2,953 9,708
Total assets................................................. 4,575 14,997
Long-term debt and capital lease obligations, less current
portion.................................................... 229 1,150
Total stockholders' equity................................... 1,926 4,810
</TABLE>
16
<PAGE> 18
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The selected unaudited pro forma condensed combined financial information
set forth below gives effect to: (i) the Acquisitions as if they had occurred on
January 1, 1995, (ii) the Subsequent Acquisitions as if they had occurred at
September 30, 1996 for purposes of the pro forma condensed combined balance
sheet and as of January 1, 1995 for the pro forma condensed combined statements
of operations, and (iii) the $11,249,517 in additional equity capital raised
subsequent to September 30, 1996 as if it had been raised on September 30, 1996
for purposes of the pro forma condensed combined balance sheet.
The pro forma financial information set forth below reflects certain
adjustments, including, among others, the amortization of the amounts allocable
to the Management Agreements resulting from the Acquisitions and the Subsequent
Acquisitions, the financing costs associated with each acquisition and the
increase in shares outstanding associated with each acquisition for which stock
was issued. The pro forma financial information set forth below does not purport
to represent what the results of operations or financial condition of the
Company would actually have been if the Acquisitions and the Subsequent
Acquisitions, subsequent financing and the transactions reflected therein had in
fact occurred on such dates or to project the future consolidated results of
operations or financial condition of the Company. See "Pending Acquisitions" and
Notes 3 and 9 to the Company's Combined Financial Statements.
STATEMENT OF OPERATIONS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------
PRO FORMA FOR
ACQUISITIONS
PRO FORMA AND
FOR SUBSEQUENT
ACTUAL(1) ACQUISITIONS(2) ACQUISITIONS(3)
--------- --------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net revenue........................................... $ 2,190 $ 15,441 $ 22,487
Dental Facility expenses.............................. 3,125 16,278 23,075
-------- ---------- ----------
Operating deficit..................................... (935) (837) (588)
General and administrative expenses................... 1,124 1,411 1,509
Interest expense, net................................. 51 297 552
-------- ---------- ----------
Net loss.............................................. $ (2,110) $ (2,545) $ (2,649)
======== ========== ==========
Net loss per share.................................... $ (3.56) $ (1.72) $ (1.68)
======== ========== ==========
Weighted average shares outstanding................... 592,822 1,478,179 1,561,705
======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------
PRO FORMA FOR
ACQUISITIONS
PRO FORMA AND
FOR SUBSEQUENT
ACTUAL(1) ACQUISITIONS(2) ACQUISITIONS(3)
---------- --------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net revenue.......................................... $ 9,054 $ 13,975 $ 19,412
Dental Facility expenses............................. 10,111 14,926 20,403
---------- ---------- ----------
Operating deficit.................................... (1,057) (951) (991)
General and administrative expenses.................. 1,890 (1,975) 2,060
Interest expense, net................................ 252 406 528
---------- ---------- ----------
Net loss............................................. $ (3,199) $ (3,332) $ (3,579)
========== ========== ==========
Net loss per share................................... $ (.84) $ (.83) $ (.88)
========== ========== ==========
Weighted average shares outstanding.................. 3,798,721 3,997,203 4,080,729
========== ========== ==========
</TABLE>
17
<PAGE> 19
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
PRO FORMA
ACTUAL COMBINED(4)
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 141 $ 8,646
Working capital (deficit)........................................... (6,387) 1,764
Management Agreements, net.......................................... 9,708 13,428
Total assets........................................................ 14,997 28,633
Long-term debt and capital lease obligations, less current
portion........................................................... 1,150 1,859
Stockholders' equity................................................ $ 4,810 $16,742
</TABLE>
- ---------------
(1) Included in the actual combined statement of operations of the Company for
the year ended December 31, 1995 and nine months ended September 30, 1996
are the results of operations of the Acquisitions since the date each such
acquisition occurred.
(2) Pro forma to give effect to the Acquisitions as if all such acquisitions had
occurred on January 1, 1995. Pro forma adjustments have been made to record
depreciation and amortization expense for the increase in fair value of the
assets acquired; to record interest expense for the debt incurred; and to
increase the weighted average shares outstanding for the shares issued in
connection with each acquisition.
(3) Pro forma to give effect to the Acquisitions and the Subsequent
Acquisitions. Amounts include the adjustments needed in footnote (2) above
and the Subsequent Acquisitions with the adjustments for increased
depreciation and amortization, interest expense and shares outstanding, as
if they had occurred on January 1, 1995 for the pro forma combined
statements of operations.
(4) The pro forma combined balance sheet has been adjusted to reflect the
Subsequent Acquisitions and the $11,249,517 in additional equity capital
raised through private placements subsequent to September 30, 1996 as if
they had occurred as of September 30, 1996. The assets acquired have been
stated at fair value and the debt and stock issued have been recorded.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the combined
financial statements and the notes thereto included elsewhere in the Prospectus.
OVERVIEW
First New England Dental Centers, Inc. is among the largest providers of
dental practice management services to multi-specialty dental practices in New
England. The Company commenced its operations in January 1995 when it began
acquiring Dental Facilities. The Company entered into its first Management
Agreement with a P.C. in August 1995. The Company's rapid growth in 1995 and
1996 resulted primarily from its acquisition of additional Dental Facilities.
Through December 31, 1996, the Company had acquired 35 Dental Facilities in five
states, providing facility and management services to 95 dentists. In January
1997 the operations of two of the acquired Dental Facilities were combined with
those of other Dental Facilities, bringing the number of Dental Facilities at
which the Company currently provides management services to 33. When acquiring
the assets of a dental practice, the Company typically acquires at fair market
value the dental practice's operating assets in exchange for a combination of
cash, Common Stock, promissory notes and assumption of certain liabilities.
Key elements of the Company's strategy include: (i) actively acquiring
additional Dental Facilities and expanding the specialty services provided; (ii)
capitalizing on economies of scale in purchasing, advertising, and
administration; (iii) creating more efficient practices and standardized
quality-control protocols; (iv) establishing relationships with managed care
payors; (v) leveraging existing patient bases and applying modern retail
advertising and public relations techniques to develop brand name awareness; and
(vi) using state-of-the-art management information systems. The Company intends
to focus on delivering high quality care and specialty services with higher
margins to fee-for-service payors and PPOs. By using its approach to managing an
integrated network of Dental Facilities, the Company believes it will enable
dentists to realize significantly greater productivity and profitability than
traditional individual and small-group dental practices.
The Company expands the Network's geographical coverage through the
acquisition of the operating assets of dental practices. The Company believes
that the factors that define a leading dental practice include: local
reputation, patient base, profitability, a convenient location such as a
professional office building or shopping center, patient volume per dentist,
malpractice history, education credentials of the dentists, and references. The
Company identifies potential candidates for acquisition through several means,
including strategic inquiries of dentists by the Company, direct inquiries by
dentists, referrals from other dentists, participation in professional
conferences and referrals from practice brokers. The Company believes that
acquisition opportunities will continue to increase as it expands the geographic
scope of its operations throughout New England and, over time, the Northeast
Corridor.
Upon acquisition of the operating assets, Selling Dentists typically enter
into employment agreements with the P.C. operating in their state. The P.C.s
have appointed the Company as their billing agent. Pursuant to the Management
Agreements, the P.C.s are charged management fees for the services of the
Company. This management fee includes charges for use of the Dental Facilities,
equipment and furnishings, supplies, and the provision of Clinical Staff and
other support personnel and management and administrative services.
Management believes that industry trends toward cost containment and lower
reimbursement rates will continue to result in a reduction from historical
levels in per patient per visit revenue. Further reductions in reimbursement
rates could have an adverse effect on the Company's operations unless the
Company is otherwise able to offset such payment reductions through control of
operating expenses or an increase in patient volume.
For the nine months ended September 30, 1996, the five largest of the
Company's Dental Facilities collectively contributed 37% of the Company's
revenue on a pro forma basis giving effect to the Acquisitions and the
Subsequent Acquisitions as if they had occurred on January 1, 1995.
19
<PAGE> 21
RECENT ACQUISITIONS
From October 1, 1996 through December 31, 1996, the Company acquired 11
Dental Facilities for an aggregate consideration of $5,068,000, consisting of
$2,745,000 in cash, 77,575 shares of Common Stock with an attributed value of
$643,000, and $1,679,000 principal amount in promissory notes. The Subsequent
Acquisitions, which were accounted for under the purchase method of accounting,
added approximately 24 general dentists and specialists and approximately $5.4
million in pro forma net revenue for the nine months ended September 30, 1996.
See Notes 3 and 9 to the Company's Combined Financial Statements.
RESULTS OF OPERATIONS
As a result of the number of acquisitions consummated by the Company and
the limited period of operation of the Dental Facilities, the Company does not
believe that period-to-period comparisons are meaningful. The Company commenced
operations in January 1995 and acquired 9 Dental Facilities in 1995 and 15
Dental Facilities during the nine months ended September 30, 1996. Changes in
results of operations for the year ended December 31, 1995 and the nine months
ended September 30, 1996 were caused primarily by the acquisition of these
additional Dental Facilities.
Net Revenue
The Network's revenues are derived from payment by fee-for-service
customers and third-party payors for dental services provided at the Dental
Facilities. The Company derives substantially all of its revenues from the
Management Agreements with the P.C.s, which employ dentists and specialists at
the Dental Facilities. A substantial portion of the Network's revenues are from
fee-for-service customers. In addition, dentists at certain of the Dental
Facilities maintain an aggregate of 12 managed care contracts, of which seven
contracts are PPO arrangements and five are capitation arrangements.
Net revenue was $2,190,000 for the year ended December 31, 1995 and
$9,054,000 for the nine months ended September 30, 1996. The increase in net
revenue for the year ended December 31, 1995 and the nine months ended September
30, 1996 resulted primarily from the acquisition of additional Dental Facilities
and the addition of specialty dental services and increased hours of operation.
The Network's sales are primarily to customers in the New England region, and as
such, the Company is directly affected by the well-being of that geographic
region.
Dental Facility Expenses
Dental Facility expenses were $3,125,000 for the year ended December 31,
1995 and $10,111,000 for the nine months ended September 30, 1996. The mix of
general and specialty dental services affects the cost of management and
administration services, salaries and benefits, supplies, and depreciation and
amortization incurred by the Dental Facilities. Generally, general dentistry
practices are less capital intensive, but require a higher number of support
staff, than specialty dentistry practices. The percentage of specialists to
total dentists affiliated with the Company was 21% at December 31, 1995 and 34%
at September 30, 1996 and the Company expects the percentage of specialists to
continue increasing over time.
Salary expense (including payroll tax and fringe benefits) represented
approximately 54% and approximately 62% of total Dental Facility expenses for
the year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively. However, as a percentage of net revenue, salary expense declined
from approximately 77% to approximately 69% for the year ended December 31, 1995
and the nine months ended September 30, 1996, respectively.
Dental supplies and lab fees represented approximately 18% and
approximately 13% of total Dental Facility expenses for the year ended December
31, 1995 and the nine months ended September 30, 1996, respectively. As a
percentage of net revenue, however, dental supplies and lab fees declined from
approximately 25% to approximately 14% for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively.
20
<PAGE> 22
Occupancy expense for the Dental Facilities will vary based on the size of
each Dental Facility and the current market rental rate for dental office space
in the particular geographic market. Other costs of the Dental Facilities,
including salaries and benefits of dentists employed by the P.C.s, will vary
based on regional cost differences and the Company's ability to implement
operational efficiencies and negotiate more favorable purchasing arrangements.
Occupancy expense represented approximately 12% and 7% of total Dental Facility
expenses for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively. As a percentage of net revenues, occupancy
expense declined from approximately 17% to approximately 8% for the year ended
December 31, 1995 and the nine months ended September 30, 1996, respectively.
As a percentage of net revenue, bad debt expense declined from
approximately 10% to approximately 9% for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively. This was primarily a
result of improved credit and collection procedures and more sophisticated
tracking and control of patient receivables.
General and Administrative Expenses
General and administrative expenses were $1,124,000 for the year ended
December 31, 1995 and $1,890,000 for the nine months ended September 30, 1996.
The increase is primarily the result of the Company's continuing additions to
its management infrastructure during these periods. As a percentage of net
revenue, however, general and administrative expenses declined from
approximately 51% to approximately 21% for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively. While the Company
expects that these expenses will continue to increase as the Company increases
the number of acquired Dental Facilities, it believes that these expenses should
continue to decline as a percentage of net revenue.
Net Loss
As a result of the foregoing, the Company reported a net loss of $2,110,000
for the year ended December 31, 1995 and $3,199,000 for the nine months ended
September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its acquisitions, capital expenditures and working
capital needs through a combination of (i) the private placements of Common
Stock; (ii) the issuance of Common Stock, unsecured promissory notes, and the
assumption of equipment financing and other indebtedness in connection with the
acquisition of Dental Facilities; and (iii) borrowings under its $5 million
Credit Facility with Fleet Bank.
The Company experienced working capital deficits of $1,683,000 and
$6,387,000 at December 31, 1995 and September 30, 1996, respectively. For the
year ended December 31, 1995 and the nine months ended September 30, 1996, net
cash used in operating activities was $1,758,000 and $3,653,000, respectively.
Net cash used in investing activities was $734,000 for the year ended December
31, 1995 and $3,198,000 for the nine months ended September 30, 1996. During
both periods, net cash used in investing activities was primarily for the
acquisition of Dental Facilities.
Net cash provided by financing activities for the year ended
December 31, 1995 and the nine months ended September 30, 1996 totaled
$2,534,000 and $6,950,000, respectively, primarily as a result of (i)
$2,101,000 and $3,005,000 in proceeds received from issuance of Common Stock
during the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively, and (ii) net borrowings under the Credit
Facility of $3,694,000 during the nine months ended September 30, 1996. During
October and November 1996, the Company raised an additional $11,250,000 in
proceeds through the private placement of its Common Stock.
During the year ended December 31, 1995 and the nine months ended
September 30, 1996, the Company acquired 24 Dental Facilities. The aggregate
purchase price paid in connection with the acquisitions made during the year
ended December 31, 1995 consisted of $661,000 in cash, 429,839 shares of Common
Stock valued at $1,934,000, $680,000 in principal amount of promissory notes
and $1,292,000 of assumed liabilities.
21
<PAGE> 23
The aggregate purchase price paid in connection with the acquisitions made
during the nine months ended September 30, 1996 consisted of $2,389,000 in cash,
458,203 shares of Common Stock valued at $3,074,000, $1,525,000 in principal
amount of promissory notes and $1,351,000 of assumed liabilities.
Under the terms of the Credit Facility, which matures on June 14, 1997, the
Company may borrow from time to time up to an aggregate of $5,000,000, priced at
Fleet Bank's Prime Rate plus two and one-half percent (2 1/2%) per annum,
subject to the satisfaction of certain conditions and covenants. At September
30, 1996, the outstanding borrowings under the Credit Facility were
approximately $3,694,000 with an interest rate at 10.75% per annum. Such
borrowings were used primarily for acquisitions and general working capital and
will be repaid with a portion of the proceeds of this Offering. The Company has
received a commitment letter from Fleet Bank to increase the Credit Facility to
the lesser of $20 million or 50% of the net proceeds of this Offering under
pricing terms more favorable than the existing Credit Facility, and to extend
its term. This increase will only occur if the Company completes the Offering.
Although the Company's Management Agreement with each of the P.C.s requires
the Company to provide capital for equipment, expansion, additional dentists,
and other major expenditures, no specific amount has been committed in advance.
Capital expenditures are made based partially upon the availability of funds,
the sources of funds, alternative projects, and an acceptable repayment period.
The Company's acquisition and expansion programs will require substantial
capital resources. In addition, the operation and expansion of the Dental
Facilities will require ongoing capital expenditures. The financing of future
acquisitions and business expansion is anticipated to be provided by a
combination of the proceeds of this Offering, the Credit Facility, and cash
flows from operations. The Company believes that the combination of these
sources will be sufficient to meet the Company's currently anticipated
acquisition, expansion, and working capital needs for at least the 12 months
following the date of the Offering. In addition, in order to meet its long-term
liquidity needs, the Company may incur, from time to time, additional short- and
long-term bank indebtedness and issue additional equity and debt securities, the
availability and terms of which will depend upon market and other conditions.
22
<PAGE> 24
BUSINESS
SUMMARY
First Dental began operations in January 1995 and is among the largest
providers of dental practice management services to multi-specialty dental
practices in New England. The Company currently manages 33 Dental Facilities in
the states of Connecticut, Massachusetts, New Hampshire, Rhode Island and
Vermont, utilizing the services of approximately 68 general dentists and 27
specialists on a full or part time basis. They are supported by approximately 88
hygienists and 106 dental assistants (the "Clinical Staff"). The Network's
revenues are derived from payment by fee-for-service customers and third-party
payors for dental services provided at the Dental Facilities. The Company
derives substantially all of its revenues from the Management Agreements with
the P.C.s, which employ dentists and specialists at the Dental Facilities.
Dentists at certain of the Dental Facilities maintain an aggregate of 12 managed
care contracts, of which seven contracts are PPO arrangements and five are
capitation arrangements. The Company is continuing to develop its Network
through its acquisition of additional Dental Facilities in New England and other
regions of the Northeast Corridor where there are opportunities to establish
Dental Facilities fitting the Company's facility profile.
The Company believes that three major trends are transforming the face of
dentistry in the United States: (i) increased emphasis on preventive and
cosmetic dentistry; (ii) development of multi-specialty group practices; and
(iii) evolution from direct pay to third-party reimbursement. First Dental's
objective is to take advantage of these industry trends. The Network currently
provides dental care in selected markets across New England. The Company seeks
to enhance the quality and profitability of each Dental Facility by increasing
both patient visits and the range of dental services offered, achieving
operating efficiencies and consolidating and integrating new Dental Facilities
within the Network. First Dental's objective is to make each of its Dental
Facilities the leading multi-specialty dental care provider in the local market
it serves. The Company's goal is to establish a regional base in New England and
other regions in the densely populated Northeast Corridor, and, eventually,
other areas of the United States.
Dental care services in the United States are generally delivered through
fragmented local providers, primarily solo practitioners, or small groups of
general dentists, orthodontists or other dental specialists, practicing at a
single location with a limited number of Clinical Staff and business office
personnel. However, general dental, orthodontic and other specialty practices
have begun to follow the trend of the health care industry generally and are
increasingly forming larger group practices in which a separate professional
management team handles staffing, practice management, billing, information
systems, managed care contracting, real estate, purchasing, marketing and other
business functions. The Company believes that this trend will continue.
The Company's objective is to become the leading manager of Dental
Facilities in the regions in which it operates. Key elements of the Company's
strategy include: (i) actively acquiring additional Dental Facilities and
expanding the specialty services provided; (ii) capitalizing on economies of
scale in purchasing, advertising, and administrative expenses; (iii) creating
more efficient practices and standardized quality-control protocols; (iv)
establishing relationships with managed care payors; (v) leveraging existing
patient bases and applying modern retail advertising and public relations
techniques to develop brand name awareness; and (vi) using state-of-the-art
management information systems. By using its approach to managing an integrated
network of Dental Facilities, the Company believes it will enable dentists to
focus on delivering quality patient care and to realize significantly greater
productivity than traditional individual and small-group dental practices.
The Company was incorporated in 1991 as Stanwich, Inc. but was inactive
prior to changing its name to First New England Dental Centers, Inc. in December
1994 and commencing operations in January 1995.
INDUSTRY OVERVIEW
The Health Care Financing Administration has estimated the aggregate
domestic market for dental services in 1996 to be $45.9 billion, representing
approximately 4.2% of total health care expenditures in the
23
<PAGE> 25
United States, and HCFA has projected that dental expenditures will reach $79.1
billion by the year 2005. Expenditures in the dental services market grew at an
annual compound rate of approximately 8.1% from 1980 to 1995, and are projected
to grow at an annual compound rate of approximately 6.2% through the year 2005.
The Company believes that the growth in dental expenditures has resulted in part
from an increase in the availability of dental insurance, and from an increase
in the demand for dental services, particularly preventive and cosmetic
dentistry.
The market for dental services is currently largely fragmented and has not
yet undergone the consolidation experienced in other parts of the health care
industry. By contrast, between 1983 and 1994, the proportion of physicians
practicing medicine as employees (i.e., of other physicians, health care
facilities, educational institutions and government) rose from 24.2% to 42.3% of
all physicians involved in patient care, according to the Journal of the
American Medical Association. In 1994, more than a third of physicians involved
in patient care were employed by practice groups. The Company believes that
dentistry is also evolving away from the solo, general practitioner model
towards that of a multi-specialty group practice. According to the ADA,
approximately 12.4% of dental practices in the United States consisted of three
or more dentists in 1995, an increase from approximately 4.1% in 1991.
The Company believes that there are several factors contributing to
increased consolidation in dentistry, including: (i) the increasing complexity
of managing a dental practice, due to government regulation and the shift to
third-party reimbursement; (ii) increasing competition; (iii) the economies of
scale achievable in administration and purchasing; (iv) the growing importance
of capital resources to acquire and maintain state-of-the-art dental equipment,
laboratory and clinical facilities, and management information systems; (v) the
desire to retain revenues from higher-margin specialty procedures, which would
otherwise be referred to independent specialists; and (vi) the perceived need
among dentists to prepare for the cost-containment pressures and organizational
demands of managed care.
The Company believes that, as a result of these factors, individual
dentists increasingly will seek to affiliate with dental practice management
organizations, such as the Company, which offer specialized management, billing
and accounting services, information systems, and capital resources. Affiliating
with a dental practice management company allows the dentist to focus on
delivering high quality patient care rather than on practice administration. In
addition, dental practice management companies are attractive to individual and
small-group dentists because they offer an opportunity for these dentists to
obtain liquidity for the equity that they have built in their practices while
remaining affiliated with their practices. Moreover, the Company's strategy for
augmenting the capacity and productivity of the Dental Facility is intended to
maintain or increase the Selling Dentist's annual income.
Dental services have historically been provided on a fee-for-service basis;
that is, the individual dentist would establish the fees charged for each
procedure or service and bill the patient or the patient's insurer the dentist's
rate for each procedure performed. The Company believes that the evolution in
the basis for payment for dental services toward third-party reimbursements,
which are growing as a percentage of total dental payments, will also attract
individual dentists to dental practice management companies. According to the
ADA, in 1995 approximately 53% of fees collected were paid by the consumer,
while third-party payors represented 47% of fees collected.
Recently, the increasing costs of health care, including dental care, have
resulted in an increase in the amount of health care provided under managed care
arrangements. Managed dental care plans fall into two categories: PPO plans and
capitation plans. PPO plans pay providers a discounted fee for performing
specific dental treatments and, in turn, restrict member choice to a select
panel of providers. Capitation plans pay the participating dentist a fixed
monthly amount, or "capitation" payment, for each plan member for a select menu
of services, regardless of the quantity or cost of services rendered. In
addition, the dentist is typically paid a separate co-payment by the plan member
for many of the dental services provided. The National Association of Dental
Plans ("NADP") estimates that enrollment in capitated managed dental care plans
grew from 7.8 million patients in 1990 to 20.7 million patients in 1995. Another
14.1 million consumers were enrolled in PPO managed dental care plans in 1995,
according to the NADP.
24
<PAGE> 26
The Company believes that managed dental care plans, particularly capitated
managed dental care plans, are just beginning to penetrate the dental insurance
market in New England, although in other regions of the United States they have
captured a larger market share. According to the NADP, 7.9% of Americans were
enrolled in capitated dental care plans while only 3.2% of New England residents
were enrolled in such a plan. In the Company's experience, employee benefit
managers in the region have shown a preference for dental plans offering large
numbers of participating providers, and the major capitation dental plans have
had difficulty building networks of sufficient size due to the difficulties
inherent in negotiating with large numbers of individual dentists. Several major
national dental insurers have introduced dental PPO plans to the region during
the last six months and the Company believes that PPO plans will continue to
grow more rapidly than capitation plans in New England. The creation of large,
multi-specialty group practices which utilize advanced data management systems
and which are capable of bearing financial risk may increase the popularity of
capitation plans in the future. The Company believes that dental practice
management companies, such as First Dental, will be well positioned to serve
both PPO and capitation plans in the future.
STRATEGY
The Company is a major provider of dental practice management services in
New England and eventually plans to enter other markets which offer attractive
expansion opportunities. The key elements of the Company's strategy are as
follows:
- Acquisitions and Geographic Coverage
The Company plans to continue to acquire Dental Facilities in New England
and the Northeast Corridor where attractive opportunities arise. Priority
locations include both significant population centers in which the Company
does not yet have a presence, and other areas where leading dental
practices which fit the Company's Dental Facility profile are available
for acquisition. The Company intends to acquire additional Dental
Facilities in geographical regions where Dental Facilities have already
been established in order to enhance the Network's market share, maximize
the utilization of dental specialists and be in a position to negotiate
managed care contracts. Although the Company historically has acquired
Dental Facilities individually, it will consider soliciting and purchasing
consolidated groups of Dental Facilities.
- Dental Facility Expansion
The Company intends to expand the capacity and productivity of existing
Dental Facilities by increasing practice hours, adding dentists and
Clinical Staff, and utilizing leading-edge dental technology. The Company
also seeks to increase revenues at each Dental Facility by providing
higher-margin specialty services that previously would have been referred
off-site.
- Economies of Scale
Through the integration of the Dental Facilities into the Network, the
Company is able to capitalize on economies of scale in administration,
finance, and in the purchase of equipment, dental supplies, professional
liability insurance, and advertising. These cost savings are generally not
available to solo or small group dental practices.
- High Quality Care
The Company promotes the development and implementation of treatment
protocols to ensure high quality dental care at each Dental Facility. As
part of First Dental's commitment to high quality care, the Company
sponsors continuing professional education and training for dentists and
hygienists at the First Dental Education Institute (the "Institute"), a
non-profit division of the Company.
- Management Information Systems
The Company intends to use information systems technology to assist in
managing the Dental Facilities, enhance the productivity and quality of
care of the dentists and Clinical Staff and meet the data management
requirements of managed care organizations and other volume dental
services
25
<PAGE> 27
purchasers. The Company believes that the use of information systems
capable of producing meaningful clinical outcomes measurement and managed
care contract performance data will, in the future, become an important
component of its efforts to contract with managed care organizations.
These measurements and other data may also be relied upon in the future by
dentists to improve the quality of care.
- Advertising and Marketing
The Company intends to promote brand name recognition of First Dental as a
provider of high quality dental services among dentists, managed care
organizations, and new patients, while capitalizing on the existing
dentist-patient relationships at each Dental Facility. The Company's
current marketing emphasis is on increasing the number of patient visits,
including the reactivation and retention of existing patients, and on the
introduction or expansion of additional, higher-margin services at the
Dental Facilities.
- Managed Care
While the Company intends to maintain a primary focus on fee-for-service
business, it will also selectively pursue managed care contracts. Through
the Network, the Company seeks to offer a package of dental services
tailored to meet the needs of managed care organizations that is superior
in quality, availability and price to the capabilities of individual and
small group dental practices.
NETWORK DEVELOPMENT
Acquisition Criteria
The Company expands the Network's geographical coverage through the
acquisition of additional Dental Facilities. Dental Facilities are acquired by
purchasing the operating assets of what are typically leading dental practices
from the dentists who own and operate them. The Company believes that the
factors that define a leading dental practice include: local reputation, patient
base, profitability, a convenient location such as a professional office
building or shopping center, patient volume per dentist, malpractice history,
education credentials of the dentists, and references. The Company identifies
potential candidates for acquisition through several means, including selected
inquiries of dentists by the Company, direct inquiries by dentists, referrals
from other dentists, participation in professional conferences and referrals
from practice brokers. The Company believes that acquisition opportunities will
continue to increase as it expands the geographic scope of its operations
throughout New England and other areas of the Northeast Corridor.
Affiliation and Integration of Dental Facilities
The Company typically acquires the operating assets of a dental practice
from the Selling Dentist in exchange for a combination of cash, Common Stock,
promissory notes and the assumption of certain liabilities. Substantially all
Clinical Staff and other support personnel formerly employed at the acquired
Dental Facility become employees of the Company. Upon the acquisition of a
Dental Facility, the Company immediately assumes responsibility for the
management and administrative functions of the facility. The management and
administrative services provided by the Company include facility staffing,
patient scheduling, billing, collection services, accounting, marketing,
centralized purchase of supplies, equipment and insurance, and facility
maintenance. The Company seeks to integrate the new Dental Facility into its
management information systems within six months. First Dental utilizes a
proprietary Integration and Operations Manual, which formalizes the Company's
approach to the management of personnel, accounting, insurance and reporting, at
each Dental Facility. First Dental also facilitates the implementation of
managed care contracts entered into by the Network.
The Company seeks to increase patient volume, dental chair utilization
rates and office hours at a newly acquired Dental Facility by recruiting
additional general dentists, specialists and Clinical Staff and, where
appropriate, providing capital for the expansion of the facility. First Dental
believes that these additions will increase both revenues and profit margins at
the Dental Facility. In addition, the Company seeks to increase revenues at the
Dental Facility by arranging for specialists employed by one of the P.C.s. to
rotate among
26
<PAGE> 28
several Dental Facilities clustered in one geographic area. These specialists
perform the higher margin procedures which the general dentist historically
would refer to an independent provider. The Company believes that these
procedures, which include orthodontics, dental implants, and periodontal
surgery, potentially represent one of the fastest growing market segments in
dental services.
Advantages to Dentists of Affiliation
The Company believes that the Network offers the Selling Dentist several
advantages over the typical solo or small group practice. The Network relieves
the Selling Dentist of most management and administrative responsibilities by
providing a practice management system that includes centralization of
administrative services, a management information system, marketing and
advertising designed to attract and retain patients, insurance processing and
assistance with managed care negotiations. The Company's purchase of the
operating assets of the practice provides liquidity to Selling Dentists seeking
to capitalize on the equity created by the reputation that they have established
in their local markets. Selling Dentists generally can expect the opportunity to
expand their practices through the addition of general dentists, specialists and
Clinical Staff, the opportunity to consult with other experienced colleagues in
a multi-specialty setting, the availability of in-house continuing education, a
competitive, productivity-based salary, and participation in any increased
profitability of the Dental Facility.
Recruiting additional general dentists to the Network is an important
element in the expansion and increased utilization of each Dental Facility. In
the Company's experience, many dentists in the early stages of their careers are
carrying historically high education-related indebtedness. As a result, they
face significant financial hurdles to starting their own practices or buying
into an existing practice, especially in view of the capital-intensive nature of
modern dentistry. The Company believes that the Network offers both recently
graduated dentists and more experienced dentists without their own practices
substantial advantages over a solo or small group practice. The Network offers
these general dentists the opportunity to join an established practice with a
compensation formula which rewards productivity. Moreover, they can benefit from
the resources of more experienced dentists practicing at the Dental Facilities,
as well as clinical and other training programs. These dentists are also spared
the burden of administrative and management responsibilities which they would
otherwise have to assume in a solo or small group practice setting.
The Network also recruits dental specialists for its multi-specialty Dental
Facilities. Many independent specialists, due to cost and competitive pressures,
already practice in several different dental offices, where they are paid as
independent contractors. The Company believes a Network specialist is more
likely to receive a steady stream of referrals than an independent specialist,
because the trend toward consolidation and the growth of multi-specialty
practice groups may have the effect of reducing referrals to independent
specialists. An affiliation with the Network offers these specialists an
attractive package of compensation and benefits. Such a relationship allows them
to focus on practicing dentistry and building a series of specialty practices
without having to concentrate on the myriad business responsibilities faced by
the independent contractor.
Acquisitions to Date
Since January 1995, the Company has acquired 35 Dental Facilities. In 1995,
the Company acquired 9 Dental Facilities, all of which are located in
Massachusetts. In 1996, the Company acquired 26 Dental Facilities located in
Connecticut, Massachusetts, New Hampshire, Rhode Island and Vermont. As of
December 31, 1996, the Network included a total of 95 dentists (including 27
specialists), and the Company employed a total of 194 Clinical Staff and 132
business and administrative staff at the Dental Facilities.
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The following table sets forth certain information as of December 31, 1996
concerning the Dental Facilities currently owned and operated by the Company.
<TABLE>
<CAPTION>
LOCATION DATE ACQUIRED(1) SPECIALIST SERVICES PROVIDED(2)
- --------------------------------- ------------------- ---------------------------------
<S> <C> <C>
Worcester, MA.................... January 1995 E, OS, O, P
Framingham, MA................... January 1995 E, OS, O, P, PD
Weymouth, MA..................... January 1995 E, OS, O, P, PD
Danvers, MA(3)................... January 1995 E, OS, O, P
Wellesley, MA.................... January 1995 OS, O, P
Boston, MA....................... May 1995 E, OS, O, P
(Newbury Street)
Watertown, MA.................... June 1995 E, OS, O, P
Boston, MA....................... December 1995 E, OS, O, P
(Federal Street)
Leominster, MA................... December 1995 E, OS, O, P, PD
Hadley, MA....................... January 1996 OS, O, P
Malden, MA....................... January 1996 E, OS, O, P
Marshfield, MA................... April 1996 E, OS, P
Fitchburg, MA.................... April 1996 E, OS, O, P
Billerica, MA(4)................. April 1996 E, OS, O, P
Lowell, MA(4).................... June 1996 OS
Peabody, MA(3)................... June 1996 E, OS, O, P(5)
Raymond, NH...................... June 1996 OS, O
Exeter, NH....................... July 1996 OS, O
Hingham, MA...................... July 1996 P
Dennisport/Hyannis, MA........... August 1996 --
Dudley, MA....................... August 1996 O,P
Morrisville, VT.................. September 1996 --
Dalton, MA....................... September 1996 P
Orange, CT....................... September 1996 OS, O, P
Gardner, MA...................... October 1996 O
Athol, MA........................ October 1996 O
Fitchburg, MA.................... October 1996 O
Springfield, MA.................. October 1996 OS
Dover, NH........................ October 1996 O, P
Braintree, MA.................... October 1996 OS, O, P
Brookline, MA.................... October 1996 OS, O, P
Cranston, RI..................... October 1996 --
Hartford, CT..................... October 1996 OS, P
South Weymouth, MA............... October 1996 OS, O
Lebanon, NH...................... October 1996 OS, O
</TABLE>
- ---------------
(1) Effective date of acquisition
(2) Services provided by Board Certified Specialists:
E = Endodontics
OS = Oral Surgery
O = Orthodontics
P = Periodontics
PD = Pediatric Dentistry
(3) In January 1997, the Company combined the Danvers and Peabody operations
into the Peabody Dental Facility. All dentists at the Danvers Dental
Facility now work out of the Peabody Dental Facility.
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(4) In January 1997, the Company combined the Lowell and Billerica operations
into the Billerica Dental Facility. All dentists at the Lowell Dental
Facility now work out of the Billerica Dental Facility.
(5) Includes endodontic services previously provided at the Danvers Dental
Facility.
DENTAL FACILITIES
Facility Attributes
Within six months of acquisition, a typical Dental Facility generally will
possess the following attributes: four to six single-dental chair operatories,
at least two full-time general dentists, several dental hygienists and dental
assistants, a business manager and a receptionist. One general dentist,
designated as the Clinical Director, oversees professional matters at the Dental
Facility. In addition to general dentistry, which includes examinations,
cleanings, filling cavities, bonding, and placing crowns and bridges, each
Dental Facility provides, to varying degrees, specialty dental services, such as
endodontics, oral surgery, orthodontics, periodontics and pediatric dentistry.
As a result of the multi-specialty nature of the Dental Facilities, the Company
plans to equip most Dental Facilities with state-of-the-art equipment such as
fiber optic handpieces, intraoral cameras, and Panoramic and Cephalometric X-ray
equipment, and most Dental Facilities possess an array of emergency monitoring
and response instruments generally unavailable at most solo practices.
Scheduling
In the Company's experience, individual dentists are only able to treat
patients approximately thirty-five hours per week, due to the administrative
burden of the practice and the exacting nature of the work. By adding general
dentists and specialists, the Company typically increases the number of hours
per week that patients can see a dentist at the Dental Facilities. The Company's
goal is to staff each Dental Facility with dentists at least 55 hours per week,
typically from 8:00 a.m. to 8:00 p.m., Monday through Friday, and many Dental
Facilities are open partial or full days on Saturdays. The Company can expand a
Dental Facility's hours if necessary to accommodate additional patient volume.
Fees and Payment Plans
The fees charged to patients at a Dental Facility for the provision of
dental services vary, depending upon the complexity of the procedure, the degree
of involvement of dentists and Clinical Staff, and prevailing local fees. Once a
course of treatment is agreed upon, the business manager works with the patient
to arrange payment, either by explaining the extent of the patient's insurance
benefits or by setting up an acceptable payment plan. If a patient requires
financing, the business manager will assist the patient in filing a credit
application with one of several finance companies with which the Company does
business. The application typically is approved or denied in less than one half
hour. Patients may also apply for a First Dental credit card through an
affiliation between the Company and a national financial institution.
OPERATIONS
Advertising and Marketing
The Company's primary marketing programs, which include patient
newsletters, patient call-backs and other scheduling reminders, focus on the
retention and reactivation of existing patients. The Company also utilizes
external marketing programs such as direct mailings, yellow page ads and its
1-800-33-SMILE telephone number, that are designed to identify First Dental with
the individual Dental Facilities and to generate new patients. The Company seeks
to establish name recognition among dentists and managed dental care
organizations through its marketing efforts. Eventually, as the number of Dental
Facilities increases within New England, the Company believes an effective media
advertising program will allow the Company to increase brand name awareness
among consumers.
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Management Information Systems
The Company has licensed for use at 16 Dental Facilities a management
information system (the "System") for dental practice management, and plans to
provide the System for use at its other existing Dental Facilities and future
Dental Facilities that it may acquire. The Company intends to utilize the System
to track data related to each Dental Facility's operations and financial
performance. Full implementation typically takes six months at a newly acquired
Dental Facility. The System will provide each of the Dental Facilities with
patient and practitioner scheduling, clinical record-keeping, and revenue and
collection data on a year-to-date basis. The Company plans to use the System to
manage billing and collections. In addition, the Company intends to use the
System to provide information for case management and outcome related research.
First Dental plans to use information from the System in its operational
protocols and systems to provide an analysis of the financial results and
recommend changes to improve the financial performance of the Dental Facility.
Purchasing
The integration of the Dental Facilities enables the Company to take
advantage of economies of scale that are generally not available to solo or
small group practices. The Company is able to purchase dental supplies,
insurance, office furniture, equipment, and advertising at reduced costs. The
Company also can contract for employee benefits at a lower cost than solo
practitioners typically can obtain for themselves and their employees.
Quality Assurance
The Network conducts initial training for its dentists and for the Clinical
Staff regarding standardized dental management systems and treatment protocols,
as well as uniform business and administrative standards under which dental
services are provided at each Dental Facility. The protocols include treatment
planning, record keeping, specialty referrals, insurance information, and dental
assistant protocols. The Network is developing internal quality assurance
monitoring systems to assess the quality of patient care and to measure
improvement over time. State licensing authorities require dentists to undergo
annual training. The Network's dentists and hygienists can obtain some of the
required continuing education training through the First Dental Education
Institute, which has been accredited by the American Academy of General
Dentistry.
MANAGED CARE
Given the increasingly complex demands of third-party payors, the Company
seeks to participate in those managed care plans that are comparatively easy to
administer. The Company seeks plans that enhance its image as a provider of
high-quality dental care, and insurers which are establishing treatment
protocols and systems for measuring the impact of dental insurance programs on
the oral health of a population. First Dental will participate in selective PPOs
that offer acceptable reimbursement levels and that promptly pay claims. The
Company seeks capitation plans providing accurate enrollment information, timely
capitation payments, and contractually agreed-upon chairtime revenue guarantees.
Dentists at certain Dental Facilities participate in 12 managed care contracts,
of which seven are PPO arrangements and five are capitation arrangements.
In New England, Delta Dental Plans and Blue Cross Blue Shield Organizations
have significant market share with employers. The Company currently participates
in programs sponsored by these carriers and seeks increased participation in
these and other programs sponsored by these carriers. The Company seeks to
participate in dental insurance plans newly introduced to the region, because
they provide the opportunity to access new patients. In addition, 20% percent of
persons with dental insurance are covered by the dental care component of
managed care companies offering a full range of health insurance coverage. The
Company seeks to contract with these managed care companies that have, or are
introducing, dental care components.
The Company intends to use appropriate management information systems to
measure the profitability of each managed care program in which it participates,
for each Dental Facility, on a periodic basis. These systems will allow the
Company to determine what percentage of total practice revenue is paid directly
by consumers, what percentage is from third-party payors, how much of
third-party payments are from a
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<PAGE> 32
managed care program, and how the revenue composition changes over time. The
systems will further allow the Company to link the revenues and expenses
attributable to each managed care patient, and to aggregate the patient-specific
data by Dental Facility and insurance program.
AFFILIATION STRUCTURE
Relationship with P.C.s
The Company derives substantially all of its revenue from its Management
Agreements with the P.C.s. Under each of the Management Agreements, the Company
receives a Management Fee equal to its costs plus a percentage of the P.C.'s net
operating income. Under the Management Agreements, the Company provides the
P.C.s with the facilities, Clinical Staff and administrative personnel,
equipment and supplies, administrative, billing and collection services, and
capital for expansion purposes. Each Management Agreement is for a term of
thirty years, with automatic renewal for successive five year terms, and may be
terminated by the P.C. only for cause, which includes material breach of the
contract and bankruptcy of First Dental. In addition to the Management
Agreements, the Company's linkage with the P.C.s is established by (i) a
contractual right to designate the licensed dentists who are to own each P.C.'s
capital stock and (ii) in the case of Osorio and Watkin, D.M.D., P.C., through a
seat on its board of directors with veto power over non-clinical matters.
Employment Agreements
The P.C.s provide dental services at the Dental Facilities through
employment agreements with the dentists. Most dentists enter into written
employment agreements with the P.C. which is qualified to do business in the
state in which such dentist practices. Selling Dentists typically enter into
employment agreements with strict non-compete provisions and an initial
five-year term. Other general dentists and specialists have renewable one-year
agreements with less stringent non-compete provisions. Under each such
agreement, the dentist agrees to provide services to patients consistent with
the dentist's professional abilities. The dentist assigns billing and collection
rights to the P.C. which, in turn, assigns such responsibility to the Company
under the terms of the applicable Management Agreement. In return, the P.C. pays
the dentist compensation consisting, variously, of fixed salary and
productivity-based formulae, and a standard package of benefits.
COMPETITION
The dental practice management segment of the health care industry is in
its formative stage. The Company expects the dental practice management segment
to develop in a manner similar to that of the physician practice management
segment, which began evolving in the early 1980s and is currently highly
competitive. In addition, the Company expects that the provision of
multi-specialty dental services at convenient locations will become increasingly
more common. The Company is aware of several dental management companies that
are currently operating in the Northeast Corridor. Companies with dental
practice management businesses similar to that of the Company, which currently
operate in other parts of the country, may begin targeting New England or other
areas in the Northeast Corridor in the future. Although the Company believes
that its business strategy will enable it to effectively compete against such
competitors as they emerge, such competitors may be better capitalized or
otherwise enjoy competitive advantages which may make it difficult for the
Company to compete against them or to acquire additional Dental Facilities on
terms acceptable to the Company. As the Company seeks to expand its operations
beyond New England, it is likely to face competition from dental practice
management companies which have already established a strong business presence
in such locations.
The business of providing general dental, orthodontic and other specialty
dental services is highly competitive in the markets in which the Network
operates. The Company believes it competes with other providers of dental and
specialty services on the basis of both the quality and range of services
provided. Competition may include practitioners who have more established
practices and reputations. The Network also competes against such established
practices in the retention and recruitment of general dentists, specialists and
Clinical Staff to staff the Dental Facilities and to accommodate the growth of
such sites. If the availability of dentists begins to decline in New England or
other areas of the Northeast Corridor, the Network
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<PAGE> 33
may find it more difficult to attract qualified dentists to staff the Dental
Facilities sufficiently. There can be no assurance that the Network will be able
to compete effectively against other existing practices or against new single or
multi-specialty dental practices that enter its markets, or to compete against
such other practices in the recruitment of qualified dentists.
GOVERNMENT REGULATION
The practice of dentistry is highly regulated at both the federal and state
levels. There can be no assurance that the regulatory environment in which the
P.C.s and the Company operate will not change significantly in the future. In
addition, federal and state laws regulate health maintenance organizations and
other managed care organizations for which dentists may be providers. In
general, regulation of health care-related companies is increasing. In
connection with its operations in existing markets and expansion into new
markets, the Company may become subject to additional laws, regulations and
interpretations or enforcement actions. The ability of the Company to operate
profitably will depend in part upon the ability of the Company and the P.C.s to
operate in compliance with applicable health care regulations.
Federal Regulation
Many of the federal laws apply only to dental services which are reimbursed
under the Medicare or Medicaid programs. Because very little dental care is
currently provided by Medicare and Medicaid, the Company derives very little
revenue from these programs. Therefore, the current impact of these laws is
negligible. However, there can be no assurance that the reach of these laws will
not be expanded in the future to cover services reimbursable by any payor. If
these laws were to be expanded in such a manner, they could have a material
adverse effect upon the Company.
The federal fraud and abuse statute prohibits, subject to certain safe
harbors, the payment, offer, solicitation or receipt of any form of remuneration
in return for, or in order to induce, (i) the referral of a person for service,
(ii) the furnishing or arranging for the furnishing of items or services or
(iii) the purchase, lease or order or the arrangement or recommendation of a
purchase, lease or order of any item or service which is, in each case,
reimbursable under Medicare or Medicaid. The statute heralded the federal
government's policy of increased scrutiny of joint ventures and other
transactions among health care providers in an effort to reduce potential fraud
and abuse related to Medicare and Medicaid costs. Because dental services are
covered under various government programs, including Medicare and Medicaid, this
federal law applies to dentists and the provision of dental services.
Significant prohibitions against dentist self-referrals for services
covered by Medicare and Medicaid programs were enacted, subject to certain
exceptions, by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as Stark II, amended prior physician and dentist
self-referral legislation known as Stark I (which applied only to clinical
laboratory referrals) by dramatically enlarging the list of services and
investment interests to which the self-referral prohibitions apply. Effective
January 1, 1995, Stark II prohibits a physician or dentist, or a member of his
or her immediate family, from making referrals for certain "designated health
services" to entities in which the physician or dentist has an ownership or
investment interest, or with which the physician or dentist has a compensation
arrangement. "Designated health services" include, among other things, clinical
laboratory services, radiology and other diagnostic services, radiation therapy
services, durable medical equipment, prosthetics, outpatient prescription drugs,
home health services and inpatient and outpatient hospital services. Stark II
prohibitions include referrals within the physician's or dentist's own group
practice (unless such practice satisfies the "group practice" exception) and
referrals in connection with the physician's or dentist's employment
arrangements with the P.C. (unless the arrangement satisfies the "employment"
exception). Stark II also prohibits billing the Medicare or Medicaid programs
for services rendered following prohibited referrals. Noncompliance with, or
violation of, Stark II can result in exclusion from the Medicare and Medicaid
programs and civil and criminal penalties. The Company believes that its
operations as presently conducted do not pose a material risk under Stark II,
primarily because the Company does not provide "designated health services".
Even if the Company were deemed to provide "designated health services," the
Company believes its activities would be protected under the employment and
group practice exceptions to Stark II. Nevertheless, there can be no assurances
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that Stark II will not be interpreted or hereafter amended in a manner that has
a material adverse effect on the Company's operations as presently conducted.
Proposed federal regulations also govern physician incentive plans
associated with certain managed care organizations that offer risk-based
Medicare or Medicaid contracts. These regulations define physician incentive
plans to include any compensation arrangement (such as capitation arrangements,
bonuses, and withholds) that may directly or indirectly have the effect of
reducing or limiting services furnished to patients covered by the Medicare or
Medicaid programs. Direct monetary compensation which is paid by a managed care
plan, dental group or intermediary to a dentist for services rendered to
individuals covered by the Medicare or Medicaid programs is subject to these
regulations, if the compensation arrangement places the dentist at substantial
financial risk. Where applicable, the regulations generally require disclosure
to the federal government or, upon request, to a Medicare beneficiary or
Medicaid recipient regarding such financial incentives, and require the dentist
to obtain stop-loss insurance to limit the dentist's exposure to such financial
risk. The regulations specifically prohibit physician incentive plans which
involve payments made to directly induce the limitation or reduction of
medically necessary covered services. A recently enacted federal law
specifically exempts managed care arrangements from the application of the
federal anti-kickback statute (the principal federal health care fraud and abuse
law), but there is a risk this exemption may be repealed. It is unclear how the
Company will be affected in the future by the interplay of these laws and
regulations.
The Company may be subject to Medicare rules governing billing agents.
These rules prohibit a billing agent from receiving a fee based on a percentage
of Medicare collections and may require Medicare payments for the services of
dentists to be made directly to the dentist providing the services or to a lock
box account opened in the name of the applicable P.C.
Federal regulations also allow state licensing boards to revoke or restrict
a dentist's license in the event such dentist defaults in the payment of a
government-guaranteed student loan, and further allow the Medicare program to
offset such overdue loan payments against Medicare income due to the defaulting
dentist's employer. The Company cannot assure compliance by Network dentists
with the payment terms of their student loans, if any.
The Company's revenues from all insurers, including governmental insurers,
are subject to significant regulation. Some payors limit the extent to which
dentists may assign their revenues from services rendered to beneficiaries.
Under these "reassignment" rules, the Company may not be able to require
dentists to assign their third-party payor revenues unless certain conditions
are met. In addition, governmental payment programs limit reimbursement for
services provided by dental assistants and other ancillary personnel to those
services which were provided "incident to" a dentist's services. Under these
"incident to" rules, the Company may not be able to receive reimbursement for
services provided by certain Clinical Staff members unless certain conditions
are met.
State Regulation
Many states, including Connecticut, Massachusetts, New Hampshire, Rhode
Island and Vermont, in which all of the Company's Dental Facilities are located,
have fraud and abuse laws which are similar to the federal law, and in many
cases apply to referrals for items or services reimbursable by any insurer, not
just by Medicare and Medicaid. A number of states, including each of the states
in which the Company currently operates Dental Facilities, also impose
significant penalties for false claims for dental services. Many states,
including all of the states in which the Company operates Dental Facilities,
either prohibit or require disclosure of self-referral arrangements (including
in New Hampshire, x-rays by dentists) and impose penalties for the violation of
these laws. Many states, including Massachusetts, New Hampshire, Rhode Island,
and Vermont, also prohibit dentists from splitting fees with non-dentists. Under
such laws, the Company is prohibited from being paid for its management services
in a manner related to the revenues of the practice.
The laws of many states, including all of the states in which the Company's
Dental Facilities are located, typically permit a dentist to conduct a dental
practice only as an individual, a member of a partnership or an employee of a
professional corporation, limited liability company or limited liability
partnership. These laws
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<PAGE> 35
typically prohibit, either by specific provision or as a matter of general
policy, non-dental entities, such as the Company, from practicing dentistry,
from employing dentists and, in certain circumstances, dental assistants, or
otherwise from exercising control over the provision of dental services.
Some states, including Massachusetts, require entities designated as
"clinics" to be licensed, and may define clinics to include dental practices
that are owned or controlled in whole or in part by non-dentists. Many states
limit the ability of a person other than a licensed dentist to own or control
equipment or offices used in a dental practice. Some of these states allow
leasing of equipment and office space to a dental practice, under a bona fide
lease, if the equipment and office remain under the control of the dentist. The
laws of some states prohibit the advertising of dental services under a trade or
corporate name and require all advertisements to be in the name of the dentist.
A number of states also regulate the content of advertisements of dental
services and the use of promotional gift items. In addition, many states impose
limits on the tasks that may be delegated by dentists to dental assistants.
These laws and their interpretations vary from state to state and are enforced
by the courts and by regulatory authorities with broad discretion.
In addition, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care contracts. The
application of state insurance laws to third-party payor arrangements other than
fee-for-service arrangements is an unsettled area of law with little guidance
available. As the Company or the P.C.s contract with third-party payors,
including self-insured plans, on a capitation or other basis under which the
Company assumes financial risk, the Company or the P.C.s may become subject to
state insurance laws. Specifically, in some states, regulators may determine
that the Company or its P.C.s are engaged in the business of insurance,
particularly if they contract on a financial-risk basis directly with self-
insured employers or other entities that are not licensed to engage in the
business of insurance. To the extent that the Company or the P.C.s are
determined to be engaged in the business of insurance, the Company may be
required to change the method of payment from third-party payors and the
Company's revenues may be materially adversely affected.
Some of the Dental Facilities currently offer a variety of dental care
products for sale to patients. These sales currently constitute a negligible
percentage of the Company's revenues. In the future, these sales may constitute
a larger, albeit still small, percentage of Company revenues. Some states,
including Massachusetts, Rhode Island and Vermont, prohibit dentists from
promoting the sale of drugs, devices, appliances or goods and services in such a
manner as to exploit the patient for the financial gain of the dentist. There
can be no assurance that these laws will not be interpreted in such a way as to
have an adverse effect on this element of the Company's operations.
Although the Company believes its operations as currently conducted are in
material compliance with existing applicable laws, there can be no assurance
that the Company's contractual arrangements with the P.C.s and the dentists will
not be successfully challenged as violating federal or state fraud and abuse,
self-referral, false claims, fee splitting, insurance, facility licensure or
certificate of need laws or that the enforceability of such arrangements will
not be limited as a result of such laws. In addition, there can be no assurance
that the business structure under which the Company operates, or the advertising
strategy the Company employs, will not be deemed to constitute the unlicensed
practice of dentistry or the operation of an unlicensed clinic or health care
facility. The Company has not sought judicial or regulatory interpretations with
respect to the way it conducts its business. There can be no assurance that a
review of the business of the Company and the P.C.s by courts or regulatory
authorities will not result in a determination that could materially adversely
affect their operations or that the regulatory environment will not change so as
to restrict the Company's existing or future operations. In the event that any
legislative measures, regulatory provisions or rulings, or judicial decisions
restrict or prohibit the Company from carrying on its business or from expanding
the operations of the Company to certain jurisdictions, structural and
organizational modifications of the Company's organization and arrangements may
be required, which could have a material adverse effect on the Company, or the
Company may be required to cease operations.
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INSURANCE
Each of the dentists, at the P.C.'s expense, is covered by a professional
malpractice insurance policy. The Company maintains general liability and
umbrella coverage, including malpractice coverage of $1 million per occurrence
and $10 million in the aggregate. While the Company believes its insurance
policies are adequate in amount and coverage for its current operations, there
can be no assurance that the coverage maintained by the Company will be
sufficient to cover all future claims or will continue to be available in
adequate amounts or at a reasonable cost.
LITIGATION
The Company is involved as a defendant in several civil legal proceedings
which have arisen in the ordinary course of business, none of which,
individually or in the aggregate, if decided adversely to the Company, are
expected to have a material adverse effect on the Company.
FACILITIES AND EMPLOYEES
The Company's corporate headquarters are located at 85 Devonshire Street,
Boston, Massachusetts, in approximately 3,500 square feet occupied under a lease
which expires on May 31, 2001. The Company believes that its headquarters
facilities will soon be inadequate to accommodate its rapid growth. The Company
has leased additional space for certain administrative functions in Malden,
Massachusetts, and is considering relocating to a site where all headquarters
and administrative functions can be consolidated.
The Company also leases real estate at the location of each Dental
Facility. Typically, each Dental Facility is located at the site used by the
respective Selling Dentist prior to the Company's acquisition. For the year
ended December 31, 1995, the Company had lease costs of approximately $378,000.
The Company had lease costs for the nine months ended September 30, 1996 of
approximately $759,000. The Company anticipates that as it continues to acquire
Dental Facilities, it will continue its practice of leasing the sites formerly
utilized by the Selling Dentists.
As of December 31, 1996, the Company employed approximately 356 people,
including 194 Clinical Staff, but exclusive of the 95 dentists employed by the
P.C.s. The Company is not party to any collective bargaining agreement with a
labor union and considers its relations with its employees to be satisfactory.
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PENDING ACQUISITIONS
On January 28, 1997, the Company entered into a binding letter of intent to
acquire the outstanding stock of New England Dental Center, Inc., owned by Dr.
Philip Feldberg and located in Windsor, Connecticut. New England Dental Center,
Inc. employs three general dentists, two specialists and nine Clinical Staff.
New England Dental Center, Inc. reported net revenues of $1.3 million and $1.2
million for the years ended December 31, 1995 and 1994, respectively.
Pursuant to the letter of intent the dentists will enter into employment
agreements with one of the P.C.s and the Clinical Staff will be offered
employment by the Company. The Company has agreed, subject to certain
conditions, to purchase New England Dental Center, Inc. for $828,000 consisting
of a combination of cash, Common Stock, a promissory note and the assumption of
certain balance sheet liabilities. The New England Dental Center, Inc.
acquisition is expected to be completed on or about February 14, 1997.
On January 15, 1997 the Company entered into a letter of intent to acquire
by purchasing the outstanding stock of the following entities: eight Dental
Facilities, specifically, Dr. Herman South Street Corp., P.A., Ferry Street
Dental Associates, P.A., Dr. S. Herman Group Dental Associates, P.A., Group
Dental Associates of Toms River, P.A., Group Dental Associates of East
Brunswick, P.A., Ridge Dental Center, P.A., 57th Street Dental Center, P.A., Dr.
Herman and Associates, P.A., and a dental laboratory, Dr. Denture Service P.A.,
and to acquire substantially all of the net assets of a dental HMO, Group Dental
Health Administrators (collectively "Group Dental Associates"), all of which are
located in New Jersey. Group Dental Associates is owned by Drs. Saul Herman and
Robert Armento, and employs 22 general dentists, 3 specialists and 51 Clinical
Staff. Group Dental Associates reported net revenues of approximately $5.5
million for each of the years ended December 31, 1995 and 1994.
Pursuant to the letter of intent, all dentists, except Drs. Saul Herman and
Robert Armento, will be offered employment with one of the P.C.s, or a
to-be-formed New Jersey P.A., and the Clinical Staff, except those working for
Dr. Armento, will be offered employment with the Company. Drs. Saul Herman and
Armento will enter into non-compete and non-solicitation agreements with the
Company. Dr. Armento will enter an agreement to provide certain orthodontic
services at two of the Dental Facilities for the P.C. but will continue to
retain the revenues from his existing patient base, and will be responsible for
his own staff, supplies and malpractice insurance. The Company has agreed,
subject to certain conditions, to purchase Group Dental Associates for $5.7
million in cash, part or all of which the Company intends to borrow prior to the
Offering and repay with a portion of the proceeds from the Offering. The Group
Dental Associates acquisition is expected to be completed on or about February
28, 1997.
36
<PAGE> 38
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors currently consists of seven members. The Company's
executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -----------------------------------------------
<S> <C> <C>
Donald E. Strange.................... 52 Chairman of the Board, President, Chief
Executive Officer and Director
Jerald Robbins....................... 41 Executive Vice President
Joseph A. Anoli...................... 49 Senior Vice President and Chief Financial
Officer
John J. Brouder...................... 45 Senior Vice President -- Managed Care
Arnold Watkin, D.D.S................. 52 Senior Vice President -- Professional Relations
and Director
Julian Osorio, D.M.D................. 39 Senior Vice President -- Professional Relations
Louis S. Shuman, D.M.D............... 43 Senior Vice President -- Operations
Thomas R. Sahrmann................... 47 Vice President and Controller
George R. Begley..................... 54 Director
Austin Broadhurst, Jr................ 49 Director
George R. Hornig..................... 42 Director
Donald J. Larson..................... 46 Director
John A. Sprague...................... 44 Director
</TABLE>
DONALD E. STRANGE was elected to the positions of Chief Executive Officer
and Chairman of the Board, effective October 1996 and President, effective
December 1996. Prior to joining First Dental, Mr. Strange was the Founder,
Chairman and Chief Executive Officer of TransCare Corporation, a company engaged
in the business of patient transportation. From July 1991 until December 1992,
he served as the Executive Vice President and Chief Operating Officer of Epic
Healthcare Group, a hospital management company. From June 1990 until July 1991,
Mr. Strange served as the Chairman of US Homecare Corporation, a company engaged
in the business of home health care. Mr. Strange is currently a member of the
Board of Directors of the Access Radiology Corporation, the Bon Secours Health
System and TheraMed Partners, Inc.
JERALD ROBBINS has served as the Executive Vice President of the Company
since December 1996 and as the President of the Company from January 1995 to
December 1996. From December 1992 through December 1994, Mr. Robbins was Vice
President and Assistant to the Chairman of The Fort Hill Group, Inc. From 1977
through December 1992, Mr. Robbins owned and operated his own closely held small
business.
JOSEPH A. ANOLI, a certified public accountant, has served as the Company's
Chief Financial Officer since November 1996. From January 1991 until October
1996, Mr. Anoli served in progressively more senior finance positions, most
recently as Corporate Controller, at Blue Cross Blue Shield of Massachusetts,
the largest health insurer in Massachusetts.
JOHN J. BROUDER has served as the Senior Vice President for Managed Care of
the Company since August 1996. From January 1988 until July 1996, Mr. Brouder
managed the Massachusetts Public Employees Health and Welfare Fund, one of the
largest purchasers of dental services among employee benefit plans in New
England.
ARNOLD WATKIN, D.D.S. has served as the Senior Vice President for
Professional Relations and a director of the Company since December 1995. Dr.
Watkin is also the President, a director, a practicing dentist and 50%
stockholder of Osorio and Watkin, D.M.D., P.C., which provides dentists at
certain Dental Facilities under a Management Agreement with the Company. Dr.
Watkin has practiced dentistry for 25 years and in 1982 established a
multi-specialty group dental practice in Boston. Dr. Watkin previously served as
an Assistant Clinical Professor at the Boston University School of Graduate
Dentistry from 1972 to 1980.
37
<PAGE> 39
JULIAN OSORIO, D.M.D. has served as the Senior Vice President for
Professional Relations of the Company since December 1995. Dr. Osorio is also
the Vice President, a director, a practicing dentist and 50% stockholder in
Osorio and Watkin, D.M.D., P.C. Dr. Osorio has practiced dentistry since 1980
and currently serves as Assistant Clinical Professor at the Tufts University
School of Dental Medicine.
LOUIS S. SHUMAN, D.M.D. has served as the Senior Vice President for
Operations of the Company since November 1996. Since July 1996, Dr. Shuman has
been employed as a practicing dentist by Osorio and Watkin, D.M.D., P.C. From
August 1988 until July 1996, Dr. Shuman served as the President and 50%
stockholder of the Bader Shuman Dental Group in Peabody, Massachusetts.
THOMAS R. SAHRMANN, a certified public accountant, has served as Vice
President and Controller of the Company since November 1996. Mr. Sahrmann was
the Company's Chief Financial Officer from March until October 1996. From
September 1994 until March 1996, Mr. Sahrmann was the Chief Financial Officer at
New England Life Care, Inc., an infusion therapy company. From March 1991 to
August 1993, Mr. Sahrmann served as Vice President, Chief Financial Officer and
Secretary of Medical Management of New England, Inc., a company engaged in the
business of consulting to, and providing billing and collections services for,
medical practices.
GEORGE R. BEGLEY was one of the Company's founders and is a director. Mr.
Begley formed his own private investment banking office in 1995 to assist
selected companies in financing projects. Prior to 1995, he served as the Vice
Chairman of The Fort Hill Group. Mr. Begley is currently a member of the Board
of Directors of North Coast Energy, Inc., An Ping, Ltd., Roundabout Hotels Ltd.,
and Franca Americana SA.
AUSTIN BROADHURST, JR., was elected a director of the Company in December
1996. Since August 1996, he has served as a partner and healthcare practice
leader of Lamalie Amrop International, a global executive search firm. From 1986
to July 1996, Mr. Broadhurst served as Managing Director and head of the health
care sector of Russell Reynolds Associates, Inc., a global executive search
firm. Mr. Broadhurst is currently a trustee of Greenwich Hospital in Greenwich,
Connecticut and a director of the Norwalk Community and Technical College
Foundation in Norwalk, Connecticut.
GEORGE R. HORNIG was elected a director of the Company in December 1996.
Since May 1993, he has served as Managing Director of Deutsche Bank North
America, an investment banking company. From November 1991 until March 1993, he
served as President and Chief Operating Officer of Dubin & Swieca Holdings,
Inc., an asset management company. From February 1988 until October 1991, he
served as Managing Director and Chief Operating Officer of Wasserstein Perella
Group, Inc., an investment banking company of which he was a co-founder. Mr.
Hornig is currently a member of the Board of Directors of SL Industries, Inc.
and Forrester Research, Inc.
DONALD J. LARSON was elected a director of the Company in December 1996. He
serves as President, Chief Executive Officer and a director of CRA Managed Care,
Inc., a company that he co-founded in 1978 which engages in the business of
providing case management and managed care services to the field of workers'
compensation benefits. Mr. Larson is a trustee of the New England Aquarium.
JOHN A. SPRAGUE was elected a director of the Company in December 1996.
Since March 1994, he has served as the Managing Partner of Jupiter Partners, an
investment company. From January 1993 to February 1994, he was a private
investor. From January 1985 to December 1992 he was a general partner at
Forstmann Little & Co., an investment company. Mr. Sprague is currently a member
of the Board of Directors of Heartland Wireless Communications, Inc., Core-Mark
International, Inc. and American Marketing Industries, Inc.
The members of the Board of Directors will serve until the next annual
meeting of stockholders and thereafter until their successors are elected and
qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has an Audit Committee and a Compensation Committee. The Audit
Committee, consisting of Messrs. Hornig, Begley, and Sprague will recommend
annually to the Board of Directors the
38
<PAGE> 40
appointment of the independent public accountants of the Company, discuss and
review the scope and fees of the prospective annual audits, review the results
thereof with the accountants, review and evaluate the Company's internal
accounting controls and perform such other functions as directed by the Board of
Directors. The Compensation Committee, consisting of Messrs. Larson, Broadhurst
and Hornig will review and recommend annual salaries and bonuses for all
officers, review, approve and recommend to the Board of Directors the terms and
conditions of all employee benefit plans, administer any stock option plans, and
carry out the responsibilities required by rules of the Securities and Exchange
Commission.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company ("Outside Directors") receive
$1,000 per meeting of the Board of Directors and any committee thereof, and are
reimbursed for expenses incurred in connection with attending such meetings.
Outside Directors other than Mr. Begley also received, as of the respective
dates of their election, an option to purchase 10,000 shares of Common Stock at
an exercise price of $8.50 per share, vesting ratably on a quarterly basis over
three years. Mr. Begley shall be eligible to receive a similar option as of
December 1, 1997 at an exercise price equal to the market price at the time of
issue, provided he is a director of the Company at that time. Directors who are
also officers of the Company are not paid any director fees.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the annual,
long-term and other compensation of the chief executive officer and the four
most highly compensated executive officers whose total annualized salary and
bonus exceeded $100,000 during 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ---------------------
----------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS(#)
- ----------------------------------------------------- ---- -------- ---------------------
<S> <C> <C> <C>
Donald E. Strange.................................... 1996 $ 47,890(1) 300,000
Chief Executive Officer............................ 1995 -- --
Jerald Robbins....................................... 1996 $114,056 --
Executive Vice President........................... 1995 $ 73,700 124,800
Arnold Watkin, D.D.S................................. 1996 $289,137(2)(3) 15,324
Senior Vice President.............................. 1995 $ 54,200 --
Julian Osorio, D.M.D................................. 1996 $201,798(2) 15,324
Senior Vice President.............................. 1995 -- --
Louis S. Shuman, D.M.D............................... 1996 $165,736(2)(4) 12,500
Senior Vice President.............................. 1995 -- --
</TABLE>
- ---------------
(1) Employment commenced October 1, 1996. See "-- Management Employment
Agreements".
(2) Includes $169,137, $106,800 and $139,901 paid to Drs. Watkin, Osorio and
Shuman, respectively, by Osorio and Watkin, D.M.D., P.C.
(3) Includes $110,300 paid to Medident, Inc. through December 31, 1996. See
"Certain Transactions".
(4) Employment commenced August 1, 1996.
39
<PAGE> 41
The following table sets forth information concerning stock option grants
made during 1996 to the Named Executive Officers. No stock appreciation rights
were granted. In accordance with the rules and regulations of the Commission,
the hypothetical gains or "option spreads" for each option grant are shown based
on compound annual rates of stock price appreciation of 5% and 10% from the
grant date to the expiration date. The assumed rates of growth are prescribed by
the Commission and are for illustrative purposes only; they are not intended to
predict the future stock prices, which will depend upon market conditions and
the Company's future performance, among other things.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------------- AT ASSUMED
PERCENTAGE OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM
OPTIONS FISCAL YEAR PRICE --------------------
NAME GRANTED 1996 PER SHARE(1) EXPIRATION DATE 5% 10%
- ------------------------------- ---------- ------------- ------------ --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Strange(2)........... 25,000 4.5% $ 6.50 10/1/01 $44,896 $ 99,208
25,000 4.5% $ 6.50 1/1/02 $47,441 $105,519
25,000 4.5% $ 6.50 4/1/02 $50,017 $111,982
25,000 4.5% $ 6.50 7/1/02 $52,625 $118,600
25,000 4.5% $ 6.50 10/1/02 $55,625 $125,379
25,000 4.5% $ 6.50 1/1/03 $57,938 $132,320
25,000 4.5% $ 6.50 4/1/03 $60,643 $139,430
25,000 4.5% $ 6.50 7/1/03 $63,382 $146,710
25,000 4.5% $ 6.50 10/1/03 $66,154 $154,167
25,000 4.5% $ 6.50 1/1/04 $68,960 $161,803
25,000 4.5% $ 6.50 4/1/04 $71,800 $169,623
25,000 4.5% $ 6.50 7/1/04 $74,676 $177,631
Arnold Watkin, D.D.S.(3)....... 6,250 1.1% $ 6.50 10/1/02 $13,816 $ 31,345
6,250 1.1% $ 6.50 10/1/03 $16,538 $ 38,542
2,824 * $ 8.50 12/31/01 $ 6,632 $ 14,655
Julian Osorio, D.M.D.(3)....... 6,250 1.1% $ 6.50 10/1/02 $13,816 $ 31,345
6,250 1.1% $ 6.50 10/1/03 $16,538 $ 38,542
2,824 * $ 8.50 12/31/01 $ 6,632 $ 14,655
Louis S. Shuman, D.M.D.(3)..... 6,250 1.1% $ 6.50 10/1/02 $13,816 $ 31,345
6,250 1.1% $ 6.50 10/1/03 $16,538 $ 38,542
</TABLE>
- ---------------
* Less than 1%.
(1) The exercise price per share of the options approximated the fair market
value of the underlying shares of Common Stock on the date the options were
granted, as determined by the Company's Board of Directors.
(2) Mr. Strange was granted options for 300,000 shares on October 1, 1996,
vesting 25,000 each October, January, April and July 1st, starting on
October 1, 1996, and expiring five years after vesting.
(3) Options for 12,500 shares each were granted on October 1, 1996 to Drs.
Watkin, Osorio and Shuman, vesting one half each on October 1, 1997 and
1998, and expiring five years after vesting. In addition, Drs. Osorio and
Watkin were granted options for 2,824 shares on December 31, 1996 vesting
immediately and expiring five years thereafter.
The following table sets forth for each Named Executive Officer information
concerning stock options exercised in 1996 and the number of shares covered by
both exercisable and unexercisable stock options held as of December 31, 1996.
Also reported are the values for "in-the-money" options, which represent the
40
<PAGE> 42
difference between the respective exercise prices of such stock options and the
assumed initial public offering price of $[ ] per share.
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
WARRANTS/OPTIONS IN-THE- MONEY
NUMBER OF AT WARRANTS/OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Strange........... -- $ -- 25,000 275,000
Jerald Robbins(1)........... 124,800 $809,952 -- -- -- --
Arnold Watkin, D.D.S........ -- -- 2,824 12,500
Julian Osorio, D.M.D........ -- -- 2,824 12,500
Louis S. Shuman, D.M.D...... -- -- -- 12,500
</TABLE>
- ---------------
(1) Mr. Robbins exercised options for 124,800 shares on July 11, 1996. The
aggregate exercise price for such options was $1,248 and the value of the
Common Stock on the exercise date was estimated to be $6.50 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a Compensation Committee until December
1996. As a result, the Board of Directors, which included Arnold Watkin, D.D.S.,
a Senior Vice President of the Company, made all decisions concerning executive
compensation.
STOCK PLAN
The Company's 1996 Stock Plan (the "Stock Plan") was adopted in November
1996 and permits the granting of incentive stock options (which are entitled to
certain favorable treatment under the Internal Revenue Code of 1986),
non-qualified options (i.e., options which are not intended to be incentive
stock options) and purchase rights to and awards of restricted Common Stock. A
total of 300,000 shares of Common Stock has been authorized for issuance under
the Stock Plan. Employees, officers or directors of, or consultants or advisors
to, the Company are eligible to be selected to receive one or more grants of
restricted stock or options.
The Stock Plan is administered by the Board of Directors and its
Compensation Committee. Pursuant to the terms of the Stock Plan, the Board of
Directors has the sole discretion to determine the recipients and terms and
conditions of the restricted stock or option grants. However, in the case of an
incentive stock option, the exercise price shall not be less than 100% of the
fair market value of the shares covered by the option (on the date of grant) or
less than 110% of such fair market value in the case of certain incentive stock
options. At January 30, 1997 no restricted stock or options had been granted
under the Stock Plan.
MANAGEMENT EMPLOYMENT AGREEMENTS
Effective as of October 1, 1996, Mr. Strange entered into a three-year
employment agreement with the Company, which provides for an initial annual base
salary of $190,000 and certain fringe benefits. In addition, Mr. Strange will be
eligible for a formula-based annual performance bonus. Pursuant to the terms of
his employment agreement, Mr. Strange purchased 15,385 shares of Common Stock at
a price of $6.50 per share, and was granted stock options for 300,000 shares of
Common Stock at an exercise price of $6.50 per share, to vest ratably on a
quarterly basis over the term of the agreement. If the Company terminates Mr.
Strange's employment without cause (as defined in his employment agreement), it
is obligated to continue to pay his salary and bonus, at the rate in effect
immediately prior to his termination, and to provide fringe benefits for twelve
months following termination. If the Company terminates Mr. Strange's employment
within one year
41
<PAGE> 43
following a "change in control" of the Company (as defined in his employment
agreement), the Company is obligated to continue to pay his base annual salary,
plus the bonus compensation that would otherwise have been payable, and to
provide fringe benefits through the later of September 30, 1999, or the second
anniversary of the effective date of termination. In addition, in the event of
termination without cause or due to change in control, all stock options then
held by Mr. Strange become immediately vested and exercisable.
Effective as of November 7, 1996, Mr. Robbins entered into a two-year
employment agreement with the Company, which provides for an initial annual base
salary of $130,000 and certain fringe benefits. In addition, Mr. Robbins is
eligible for a formula-based annual performance bonus, not exceeding 25% of base
salary in any year, and for additional discretionary bonuses as determined by
the Company's Board of Directors. If the Company terminates Mr. Robbins'
employment without cause (as defined in his employment agreement) it is
obligated to continue to pay his salary, at the rate in effect immediately prior
to his termination, and to provide insurance benefits for twelve months
following termination. If the Company terminates Mr. Robbins' employment within
three months following a "change in control" of the Company (as defined in his
employment agreement), it is obligated to continue to pay his base annual salary
through the later of November 6, 1998 or the first anniversary of the effective
date of termination.
Effective as of December 29, 1995, Dr. Watkin entered into a ten-year
consulting agreement with the Company, containing a provision for automatic,
successive one-year extensions and which provides for annual compensation of
$60,000. No fringe benefits are provided. The agreement can be terminated by the
Company if, among other things, Dr. Watkin's license to practice dentistry is
suspended or revoked, his malpractice insurance lapses or terminates, or he is
found guilty of criminal, unethical or fraudulent conduct. Either party may
terminate the agreement upon material breach that has not been cured within 30
days.
Effective as of December 29, 1995, Dr. Osorio entered into a ten-year
consulting agreement with the Company, containing a provision for automatic,
successive one-year extensions and which provides for annual compensation of
$60,000. No fringe benefits are provided. The agreement can be terminated by the
Company if, among other things, Dr. Osorio's license to practice dentistry is
suspended or revoked, his malpractice insurance lapses or terminates, or he is
found guilty of criminal, unethical or fraudulent conduct. Either party may
terminate the agreement upon material breach that has not been cured within 30
days.
42
<PAGE> 44
CERTAIN TRANSACTIONS
During 1996, the Company paid to John R. Lakian, a principal stockholder of
the Company, fees totaling $455,000, of which $255,000 was paid in consideration
for business consulting services on behalf of the Company and $200,000 was paid
in consideration for a personal guarantee of $3,000,000 of the Company's
$5,000,000 Credit Facility. In the opinion of the Company's management, these
fees are less than the fees that would have been charged by an unrelated party
in an arms length transaction.
During 1996, the Company paid to Mr. Begley fees totaling $182,500, of
which $150,000 was paid in consideration for business consulting services on
behalf of the Company and $32,500 was paid in consideration for a personal
guarantee of $3,000,000 of the Company's $5,000,000 Credit Facility. In the
opinion of the Company's management, these fees are less than the fees that
would have been charged by an unrelated party in an arms length transaction.
On December 24, 1994, the Company entered an agreement with The Fort Hill
Group, Inc., of which Mr. Lakian is Chairman and Managing Director, pursuant to
which The Fort Hill Group, Inc. receives $10,000 per month for financial
advisory services. The agreement was modified effective November 1, 1996, such
that the Company will pay the Fort Hill Group, Inc. $13,000 per month for
assistance with acquisitions through October 31, 1998. As of December 31, 1996,
the Company had paid The Fort Hill Group, Inc. $145,500.
Upon completion of the Offering, the Company will enter into a new credit
facility with Fleet Bank to replace the Credit Facility. The Company currently
expects that the new facility will provide for a revolving line of credit in an
amount equal to the lesser of $20,000,000 or 50% of the net proceeds of the
Offering, and that, in connection with the new credit facility, Messrs. Lakian
and Begley will be released from their respective personal guarantees of the
Credit Facility.
During 1996, the Company paid to Medident, Inc., a company in which Dr.
Watkin is Chairman, a director and stockholder, fees totaling $110,300 for
consulting services related to the acquisition of Dental Facilities. Of this
amount, $35,300 was paid for services rendered in 1995. As of January 1, 1997,
the Company will cease payments to Medident, Inc. and commence paying Dr. Watkin
directly for consulting services rendered to the Company.
In December 1995, in connection with the acquisition of his dental
practice, Dr. Watkin received an unsecured loan of $210,000 from the Company
bearing simple interest at 8.5% per annum. A payment of interest accrued during
1996 was paid and future payments of interest and principal commence December
1997. The loan is payable in full on or before December 29, 2000.
The Company is party to a Management Agreement with Osorio and Watkin,
D.M.D., P.C., of which Drs. Osorio and Watkin are executive officers, directors
and stockholders. Pursuant to the Management Agreement, the Company provides
Dental Facilities, non-dentist support personnel, and administrative and other
services to Osorio and Watkin, D.M.D., P.C. During the nine months ended
September 30, 1996, the Company was paid $8,585,000 under the Management
Agreement.
In connection with this Offering, the Company has adopted a policy whereby
any further transactions between the Company and its officers, Directors or
principal stockholders, or any affiliates of the foregoing persons, shall be on
terms no less favorable to the Company than could reasonably be obtained in an
arm's length transaction with independent third parties, and that any such
transactions shall be approved by a majority of the Company's disinterested
outside directors.
43
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth as of January 15, 1997 the beneficial
ownership of the Common Stock by: (i) each person who is known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's Directors, (iii) the Company's Chief Executive Officer and each other
Named Executive Officer, and (iv) all Directors and current executive officers
of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NAME AND ADDRESS OF NUMBER OF SHARES ------------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED(2)(3) PRIOR TO OFFERING AFTER OFFERING
- ---------------------------------- ------------------------ ----------------- --------------
<S> <C> <C> <C>
John R. Lakian.................... 1,395,736(4) 24.0% %
The Fort Hill Group
767 3rd Avenue
New York, NY 10017
George R. Begley(1)............... 423,820(5) 7.3% %
George R. Hornig.................. 1,667(6) * *
Deutsche Bank North America
31 West 52nd Street
New York, NY 10019
Donald J. Larson.................. 1,667(6) * *
CRA Managed Care, Inc.
312 Union Wharf
Boston, MA 02109
Austin Broadhurst, Jr............. 3,667(7) * *
Lamalie Amrop International
One Station Place,
5th Floor South
Stamford, CT 06902
John A. Sprague................... 223,889(8) 3.9% %
Jupiter Partners
30 Rockefeller Plaza
Suite 4525
New York, NY 10012
Donald E. Strange(1).............. 65,385(9) 1.1% *
Jerald Robbins(1)................. 126,129 2.2% %
Arnold Watkin, D.D.S.(1).......... 140,324(10) 2.4% %
Julian Osorio, D.M.D.(1).......... 140,324(10) 2.4% %
Louis S. Shuman, D.M.D.(1)........ 46,154(11) * *
All Directors and current
executive officers as a group
(13 persons)
(5),(6),(7),(8),(9),(10),(11),
(12)............................ 1,210,526 20.9% %
</TABLE>
- ---------------
* Less than 1%
(1) c/o First New England Dental Centers, Inc., 85 Devonshire Street, Boston,
MA 02109.
(2) The inclusion herein of any shares as beneficially owned does not
constitute an admission of beneficial ownership of those shares. Except as
otherwise indicated, each person has sole voting power and sole investment
power with respect to all shares beneficially owned by such person.
(3) Shares not outstanding but deemed beneficially owned by virtue of the right
of an individual to acquire them within 60 days upon the exercise of an
option are treated as outstanding for purposes of determining beneficial
ownership and the percentage beneficially owned by such person.
44
<PAGE> 46
(4) Includes 25,000 shares issuable upon exercise of a warrant held by Canal
Square, Inc. of which Mr. Lakian is a 25% shareholder.
(5) Consists of 423,820 shares held in the name of Barbara S. Begley, the
spouse of Mr. Begley.
(6) Consists of shares issuable upon exercise of the vested portion of options.
Excludes 8,333 shares subject to the unvested portion of options.
(7) Consists of shares issuable upon exercise of the vested portion of options.
Excludes 8,333 shares subject to the unvested portion of options held by
Mr. Broadhurst.
(8) Includes 44,444 shares held by the John A. Sprague Irrevocable Family Trust
of which Dorothy W. Sprague, the spouse of Mr. Sprague, is trustee.
Includes 1,667 shares issuable upon exercise of the vested portion of
options. Excludes 8,333 shares subject to the unvested portion of options
held by Mr. Sprague.
(9) Includes 50,000 shares issuable upon exercise of the vested portion of
options. Excludes 250,000 shares subject to the unvested portion of options
held by Mr. Strange.
(10) Includes 2,824 shares issuable upon exercise of the vested portion of
options. Excludes 12,500 shares subject to the unvested portion of options.
(11) Excludes 12,500 shares subject to the unvested portion of options.
(12) Includes 10,833, 11,667 and 15,000 shares issuable upon exercise of the
vested portion of options and excludes 54,167, 23,333 and 15,000 shares
subject to the unvested portion of options held by Messrs. Anoli, Sahrmann
and Brouder, respectively.
45
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
The following summary description is qualified in its entirety by reference
to the Company's Certificate of Incorporation, which is filed as an exhibit to
the registration statement of which this Prospectus is a part. Upon consummation
of the Offering, the authorized capital stock of the Company will consist of
10,000,000 shares of Common Stock, $0.01 par value per share, of which
shares will be issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders. Holders of Common
Stock do not have cumulative voting rights, and therefore holders of a majority
of the shares voting for the election of Directors can elect all of the
Directors. The holders of Common Stock are entitled to receive dividends when,
as, and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution, or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining which are available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock. Holders of shares of Common Stock, as
such, have no conversion, preemptive, or other subscription rights, and there
are no redemption provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are fully paid and nonassessable.
DELAWARE ANTI-TAKEOVER LAW; LIMITATION OF LIABILITY
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in certain business combinations with a
person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the business combination, is
approved by the Board of Directors of the Company before the person becomes an
interested stockholder; (ii) the interested stockholder acquires 85% or more of
the outstanding voting stock of the Company in the same transaction that makes
it an interested stockholder (excluding shares owned by Directors who are also
Officers, and excluding certain employee stock option plans); and (iii) on or
after the date the person becomes an interested stockholder, the business
combination is approved by the Company's Board of Directors and by the holders
of at least two-thirds of the corporation's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested stockholder.
Except as otherwise specified in Section 203, an "interested stockholder" is
defined as (a) any person that is the owner of 15% or more of the outstanding
voting stock of the Company, (b) any person that is an affiliate or associate of
the Company and was the owner of 15% or more of the outstanding voting stock of
the Company at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder, or (c) the affiliates and associates of any such person. Generally,
a "business combination" includes a merger, asset or stock sale or other
transaction resulting in financial benefit to the interested stockholder. By
restricting the ability of the Company to engage in business combinations with
an interested person, the application of Section 203 to the Company may provide
a barrier to hostile or unwanted takeovers. Under Delaware law, the Company
could have opted out of Section 203 but elected to be subject to its provisions.
The Company's Certificate of Incorporation limits the liability of
Directors to the Company and its stockholders for monetary damages for breach of
fiduciary duty as a Director except for liability (i) for any breach of the
Director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the Director derived any improper
personal benefit. The inclusion of this provision in the Company's Certificate
of Incorporation may have the effect of reducing the likelihood of detrimental
litigation against Directors and may discourage or deter stockholders or
management from bringing a lawsuit against Directors for breach of their duty of
care.
46
<PAGE> 48
STOCK TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Common Stock is American
Stock Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock (assuming no exercise of outstanding stock options or the
Underwriters' over-allotment option). The shares of Common Stock sold
in this Offering (plus any additional shares sold upon exercise of the
Underwriters' over-allotment option) will be freely tradeable without
restriction, except for any shares purchased by affiliates of the Company which
will be subject to the resale limitations under Rule 144 of the Securities Act
and which may also be subject to the agreement with the Underwriters described
below. None of the remaining 5,836,474 outstanding shares of Common Stock
(collectively, the "restricted shares") have been issued in transactions
registered under the Securities Act, which means that they may be resold
publicly only in future transactions registered under the Securities Act or in
compliance with an exemption from the registration requirements of the
Securities Act, including the exemption provided by Rule 144 thereunder.
Beginning 270 days after the date of this Prospectus (or earlier for certain
limited transactions or with the written consent of Furman Selz LLC on behalf of
the Underwriters), 1,462,400 restricted shares will become eligible for sale in
the public market upon the expiration of lock-up agreements between the
Underwriters and the holders of such shares, subject to compliance with Rule
144. The remaining 4,374,074 restricted shares will be eligible for sale in the
public market, subject to compliance with Rule 144, independent of the lock-up
agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) whose restricted shares have been fully paid for
and held for at least two years from the later of the date of issuance by the
Company or acquisition from an affiliate, including an "affiliate" as that term
is defined under the Securities Act, is entitled to sell, within any three-month
period commencing 90 days after the date of this Prospectus, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of Common
Stock (approximately shares immediately after the Offering, assuming no
exercise of outstanding stock options under the Underwriters' over-allotment
option) or the average weekly trading volume of the Common Stock on all
exchanges and/or reported through the automated quotation system of a registered
securities association during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of the Company at any time during the 90 days preceding the sale,
and whose restricted shares have been fully paid for and held for at least three
years from the later of the date of issuance by the Company or acquisition from
an affiliate, would be entitled to sell such shares under Rule 144(k) without
regard to the limitations described above. Rule 144A under the Securities Act
permits the immediate sale by the current holders of restricted shares of all or
a portion of all of their shares to certain qualified institutional buyers as
defined in Rule 144A, subject to certain conditions.
The Commission has proposed to amend the holding period required by Rule
144 to permit sales of restricted securities after one year rather than two
years (and two years rather than three years for non-affiliates who desire to
sell such shares under Rule 144(k)). If such proposed amendment were enacted,
the restricted securities would become freely tradeable (subject to any
applicable contractual restrictions) at correspondingly earlier dates.
Pursuant to various registration rights agreements, certain of Company's
stockholders have certain demand and piggyback registration rights with respect
to an aggregate of up to 2,828,023 shares of Common Stock. These registration
rights are exercisable after the closing of this Offering, subject to certain
limitations. The Company has agreed to pay substantially all expenses incident
to the registration of such shares, other than underwriting discounts and
commissions.
47
<PAGE> 49
Each of the Company's principal stockholders, executive officers and
directors, who upon the closing of the Offering will own an aggregate of
2,479,446 shares of Common Stock and options to purchase 540,148 shares of
Common Stock, have agreed, except for certain limited exceptions or without the
prior written consent of Furman Selz LLC, that they will not, directly or
indirectly, sell, offer to sell, grant an option for the sale of, grant a
security interest in, or otherwise dispose of any shares of Common Stock or
other equity securities of the Company beneficially owned by them for a period
of 270 days from the date of this Prospectus. See "Underwriting".
Prior to the Offering, there has been no market for the Common Stock, and
no prediction can be made as to the effect, if any, that the sale of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Common
Stock in the public market could materially adversely affect prevailing market
prices of the Common Stock and may make it more difficult for the Company to
sell its equity securities in the future at times and prices which it deems
appropriate.
48
<PAGE> 50
UNDERWRITING
The Underwriters named below, acting through Furman Selz LLC and Prudential
Securities Incorporated (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement by and among
the Company and the Representatives (the "Underwriting Agreement"), to purchase
from the Company, and the Company has agreed to sell to the Underwriters, the
number of shares of Common Stock set forth opposite the name of such Underwriter
below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
------------------------------------------------------------- ----------------
<S> <C>
Furman Selz LLC..............................................
Prudential Securities Incorporated...........................
---------
Total..............................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares listed above are subject to certain
conditions, including the approval of certain legal matters by counsel. The
Underwriting Agreement also provides that the Underwriters are committed to
purchase, and the Company is obligated to sell, all of the shares offered by
this Prospectus, if any of the shares being sold pursuant to the Underwriting
Agreement are purchased (without consideration of any shares that may be
purchased through the exercise of the Underwriters' over-allotment option).
The Representatives have advised the Company that the Underwriters propose
to offer the shares to the public at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not more than $[ ] per share. The Underwriters may allow, and
such dealers may reallow, a concession to the other dealers not in excess of
$[ ] per share. After the initial public offering of the shares, the public
offering price, the concessions to selected dealers and the reallowance to other
dealers may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional shares of Common Stock at the initial public offering price
per share set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriters may exercise such option only to
cover over-allotments, if any. To the extent the Underwriters exercise such
option, each of the Underwriters will become obligated, subject to certain
conditions, to purchase such percentage of such additional shares of Common
Stock as is approximately equal to the percentage of shares that it is obligated
to purchase as shown in the table set forth above.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales to any account over which they exercise
discretionary authority.
The Company and its principal stockholders, executive officers and
directors have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of, directly or indirectly, any shares of capital
stock or warrants or other rights to purchase shares of capital stock of the
Company or any securities convertible into or exercisable or exchangeable for
any capital stock or warrants or other rights to purchase shares of capital
stock of the Company owned by any of them prior to the expiration of 270 days
from the date of this Prospectus without the prior written consent of Furman
Selz LLC, except for (a) in the case of the Company, the issuance of shares of
Common Stock upon the exercise of options, or the grant of options to purchase
shares of Common Stock in connection with any employee or director incentive
compensation arrangements, and (b) in the case of the Company's directors and
executive officers, shares of Common Stock disposed of (i) as bona fide gifts to
donees who agree not to sell or otherwise dispose of such Common Stock during
the one-year period following the date of this Prospectus without the prior
consent of Furman Selz LLC; (ii) pursuant to the laws of testamentary or
intestate descent; (iii) pursuant to a final and nonappealable order of a court
or other body of competent jurisdiction; or (iv) in consideration of the
cashless exercise of options where such exercise is available or to fulfill tax
withholding obligations.
49
<PAGE> 51
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price has been determined pursuant
to negotiations between the Company and the Representatives. Among the factors
considered in determining the initial public offering price are estimates of the
Company's business potential and prospects, the Company's capital structure, the
current market price of other publicly-traded companies in the dental practice
management or similar health care services businesses, and the general condition
of the securities markets. The initial public offering price set forth on the
cover page of this Prospectus should not, however, be considered an indication
of the actual value of the Common Stock. Such price is subject to change as a
result of market conditions and other factors. There can be no assurance that an
active trading market will develop for the Common Stock or that the Common Stock
will trade in the public market subsequent to the Offering at or above the
initial public offering price.
In connection with the Company's private placement of Common Stock in
November 1996, Anvers L.P., a private investment fund affiliated with Furman
Selz LLC, purchased 30,000 shares of Common Stock for an aggregate price of
$255,000.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "MOLR", subject to official notice of issuance.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for the Company by Lyne, Woodworth & Evarts LLP,
Boston, Massachusetts. Joshua Vernaglia, a partner in Lyne, Woodworth & Evarts
LLP, has served as secretary of the Company since it commenced operations but is
not an employee of the Company. Certain other legal matters will be passed upon
for the Company by McDermott, Will & Emery, Boston, Massachusetts. Orrick,
Herrington & Sutcliffe LLP, New York, New York, has acted as counsel to the
Underwriters.
EXPERTS
The combined financial statements of First New England Dental Centers, Inc.
as of September 30, 1996 and December 31, 1995 and for the respective period and
year then ended, have been included herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Arnold Watkin, D.D.S., P.C. as of
December 31, 1995 and 1994 and for the years then ended, have been included
herein and in the registration statement in reliance upon the report of Vitale,
Caturano and Company, P.C., independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Howard S. Markowitz, D.D.S. D/B/A Leominster
Family Dentists as of December 31, 1995 and 1994 and for the years then ended,
have been included herein and in the registration statement in reliance upon the
report of Caras & Schulman, P.C., independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of William H. Grass, D.D.S., P.C. as of
January 31, 1996 and December 31, 1995 and 1994 and for the respective period
and years then ended, have been included herein and in the registration
statement in reliance upon the report of Vitale, Caturano and Company, P.C.,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of Richard S. Harold, D.M.D., P.C. as of
January 31, 1996 and December 31, 1995 and 1994 and for the respective period
and years then ended, have been included herein and in the registration
statement in reliance upon the report of Vitale, Caturano and Company, P.C.,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
50
<PAGE> 52
The financial statements of Family Dentistry as of March 31, 1996 and
December 31, 1995 and 1994 and for the respective period and years then ended,
have been included herein and in the registration statement in reliance upon the
report of Ellie Rozinsky, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Arthur P. Wein, D.D.S., P.C. as of April 27,
1996 and August 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Caras & Shulman, P.C., independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Ramiro Blanco, D.D.S., M.S.C., P.C. as of March
31, 1996 and December 31, 1995 and for the respective 1996 period and from
September 1, 1995 (date of inception) through December 31, 1995, have been
included herein and in the registration statement in reliance upon the report of
Vitale, Caturano and Company, P.C., independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of L. Elizabeth Burns, D.M.D., P.C. as of May 31,
1996 and September 30, 1995 and 1994 and for the respective period and years
then ended, have been included herein and in the registration statement in
reliance upon the report of Moody, Cavanaugh & Company, LLP, independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Steven R. Bader, D.M.D. and Louis S. Shuman,
D.M.D., P.C. as of May 31, 1996 and December 31, 1995 and 1994 and for the
respective period and years then ended, have been included herein and in the
registration statement in reliance upon the report of deBairos & Company, P.C.,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of Paul D. Silver, D.M.D., P.A., as of May 31,
1996 and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Vitale, Caturano and Company, P.C., independent certified
public accountants, appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Cram-Chema, P.A. as of June 30, 1996 and
December 31, 1995 and 1994 and for the respective period and years then ended,
have been included herein and in the registration statement in reliance upon the
report of Moody, Cavanaugh & Company, LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Buchwalter and Papuga, D.D.S., Inc. as of June
30, 1996 and December 31, 1995 and 1994 and for the respective period and years
then ended, have been included herein and in the registration statement in
reliance upon the report of DePaola, Begg & Associates, P.C., independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Edward P. Szlyk, D.D.S. as of July 31, 1996 and
December 31, 1995 and 1994 and for the respective period and years then ended,
have been included herein and in the registration statement in reliance upon the
report of Jon H. Fudeman, independent certified public accountants, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Edward S. Kollar, D.D.S. as of August 31, 1996
and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Jurnak & Jurnak, CPA's, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Mark S. Ferriero, D.D.S. as of July 31, 1996
and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Rucci, Bardaro & Barrett, P.C., independent certified public
51
<PAGE> 53
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Mark E. Ellicson, D.M.D., P.C. as of August 31,
1996 and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Vitale, Caturano and Company, P.C., independent certified
public accountants, appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Drs. Feingold and Rappaport, P.C. as of August
31, 1996 and December 31, 1995 and 1994 and for the respective period and years
then ended, have been included herein and in the registration statement in
reliance upon the report of Beers, Hamerman & Company, P.C., independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Frank Weisner, D.M.D., Orthodontist, P.C. as of
September 30, 1996 and December 31, 1995 and 1994 and for the respective period
and years then ended, have been included herein and in the registration
statement in reliance upon the report of Goff, Carlin & Cagan LLP, independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Belknap Dental Associates, P.C. as of October
31, 1996 and December 31, 1995 and 1994 and for the respective period and years
then ended, have been included herein and in the registration statement in
reliance upon the report of Vitale, Caturano and Company, P.C., independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Ingoldsby & Bergman, P.C. as of September 30,
1996 and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of deBairos & Company, P.C., independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of David I. Peck, D.M.D. as of September 30, 1996
and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Joseph D. Kalicka & Company LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Geoffrey M. Parrillo, D.M.D. as of September
30, 1996 and December 31, 1995 and 1994 and for the respective period and years
then ended, have been included herein and in the registration statement in
reliance upon the report of Vitale, Caturano and Company, P.C., independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The financial statements of Knudson, Knights and Predmore (a New Hampshire
partnership) as of September 30, 1996 and December 31, 1995 and 1994 and for the
respective period and years then ended, have been included herein and in the
registration statement in reliance upon the report of Barrett & Dattilio, P.C.,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
The financial statements of Robert W. Seniff, D.D.S. as of September 30,
1996 and December 31, 1995 and 1994 and for the respective period and years then
ended, have been included herein and in the registration statement in reliance
upon the report of Barrett and Dattilio, P.C., independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
52
<PAGE> 54
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FIRST NEW ENGLAND DENTAL CENTERS, INC.
Independent Auditors' Report....................................................... F-8
Combined Balance Sheets............................................................ F-9
Combined Statements of Operations.................................................. F-10
Combined Statements of Stockholders' Equity........................................ F-11
Combined Statements of Cash Flows.................................................. F-12
Notes to Combined Financial Statements............................................. F-13
ARNOLD WATKIN, D.D.S., P.C.
Independent Auditor's Report....................................................... F-23
Financial Statements:
Balance Sheets.................................................................. F-24
Statements of Operations........................................................ F-25
Statements of Changes in Stockholder's Equity................................... F-26
Statements of Cash Flows........................................................ F-27
Notes to Financial Statements................................................... F-28
HOWARD S. MARKOWITZ, D.D.S.
Independent Auditor's Report....................................................... F-32
Financial Statements:
Balance Sheets.................................................................. F-33
Statements of Income............................................................ F-34
Statements of Changes in Proprietor's Equity.................................... F-35
Statements of Cash Flows........................................................ F-36
Notes to Financial Statements................................................... F-37
WILLIAM H. GRASS, D.D.S., P.C.
Independent Auditor's Report....................................................... F-41
Financial Statements:
Balance Sheets.................................................................. F-42
Statements of Operations........................................................ F-43
Statements of Changes in Stockholder's Equity................................... F-44
Statements of Cash Flows........................................................ F-45
Notes to Financial Statements................................................... F-46
RICHARD S. HAROLD, D.M.D., P.C.
Independent Auditor's Report....................................................... F-50
Financial Statements:
Balance Sheets.................................................................. F-51
Statements of Operations........................................................ F-52
Statements of Changes in Stockholder's Equity (Deficit)......................... F-53
Statements of Cash Flows........................................................ F-54
Notes to Financial Statements................................................... F-55
</TABLE>
F-1
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FAMILY DENTISTRY
Report of Independent Accountant................................................... F-59
Balance Sheets -- December 31, 1995 & 1994......................................... F-60
Statements of Operations for the Years Ended December 31, 1995 & 1994.............. F-61
Statements of Changes in Proprietor's Capital for the Years Ended December 31, 1995
& 1994.......................................................................... F-61
Statements of Cash Flows for the Years Ended December 31, 1995 & 1994.............. F-62
Notes to Financial Statements -- December 31, 1995................................. F-63
FAMILY DENTISTRY
Report of Independent Accountant................................................... F-65
Balance Sheet -- March 31, 1996.................................................... F-66
Statement of Operations for the Three Months Ended March 31, 1996.................. F-67
Statement of Changes in Proprietor's Capital for the Three Months Ended March 31,
1996............................................................................ F-67
Statement of Cash Flows for the Three Months Ended March 31, 1996.................. F-68
Notes to Financial Statements -- March 31, 1996.................................... F-69
ARTHUR P. WEIN, D.D.S., P.C.
Independent Auditor's Report....................................................... F-71
Financial Statements:
Balance Sheets.................................................................. F-72
Statements of Income and Retained Earnings...................................... F-73
Statements of Cash Flows........................................................ F-74
Notes to Financial Statements................................................... F-75
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
Independent Auditor's Report....................................................... F-80
Financial Statements:
Balance Sheets.................................................................. F-81
Statements of Operations........................................................ F-82
Statements of Changes in Stockholder's Equity................................... F-83
Statements of Cash Flows........................................................ F-84
Notes to Financial Statements................................................... F-85
Supplementary Information:
Independent Auditor's Report on Supplementary Information....................... F-91
Schedules of Total Assets of Combined Dental Practices Assuming January 1, 1994
as Date of Acquisition (Unaudited)............................................. F-92
Schedules of Revenues and Expenses of Combined Dental Practices Assuming January
1, 1994, as Date of Acquisition (Unaudited).................................... F-93
L. ELIZABETH BURNS, D.M.D., P.C.
Independent Accountants Report..................................................... F-94
Financial Statements:
Balance Sheets.................................................................. F-95
Statements of Operations and Changes in Stockholders' Equity.................... F-96
Statements of Cash Flows........................................................ F-97
Notes to Financial Statements................................................... F-98
</TABLE>
F-2
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
STEVEN R. BADER, D.M.D., and LOUIS S. SCHUMAN, D.M.D., P.C.
Independent Auditors' Report....................................................... F-100
Balance Sheet as of December 31, 1995 with comparative figures for 1994............ F-101
Statements of Current Loss and Deficit for the year ended December 31, 1995 with
comparative figures for 1994.................................................... F-102
Statement of Cash Flows for the year ended December 31, 1995 with comparative
figures for 1994................................................................ F-103
Notes to Financial Statements as of December 31, 1995.............................. F-104
STEVEN R. BADER, D.M.D., and LOUIS S. SCHUMAN, D.M.D., P.C.
Independent Auditors' Report....................................................... F-109
Balance Sheet as of May 31, 1996................................................... F-110
Statements of Current Earnings and Deficit for the five months ended May 31,
1996............................................................................ F-111
Statement of Cash Flows for the five months ended May 31, 1996..................... F-112
Notes to Financial Statements as of May 31, 1996................................... F-113
PAUL D. SILVER, D.M.D., P.A.
Independent Auditor's Report....................................................... F-117
Financial Statements:
Balance Sheets.................................................................. F-118
Statements of Operations........................................................ F-119
Statements of Changes in Stockholder's Equity................................... F-120
Statements of Cash Flows........................................................ F-121
Notes to Financial Statements................................................... F-122
CRAM-CHEMA, P.A.
Independent Auditor's Report....................................................... F-127
Financial Statements:
Balance Sheets.................................................................. F-128
Statements of Income and Retained Earnings...................................... F-129
Statements of Cash Flows........................................................ F-130
Notes to Financial Statements................................................... F-131
BUCHWALTER and PAPUGA, DDS, INC.
Accountant's Report................................................................ F-134
Balance Sheets..................................................................... F-135
Statements of Operations........................................................... F-136
Statements of Change in Stockholders' Equity....................................... F-137
Statements of Cash Flows........................................................... F-138
Notes to Financial Statements...................................................... F-139
</TABLE>
F-3
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
EDWARD P. SZLYK, D.D.S.
Independent Accountant's Report.................................................... F-141
Financial Statements:
Balance Sheets.................................................................. F-142
Statements of Income and Proprietor's Capital................................... F-143
Statements of Cash Flows........................................................ F-144
Notes to Financial Statements................................................... F-145
EDWARD S. KOLLAR, D.D.S.
Independent Auditor's Report....................................................... F-146
Financial Statements:
Balance Sheets.................................................................. F-147
Statements of Operations and Proprietor's Capital............................... F-148
Statements of Cash Flows........................................................ F-149
Notes to Financial Statements................................................... F-150
MARK S. FERRIERO, D.D.S., PROPRIETOR
Independent Auditor's Report....................................................... F-153
Financial Statements:
Balance Sheets.................................................................. F-154
Statements of Income............................................................ F-155
Statements of Proprietor's Capital.............................................. F-156
Statements of Cash Flows........................................................ F-157
NOTES TO FINANCIAL STATEMENTS........................................................ F-158
MARK S. FERRIERO, D.D.S., PROPRIETOR
Independent Auditor's Report....................................................... F-161
Financial Statements:
Balance Sheets.................................................................. F-162
Statements of Income............................................................ F-163
Statements of Proprietor's Capital.............................................. F-164
Statements of Cash Flows........................................................ F-165
NOTES TO FINANCIAL STATEMENTS........................................................ F-166
MARK E. ELLICSON, D.M.D., P.C.
Independent Auditor's Report....................................................... F-168
Financial Statements:
Balance Sheets.................................................................. F-169
Statements of Operations........................................................ F-170
Statements of Changes in Stockholder's Equity (Deficit)......................... F-171
Statements of Cash Flows........................................................ F-172
Notes to Financial Statements................................................... F-173
</TABLE>
F-4
<PAGE> 58
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DRS. FEINGOLD & RAPPAPORT, P.C.
Independent Auditor's Report....................................................... F-179
Financial Statements:
Balance Sheets.................................................................. F-180
Statements of Income and Retained Earnings...................................... F-181
Statements of Cash Flows........................................................ F-182
Notes to Financial Statements................................................... F-183
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
Independent Auditor's Report....................................................... F-187
Financial Statements:
Balance Sheets.................................................................. F-188
Statements of Income and Accumulated Deficit.................................... F-189
Statements of Cash Flows........................................................ F-190
Notes to Financial Statements................................................... F-191
Supplementary Information:
Independent Auditor's Report on Supplementary Information....................... F-193
Schedules of Operating Expenses................................................. F-194
BELKNAP DENTAL ASSOCIATES, P.C.
Independent Auditor's Report....................................................... F-195
Financial Statements:
Balance Sheets.................................................................. F-196
Statements of Operations........................................................ F-197
Statements of Changes in Stockholder's Equity................................... F-198
Statements of Cash Flows........................................................ F-199
Notes to Financial Statements................................................... F-200
INGOLDSBY and BERGMAN, P.C.
Independent Auditors' Report....................................................... F-205
Balance Sheet as of December 31, 1995 with comparative figures for 1994............ F-206
Statements of Current Earnings and Retained Earnings (Deficit) for the year ended
December 31, 1995 with comparative figures for 1994............................. F-207
Statement of Cash Flows for the year ended December 31, 1995 with comparative
figures for 1994................................................................ F-208
Notes to Financial Statements as of December 31, 1995.............................. F-209
INGOLDSBY and BERGMAN, P.C.
Independent Auditors' Report....................................................... F-212
Balance Sheet as of September 30, 1996............................................. F-213
Statements of Current Loss and (Deficit) for the nine months ended September 30,
1996............................................................................ F-214
Statement of Cash Flows for the nine months ended September 30, 1996............... F-215
Notes to Financial Statements as of September 30, 1996............................. F-216
</TABLE>
F-5
<PAGE> 59
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DAVID I. PECK, D.M.D.
Independent Auditors' Report....................................................... F-219
Balance Sheets as of September 30, 1996 and December 31, 1995 and 1994............. F-220
Statements of Income for the nine months ended September 30, 1996 and the years
ended December 31, 1995 and 1994................................................ F-221
Statements of Changes in Proprietor's Capital for the nine months ended September
30, 1996 and the years ended December 31, 1995 and 1994......................... F-222
Statements of Cash Flows for the nine months ended September 30, 1996 and for the
years ended December 31, 1995 and 1994.......................................... F-223
Notes to Financial Statements...................................................... F-224
GEOFFREY M. PARRILLO, D.M.D.
Independent Auditor's Report....................................................... F-226
Financial Statements:
Balance Sheets.................................................................. F-227
Statements of Operations........................................................ F-228
Statements of Changes in Proprietor's Capital................................... F-229
Statements of Cash Flows........................................................ F-230
Notes to Financial Statements................................................... F-231
KNUDSON, KNIGHTS AND PREDMORE
Independent Auditor's Report....................................................... F-235
Balance Sheets..................................................................... F-236
Statements of Operations and Partners' Equity...................................... F-237
Notes to Financial Statements...................................................... F-239
Supplementary Schedules:
Supporting Schedules of Cost of Fees Collected.................................. F-242
KNUDSON, KNIGHTS AND PREDMORE
Independent Auditor's Report....................................................... F-244
Balance Sheets..................................................................... F-245
Statements of Operations and Partners' Equity...................................... F-246
Notes to Financial Statements...................................................... F-248
Supplementary Schedules:
Supporting Schedules of Cost of Fees Collected.................................. F-251
ROBERT W. SENIFF, DDS
Independent Auditor's Report....................................................... F-253
Balance Sheets as of December 31, 1995 and 1994.................................... F-254
Statements of Operations and Proprietor's Capital for the year ended December 31,
1995 and the six months ended December 31, 1994................................. F-255
Statements of Cash Flows for the year ended December 31, 1995 and the six months
ended December 31, 1994......................................................... F-256
Notes to Financial Statements as of December 31, 1995 and 1994..................... F-257
</TABLE>
F-6
<PAGE> 60
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ROBERT W. SENIFF, DDS
Independent Auditor's Report....................................................... F-262
Balance Sheet as of September 30, 1996............................................. F-263
Statement of Operations and Proprietor's Capital for the nine months ended
September 30, 1996.............................................................. F-264
Statement of Cash Flows for the nine months ended September 30, 1996............... F-265
Notes to Financial Statements as of September 30, 1996............................. F-266
</TABLE>
F-7
<PAGE> 61
INDEPENDENT AUDITORS' REPORT
To Board of Directors and Stockholders of First New England Dental Centers,
Inc.:
We have audited the accompanying combined balance sheets of First New
England Dental Centers, Inc. as of December 31, 1995 and September 30, 1996, and
the related combined statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1995 and the nine months ended September
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of First New England
Dental Centers, Inc. as of December 31, 1995 and September 30, 1996, and the
results of their operations and their cash flows for the year ended
December 31, 1995 and the nine months ended September 30, 1996, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
December 6, 1996
F-8
<PAGE> 62
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 42,558 $ 141,214
Accounts receivable, net of allowance for doubtful accounts
of $445,000 and $785,000, respectively................... 694,439 2,185,688
Other current assets....................................... -- 323,197
---------- -----------
Total current assets.................................. 736,997 2,650,099
---------- -----------
Property and equipment, net................................ 524,713 2,413,957
Management Agreements, net................................. 2,952,892 9,708,272
Note receivable from officer............................... 360,000 219,009
Other assets............................................... 500 5,726
---------- -----------
Total non-current assets.............................. 3,838,105 12,346,964
---------- -----------
Total assets.......................................... $4,575,102 $14,997,063
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft............................................. -- 360,165
Line of credit............................................. -- 3,694,166
Accounts payable........................................... 372,289 1,493,529
Accrued expenses........................................... 863,012 1,703,393
Due on closing............................................. 301,297 412,594
Current portion of long-term debt.......................... 871,673 1,210,791
Current portion of capital lease obligations............... 11,993 162,177
---------- -----------
Total current liabilities............................. 2,420,264 9,036,815
---------- -----------
Noncurrent liabilities:
Long-term debt, less current portion....................... 211,797 763,082
Capital lease obligations, less current portion............ 17,177 386,769
---------- -----------
Total non-current liabilities......................... 228,974 1,149,851
---------- -----------
Total liabilities..................................... 2,649,238 10,186,666
---------- -----------
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000
shares................................................... 28,317 43,517
Additional paid-in capital................................. 4,007,172 9,830,182
Issuable shares............................................ -- 245,693
Accumulated deficit........................................ (2,109,625) (5,308,995)
---------- -----------
Total stockholders' equity............................ 1,925,864 4,810,397
---------- -----------
Total liabilities and stockholders' equity............ $4,575,102 $14,997,063
========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE> 63
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
------------------ -----------------
<S> <C> <C>
Net revenue........................................... $ 2,190,313 $ 9,053,816
Dental Facility expenses:
Dentists' salaries............................... 688,523 3,080,874
Clinical Staff salaries.......................... 383,455 1,079,823
Staff salaries................................... 369,009 1,487,503
Payroll taxes and fringe benefits................ 248,504 576,704
Dental supplies and laboratory fees.............. 554,823 1,272,395
Occupancy expense................................ 365,034 715,889
Advertising and marketing........................ 60,581 104,570
Depreciation and amortization.................... 74,137 427,120
Bad debts........................................ 212,892 820,597
Other............................................ 167,741 545,606
---------- ----------
Total Dental Facility expenses.............. 3,124,699 10,111,081
Operating deficit..................................... (934,386) (1,057,265)
General and administrative expenses................... 1,124,199 1,889,607
---------- ----------
Operating loss........................................ (2,058,585) (2,946,872)
Interest expense, net................................. 51,040 252,498
---------- ----------
Net loss.............................................. $ (2,109,625) $(3,199,370)
========== ==========
Net loss per share.................................... $ (3.56) $ (.84)
========== ==========
Weighted average shares outstanding................... 592,822 3,798,721
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-10
<PAGE> 64
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ISSUABLE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHARES DEFICIT EQUITY
--------- ------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of common
stock................... 150,000 $1,500 $ 712,506 $ -- $ -- $ 714,006
Issuance of
additional common
stock.............. 2,251,851 22,519 1,364,690 -- -- 1,387,209
Stock issued for
acquisitions....... 429,839 4,298 1,929,976 -- -- 1,934,274
Net loss............. -- -- -- -- (2,109,625) (2,109,625)
---------- ------ ---------- -------- ---------- ----------
Balances at December 31,
1995.................... 2,831,690 28,317 4,007,172 -- (2,109,625) 1,925,864
Issuance of common
stock.............. 603,271 6,033 2,999,368 -- -- 3,005,401
Stock issued for
acquisitions....... 458,203 4,582 2,823,642 245,693 -- 3,073,917
Exercise of options
and warrants....... 458,574 4,585 -- -- -- 4,585
Net loss............. -- -- -- -- (3,199,370) (3,199,370)
---------- ------ ---------- -------- ---------- ----------
Balances at September 30,
1996.................... 4,351,738 $43,517 $9,830,182 $245,693 $(5,308,995) $ 4,810,397
========== ========== ========== ======== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-11
<PAGE> 65
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(2,109,625) $(3,199,370)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization................... 74,137 427,120
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable............................. 155,031 (791,551)
Other current assets............................ -- (323,197)
Accounts payable and accrued expenses........... 122,710 233,631
---------- ----------
Net cash used in operating activities...... (1,757,747) (3,653,367)
---------- ----------
Cash flows from investing activities:
Acquisitions, net of cash acquired................... (661,308) (2,389,041)
Capital expenditures................................. (71,751) (944,680)
Other assets......................................... (500) (5,226)
Repayment of note receivable......................... -- 140,991
---------- ----------
Net cash used in investing activities...... (733,559) (3,197,956)
---------- ----------
Cash flows from financing activities:
Cash overdrafts...................................... -- 360,165
Proceeds from issuance of common stock............... 2,101,215 3,005,401
Proceeds from exercise of warrants................... -- 4,585
Net borrowings under line of credit.................. -- 3,694,166
Proceeds from borrowings............................. 470,000 355,662
Repayment of borrowings.............................. (37,351) (470,000)
---------- ----------
Net cash provided by financing
activities............................... 2,533,864 6,949,979
---------- ----------
Increase in cash and cash equivalents..................... 42,558 98,656
---------- ----------
Cash and cash equivalents, at beginning of period......... -- 42,558
---------- ----------
Cash and cash equivalents, at end of period............... $ 42,558 $ 141,214
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest............................................. $ 43,649 $ 108,349
========== ==========
Income taxes......................................... $ -- $ 11,260
========== ==========
Acquisitions:
Assets acquired...................................... $ 4,567,639 $ 8,377,760
Liabilities assumed and issued....................... (1,972,057) (2,875,061)
Common stock issued.................................. (1,934,274) (3,073,917)
---------- ----------
Cash paid............................................ 661,308 2,428,782
Less cash acquired................................... -- 39,741
---------- ----------
Net cash paid for acquisitions............. $ 661,308 $ 2,389,041
========== ==========
Supplemental noncash investing and financing activities:
Property acquired under capital leases............... $ 29,170 $ 374,776
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 66
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(1) DESCRIPTION OF BUSINESS:
First New England Dental Centers, Inc. (the "Company") was incorporated in
1991 as Stanwich, Inc. but was inactive prior to changing its name to First New
England Dental Centers, Inc. in December 1994 and commencing operations in
January 1995. Its sole business is to provide dental practice management
services to multi-specialty dental practices in New England. The Company derives
substantially all of its revenues from Management Agreements with Osorio and
Watkin, D.M.D., P.C. and Edward S. Kollar, D.D.S., P.C. (collectively
hereinafter referred to as the "P.C.s"). Under such contracts, the P.C.s record
the patient service revenue and remit to the Company a fee ("the Management
Fee") consisting of reimbursement of its costs and a percentage of net operating
income. The Company provides the P.C.s with the facilities, Clinical Staff and
administrative personnel, equipment and supplies, administrative, billing and
collection services and capital for expansion purposes. Each Management
Agreement is for a term of 30 years, with automatic renewal for successive five
year terms, and may be terminated by the P.C. only for cause.
Certain of the dentists employed by Osorio and Watkin, D.M.D., P.C. have
the right to elect to terminate their employment agreements with the P.C.,
repurchase their dental practice assets from the Company at fair market value,
and reacquire the site of the Dental Facility in the event that one or more of
the following occurs: (1) the Company or the P.C. employing the dentist commits
a material breach of the dentist's employment agreement, asset purchase
agreement, or lease; (2) First Dental fails to pay when due the promissory notes
issued in connection with the acquisition of the dentist's practice assets; or
(3) the Company or the P.C. fails to meet timely its payroll or other accounts
payable obligations. If a significant number of dentists were to exercise such
rights, the Company could be materially adversely affected.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The financial statements present the financial position and results of
operation on a combined basis. The Company through its Management Agreements is
responsible for the operating performance of the combined entity except for the
practice of medicine. The revenue and related receivables are recorded by the
P.C.s. Billing and collection of the receivables are the responsibility of the
Company. For purposes of display, the combined results of operations as recorded
on the P.C.s and First New England Dental Center Inc.'s books are shown below.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -----------------
<S> <C> <C>
P.C. revenue.................................................. $ 2,190,313 $ 9,053,816
Dentist salaries and benefits................................. 810,057 3,624,648
----------- -----------
Net dental facility revenue................................... 1,380,256 5,429,168
Management expenses of First New England Dental Centers,
Inc. ....................................................... 3,489,881 8,628,538
----------- -----------
Combined net loss............................................. $(2,109,625) $(3,199,370)
=========== ===========
</TABLE>
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
F-13
<PAGE> 67
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and cash equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents. The carrying amounts for cash and cash equivalents
approximates fair value.
Accounts Receivable and Revenue
Accounts receivable and revenue are recognized at the time dental services
are provided. Such amounts are reported at the estimated amounts due from
patients, third-party payors and others for services rendered, net of
contractual adjustments, which represent the difference between gross billable
charges and the portion of those charges allowable by third-party payors.
Financial Instruments and Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash and trade receivables. The Company places its
temporary excess cash investments in short-term money market instruments through
financial institutions. At times, such investments may be in excess of the FDIC
insurance limit. The Company's sales are primarily to customers in the New
England region, and as such, the Company is directly affected by the well-being
of that geographic region.
Fair Value of Financial Instruments
At December 31, 1995 and September 30, 1996, the carrying value of
financial instruments such as cash, cash equivalents, accounts receivable,
accounts payable and the current portion of long-term debt approximated their
fair values, based on the short-term maturities of these instruments. At
December 31, 1995 and September 30, 1996, the fair value of long-term debt,
which approximated carrying value, was determined based on expected future cash
flows, discounted at market interest rates.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are recorded using the straight-line method over the estimated useful lives of
the related assets which are 3-7 years.
Property and equipment under capital leases are stated at the present value
of minimum lease payments at the inception of the lease. Equipment held under
capital leases and leasehold improvements are amortized over the shorter of the
lease term or estimated useful life of the asset. Amortization of assets subject
to capital leases is included in depreciation expense.
Management Agreements
Management Agreements are amortized on a straight-line basis over the
period of expected benefit of 30 years. Amortization expense for the periods
ending December 31, 1995 and September 30, 1996 was $38,300 and $149,156,
respectively. Accumulated amortization was $38,300 and $187,456 as of December
31, 1995 and September 30, 1996, respectively.
The Company reviews for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable. An impairment charge is
recorded when the estimated undiscounted cash flows from such agreements is
insufficient to recover the cost of the long-lived asset.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes, under which deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing asset and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets
F-14
<PAGE> 68
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and liabilities of a change in the tax rates is recognized in income in the
period that includes the enactment date.
Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Advertising Costs
Advertising costs are expensed when incurred.
Earnings per Share
Earnings per share is computed on the basis of the weighted average number
of shares outstanding plus common stock equivalents related to stock options and
warrants, if such common stock equivalents cause dilution in earning per share
in excess of 3% and if their inclusion is not antidilutive.
(3) ACQUISITIONS
During the year ended December 31, 1995, and the nine months ended
September 30, 1996, the Company acquired 24 Dental Facilities. These
acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the assets and liabilities of the acquired Dental Facilities
were recorded at their estimated fair values at the dates of acquisition. Costs
of acquisitions in excess of the identified fair value of assets and liabilities
have been allocated to the Management Agreements. The results of operations of
the Dental Facilities acquired have been included in the Company's combined
financial statements from the dates of the acquisitions. Summary information
concerning the acquisitions is as follows:
<TABLE>
<CAPTION>
DATE SELLER LOCATION
- ---------
<S> <C> <C>
1/1/95 Dr. Anusavice Danvers, MA Framingham, MA Wellesley, MA
Weymouth, MA Worcester, MA
5/19/95 Dr. Chalmers Newbury Street, Boston, MA
6/19/95 Dr. Chalmers Watertown, MA
12/29/95 Drs. Watkin and Osorio Federal Street, Boston, MA
12/29/95 Dr. Markowitz Leominster, MA
1/31/96 Dr. Grass Hadley, MA
1/31/96 Dr. Harold Malden, MA
4/13/96 Dr. Schipini Marshfield, MA
4/27/96 Dr. Wein Fitchburg, MA
4/30/96 Dr. Blanco Billerica, MA
6/1/96 Dr. Elizabeth Burns Lowell, MA
6/1/96 Drs. Bader and Shuman Peabody, MA
6/1/96 Dr. Silver Raymond, NH
7/1/96 Drs. Chema and Cram Chema Exeter, NH
7/1/96 Drs. Buchalter and Papuga Hingham, MA
8/1/96 Dr. Szlyk Dudley, MA
8/1/96 Dr. Ferriero Dennisport/Hyannis, MA
9/1/96 Dr. Kollar Morrisville, VT
9/1/96 Dr. Ellicson Dalton
9/1/96 Drs. Feingold and Rappaport Orange, CT
</TABLE>
F-15
<PAGE> 69
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate purchase price paid in connection with the acquisitions made
in 1995 consisted of $661,308 in cash, 429,839 shares of Common Stock valued at
$1,934,274, $680,000 in promissory notes and $1,292,057 of assumed liabilities.
The difference between the consideration paid and the net fair value of
assets and liabilities acquired of $2,991,192 has been allocated to the value of
the Management Agreements.
The aggregate purchase price paid in connection with the acquisitions made
in 1996 consisted of $2,389,041 in net cash, 458,203 shares of Common Stock
valued at $3,073,917, $1,524,516 in promissory notes and $1,350,545 of assumed
liabilities.
The difference between the consideration paid and the net fair value of
assets and liabilities acquired of $6,659,070 has been allocated to the value of
the Management Agreements. Contingent consideration issued after September 30,
1996 consisted of 5,951 shares of Common Stock with a value of $38,682.
The following summary, prepared on a pro forma basis, combines the results
of operations as if the acquisitions had been consummated as of January 1, 1995,
after including the impact of certain adjustments such as depreciation and
amortization on assets acquired and interest expense on acquisition financing.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues.......................................... $ 15,440,694 $ 13,974,986
Net loss.......................................... (2,544,692) (3,331,538)
Net loss per share................................ (1.72) (.83)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of the
beginning of the periods presented. In addition, they are not intended to be a
projection of future results of operations and do not reflect any of the
synergies that might be achieved from combined operations.
Subsequent Acquisitions (Unaudited)
Subsequent to September 30, 1996, the Company acquired the following Dental
Facilities for $2,745,165 in cash, 77,575 shares of Common Stock with a value of
$643,000 and $1,679,444 in promissory notes.
The difference between the consideration paid and the net fair value of
assets and liabilities acquired of $3,677,592 has been allocated to the value of
the Management Agreements.
<TABLE>
<CAPTION>
DATE SELLER LOCATION
- -------- --------------------------- --------------------------------------
<S> <C> <C>
10/1/96 Dr. Weisner Athol, MA Gardner, MA Fitchburg, MA
10/1/96 Dr. Kizy Brookline, MA
10/1/96 Dr. Chaikin Dover, NH
10/1/96 Drs. Bergman and Ingoldsby Braintree, MA
10/1/96 Dr. Peck Springfield, MA
10/1/96 Dr. Dubin Hartford, CT
10/1/96 Dr. Parrillo Cranston, RI
10/1/96 Dr. Maher South Weymouth, MA
10/1/96 Dr. Knudson, Knight,
Predmore and Seniff Lebanon, NH
</TABLE>
F-16
<PAGE> 70
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary, prepared on a pro forma basis, combines the results
of operations as if the acquisitions had been consummated as of January 1, 1995,
after including the impact of certain adjustments such as depreciation on assets
acquired and interest expense on acquisition financing.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------------
(UNAUDITED)
<S> <C> <C>
Revenues................................ $22,486,775 $19,412,194
Net loss................................ (2,649,321) (3,578,983)
Net loss per share...................... (1.68) (.88)
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of the
beginning of the periods presented. In addition, they are not intended to be a
projection of future results of operations and do not reflect any of the
synergies that might be achieved from combined operations.
(4) SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Property and equipment:
Equipment.................................. $351,381 $1,659,704
Leasehold improvements..................... 135,000 360,000
Furniture and fixtures..................... 45,000 120,000
Equipment under capital leases............. 29,170 589,528
-------- ----------
Total property and equipment.......... 560,551 2,727,232
Less accumulated depreciation and
amortization............................. 35,838 313,275
-------- ----------
Property and equipment, net........... $524,713 $2,413,957
======== ==========
Accrued expenses:
Compensation and benefits.................. $211,280 $ 925,981
Deferred rent.............................. -- 132,988
Professional services...................... 96,000 145,002
Acquisition related liabilities............ 488,732 411,440
Other...................................... 67,000 87,982
-------- ----------
$863,012 $1,703,393
======== ==========
</TABLE>
F-17
<PAGE> 71
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Note payable to Eastern Bank, floating rate
equal to the base rate plus one percent,
maturity date of 6/14/98. Loan was paid off in
June 1996..................................... $ 470,000 $ --
Note payable to Matsco Financial Corporation,
effective rate of 16.35%, with maturity date
of
11/30/00...................................... -- 236,932
Notes payable to sellers in connection with
acquisitions at rates ranging from 7% to 10%
with various maturities through 2002.......... 613,470 1,736,941
---------- ----------
1,083,470 1,973,873
Less current portion............................ 871,673 1,210,791
---------- ----------
Long-term portion............................... $ 211,797 $ 763,082
========== ==========
</TABLE>
The aggregate maturities of long-term debt as of September 30, 1996 for
each of the next five years are as follows:
<TABLE>
<S> <C>
1997......................................................... $1,210,791
1998......................................................... 307,303
1999......................................................... 257,286
2000......................................................... 105,885
2001......................................................... 59,946
Thereafter................................................... 32,662
----------
$1,973,873
==========
</TABLE>
At September 30, 1996, the Company has a $5,000,000 revolving line of
credit from Fleet National Bank which bears interest at the bank's prime rate
plus 2.5% (10.75% at September 30, 1996) and matures on June 14, 1997. As of
September 30, 1996, the Company's balance on this line of credit is $3,694,166.
The loan is collateralized by assets of the Company. The loan is personally
guaranteed up to $3,000,000 by two shareholders of the Company.
In the event the Revolving Line of Credit is terminated or canceled by
either the Company or the Bank, or the Company refinances with another lender,
or an initial public offering of stock is consummated, the Company shall pay to
the Bank a fee equal to two and one-half (2.5%) percent of the aggregate amount
available to the Company with a minimum payment of $75,000 and a maximum payment
of $125,000.
F-18
<PAGE> 72
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 1995 and September 30, 1996,
respectively, are as follows:
<TABLE>
<CAPTION>
1995 1996
--------- -----------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards................... $ 379,336 $ 1,194,852
Accrued expenses and other liabilities......... 282,924 324,669
Management Agreements and other intangibles.... 65,982 253,073
Acquisition related differences................ 144,157 219,847
Allowance for doubtful accounts................ -- 200,237
--------- -----------
872,399 2,192,678
Valuation allowance............................ (775,362) (2,065,861)
--------- -----------
Net deferred tax asset......................... 97,037 126,817
--------- -----------
Deferred tax liabilities:
Acquisition related differences................ 95,280 111,608
Property and equipment......................... 1,757 15,209
--------- -----------
97,037 126,817
--------- -----------
Net deferred tax asset......................... $ -- $ --
========= ===========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1995 was
$775,362. The net change in the total valuation allowance for the nine-month
period ended September 30, 1996 was $1,290,499, principally attributable to the
increase in net operating losses. Accordingly, no provision for federal and
state income taxes has been recorded.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1995 and September 30, 1996 will be
allocated as follows:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Income tax benefits that would be reported in the
combined statement of earnings..................... $660,503 $1,704,540
Management Agreements and other intangibles.......... 114,859 361,321
-------- ----------
$775,362 $2,065,861
======== ==========
</TABLE>
At December 31, 1995 and September 30, 1996 the net deferred tax asset consists
of the following:
<TABLE>
<CAPTION>
1995 1996
---------------------- ------------------------
FEDERAL STATE FEDERAL STATE
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Deferred income tax asset - current...... $ 337,317 $ 93,270 $ 627,411 $ 174,025
Deferred income tax asset - noncurrent... 434,607 7,205 1,356,768 34,474
Valuation allowance...................... (688,874) (86,488) (1,875,641) (190,220)
Deferred income tax liability -
current................................ (44,117) (10,878) (57,676) (13,485)
Deferred income tax liability -
noncurrent............................. (38,933) (3,109) (50,862) (4,794)
--------- -------- ----------- ---------
Net deferred income tax asset.......... $ -- $ -- $ -- $ --
========= ======== =========== =========
</TABLE>
At September 30, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $3,514,272 which are available to
offset future Federal taxable income, if any.
F-19
<PAGE> 73
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles the Federal statutory income tax rate and
the Company's effective income tax rate for the year ended December 31, 1995 and
the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Income taxes at Federal statutory rate................... 34.0% 34.0%
State taxes, net of Federal benefit...................... 4.5 2.0
Management Agreement and other permanent differences..... (0.1) (1.2)
Acquisition-related expenses............................. (1.6) 5.5
Valuation reserve........................................ (36.8) (40.3)
----- -----
Effective income tax rate.............................. 0.0% 0.0%
===== =====
</TABLE>
In connection with the mergers and acquisitions, certain operating entities
changed from the cash to the accrual method of accounting for tax purposes. The
resulting difference in taxable income is being recognized for tax purposes in
the year of acquisition.
(7) COMMITMENTS AND CONTINGENCIES
Lease Commitments
Future minimum lease payments under capital leases and noncancelable
operating leases with remaining terms of one or more years consist of the
following at September 30, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ----------
<S> <C> <C>
1997................................................ $270,338 $ 914,626
1998................................................ 217,860 919,878
1999................................................ 148,606 878,174
2000................................................ 71,176 841,692
2001................................................ 44,903 724,791
Thereafter.......................................... 7,021 1,667,799
-------- ----------
Total minimum lease obligation...................... 759,904 $5,946,273
==========
Less amount representing interest................... 210,959
--------
Present value of minimum lease obligation........... 548,946
Less current portion................................ 162,177
--------
Long-term capital lease obligation.................. $386,769
========
</TABLE>
(8) STOCKHOLDER'S EQUITY
(a) Stock Split
On November 24, 1995, the Company declared a 199 for 1 stock dividend,
which has been retroactively reflected within the financial statements.
(b) Sales of Common Stock
Effective January 1, 1995, the Company issued 150,000 shares of Common
Stock for total proceeds of $714,006. On November 22, 1995 as part of a rights
offering the Company sold 2,000,000 shares of stock for net proceeds of $253,879
and in December 1995 the Company sold 251,851 shares for net proceeds of
$1,133,330.
F-20
<PAGE> 74
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
During the nine months ending September 30, 1996, the Company sold 603,271
shares of Common Stock at prices of $4.50 and $6.50 per share for a total of
$3,005,401. Subsequent to September 30, 1996, the Company sold 1,370,460 shares
at prices ranging from $6.50 to $8.50 for total net proceeds of $11,249,517.
(c) Stock Warrants
Effective May 29, 1995, the Company issued warrants to certain investors to
purchase 329,999 shares of Common Stock for $.01 per share. The warrants were
issued in connection with certain loan guarantees and financial accommodations
given the Company. These warrants were exercised in July 1996. In January, March
and May 1996, the Company issued warrants to purchase 2,700, 1,075 and 25,000
shares of Common Stock for $.01 per share, $.01 per share and $6.50 per share,
respectively. The warrants were issued for services rendered in connection with
the raising of equity. The January and March 1996 warrants were exercised in
July 1996. The May 1996 warrants are exercisable for a period of ten years.
Subsequent to September 1996, the Company issued warrants for services
provided to the Company to purchase 100,000 shares of Common Stock at $8.50 per
share and warrants for services in connection with equity placement to purchase
95,471 shares of Common Stock at $9.35 per share. The warrants are exercisable
for a period of ten years.
(d) Stock Options
Executives and other key employees have been granted options to purchase
Common Stock of the Company. The Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation". Accordingly, no compensation
cost has been recognized for stock options issued. Had compensation cost been
determined based on the fair value at the grant date for stock options issued
during 1995 and 1996 in accordance with the provisions of SFAS No. 123, the
Company's net loss and loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
1995 1996
----------- -----------------
<S> <C> <C>
Net loss -- as reported...................... $(2,109,625) $(3,199,370)
Net loss -- pro forma........................ $(2,118,054) $(3,366,965)
Loss per share -- as reported................ $ (3.56) $ (.84)
Loss per share -- pro forma.................. $ (3.57) $ (.89)
</TABLE>
The fair value of stock options granted during 1995 and 1996 were estimated
on the date of grant using the minimum value method with the following
assumptions: risk-free interest rate of 7.0 percent, expected life of 5 years,
and no dividends.
A summary of stock option activity for the year ended December 31, 1995 and
the nine-month period ended September 30, 1996 is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ----------------------------------------------- ------- -------------- -------- ---------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period............. -- 178,500 $ .33
Granted........................................ 178,500 $.33 188,750 6.52
Exercised...................................... -- (124,800) .01
------- --------
Outstanding at end of period................... 178,500 $.33 242,450 $5.31
======= ========
Options exercisable at end of period........... 175,167 158,283
Weighted-average fair value of options granted
during the year.............................. $ .10 $ 1.87
</TABLE>
F-21
<PAGE> 75
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at September 30, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ---------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
PRICES 9/30/96 CONTRACTUAL LIFE EXERCISE PRICE AT 9/30/96 EXERCISE PRICE
- -------------- --------------- ----------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$.30 43,700 3.8 years $ .30 43,700 $ .30
4.50 to 6.50 140,000 4.6 5.79 88,333 5.50
7.00 to 8.00 58,750 4.8 7.91 26,250 8.00
------- -------
242,450 158,283
======= =======
</TABLE>
Subsequent to September 30, 1996, the Company granted options of 618,990
shares of Common Stock at prices ranging from $6.50 to $10.00 per share.
(9) SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to September 30, 1996, the Company issued 1,370,460 shares of
Common Stock for $11,249,517. In addition, as discussed in Note 3, the Company
acquired 11 additional Dental Facilities. The pro forma effects of these
subsequent events on the balance sheet at September 30, 1996 is summarized
below:
<TABLE>
<CAPTION>
SUBSEQUENT SUBSEQUENT
HISTORICAL FINANCING ACQUISITIONS PRO FORMA
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents........... $ 141,214 $11,249,517 $(2,745,165) $ 8,645,566
Accounts receivable................. 2,185,688 641,666 2,827,354
Other current assets................ 323,197 323,197
Property and equipment, net......... 2,413,957 770,000 3,183,957
Management Agreements, net.......... 9,708,272 3,719,674 13,427,946
Other............................... 224,735 224,735
----------- -----------
$14,997,063 $28,632,755
=========== ===========
Line of credit and overdraft........ $ 4,054,331 $ 4,054,331
Accounts payable and accrued
expenses.......................... 3,196,922 25,049 3,221,971
Due on closing...................... 412,594 412,594
Current portion of long-term debt
and capital lease obligations..... 1,372,968 970,305 2,343,273
Long term liabilities............... 1,149,851 709,139 1,858,990
Stockholders' equity................ 4,810,397 11,249,517 681,682 16,741,596
----------- -----------
$14,997,063 $28,632,755
=========== ===========
</TABLE>
F-22
<PAGE> 76
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Arnold Watkin, D.D.S.,
P.C. (an S Corporation) as of December 31, 1995 and 1994, and the related
statements of operations, changes in stockholder's equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arnold Watkin, D.D.S., P.C.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-23
<PAGE> 77
ARNOLD WATKIN, D.D.S., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 78,034 $109,185
Patient receivables, net of allowance for uncollectible
accounts of $67,000 in 1995 and 1994, respectively................ 362,469 462,925
Other current assets................................................. 32,851 22,710
-------- --------
Total current assets......................................... 473,354 594,820
-------- --------
Property and equipment, net............................................ 117,993 144,046
-------- --------
Other assets........................................................... 18,544 19,119
-------- --------
$609,891 $757,985
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit....................................................... $ -- $ 19,649
Current portion of capital lease obligations......................... 9,592 8,286
Note payable - related party......................................... 23,642 23,642
Accounts payable and accrued expenses................................ 95,309 98,808
Deferred revenue..................................................... 29,645 36,781
-------- --------
Total current liabilities.................................... 158,188 187,166
-------- --------
Capital lease obligations, net of current portion...................... 5,436 14,613
-------- --------
Stockholder's equity:
Common stock, no par value, 15,000 shares authorized,
1,000 shares issued and outstanding............................... 15,000 15,000
Additional paid-in capital........................................... 349,392 329,743
Retained earnings.................................................... 81,875 211,463
-------- --------
Total stockholder's equity................................... 446,267 556,206
-------- --------
$609,891 $757,985
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 78
ARNOLD WATKIN, D.D.S., P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net patient revenues................................................ $1,938,165 $1,932,897
---------- ----------
Expenses:
Dentists' salaries................................................ 457,653 336,707
Clinical salaries................................................. 541,685 597,346
Dental supplies and laboratory fees............................... 212,317 214,366
Rental and lease expense.......................................... 86,715 81,700
Advertising and marketing......................................... 17,782 17,130
Depreciation and amortization..................................... 41,633 55,422
Bad debt expense.................................................. 85,149 75,037
Other operating expenses.......................................... 116,385 114,371
Management fee-related party...................................... 127,088 --
General and administrative........................................ 289,542 249,762
---------- ----------
Total expenses............................................ 1,975,949 1,741,841
---------- ----------
Operating income (loss)................................... (37,784) 191,056
---------- ----------
Other income (expense):
Interest income................................................... 2,032 796
Other income...................................................... 2,745 2,000
Interest expense.................................................. (4,870) (6,331)
---------- ----------
(93) (3,535)
---------- ----------
Net income (loss)................................................... $ (37,877) $ 187,521
========== ==========
If all of the Company's operations had been subject to income taxes,
net income (loss) would have been as follows (unaudited):
Historical income (loss) before income taxes...................... $ (37,877) $ 187,521
Provision (benefit) for income taxes.............................. (15,300) 75,500
---------- ----------
Proforma net income (loss)........................................ $ (22,577) $ 112,021
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 79
ARNOLD WATKIN, D.D.S., P.C,
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.............. 1,000 $15,000 $ 329,743 $ 185,209 $ 529,952
Net income............................ -- -- -- 187,521 187,521
Distributions to stockholder.......... -- -- -- (161,267) (161,267)
----- ------- -------- -------- --------
Balance at December 31, 1994............ 1,000 15,000 329,743 211,463 556,206
Contributions from stockholder........ -- -- 19,649 -- 19,649
Net loss.............................. -- -- -- (37,877) (37,877)
Distributions to stockholder.......... -- -- -- (91,711) (91,711)
----- ------- -------- -------- --------
Balance at December 31, 1995............ 1,000 $15,000 $ 349,392 $ 81,875 $ 446,267
===== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 80
ARNOLD WATKIN, D.D.S., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1995 1994
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................... $(37,877) $ 187,521
Adjustments:
Provision for bad debts.......................................... 85,149 75,037
Depreciation and amortization.................................... 41,633 55,422
Changes in operating assets and liabilities:
Patient receivables............................................ 15,307 (44,806)
Other current assets........................................... (10,141) 4,632
Accounts payable and accrued liabilities....................... (3,499) (22,430)
Deferred revenue............................................... (7,136) 11,888
-------- ---------
Net cash provided by operating activities................... 83,436 267,264
-------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment............................... (15,005) (11,571)
-------- ---------
Cash flows from financing activities:
Payments on line of credit.......................................... -- (417)
Payments on capital lease obligations............................... (7,871) (3,916)
Distributions to stockholder........................................ (91,711) (161,267)
-------- ---------
Net cash used in financing activities....................... (99,582) (165,600)
-------- ---------
Increase (decrease) in cash and cash equivalents...................... (31,151) 90,093
Cash and cash equivalents, beginning of year.......................... 109,185 19,092
-------- ---------
Cash and cash equivalents, end of year................................ $ 78,034 $ 109,185
======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 81
ARNOLD WATKIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
The Company is a provider of dental services and products located in
Boston, Massachusetts.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental revenue is recognized as the services are performed and
billed. Amounts billed in advance of completing the procedures are deferred and
recorded as a liability until the services have been performed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
fifteen years. Fully depreciated assets are retained in property and equipment
until they are removed from service. Fully depreciated assets as of December 31,
1995 and 1994 were $210,101 and $2,615, respectively. Maintenance and repairs
are charged to expenses whereas renewals and major replacements are capitalized.
Gains and losses from dispositions are included in operations.
Income Taxes
The Company is an S corporation and, accordingly, all federal and state tax
liabilities are the responsibility of the stockholder.
Income taxes, including the proforma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
F-28
<PAGE> 82
ARNOLD WATKIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Property and equipment:
Equipment....................................................... $310,545 $295,540
Equipment under capital leases.................................. 36,921 36,921
Leasehold improvements.......................................... 125,338 125,338
-------- --------
Total property and equipment............................ 472,804 457,799
Less - accumulated depreciation and amortization................ 354,811 313,753
-------- --------
Net property and equipment.............................. $117,993 $144,046
======== ========
</TABLE>
For the years ended December 31, 1995 and 1994, depreciation and
amortization relating to property and equipment was $41,058 and $54,847,
respectively.
The amounts of accumulated amortization for equipment under capital leases
as of December 31, 1995 and 1994 were $36,921 and $35,424, respectively.
<TABLE>
<S> <C> <C>
Accounts payable and accrued expenses:
Trade............................................................. $49,565 $60,855
Accrued expenses.................................................. 45,744 37,953
------- -------
$95,309 $98,808
======= =======
</TABLE>
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of year.................................... $ 67,000 $ 34,758
Provision for bad debts......................................... 85,149 75,037
Charge offs..................................................... (85,149) (42,795)
-------- --------
Balance at end of year.......................................... $ 67,000 $ 67,000
======== ========
</TABLE>
F-29
<PAGE> 83
ARNOLD WATKIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. LINE OF CREDIT
Line of credit consisted of a revolving line of credit with a bank, payable
on demand, secured by substantially all corporate assets with interest at 1%
above the bank's prime rate. During 1995, the stockholder assumed this liability
personally and the outstanding principal balance was recorded as additional
paid-in capital.
5. NOTE PAYABLE -- RELATED PARTY
Note payable -- related party consisted of a demand note payable to a
related party which bears interest at the rate of 10% per annum.
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases a portion of its property and equipment under a capital
lease and its office facility under operating leases. Future minimum lease
obligations under capital leases and noncancelable operating leases with
remaining terms of one or more years consisted of the following at December 31,
1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- --------
<S> <C> <C>
1996............................................................ $10,667 $ 87,000
1997............................................................ 5,981 87,000
1998............................................................ -- 87,000
1999............................................................ -- 87,000
2000............................................................ -- 85,000
Thereafter...................................................... -- 245,500
------- --------
Total minimum lease obligations................................. 16,648 $678,500
========
-------
Less-amount representing interest.......................... 1,620
-------
Present value of minimum lease obligations...................... 15,028
Less-current portion....................................... 9,592
-------
Long-term capital lease obligations............................. $ 5,436
=======
</TABLE>
The Company's operating leases have expiration dates ranging from five to
nine years. In addition the Company has a voluntary five year extension period
for the lease of its office facility. Rent expense for the years ended December
31, 1995 and 1994 was $86,715 and $81,700, respectively.
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
F-30
<PAGE> 84
ARNOLD WATKIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. INCOME TAXES
The differences between the federal tax rate and the Company's effective tax
rate at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Tax at U.S. statutory rate (35%).............................. $(12,900) $ 63,800
State income taxes, net of federal tax........................ (2,400) 11,700
Income not subject to corporate level federal tax............. 15,300 (75,500)
------- -------
$ -- $ --
======= =======
</TABLE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
----------------------
1995 1994
------ -------
<S> <C> <C>
Cash paid during the year for interest........................... $4,870 $ 6,331
====== =======
Cash paid during the year for income taxes....................... $ -- $ --
====== =======
Noncash transactions:
Capital lease obligations...................................... $ -- $ 8,790
====== =======
Line of credit assumed by stockholder.......................... $ -- $19,649
====== =======
</TABLE>
9. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit, in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, line of
credit, note payable -- related party and accounts payable and accrued expenses
approximate fair values due to the short-term maturities of these instruments.
The carrying amounts of capital lease obligations approximate fair value.
10. SUBSEQUENT EVENT
The Company was acquired by First New England Dental Centers, Inc.
effective January 1, 1996. The accompanying financial statements are presented
on a going concern basis and not on a liquidation basis.
11. RELATED PARTY TRANSACTION
The Company incurred a management fee to the stockholder of the Company for
administrative and other management functions. The management fee for the years
ended December 31, 1995 and 1994 was $127,088 and $0, respectively.
F-31
<PAGE> 85
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Howard S. Markowitz,
D.D.S. D/B/A Leominster Family Dentists (a sole proprietorship) as of December
31, 1994 and 1995, and the related statements of income, changes in proprietor's
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Howard S. Markowitz, D.D.S.
D/B/A Leominster Family Dentists (a sole proprietorship) as of December 31, 1994
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
CARAS & SHULMAN, PC
Certified Public Accountants
Burlington, Massachusetts
November 15, 1996
F-32
<PAGE> 86
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash.......................................................... $ 1,553 $ --
Patient receivables, net of allowance for uncollectible
accounts of $47,000 and $45,000 for 1994 and 1995,
respectively................................................. 190,126 178,139
Other current assets.......................................... -- 200
-------- --------
Total current assets..................................... 191,679 178,339
Property and equipment, net........................................ 249,934 219,926
Other assets....................................................... 7,259 7,259
-------- --------
Total Assets............................................. $448,872 $405,524
======== ========
LIABILITIES AND PROPRIETOR'S EQUITY
Current liabilities
Current portion of long-term debt............................. $ 96,700 $ 2,234
Current portion of capital lease obligation................... 18,135 18,407
Accounts payable and accrued expenses......................... 37,010 35,646
-------- --------
Total current liabilities................................ 151,845 56,287
-------- --------
Noncurrent liabilities
Long-term debt, net of current position....................... 2,234 --
Capital lease obligations, net of current position............ 86,773 68,664
-------- --------
Total noncurrent liabilities............................. 89,007 68,664
-------- --------
Total liabilities........................................ 240,852 124,951
-------- --------
Proprietor's Equity................................................ 208,020 280,573
-------- --------
Total Liabilities and Proprietor's Equity.......................... $448,872 $405,524
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-33
<PAGE> 87
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Net patient revenues............................................... $1,074,639 $937,813
---------- --------
Expenses:
Dentists salaries............................................. 124,719 86,543
Clinical salaries............................................. 201,419 165,086
Dental supplies and laboratory fees........................... 173,995 164,131
Rental lease expense.......................................... 42,500 29,800
Advertising and marketing..................................... 14,488 10,557
Depreciation and amortization................................. 39,520 24,148
Other operating expenses...................................... 19,761 16,870
General and administrative.................................... 255,508 268,924
---------- --------
Total expenses........................................... 871,910 766,059
---------- --------
Operating income......................................... 202,729 171,754
Interest expense................................................... 11,157 3,526
---------- --------
Net Income......................................................... $ 191,572 $168,228
========= ========
</TABLE>
If all of the Company's operations had been subject to income taxes, net
income would have been as follows (unaudited):
<TABLE>
<S> <C> <C>
Historical income before taxes..................................... $ 191,572 $168,228
Provision for taxes................................................ 76,000 67,000
---------- --------
Pro forma net income............................................... $ 115,572 $101,228
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-34
<PAGE> 88
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
STATEMENTS OF CHANGES IN PROPRIETOR'S EQUITY
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
PROPRIETOR'S EQUITY
-------------------
<S> <C>
Balance at January 1, 1994.................................................... $ 204,640
Net Income December 31, 1994............................................. 168,228
Distributions to proprietor, net......................................... (164,848)
---------
Balance at December 31, 1994.................................................. 208,020
Net Income December 31, 1995............................................. 191,572
Distributions to proprietor, net......................................... (119,019)
---------
Balance at December 31, 1995.................................................. $ 280,573
=========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-35
<PAGE> 89
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash provided by (used for) operating activities
Net income........................................................ $ 191,572 $ 168,228
Adjustments
Provision for bad debts...................................... (2,000) 47,000
Depreciation and amortization................................ 39,522 26,377
Changes in operating assets and liabilities
Patient receivables.......................................... 13,987 (36,247)
Other current assets......................................... (200) --
Other assets................................................. -- (2,258)
Accounts payable and accrued liabilities..................... (1,364) 12,027
--------- ---------
Cash provided by operating activities.................................. 241,517 215,127
--------- ---------
Cash provided by (used for)investing activities
Capital expenditures.............................................. (9,512) (126,727)
--------- ---------
Cash provided by (used for) financing activities
Proceeds from debt................................................ -- 85,000
Repayment of debt................................................. (96,700) (6,670)
Repayment of capital leases....................................... (17,839) (1,448)
Distribution to proprietor........................................ (236,043) (348,928)
Contributions from proprietor..................................... 117,024 184,080
--------- ---------
Cash used for financing activities..................................... (233,558) (87,966)
--------- ---------
Increase/(decrease) in cash............................................ (1,553) 434
Cash, beginning of period.............................................. 1,553 1,119
--------- ---------
Cash, end of year...................................................... $ -- $ 1,553
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-36
<PAGE> 90
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS
1. COMPANY ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Company Organization
Howard S. Markowitz, D.D.S. D/B/A Leominster Family Dentists (a sole
proprietorship) (the Company) is a provider of dental services and products that
owns and operates a dental center in Leominster, Massachusetts area.
The statements reflect the operations of Howard Markowitz, D.D.S. D/B/A
Leominster Family Dentists (a sole proprietorship).
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reported period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue recognition
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Orthodontic revenue is recognized in accordance with
the proportional performance method. Under this method, revenue is recognized as
cost of services are incurred under the terms of contractual agreements with
each patient. Approximately 25% of services are performed in the first month
with remaining services recognized ratably over the remainder of the contract.
Billings under each contract, which average approximately 28 months, are made
equally throughout the term of the contract, with final payment at the
completion of the treatment.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by physicians. An allowance for doubtful accounts is recorded by the company
based on historical experience.
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
twenty years. Fully depreciated assets are retained in property and equipment
until they are removed from service. Fully depreciated assets as of December 31,
1994 and 1995, were approximately $132,841 and $135,164, respectively.
Maintenance and repairs are charged to expenses, whereas renewals and major
replacements are capitalized. Gains and losses from dispositions are included in
operations.
F-37
<PAGE> 91
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Debt issuance costs
The costs related to the issuance of debt are capitalized and amortized
using the effective interest method over the lives of the related debt.
Income taxes
The Company, as an entity, is not subject to income taxes. The proprietor
prepares his income tax returns on the cash basis. Under this basis, revenues
are recognized when collected rather than when earned, and expenses are
generally recognized when paid rather than incurred. The proprietor's share of
income or loss for tax purposes is included on his personal income tax returns.
Income taxes, including pro forma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates current in effect.
Advertising
Costs incurred for advertising are expensed when incurred.
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Property and equipment
Equipment, furniture & fixtures............................... $222,216 $212,704
Equipment under capital lease................................. 106,355 106,355
Leasehold improvements........................................ 110,000 110,000
-------- --------
Total property and equipment.................................. 438,571 429,059
Less accumulated depreciation and amortization................ 213,333 176,493
-------- --------
Net property and equipment.................................... $225,238 $252,566
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Accounts Payable and accrued liabilities:
Trade......................................................... $ 35,646 $ 23,974
Accrued liabilities........................................... $ -- $ 13,036
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Term loans......................................................... $ 2,233 $ 98,933
Less current portion............................................... 2,233 96,700
-------- --------
Total Long-Term Debt............................................... $ -- $ 2,233
======== ========
</TABLE>
F-38
<PAGE> 92
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1995, for
each of the next five years were as follows:
<TABLE>
<S> <C>
1996............................................................. $ 2,233
1997............................................................. --
1998............................................................. --
1999............................................................. --
2000............................................................. --
</TABLE>
In May 1990, the Company entered into a term loan payable for $33,500. The
note was payable in monthly installments of $558 including principal and
interest at 10%. The note was collateralized by certain equipment of the
Company. Final payment is scheduled for April 1996.
In December 1994, the Company was indebted on a line of credit agreement
for $90,000, the loan was payable on demand and collateralized by the personal
guaranty of the owner of the Company and certain Company assets. Interest was
paid monthly at the bank's prime lending rate plus 1.5%.
COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The company leases a portion of its property and equipment under capital
leases. Future minimum lease payments under capital leases consisted of the
following at December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL
--------
<S> <C>
1996......................................................... $ 25,903
1997......................................................... 25,903
1998......................................................... 25,903
1999......................................................... 24,054
2000......................................................... --
Thereafter................................................... --
--------
Total minimum lease obligations.............................. 101,763
Less amount representing interest............................ 14,692
--------
Present value of minimum lease obligations................... 87,071
Less current portion......................................... 18,407
--------
Long-term capital lease obligations.......................... $ 68,664
========
</TABLE>
For the years ended December 31, 1994 and 1995, amortization expense
related to this capital lease included in depreciation expense totalled $10,635
and $21,271, respectively.
Litigation
The company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of any such pending legal proceedings would not have a material
adverse effect on the company's financial position, results of operations or
liquidity.
F-39
<PAGE> 93
HOWARD S. MARKOWITZ, D.D.S. D/B/A
LEOMINSTER FAMILY DENTISTS
(A SOLE PROPRIETORSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
The differences between the federal tax rate and the company's effective
tax rate at December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Tax at U.S. statutory rate (34%)............. $ 65,100 $ 57,200
State income taxes, net of federal tax....... 10,900 9,800
Income not subject to corporate level federal
tax........................................ (76,000) (67,000)
-------- --------
$ -- $ --
======== ========
</TABLE>
6. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994
------- --------
<S> <C> <C>
Cash paid during the period for interest...... $11,157 $ 3,526
======= ========
Non-cash transactions - capital lease
obligations................................. $ -- $100,188
======= ========
</TABLE>
7. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
Credit Risk
The company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the company's fixed rate long-term
borrowings as of December 31, 1994 and 1995, respectively, approximate their
fair value.
The carrying value of the company's revolving credit agreement approximates
fair value because the rate on such agreement is variable, based on current
market.
8. SUBSEQUENT EVENT:
The assets of the Company were acquired by First New England Dental
Centers, Inc. on January 1, 1996.
9. RELATED PARTY TRANSACTIONS:
The company leased its operating facilities from its sole proprietor. There
are no formal lease terms and as such the Company is considered a
tenant-at-will. Lease expense related to the operating facilities for each of
the years ended 1994 and 1995, was $29,800 and $42,500, respectively.
10. PROFIT SHARING PLAN
The Company maintains a profit sharing plan covering substantially all
employees. The amount of contribution is discretionary and is limited by the
aggregate compensation of participants during the year. For the years ended
December 31, 1994 and 1995, the Company did not provide for a profit sharing
plan contribution.
F-40
<PAGE> 94
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of William H. Grass,
D.D.S., P.C. (a C Corporation) as of January 31, 1996, December 31, 1995 and
1994, and the related statements of operations, changes in stockholder's equity,
and cash flows for the month ended January 31, 1996 and for the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of William H. Grass, D.D.S.,
P.C. as of January 31, 1996 and December 31, 1995 and 1994, and the results of
its operations and its cash flows for the month ended January 31, 1996 and for
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-41
<PAGE> 95
WILLIAM H. GRASS, D.D.S., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- -------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,868 $ 35 $ 528
Patient receivables, net of allowance for uncollectible
accounts of $41,977, $40,543, and $38,696 in 1996, 1995,
and 1994,
respectively............................................ 41,385 42,784 62,485
------- ------- -------
Total current assets............................... 44,253 42,819 63,013
------- ------- -------
Property and equipment, net.................................. -- -- --
------- ------- -------
$44,253 $42,819 $63,013
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................................... $ 6,692 $ 7,237 $ 7,500
------- ------- -------
Total current liabilities.......................... 6,692 7,237 7,500
------- ------- -------
Deferred tax liability....................................... 14,200 14,200 22,000
------- ------- -------
Stockholder's equity:
Common stock, $1 par value, 1,000 shares
authorized, issued, and outstanding..................... 1,000 1,000 1,000
Retained earnings.......................................... 22,361 20,382 32,513
------- ------- -------
Total stockholder's equity......................... 23,361 21,382 33,513
------- ------- -------
$44,253 $42,819 $63,013
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE> 96
WILLIAM H. GRASS, D.D.S., P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MONTH ENDED YEARS ENDED DECEMBER
JANUARY 31, 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Net patient revenues..................................... $58,592 $735,432 $800,403
------- -------- --------
Expenses:
Dentists' salaries..................................... 9,500 162,700 157,200
Clinical salaries...................................... 25,908 309,851 324,915
Dental supplies and laboratory fees.................... 5,939 86,525 89,914
Rental and lease expense............................... 5,453 63,447 66,875
Advertising and marketing.............................. 94 1,568 3,158
Depreciation........................................... -- -- 4,900
Bad debt expense....................................... 1,434 1,847 3,710
Other operating expenses............................... 4,474 70,641 71,261
General and administrative............................. 3,811 60,297 72,301
------- -------- --------
Total expenses................................. 56,613 756,876 794,234
------- -------- --------
Operating income (loss)........................ 1,979 (21,444) 6,169
Other income............................................. -- 1,513 1,127
------- -------- --------
Income (loss) before income taxes........................ 1,979 (19,931) 7,296
Provision (benefit) for income taxes..................... -- (7,800) 3,000
------- -------- --------
Net income (loss)........................................ $ 1,979 $(12,131) $ 4,296
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE> 97
WILLIAM H. GRASS, D.D.S., P.C.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED TOTAL
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1994........................... 1,000 $1,000 $ 28,217 $ 29,217
Net income......................................... -- -- 4,296 4,296
----- ------ -------- --------
Balance at December 31, 1994......................... 1,000 1,000 32,513 33,513
Net loss........................................... -- -- (12,131) (12,131)
----- ------ -------- --------
Balance at December 31, 1995......................... 1,000 1,000 20,382 21,382
Net income......................................... -- -- 1,979 1,979
----- ------ -------- --------
Balance at January 31, 1996.......................... 1,000 $1,000 $ 22,361 $ 23,361
===== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE> 98
WILLIAM H. GRASS, D.D.S., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MONTH ENDED YEARS ENDED DECEMBER
JANUARY 31, 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 1,979 $(12,131) $ 4,296
Adjustments:
Provision for bad debts............................. 1,434 1,847 3,710
Deferred taxes...................................... -- (7,800) 3,000
Depreciation........................................ -- -- 4,900
Changes in operating assets and liabilities:
Patient receivables............................... (35) 17,854 (15,639)
Accounts payable.................................. (545) (263) 7,500
------- -------- --------
Net cash provided by (used in)
operating activities......................... 2,833 (493) 7,767
------- -------- --------
Increase (decrease) in cash and cash equivalents......... 2,833 (493) 7,767
Cash and cash equivalents, beginning of period........... 35 528 (7,239)
------- -------- --------
Cash and cash equivalents, end of period................. $ 2,868 $ 35 $ 528
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE> 99
WILLIAM H. GRASS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
The Company is a provider of dental and orthodontic services and products
located in Hadley, Massachusetts.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental and orthodontic revenue is recognized as the services are
performed and billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment, are provided using the straight-line method over the estimated useful
lives of the various classes of depreciable assets, ranging from five to ten
years. Fully depreciated assets are retained in property and equipment until
they are removed from service. Fully depreciated assets as of January 31, 1996,
December 31, 1995 and 1994 were $113,946. Maintenance and repairs are charged to
expenses whereas renewals and major replacements are capitalized. Gains and
losses from dispositions are included in operations.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to the accrual method for financial reporting purposes and the
cash method for income tax purposes. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
F-46
<PAGE> 100
WILLIAM H. GRASS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Income Taxes -- (Continued)
either be taxable or deductible when the assets and liabilities are recovered or
settled net of the deferred tax benefits recognized for tax basis net operating
losses that are available to offset future taxable income.
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Property and equipment:
Equipment........................................ $ 113,946 $113,946 $113,946
Less - accumulated depreciation.................. 113,946 113,946 113,946
-------- -------- --------
Net property and equipment.................... $ -- $ -- $ --
======== ======== ========
</TABLE>
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- -------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period..................... $40,543 $38,696 $34,986
Provision for bad debts............................ 1,434 1,847 3,710
Charge offs........................................ -- -- --
------- ------- -------
Balance at end of period........................... $41,977 $40,543 $38,696
======= ======= =======
</TABLE>
F-47
<PAGE> 101
WILLIAM H. GRASS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office facility under an operating lease. Future
minimum lease payment under noncancelable operating leases with remaining terms
of one or more years consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996.............................................................. $ 64,800
1997.............................................................. 66,700
1998.............................................................. 68,700
1999.............................................................. 53,100
--------
Total minimum lease obligations................................... $253,300
========
</TABLE>
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
5. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The deferred tax
liability at January 31, 1996, December 31, 1995 and 1994, resulted from the
following differences:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- -------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Patient receivables, net............................. $16,900 $17,200 $25,000
Accounts payable..................................... (2,700) (3,000) (3,000)
Net operating loss carryforward...................... 8,000 8,000 --
Valuation allowance.................................. (8,000) (8,000) --
------- ------- -------
Deferred tax liability............................... $14,200 $14,200 $22,000
======= ======= =======
</TABLE>
Provision (benefit) for income taxes for the periods ended January 31,
1996, December 31, 1995, and 1994, were as follows:
<TABLE>
<CAPTION>
MONTH
ENDED YEARS ENDED
JANUARY 31, DECEMBER 31,
------------ ------------------
1996 1995 1994
------------ ------- ------
<S> <C> <C> <C>
Current............................................. $ -- $ -- $ --
Deferred............................................ -- (7,800) 3,000
------- ------
--
$(7,800) $3,000
$ --
======= ======
==
</TABLE>
F-48
<PAGE> 102
WILLIAM H. GRASS, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. INCOME TAXES -- (CONTINUED)
A reconciliation of the statutory U.S. federal rate and effective rates is
as follows:
<TABLE>
<CAPTION>
MONTH ENDED YEARS ENDED
JANUARY 31, DECEMBER 31,
----------- -------------
1996 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal rate............................... 35% 35% 35%
State income taxes, net of federal tax benefit............ -- 7 7
Valuation allowance....................................... (35) (3) (1)
---- ---- ----
0% 39% 41%
==== ==== ====
</TABLE>
6. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments.
7. SUBSEQUENT EVENT
The Company was acquired by First New England Dental Centers, Inc.
effective February 1, 1996. The accompanying financial statements are presented
on a going concern basis and not on a liquidation basis.
F-49
<PAGE> 103
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Richard S. Harold,
D.M.D., P.C. (a C Corporation) as of January 31, 1996, December 31, 1995 and
1994, and the related statements of operations, changes in stockholder's equity
(deficit), and cash flows for the month ended January 31, 1996 and for the years
ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Richard S. Harold, D.M.D.,
P.C. as of January 31, 1996 and December 31, 1995 and 1994, and the results of
its operations and its cash flows for the month ended January 31, 1996 and for
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-50
<PAGE> 104
RICHARD S. HAROLD, D.M.D., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- --------------------
1996 1995 1994
----------- -------- -------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 31,786 $ 39,322 $ 1,837
Patient receivables, net of allowance for uncollectible
accounts of $32,754, $21,836, and $10,918 in 1996,
1995, and 1994, respectively......................... 7,329 9,773 4,463
----------- -------- -------
Total current assets............................ 39,115 49,095 6,300
----------- -------- -------
Property and equipment, net............................... 27,927 28,819 30,232
----------- -------- -------
$ 67,042 $ 77,914 $36,532
======== ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt....................... $ 22,412 $ 20,864 $ 7,496
Accounts payable........................................ 30,829 15,394 14,347
----------- -------- -------
Total current liabilities....................... 53,241 36,258 21,843
----------- -------- -------
Long-term debt, net of current portion.................... 53,358 58,483 --
----------- -------- -------
Stockholder's equity (deficit):
Common stock, $1 par value, 1,000 shares authorized,
issued and outstanding............................... 1,000 1,000 1,000
Retained earnings (accumulated deficit)................. (40,557) (17,827) 13,689
----------- -------- -------
Total stockholder's equity (deficit)............ (39,557) (16,827) 14,689
----------- -------- -------
$ 67,042 $ 77,914 $36,532
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-51
<PAGE> 105
RICHARD S. HAROLD, D.M.D., P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MONTH
ENDED
JANUARY 31, YEARS ENDED DECEMBER 31,
----------- ------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Net patient revenues................................ $ 71,071 $ 615,736 $417,150
----------- ----------- ------------
Expenses:
Dentists' salaries................................ 31,828 189,546 130,833
Clinical salaries................................. 6,249 45,538 28,753
Dental supplies and laboratory fees............... -- 28,847 21,017
Rental expense - related party.................... 5,200 62,400 62,400
Advertising and marketing......................... 160 14,033 2,122
Depreciation and amortization..................... 847 10,162 10,162
Bad debt expense.................................. 10,918 10,918 10,918
Other operating expenses.......................... 11,418 106,176 92,839
General and administrative........................ 26,418 177,625 116,055
----------- ----------- ------------
Total expenses............................ 93,038 645,245 475,099
----------- ----------- ------------
Operating loss............................ (21,967) (29,509) (57,949)
Interest expense.................................... 763 2,007 1,799
----------- ----------- ------------
Loss before income taxes............................ (22,730) (31,516) (59,748)
Provision (benefit) for income taxes................ -- -- --
----------- ----------- ------------
Net loss............................................ $ (22,730) $ (31,516) $(59,748)
======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-52
<PAGE> 106
RICHARD S. HAROLD, D.M.D., P.C.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED EARNINGS EQUITY
SHARES AMOUNT (ACCUMULATED DEFICIT) (DEFICIT)
------ ------ --------------------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1994................... 1,000 $1,000 $ 73,437 $ 74,437
Net loss................................... -- -- (59,748) (59,748)
----- ------ -------- ---------
Balance at December 31, 1994................. 1,000 1,000 13,689 14,689
Net loss................................... -- -- (31,516) (31,516)
----- ------ -------- ---------
Balance at December 31, 1995................. 1,000 1,000 (17,827) (16,827)
Net loss................................... -- -- (22,730) (22,730)
----- ------ -------- ---------
Balance at January 31, 1996.................. 1,000 $1,000 $ (40,557) $ (39,557)
===== ====== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE> 107
RICHARD S. HAROLD, D.M.D., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MONTH
ENDED
JANUARY 31, YEARS ENDED DECEMBER 31,
----------- ------------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (22,730) $(31,516) $(59,748)
Adjustments:
Provision for bad debts............................. 10,918 10,918 10,918
Depreciation and amortization....................... 892 10,162 10,162
Changes in operating assets and liabilities:
Patient receivables............................... (8,474) (16,228) 12,112
Accounts payable and accrued liabilities.......... 15,435 1,047 15,394
-------- -------- --------
Net cash used in operating activities.......... (3,959) (25,617) (11,162)
-------- -------- --------
Cash flows used in investing activities:
Acquisition of property and equipment.................. -- (8,749) --
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt........................... -- 79,000 --
Payments on long-term debt............................. (3,577) (7,149) --
-------- -------- --------
Net cash provided by (used in) financing
activities................................... (3,577) 71,851 --
-------- -------- --------
Increase (decrease) in cash and cash equivalents......... (7,536) 37,485 (11,162)
Cash and cash equivalents, beginning of period........... 39,322 1,837 12,999
-------- -------- --------
Cash and cash equivalents, end of period................. $ 31,786 $ 39,322 $ 1,837
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE> 108
RICHARD S. HAROLD, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
The Company is a provider of dental services and products located in
Malden, Massachusetts.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental revenue is recognized as the services are performed and
billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, are provided using accelerated and the straight-line
method over the estimated useful lives of the various classes of depreciable
assets, ranging from five to ten years. Fully depreciated assets are retained in
property and equipment until they are removed from service. Fully depreciated
assets as of January 31, 1996, December 31, 1995 and 1994 were $122,860,
$122,860, and $114,111, respectively. Maintenance and repairs are charged to
expenses whereas renewals and major replacements are capitalized. Gains and
losses from dispositions are included in operations.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to the accrual method for financial reporting purposes and the
cash method for income tax purposes. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
F-55
<PAGE> 109
RICHARD S. HAROLD, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Income Taxes -- (Continued)
either be taxable or deductible when the assets and liabilities are recovered or
settled net of the deferred tax benefits recognized for tax basis net operating
losses that are available to offset future taxable income.
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
2. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Property and equipment:
Equipment........................................... $ 113,354 $113,354 $104,605
Leasehold improvements.............................. 38,953 38,953 38,953
Furniture and fixtures.............................. 9,505 9,505 9,505
-------- -------- --------
Total property and equipment................ 161,812 161,812 153,063
Less - accumulated depreciation and amortization.... 133,885 132,993 122,831
-------- -------- --------
Net property and equipment.................. $ 27,927 $ 28,819 $ 30,232
======== ======== ========
</TABLE>
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- -------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period........................ $21,836 $10,918 $ --
Provision for bad debts............................... 10,918 10,918 10,918
Charge offs........................................... -- -- --
------- ------- -------
Balance at end of period $32,754 $21,836 $10,918
======= ======= =======
</TABLE>
F-56
<PAGE> 110
RICHARD S. HAROLD, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. LONG-TERM DEBT
Long-term debt at January 31, 1996, December 31, 1995 and 1994 consisted of
the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- ------------------
1996 1995 1994
----------- ------- ------
<S> <C> <C> <C>
Note payable, dated April, 1995, payable in 60 monthly
installments of $1,730 including interest at 11%
maturing April, 2000 and secured by certain equipment of
the Company............................................. $75,770 $79,347 $7,496
Less -- current portion................................... 22,412 20,864 7,496
------- ------- ------
Long-term debt, net of current portion.................... $53,358 $58,483 $ --
======= ======= ======
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows:
<TABLE>
<S> <C>
1996............................................................... $21,000
1997............................................................... 15,100
1998............................................................... 16,800
1999............................................................... 18,700
2000............................................................... 7,700
-------
$79,300
=======
</TABLE>
5. CONTINGENCIES
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
6. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The deferred tax
asset at January 31, 1996, December 31, 1995 and 1994, resulted from the
following differences:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Patient receivables, net........................... $ (3,000) $ (4,000) $ (1,800)
Accounts payable................................... 12,000 6,200 5,800
Net operating loss carryforward.................... 9,000 12,700 24,000
Valuation allowance................................ (18,000) (14,900) (28,000)
-------- -------- --------
Deferred tax asset................................. $ -- $ -- $ --
======== ======== ========
</TABLE>
F-57
<PAGE> 111
RICHARD S. HAROLD, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
MONTH ENDED JANUARY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. INCOME TAXES -- (CONTINUED)
A reconciliation of the statutory U.S. federal rate and effective rates is
as follows:
<TABLE>
<CAPTION>
MONTH
ENDED YEARS ENDED
JANUARY 31, DECEMBER 31,
----------- -------------
1996 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal rate............................. 35% 35% 35%
Valuation allowance..................................... (35) (35) (35)
---- ---- ----
0% 0% 0%
==== ==== ====
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
MONTH
ENDED YEARS ENDED
JANUARY 31, DECEMBER 31,
----------- -----------------
1996 1995 1994
----------- ------ ------
<S> <C> <C> <C>
Cash paid during the period for interest............ $ 763 $2,007 $1,799
==== ====== ======
Cash paid during the period for income taxes........ $ -- $ -- $ --
==== ====== ======
</TABLE>
8. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Company's fixed rate long-term
borrowings approximate their fair value.
9. SUBSEQUENT EVENT
The Company was acquired by First New England Dental Centers, Inc.
effective February 1, 1996. The accompanying financial statements are presented
on a going concern basis and not on a liquidation basis.
10. RELATED PARTY TRANSACTION
The Company rents certain assets from a real estate trust of which the
stockholder of the Company is the sole beneficiary under a tenant at will
agreement. Rent expense for the month of January 1996 and for the years ended
December 31, 1995 and 1994 was approximately $5,200, $62,400, and $62,400,
respectively.
F-58
<PAGE> 112
REPORT OF INDEPENDENT ACCOUNTANT
To the Owner of
Family Dentistry
Marshfield, Massachusetts
I have audited the accompanying balance sheets of Family Dentistry as of
December 31, 1995 and 1994 and the related statements of operations, changes in
proprietor's capital and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Family Dentistry as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ELLIE ROZINSKY
Certified Public Accountant
Hull, Massachusetts
November 12, 1996
F-59
<PAGE> 113
FAMILY DENTISTRY
BALANCE SHEETS
DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash................................................................ $ 22,639 $ 28,792
Patient receivables, net of allowance for uncollectible accounts of
$8,096 and $6,126 in 1995 and 1994, respectively................... 32,382 24,505
Other receivable.................................................... 0 238
-------- --------
Total current assets........................................... 55,021 53,535
-------- --------
Property & equipment, at cost............................................ 179,117 180,689
Less accumulated depreciation....................................... 128,717 96,689
-------- --------
50,400 84,000
-------- --------
Intangible Assets, net of accumulated amortization....................... 73,858 87,572
-------- --------
Total Assets................................................... $179,279 $225,107
-------- --------
LIABILITIES & PROPRIETOR'S CAPITAL
Current Liabilities
Current portion of long-term debt................................... $ 45,797 $ 76,357
Accounts payable & accrued expenses................................. 22,288 12,007
-------- --------
Total current liabilities...................................... 68,085 88,364
Long-term debt, net of current portion................................... 22,773 68,570
Proprietor's capital..................................................... 88,421 68,173
-------- --------
Total liabilities and proprietor's capital..................... $179,279 $225,107
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-60
<PAGE> 114
FAMILY DENTISTRY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Income
Net patient revenues........................................... $713,022 $ 693,312
-------- --------
Expenses
Dentists' wages & fees......................................... 130,080 138,222
Hygienists' & assistants' wages................................ 110,253 96,331
Laboratory fees................................................ 38,188 28,379
Dental supplies................................................ 29,169 30,264
Office wages................................................... 63,562 58,721
Depreciation & amortization.................................... 49,305 75,403
Equipment leases............................................... 33,285 35,766
Payroll taxes.................................................. 21,578 20,597
Rent........................................................... 18,500 18,500
Other operating expenses....................................... 79,817 73,928
-------- --------
Total expenses............................................ 573,737 576,111
-------- --------
Operating income.................................................... 139,285 117,201
Interest income..................................................... 370 --
Interest expense.................................................... (8,956) (15,143)
-------- --------
Net Income.......................................................... $130,699 $ 102,058
-------- --------
</TABLE>
STATEMENTS OF CHANGES IN PROPRIETOR'S CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Balance, beginning of year.......................................... $ 68,173 $ 52,453
Net income.......................................................... 130,699 102,058
Proprietor's withdrawals............................................ (110,451) (86,338)
-------- ---------
Balance, end of year................................................ $ 88,421 $ 68,173
======== =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-61
<PAGE> 115
FAMILY DENTISTRY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Operating income............................................ $ 139,285 $ 117,201
Adjustments to reconcile the above to net cash provided
(used) by operating activities:
Depreciation & amortization............................ 49,305 75,403
(Increase) decrease in current assets:
Patient receivables, net.......................... (7,877) 9,990
Other receivable.................................. 238 --
Increase (decrease) in current liabilities:
Accounts payable & accrued expenses............... 10,281 (2,513)
--------- ---------
Net cash provided by operating activities................... 191,232 200,081
--------- ---------
Cash flows used in investing activities-capital purchases........ (1,991) (5,689)
--------- ---------
Cash flows from financing activities:
Interest earned............................................. 370
Withdrawals by proprietor................................... (110,451) (86,338)
Repayment of debt........................................... (76,357) (69,815)
Payment of interest......................................... (8,956) (15,143)
--------- ---------
Net cash used by financing activities............................ (195,394) (171,296)
--------- ---------
Net change in cash............................................... (6,153) 23,096
Beginning cash................................................... 28,792 5,696
--------- ---------
Ending cash...................................................... $ 22,639 $ 28,792
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-62
<PAGE> 116
FAMILY DENTISTRY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
James F. Schipani, DMD doing business as Family Dentistry (the "Company")
is a provider of general dental services.
The financial records are maintained on the accrual basis of accounting.
Due to the small staff size and relative immateriality, no accrual is made for
unpaid vacation time.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
Cash
All cash reported in these financial statements represents cash on hand and
in financial institutions insured by the Federal Deposit Insurance Corporation
up to $100,000.
Property and Equipment
Property and equipment purchases, unless of a relatively minor amount, are
capitalized at cost and charged against income via depreciation over the
estimated useful lives of the various classes of depreciable assets. Dental and
office equipment are depreciated over five to seven years using accelerated tax
methods; the accelerated depreciation does not have a material effect over using
the straight-line method.
Intangible Assets
The Company purchased assets of an existing dental practice on January 4,
1993. Certain intangible assets are being amortized based on internal Revenue
Service regulations. Intangible assets acquired are summarized below:
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED
AMORTIZATION AMORTIZATION AMORTIZATION
ASSET COST PERIOD 12/31/95 12/31/94
- ------------------------------------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Goodwill................................... $ 35,000 N/A -- --
Covenant not to compete.................... 40,000 5 years $ 24,000 $ 16,000
Patient records............................ 40,000 7 years 17,142 11,428
-------- ------- -------
$115,000 $ 41,142 $ 27,428
</TABLE>
Revenue Recognition
Net patient revenues represent amounts billed to patients for services; all
dental revenue is recognized as services are performed and billed. Patient
receivables consist of amounts receivable from patients and insurers. An
allowance for insurance write-downs and doubtful accounts is recorded by the
Company using a rate of 20%.
Income Taxes
Income from the Company is combined with the income and expenses of the
proprietor from other sources and reported in the proprietor's individual
federal and state income tax returns. The proprietorship is not a taxpaying
entity for purposes of federal and state income taxes, thus no income taxes have
been recorded in the statements. The proprietor customarily makes estimated tax
payments toward his personal income tax liability from the proprietorship bank
account; these payments are treated as withdrawals of capital.
F-63
<PAGE> 117
FAMILY DENTISTRY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
Advertising
Costs incurred for advertising are expensed as incurred.
2. LONG-TERM DEBT
Long-term debt is summarized below:
<TABLE>
<CAPTION>
12/31/95 12/31/94
-------- --------
<S> <C> <C>
Term loan from previous owner of dental practice entered into in January
1994. Original debt of $200,000 is payable in monthly installments of
$4,055 including interest accrued at the rate of 8% per year. The loan
is collateralized by dental and office equipment acquired from the
previous owner. The final payment is due in March 1998................ $68,570 $123,005
------- --------
Term cash flow loan; interest accrues at a variable rate. The final
payment was paid in November 1995..................................... -- 21,923
------- --------
68,570 144,928
Less current portion.................................................... 45,797 76,357
------- --------
Long-term debt.......................................................... $22,773 $68,571
======= ========
</TABLE>
Aggregate maturities of long-term debt over the next five years is listed
below:
<TABLE>
<S> <C>
1996............................................................ $45,797
1997............................................................ 22,773
1998 - 2000..................................................... 0
-------
$68,570
</TABLE>
3. LEASE COMMITMENTS
The Company leases a portion of its property and equipment under capital
leases. Future minimum lease payments under noncancellable leases with remaining
terms of at least one year are summarized below:
<TABLE>
<S> <C>
1996............................................................. $33,285
1997............................................................. 29,451
1998............................................................. 2,348
1999 & 2000...................................................... 0
-------
$65,084
</TABLE>
4. CREDIT RISK & FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is considered minimal
because allowances are made to reduce accounts to their net realizable value.
Fair Value of Financial Instruments
The carrying value of cash, receivables and payables is assumed to be fair
value.
5. SUBSEQUENT EVENT
The assets and liabilities of the Company were acquired by Osorio & Watkin,
DMD, PC in April 1996.
F-64
<PAGE> 118
REPORT OF INDEPENDENT ACCOUNTANT
To the Owner of
Family Dentistry
Marshfield, Massachusetts
I have audited the accompanying balance sheet of Family Dentistry as of
March 31, 1996 and the related statements of operations, changes in proprietor's
capital and cash flows for the three months then ended. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Family Dentistry as of March
31, 1996, and the results of its operations and its cash flows for the three
months then ended, in conformity with generally accepted accounting principles.
ELLIE ROZINSKY
Certified Public Accountant
Hull, Massachusetts
November 12, 1996
F-65
<PAGE> 119
FAMILY DENTISTRY
BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash......................................................................... $ 11,648
Patient receivables, net of allowance for uncollectible accounts of $9,004... 36,014
--------
Total current assets.................................................... 47,662
--------
Property & equipment, at cost..................................................... 179,117
Less accumulated depreciation..................................................... 133,757
--------
45,360
--------
Intangible assets, net of accumulated amortization................................ 70,430
--------
Total assets............................................................ $163,452
========
LIABILITIES & PROPRIETOR'S CAPITAL
Current liabilities
Current portion of long-term debt............................................ $ 42,028
Accounts payable & accrued expenses.......................................... 10,155
--------
Total current liabilities............................................... 52,183
Long-term debt, net of current portion............................................ 12,005
Proprietor's capital.............................................................. 99,264
--------
Total liabilities and proprietor's capital........................................ $163,452
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-66
<PAGE> 120
FAMILY DENTISTRY
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<S> <C>
Income
Net patient revenues....................................................... $161,573
--------
Expenses
Dentists' wages & fees..................................................... 20,515
Hygienists' & assistants' wages............................................ 27,335
Laboratory fees............................................................ 6,934
Dental supplies............................................................ 8,343
Office wages............................................................... 15,843
Depreciation & amortization................................................ 8,468
Equipment leases........................................................... 7,895
Payroll taxes.............................................................. 5,942
Rent....................................................................... 4,625
Other operating expenses................................................... 21,722
--------
Total expenses........................................................ 127,622
--------
Operating income...................................................... 33,951
Interest income................................................................. 61
Interest expense................................................................ (1,262)
--------
Net income...................................................................... $ 32,750
========
</TABLE>
STATEMENT OF CHANGES IN PROPRIETOR'S CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<S> <C>
Balance, beginning of period.................................................... $ 88,421
Net income...................................................................... 32,750
Proprietor's withdrawals........................................................ (21,907)
--------
Balance, end of period.......................................................... $ 99,264
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-67
<PAGE> 121
FAMILY DENTISTRY
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Operating income........................................................... $ 33,951
Adjustments to reconcile the above to net cash provided (used) by operating
activities:
Depreciation & amortization.............................................. 8,468
(Increase) decrease in current assets:
Patient receivables, net.............................................. (3,632)
Increase (decrease) in current liabilities:
Accounts payable & accrued expenses................................... (12,133)
--------
Net cash provided by operating activities.................................. 26,654
--------
Cash flows from financing activities:
Interest earned............................................................ 61
Withdrawals by proprietor (21,907)
Repayment of debt.......................................................... (14,537)
Payment of interest........................................................ (1,262)
--------
Net cash used by financing activities........................................... (37,645)
--------
Net change in cash.............................................................. (10,991)
Beginning cash.................................................................. 22,639
--------
Ending cash..................................................................... $ 11,648
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-68
<PAGE> 122
FAMILY DENTISTRY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. ORGANIZATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
James F. Schipani, DMD doing business as Family Dentistry (the "Company")
is a provider of general dental services.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
Cash
All cash reported in these financial statements represents cash on hand and
in financial institutions insured by the Federal Deposit Insurance Corporation
up to $100,000.
Property and Equipment
Property and equipment purchases, unless of a relatively minor amount, are
capitalized at cost and charged against income via depreciation over the
estimated useful lives of the various classes of depreciable assets. Dental and
office equipment are depreciated over five to seven years using accelerated tax
methods; the accelerated depreciation does not have a material effect over using
the straight line method.
Intangible Assets
The Company purchased assets of an existing dental practice on January 4,
1993. Certain intangible assets are being amortized based on Internal Revenue
Service regulations. Intangible assets acquired are summarized below:
<TABLE>
<CAPTION>
ACCUMULATED
AMORTIZATION AMORTIZATION
ASSET COST PERIOD 3/31/96
--------------------------------------------------- -------- ------------ ------------
<S> <C> <C> <C>
Goodwill........................................... $ 35,000 N/A --
Covenant not to compete............................ 40,000 5 years $ 26,000
Patient records.................................... 40,000 7 years 18,570
-------- -------
$115,000 $ 44,570
</TABLE>
Revenue Recognition
Net patient revenues represent amounts billed to patients for services; all
dental revenue is recognized as services are performed and billed. Patient
receivables consist of amounts receivable from patients and insurers. An
allowance for insurance write-downs and doubtful accounts is recorded by the
Company using a rate of 20%.
Income Taxes
Income from the Company is combined with the income and expenses of the
proprietor from other sources and reported in the proprietor's individual
federal and state income tax returns. The proprietorship is not a taxpaying
entity for purposes of federal and state income taxes, thus no income taxes have
been recorded in the statements. The proprietor customarily makes estimated tax
payments toward his personal income tax liability from the proprietorship bank
account; these payments are treated as withdrawals of capital.
F-69
<PAGE> 123
FAMILY DENTISTRY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 31, 1996
Advertising
Costs incurred for advertising are expensed as incurred.
2. SUBSEQUENT EVENT
The assets and liabilities of the Company were acquired by Osorio & Watkin,
DMD, PC in April 1996.
3. LONG-TERM DEBT
Long-term debt is summarized below:
<TABLE>
<CAPTION>
3/31/96
-------
<S> <C>
Term loan from previous owner of dental practice entered into in
January 1994. Original debt of $200,000 is payable in monthly
installments of $4,055 including interest accrued at the rate
of 8% per year. The loan is collateralized by dental and
office equipment acquired from the previous owner. The final
payment is due in March 1998.................................. $54,033
Less current portion............................................ 42,028
-------
Long-term debt.................................................. $12,005
=======
</TABLE>
Aggregate maturities of long-term debt over the next five years is listed
below:
<TABLE>
<S> <C>
1996 (April - December)......................................... $42,028
1997............................................................ 12,005
1998 - 2000..................................................... 0
-------
$54,033
</TABLE>
4. LEASE COMMITMENTS
The Company leases a portion of its property and equipment under capital
leases. Future minimum lease payments under noncancellable leases with remaining
terms of at least one year are summarized below:
<TABLE>
<S> <C>
1998 (April - December)......................................... $21,129
1997............................................................ 29,451
1998............................................................ 2,348
1999 & 2000..................................................... 0
-------
$52,928
</TABLE>
5. CREDIT RISK & FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is considered minimal
because allowances are made to reduce accounts to their net realizable value.
Fair Value of Financial Instruments
The carrying value of cash, receivables and payables is assumed to be fair
value.
F-70
<PAGE> 124
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Arthur P. Wein, D.D.S.,
P.C. as of August 31, 1994 and 1995, and April 27, 1996, and the related
statements of income and retained earnings and cash flows for the years ended
August 31, 1994 and 1995 and the eight months ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arthur P. Wein, D.D.S., P.C.
as of August 31, 1994 and 1995, and April 27, 1996 and the results of its
operations and its cash flows for the years ended August 31, 1994 and 1995 and
the eight months ended in conformity with generally accepted accounting
principles.
CARAS & SHULMAN, PC
Certified Public Accountants
Burlington, Massachusetts
November 15, 1996
F-71
<PAGE> 125
ARTHUR P. WEIN D.D.S., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31,
APRIL 27, --------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash................................................. $ 3,597 $ 12,649 $ 5,225
Patient receivables net of an allowance for
uncollectible accounts of $11,000, $11,400 and
$17,000 in 1994, 1995
and 1996, respectively............................. 148,968 98,428 95,459
Other current assets................................. 12,916 15,036 15,540
--------- -------- --------
Total current assets............................ 165,481 126,113 116,224
Property and equipment, net............................... 35,029 38,964 28,246
--------- -------- --------
Total Assets.............................................. $200,510 $165,077 $144,470
======== ======== ========
Liabilities and Stockholder's Equity
Current liabilities
Current portion of long-term debt.................... $ 7,852 $ 7,573 $ 2,062
Due to related party................................. 59,563 61,638 66,757
Deferred income taxes................................ 52,400 36,900 32,200
Accounts payable and accrued expenses................ 14,498 7,704 5,153
--------- -------- --------
Total current liabilities....................... 134,313 113,815 106,172
Noncurrent liabilities
Long-term debt, net of current position................... 4,782 10,064 --
--------- -------- --------
Total liabilities............................... 139,095 123,879 106,172
--------- -------- --------
Stockholder's Equity
Common stock, no par value, 12,500 shares authorized,
100 shares issued and outstanding.................. 1,000 1,000 1,000
Retained earnings.................................... 60,415 40,198 37,298
--------- -------- --------
Total Stockholder's Equity...................... 61,415 41,198 38,298
--------- -------- --------
Total Liabilities and Stockholder's Equity................ $200,510 $165,077 $144,470
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-72
<PAGE> 126
ARTHUR P. WEIN D.D.S., P.C.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
EIGHT MONTHS AUGUST 31,
ENDED APRIL 27, -----------------------
1996 1995 1994
--------------- -------- --------
<S> <C> <C> <C>
Net patient revenues................................ $ 460,880 $578,977 $530,975
-------- -------- --------
EXPENSES:
Dentists salaries.............................. 97,391 118,265 133,805
Clinical salaries.............................. 62,107 96,795 84,272
Dental supplies and laboratory fees............ 72,729 90,363 83,506
Rental lease expense........................... 24,219 39,184 41,928
Advertising and marketing...................... 1,495 2,314 3,939
Depreciation and amortization.................. 3,935 5,459 12,315
Other operating expenses....................... 51,083 76,987 71,096
General and administrative..................... 105,015 133,256 122,642
-------- -------- --------
Total expenses................................. 417,974 562,623 553,503
-------- -------- --------
Operating income.................................... 42,906 16,354 (22,528)
Interest expense.................................... 6,281 8,302 7,450
-------- -------- --------
Income (loss) before provision for income taxes..... 36,625 8,052 (29,978)
Provision for income taxes.......................... 16,408 5,152 (10,744)
-------- -------- --------
Net income (loss)................................... 20,217 2,900 (19,234)
Beginning retained earnings......................... 40,198 37,298 56,532
-------- -------- --------
Ending Retained Earnings............................ $ 60,415 $ 40,198 $ 37,298
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-73
<PAGE> 127
ARTHUR P. WEIN, D.D.S., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
EIGHT MONTHS AUGUST 31,
ENDED APRIL 27, -----------------------
1996 1995 1994
--------------- -------- --------
<S> <C> <C> <C>
Cash provided by (used for) operating activities
Net income (loss).............................. $ 20,217 $ 2,900 $(19,234)
Adjustments
Provision for bad debts................... 8,600 1,700 (4,200)
Depreciation and amortization............. 3,935 5,459 12,315
Deferred taxes............................ 15,500 4,700 (11,200)
Changes in operating assets and liabilities
Patient receivables....................... (59,140) (4,669) 25,740
Other current assets...................... 4,990 7,023 1,358
Accounts payable and accrued
liabilities............................. 6,794 2,551 2,946
-------- -------- --------
Cash provided by operating activities............... 896 19,664 7,725
-------- -------- --------
Cash provided by (used for) investing activities
Fixed assets distributed to shareholder........ -- 15,119 --
Capital acquisitions........................... -- (8,286) (2,990)
-------- -------- --------
Cash provided by (used for) investing activities.... 6,833 (2,990)
-------- -------- --------
Cash provided by (used for) financing activities
Repayment of long-term debt.................... (5,003) (7,435) (2,500)
Proceeds from related party loan............... 200 10,500 --
Payments of related party loan................. (1,940) (6,483) --
Cash advances to officer, net.................. (3,205) (15,655) 2,990
-------- -------- --------
Cash provided by (used for) financing activities.... (9,948) (19,073) 490
-------- -------- --------
Increase (decrease) in cash......................... (9,052) 7,424 5,225
Cash, beginning of period........................... 12,649 5,225 --
-------- -------- --------
Cash, End of Period................................. $ 3,597 $ 12,649 $ 5,225
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-74
<PAGE> 128
ARTHUR P. WEIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Corporate Organization
Arthur P. Wein, D.D.S., P.C. (the Company) is a provider of dental services
that owns and operates a dental center in the Fitchburg, Massachusetts area.
The statements reflect the operations of Arthur P. Wein, D.D.S., P.C.
Fiscal Year
Arthur P. Wein, D.D.S., P.C.'s fiscal year ends on August 31 each year. The
periods ended August 31, 1994 and 1995, each reflect 52 weeks of activity. The
period ended April 27, 1996, reflects 34 weeks of activity.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reported period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed by affiliated dentists. Dental revenue is recognized as the services
are performed and billed. Orthodontic revenue is recognized in accordance with
the proportional performance method. Under this method, revenue is recognized as
cost of services are incurred under the terms of contractual agreements with
each patient. Approximately 25% of services are performed in the first month
with remaining services recognized ratably over the remainder of the contract.
Billings under each contract, which average approximately 28 months, are made
equally throughout the term of the contract, with final payment at the
completion of the treatment.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by physicians. An allowance for doubtful accounts is recorded by the company
based on historical experience.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
twenty years. Fully depreciated assets are retained in property and equipment
until they are removed from service. Fully depreciated assets as of August 31,
1994 and 1995 and April 27, 1996, were approximately $29,300, each period.
Maintenance and repairs are charged to expenses, whereas renewals and major
replacements are capitalized. Gains and losses from dispositions are included in
operations.
F-75
<PAGE> 129
ARTHUR P. WEIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Debt Issuance Costs
The costs related to the issuance of debt are capitalized and amortized
using the effective interest method over the lives of the related debt.
Income Taxes
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from temporary differences between assets and liabilities
whose bases are different for financial reporting and federal and state income
tax purposes. These differences relate primarily to the Company electing to
report income taxes on the "cash basis" while financial statement reporting is
on the "accrual basis".
Advertising
Costs incurred for advertising are expensed when incurred.
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
AUGUST 31
APRIL 27, ------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Property and equipment
Equipment............................................... $15,596 $15,596 $12,860
Motor vehicles.......................................... 28,560 28,560 50,395
Furniture and fixtures.................................. 18,503 18,503 18,503
Leasehold improvements.................................. 13,898 13,898 13,898
------- ------- -------
Total property and equipment............................ 76,557 76,557 95,656
Less accumulated depreciation and amortization.......... 41,528 37,593 67,410
------- ------- -------
Net property and equipment.............................. $35,029 $38,964 $28,246
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31
APRIL 27, ------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Accounts Payable and accrued liabilities:
Trade................................................... $14,498 $ 3,674 $ 2,093
Accrued liabilities..................................... -- $ 4,030 $ 3,060
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31
APRIL 27, ------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Term loans................................................... $12,634 $17,637 $ 2,062
Less current portion......................................... 7,852 7,573 2,062
------- ------- -------
Total Long-Term Debt......................................... $ 4,782 $10,064 $ --
======= ======= =======
</TABLE>
The aggregate maturities of long-term debt as of April 27, 1996, for each
of the next five years were as follows:
<TABLE>
<S> <C>
1997........................................................... $7,852
1998........................................................... $4,782
1999........................................................... --
2000........................................................... --
2001........................................................... --
</TABLE>
F-76
<PAGE> 130
ARTHUR P. WEIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In November 1994, the Company entered into a term loan payable for $23,010.
The note was payable in monthly installments of $696 including principal and
interest at 5.5%. The note was collateralized by a motor vehicle. Final payment
is scheduled for November 1997.
In November 1991, the Company entered into a term loan payable for $17,050.
The note was payable in monthly installments of $558 including principal and
interest at 10%. The note was collateralized by a motor vehicle. Final payment
was scheduled for November 1994.
4. COMMITMENTS AND CONTINGENCIES:
Litigation
The company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of any such pending legal proceedings would not have a material
adverse effect on the company's financial position, results of operations or
liquidity.
5. INCOME TAXES
The Company's effective income tax rate is higher than would be expected if
the federal statutory rate were applied to income from continuing operations
primarily due to expenses deductible for financial reporting purposes that are
not deductible for tax purposes and taxes payable to other jurisdictions. The
Company's net deferred tax liability consisted of the following at August 31:
<TABLE>
<CAPTION>
APRIL 27, 1996 FEDERAL STATE TOTAL
- ------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Deferred tax asset................................ $ 12,600 $ 4,200 $ 16,800
Deferred tax liability............................ (51,600) (17,600) (69,200)
-------- -------- --------
Net.................................................... $(39,000) $(13,400) $(52,400)
======== ======== ========
1995
Deferred tax asset................................ $ 8,000 $ 2,600 $ 10,600
Deferred tax liability............................ (35,500) (12,000) (47,500)
-------- -------- --------
Net.................................................... $(27,500) $ (9,400) $(36,900)
======== ======== ========
1994
Deferred tax asset................................ $ 10,100 $ 3,300 $ 13,400
Deferred tax liability............................ (34,200) (11,400) (45,600)
-------- -------- --------
Net.................................................... $(24,100) $ (8,100) $(32,200)
======== ======== ========
</TABLE>
The components of income tax expense (recovery) from operations were as
follows at August 31:
<TABLE>
<CAPTION>
APRIL 27, 1996 FEDERAL STATE TOTAL
- --------------------------------------------------------- ------- ------- --------
<S> <C> <C> <C>
Current............................................. $ -- $ 908 $ 908
Deferred (recovery)................................. 9,900 5,600 15,500
------- ------- --------
Net...................................................... $ 9,900 $ 6,508 $ 16,408
======= ======= ========
1995
Current............................................. $ -- $ 452 $ 452
Deferred (recovery)................................. 4,100 600 4,700
------- ------- --------
Net...................................................... $ 4,100 $ 1,052 $ 5,152
======= ======= ========
1994
Current (recovery).................................. $ -- $ 456 $ 456
Deferred (recovery)................................. (8,350) (2,850) (11,200)
------- ------- --------
Net...................................................... $(8,350) $(2,394) $(10,744)
======= ======= ========
</TABLE>
F-77
<PAGE> 131
ARTHUR P. WEIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
APRIL 27, ----------------------
1996 1995 1994
--------- ------- ------
<S> <C> <C> <C>
Cash paid during the period for interest............... $ 1,291 $13,292 $7,450
====== ======= ======
Non-cash transactions - long-term debt................. $ -- $23,010 $ --
====== ======= ======
Income taxes paid...................................... $ 912 $ 456 $ 456
====== ======= ======
</TABLE>
7. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
Credit Risk
The company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the credit worthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash, receivables and accounts payable approximate
fair values due to the short-term maturities of these instruments. The carrying
amounts of the company's fixed rate long-term borrowings as of August 31, 1994
and 1995, and April 27, 1996, respectively, approximate their fair value.
8. SUBSEQUENT EVENT:
The assets of the Company were acquired by First New England Dental
Centers, Inc. on April 27, 1996.
9. RELATED PARTY TRANSACTIONS:
The company leased its operating facilities from the Company's sole
shareholder. There are no formal lease terms and as such the Company is
considered a tenant at will. Lease expense related to the operating facilities
for each of the periods ended 1994, 1995 and 1996, was $26,800, $26,000 and
$17,000, respectively.
The Company leased certain equipment from children of the Company's sole
shareholder. There are no formal lease terms and the leases are treated as
operating leases. Lease expense related to certain equipment for each of the
years ended 1994, 1995 and 1996, was $14,400, $12,000 and $6,400, respectively.
The Company was indebted to the Wein Family Trust for advances of working
capital. The trust shares common ownership and management with the Company. The
note is payable on demand. Interest is accrued and paid monthly at a rate of
12%. For the year ended August 31, 1994, the Company received advances of
working capital from the trust totalling $10,500. At August 31, 1994 and 1995,
note payable Wein Family Trust totalled $45,904 and $55,958, respectively. At
April 27, 1996, note payable Wein Family Trust totalled $55,623.
The Company was indebted to Amy and Joshua Wein for advances of working
capital. Amy & Joshua are children of the Company's sole shareholder. The note
is payable on demand. Interest is accrued and paid monthly at a rate of 12%. At
August 31, 1994 and 1995, note payable Amy and Joshua Wein totalled $11,717 and
$5,680, respectively. At April 27, 1996, note payable Amy and Joshua Wein
totalled $3,940.
F-78
<PAGE> 132
ARTHUR P. WEIN, D.D.S., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense on related party debt was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
APRIL 27, -----------------
1996 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Related party interest expense......................... $ 5,718 $6,892 $7,442
====== ======= ======
</TABLE>
The Company's sole shareholder has been advanced and has advanced working
capital to the Company. These advances carry no formal repayment terms and no
stated interest rate. For the year ended August 31, 1994, due to officer
included in due to related party totalled $9,136. For the periods ended August
31, 1995 and April 27, 1996, due from officer included in other current assets
totalled $6,519 and $9,389, respectively.
10. PROFIT SHARING PLAN
The Company maintains a profit sharing plan covering substantially all
employees. The amount of contribution is discretionary and is limited by the
aggregate compensation of participants during the year. For the periods ended
August 31, 1994 and 1995 and the period ended April 27, 1996, the profit sharing
contribution totalled $6,922, $5,589 and $0, respectively.
11. PRO FORMA OPERATING DATA
The following pro forma information assumes that the Company operated with
a December 31, 1995, fiscal year end. The pro forma information presented does
not purport to be indicative of the results which would have actually been
reported if the Company had a December 31, 1995, fiscal year end.
Pro forma operating data (unaudited)
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Net Revenues.............................................................. $629,000
Net Income................................................................ 21,200
</TABLE>
F-79
<PAGE> 133
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Ramiro Blanco, D.D.S.,
M.S.C., P.C. (an S Corporation) as of March 31, 1996 and December 31, 1995, and
the related statements of operations, changes in stockholder's equity, and cash
flows for the three months ended March 31, 1996 and from date of inception,
September 1, 1995 through December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ramiro Blanco, D.D.S., M.S.C.,
P.C. as of March 31, 1996 and December 31, 1995, and the results of its
operations and its cash flows for the three months ended March 31, 1996 and from
date of inception, September 1, 1995 through December 31, 1995, in conformity
with generally accepted accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-80
<PAGE> 134
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ -- $ 28,454
Patient receivables, net of allowance for uncollectible
accounts of $5,000 in 1996 and 1995, respectively............ 83,762 69,068
Prepaid expenses.............................................. 18,500 18,500
-------- --------
Total current assets..................................... 102,262 116,022
-------- --------
Property and equipment, net........................................ 209,977 217,732
-------- --------
Other assets....................................................... 203,986 207,608
-------- --------
$ 516,225 $541,362
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit................................................ $ 5,989 $ 6,996
Current portion of long-term debt............................. 81,980 72,721
Advances from stockholder..................................... -- 3,519
Accounts payable and accrued expenses......................... 43,950 27,615
Cash overdraft................................................ 4,915 --
-------- --------
Total current liabilities................................ 136,834 110,851
-------- --------
Long-term debt, net of current portion............................. 372,405 399,042
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, no par value, 200,000 shares authorized, 1,000
shares issued and outstanding................................ 400 400
Retained earnings............................................. 6,586 31,069
-------- --------
Total stockholder's equity............................... 6,986 31,469
-------- --------
$ 516,225 $541,362
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-81
<PAGE> 135
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Net patient revenues.................................................... $ 224,765 $300,341
--------- ---------
Expenses:
Dentists' salaries................................................. 67,780 25,017
Clinical salaries.................................................. 30,952 41,162
Dental supplies and laboratory fees................................ 22,383 31,014
Rental and lease expense........................................... 10,500 10,500
Advertising and marketing.......................................... 1,988 8,100
Depreciation and amortization...................................... 11,802 15,714
Bad debt expense................................................... 11,894 16,448
Other operating expenses........................................... 23,866 23,790
General and administrative......................................... 52,829 88,257
--------- ---------
Total expenses................................................ 233,994 260,002
--------- ---------
Operating income (loss)....................................... (9,229) 40,339
Interest expense........................................................ 15,254 9,270
--------- ---------
Net Income (loss)....................................................... $ (24,483) $ 31,069
========= =========
If all of the Company's operations had been
subject to income taxes, net income (loss) would
have been as follows (unaudited):
Historical income (loss) before income taxes....................... $ (24,483) $ 31,069
Provision (benefit) for income taxes............................... (10,100) 12,800
--------- ---------
Proforma net income (loss)....................................... $ (14,383) $ 18,269
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-82
<PAGE> 136
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED TOTAL
SHARES AMOUNT EARNINGS EQUITY
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance at date of inception, September 1,
1995........................................... -- $ -- $ -- $ --
Issuance of common stock.................... 1,000 400 -- 400
Net income.................................. -- -- 31,069 31,069
-------- -------- -------- --------
Balance at December 31, 1995..................... 1,000 400 31,069 31,469
Net loss.................................... -- -- (24,483) (24,483)
-------- -------- -------- --------
Balance at March 31, 1996........................ 1,000 $ 400 $ 6,586 $ 6,986
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-83
<PAGE> 137
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $(24,483) $ 31,069
Adjustments:
Provision for bad debts......................................... 11,894 16,448
Depreciation and amortization................................... 11,802 15,714
Changes in operating assets and liabilities:
Patient receivables........................................... (26,588) (85,516)
Prepaid expenses.............................................. -- (18,500)
Accounts payable and accrued expenses......................... 16,335 27,615
-------- --------
Net cash used in operating activities...................... (11,040) (13,170)
-------- --------
Cash flows from investing activities:
Acquisition of property and equipment.............................. (425) (7,618)
Acquisition of other assets........................................ -- (2,436)
-------- --------
Net cash used in investing activities...................... (425) (10,054)
-------- --------
Cash flows from financing activities:
Net proceeds (payments) on line of credit.......................... (1,007) 6,996
Proceeds from long-term debt....................................... -- 49,024
Payments on long-term debt......................................... (17,378) (8,261)
Net proceeds (payments) on advances from stockholder............... (3,519) 3,519
Net change in cash overdrafts...................................... 4,915 --
Issuance of common stock........................................... -- 400
-------- --------
Net cash provided by (used in) financing activities........ (16,989) 51,678
-------- --------
Increase (decrease) in cash and cash equivalents..................... (28,454) 28,454
Cash and cash equivalents, beginning of period....................... 28,454 --
-------- --------
Cash and cash equivalents, end of period............................. $ -- $ 28,454
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-84
<PAGE> 138
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
On September 1, 1995, the date of the Company's inception, the Company
purchased the dental practice of Frank W. Wetherbee, D.M.D., P.C., and commenced
operations.
The Company is a provider of dental services and products located in
Billerica, Massachusetts.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental revenue is recognized as the services are performed and
billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs, and other third-party payers for services
provided by dentists. An allowance for uncollectible accounts is provided for
those accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment are provided using the straight-line method over the estimated useful
lives of the various classes of depreciable assets, ranging from five to ten
years. Fully depreciated assets are retained in property and equipment until
they are removed from service. Maintenance and repairs are charged to expenses
whereas renewals and major replacements are capitalized. Gains and losses from
dispositions are included in operations.
Income Taxes
The Company is an S Corporation and, accordingly, all federal and state tax
liabilities are the responsibility of the stockholder.
Income taxes, including the proforma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
F-85
<PAGE> 139
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
Other Assets
Goodwill consisting of $210,000 of the excess of the fair value over the
purchase price of the assets acquired in the purchase of a dental practice in
September, 1995, is being amortized using the straight-line method over a 15
year period.
2. SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------
---------
1996 1995
--------- ------------
<S> <C> <C>
Property and equipment:
Equipment................................................... $ 229,043 $228,618
Less -- accumulated depreciation............................ 19,066 10,886
-------- --------
Net property and equipment............................... $ 209,977 $217,732
======== ========
</TABLE>
For the three months ended March 31, 1996 and from date of inception
September 1, 1995 through December 31, 1995 depreciation relating to
property and equipment was $8,180, and $10,886, respectively.
<TABLE>
<S> <C> <C>
Other assets:
Goodwill, net of amortization............................... $ 201,834 $205,334
Organizational expenses, net................................ 2,152 2,274
-------- --------
Total other assets....................................... $ 203,986 $207,608
======== ========
</TABLE>
For the three months ended March 31, 1996 and from date of inception
September 1, 1995 through December 31, 1995 amortization relating to
goodwill and the organizational expenses was $3,622 and $4,828,
respectively.
<TABLE>
<S> <C> <C>
Accounts payable and accrued expenses:
Trade....................................................... $ 33,518 $ 19,351
Accrued expenses............................................ 10,432 8,264
-------- --------
$ 43,950 $ 27,615
======== ========
</TABLE>
F-86
<PAGE> 140
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------
---------
1996 1995
--------- ------------
<S> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period.............................. $ 5,000 $ --
Provision for bad debts..................................... 11,894 16,448
Charge offs................................................. (11,894) (11,448)
-------- --------
Balance at end of period.................................... $ 5,000 $ 5,000
======== ========
</TABLE>
4. LINE OF CREDIT
During the three month period ended March 31, 1996 and from date of
inception, September 1, 1995 through December 31, 1995, the Company had
available a revolving line of credit of $35,000 with Carter Shields, Inc.,
payable on demand, unsecured, with interest at 14.75%. The outstanding balance
at March 31, 1996 and December 31, 1995 was $5,989 and $6,996, respectively.
5. LONG-TERM DEBT
Long-term debt at March 31, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------
---------
1996 1995
--------- ------------
<S> <C> <C>
Note payable in 63 monthly installments of $6,080 including
interest at 16.4% through January 2001, at which time all
unpaid principal together with accrued but unpaid interest
shall be due and payable in full. The note is secured by
certain equipment of the Company and the personal guarantee of
the stockholder................................................ $ 242,736 $250,802
Note payable in 60 monthly installments of $3,549 including
interest at 8%, maturing November, 2000. The note is secured by
all assets of the Company, although subordinated to above note
for $256,000................................................... 165,375 172,618
Note payable in 60 monthly installments of $1,014 including
interest at 8.0% through January 2001 at which time unpaid
interest shall be due and payable in full. The note is secured
by all assets of the Company although subordinated to above
note for $256,000.............................................. 46,274 48,343
--------- ------------
454,385 471,763
Less -- current portion.......................................... 81,980 72,721
--------- ------------
Long-term debt, net of current portion........................... $ 372,405 $399,042
======== ==========
</TABLE>
F-87
<PAGE> 141
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
5. LONG-TERM DEBT -- (CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows:
<TABLE>
<S> <C>
1996.................................................... $ 72,721
1997.................................................... 81,980
1998.................................................... 95,579
1999.................................................... 104,728
2000.................................................... 113,086
Thereafter.............................................. 3,669
--------
$471,763
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office facility under an operating lease expiring
December 31, 2004. Future minimum lease obligations under noncancellable
operating leases with remaining terms of one or more years consisted of the
following at December 31, 1995:
<TABLE>
<S> <C>
1996.................................................... $ 42,000
1997.................................................... 42,000
1998.................................................... 42,000
1999.................................................... 42,000
2000.................................................... 42,000
Thereafter.............................................. 196,000
--------
Total minimum lease obligations......................... $406,000
========
</TABLE>
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
7. INCOME TAXES
The differences between the federal tax rate and the Company's effective
tax rate for the three months ended March 31, 1996 and from date of inception,
September 1, 1995 through December 31, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Tax at U.S. statutory rate (35%)................................. $ (8,600) $ 10,900
State income taxes, net of federal tax........................... (1,500) 1,900
Income not subject to corporate level federal tax................ 10,100 (12,800)
-------- --------
$ -- $ --
======== ========
</TABLE>
F-88
<PAGE> 142
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND
FROM DATE OF INCEPTION, SEPTEMBER 1, 1995
THROUGH DECEMBER 31, 1995
8. SUPPLEMENTAL CASH FLOW INFORMATION:
For the three months ended March 31, 1996 and from date of inception,
September 1, 1995 through December 31, 1995 supplemental cash flow information
was as follows:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Cash paid during the period for interest........................... $15,254 $ 9,270
======== ========
Cash paid during the period for income taxes....................... $ -- $ --
======== ========
Noncash transaction-liabilities incurred in connection with
acquisition of property and equipment............................. $ -- $221,000
======== ========
Noncash transaction-liabilities incurred in connection with
acquisition of other assets....................................... $ -- $210,000
======== ========
</TABLE>
9. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, line of
credit, and accounts payable and accrued expenses approximate fair values due to
the short-term maturities of these instruments. The carrying amounts of the
Company's fixed rate long-term debt approximate fair value.
10. SUBSEQUENT EVENT
The Company was acquired by First New England Dental Centers, Inc.
effective April 1, 1996. The accompanying financial statements are presented on
a going concern basis and not on a liquidation basis.
11. RELATED PARTY TRANSACTION
Advances from stockholder, payable on demand, as of March 31, 1996 and
December 31, 1995 were $0 and $3,519, respectively.
F-89
<PAGE> 143
SUPPLEMENTARY INFORMATION
F-90
<PAGE> 144
INDEPENDENT AUDITOR'S REPORT
ON SUPPLEMENTARY INFORMATION
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
Our report on our audits of the basic financial statements of Ramiro
Blanco, D.D.S., M.S.C., P.C. for 1996 and 1995 appears on page F-80. These
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. As disclosed in Note 1 to the financial statements,
the Company prepared its basic financial statements for the period commencing
September 1, 1995, the date of the Company's inception. On September 1, 1995,
Ramiro Blanco, D.D.S., M.S.C., P.C. acquired certain assets, consisting
primarily of equipment and goodwill, of Frank W. Wetherbee, D.M.D., P.C., a
dental practice in Billerica, Massachusetts. The accompanying supplementary
schedules presented on pages F-92 and F-93, were prepared for purposes of
additional analysis using January 1, 1994 as the date of inception for the
Company and the date on which the Company acquired certain assets of Frank W.
Wetherbee, D.M.D., P.C. and is not a required part of the basic financial
statements. In addition, the accompanying supplementary schedules, assumes an
opening balance sheet at January 1, 1994 that reflects the value of the
purchased assets and related liabilities as of August 31, 1995 and the combined
revenues and expenses of Frank W. Wetherbee D.M.D., P.C. and the Company
commencing January 1, 1994. Such information has not been subjected to auditing
procedures applied in the audit of the basic financial statements, and,
accordingly, we express no opinion on it.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-91
<PAGE> 145
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
SCHEDULES OF TOTAL ASSETS OF COMBINED DENTAL PRACTICES
ASSUMING JANUARY 1, 1994 AS DATE OF ACQUISITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ----------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ -- $ 28,454 $ --
Patient receivables, net of allowance for uncollectible
accounts
of $47,289, $46,264 and $25,376 in 1996, 1995, and
1994, respectively................................... 102,874 135,415 308,876
Prepaid expenses....................................... 18,500 18,500 18,500
-------- -------- --------
Total current assets.............................. 121,374 182,369 327,376
-------- -------- --------
Property and equipment, net................................. 155,543 163,298 195,958
-------- -------- --------
Other assets................................................ 180,490 184,112 198,274
-------- -------- --------
$ 457,407 $ 529,779 $ 721,608
======== ======== ========
</TABLE>
See independent auditor's report on supplementary information.
F-92
<PAGE> 146
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
SCHEDULES OF REVENUES AND EXPENSES OF COMBINED DENTAL PRACTICES
ASSUMING JANUARY 1, 1994 AS DATE OF ACQUISITION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER
MARCH 31, 31,
------------ -----------------------
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Net patient revenues................................. $224,765 $ 882,208 $ 983,190
-------- --------- ----------
Expenses:
Dentists' salaries.............................. 67,780 165,667 252,120
Clinical salaries............................... 30,952 136,822 137,798
Dental supplies and laboratory fees............. 22,383 159,829 156,613
Rental and lease expense........................ 10,500 50,472 57,189
Advertising and marketing....................... 1,988 18,578 27,498
Depreciation and amortization................... 11,802 46,822 46,822
Bad debt expense................................ 12,919 29,972 31,137
Other operating expenses........................ 23,866 102,667 89,205
General and administrative...................... 52,829 255,075 216,058
-------- --------- ----------
Total expenses............................. 235,019 965,904 1,014,440
-------- --------- ----------
Operating loss............................. (10,254) (83,696) (31,250)
Interest expense..................................... 15,254 57,873 57,873
-------- --------- ----------
Net loss............................................. $(25,508) $(141,569) $ (89,123)
======== ========= ==========
If all of the Company's operations had been subject
to income taxes, net loss would have been as
follows (Unaudited):
Historical loss before income taxes............. $(25,508) $(141,569) $ (89,123)
Provisional (benefit) for income taxes.......... (10,280) (57,052) (35,900)
-------- --------- ----------
Proforma net loss.......................... $(35,788) $ (84,517) $ (53,223)
======== ========= ==========
</TABLE>
See independent auditor's report on supplementary information.
F-93
<PAGE> 147
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of L. Elizabeth Burns, D.M.D.,
P.C. as of May 31, 1996 and September 30, 1995 and 1994, and the related
statements of operations and retained earnings, and cash flows for the eight
months ended May 31, 1996 and for the years ended September 30, 1995 and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of L. Elizabeth Burns, D.M.D.,
P.C. as of May 31, 1996 and September 30, 1995, and 1994, and the results of its
operations and its cash flows for the eight months ended May 31, 1996 and for
the years ended September 30, 1995 and 1994, in conformity with generally
accepted accounting principles.
Moody, Cavanaugh & Company, LLP
North Andover, Massachusetts
December 6, 1996
F-94
<PAGE> 148
L. ELIZABETH BURNS, D.M.D., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
MAY 31, -----------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.............................................. $ 4,114 $ 9,732 $ 25,159
Patient Receivables, Net of Allowance for Doubtful
Accounts of $41,500, $44,600, and $25,500,
Respectively.................................... 235,285 252,742 293,100
Due from Stockholder (Note 2)..................... -- 6,918 4,617
Other Current Assets.............................. -- 500 2,930
-------- -------- --------
Total Current Assets......................... 239,399 269,892 325,806
Property and Equipment, Net of Accumulated
Depreciation (Note 4)...................... 16,957 22,301 26,628
Other Assets................................. -- 4,825 859
-------- -------- --------
Total Assets........................................... $256,356 $297,018 $353,293
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses............. $ 20,592 $ 42,811 $ 50,655
Current Maturities of Long-Term Debt (Note 3)..... 4,823 8,196 7,291
Current Maturities of Capital Lease Obligation.... -- 2,412 2,439
-------- -------- --------
Total Current Liabilities.............................. 25,415 53,419 60,385
Long-Term Debt, Net of Current Maturities (Note 3)..... -- 2,172 11,192
Capital Lease Obligation, Net of Current Maturities.... -- -- 3,979
-------- -------- --------
Total Liabilities...................................... $ 25,415 $ 55,591 $ 75,556
-------- -------- --------
Stockholder's Equity:
Common Stock: No Par Value; 100 Shares Authorized,
Issued and Outstanding.......................... 1,000 1,000 1,000
Retained Earnings................................. 229,941 240,427 276,737
-------- -------- --------
Total Stockholder's Equity............................. 230,941 241,427 277,737
-------- -------- --------
Total Liabilities and Stockholder's Equity............. $256,356 $297,018 $353,293
======== ======== ========
</TABLE>
The accompanying notes are an integral part of financial statements
F-95
<PAGE> 149
L. ELIZABETH BURNS, D.M.D., P.C.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE EIGHT MONTHS AND YEARS ENDED
<TABLE>
<CAPTION>
SEPTEMBER 30,
MAY 31, -----------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Patient Revenues....................................... $280,474 $399,296 $396,317
-------- -------- --------
Expenses:
Salaries.......................................... 119,723 154,658 184,238
Bad Debts......................................... 62,018 51,089 28,443
Dental Supplies and Laboratory Fees............... 19,056 55,876 52,819
Retirement Plan Contributions (Note 5)............ 15,219 38,250 36,038
Office............................................ 12,034 17,793 14,211
Insurance......................................... 10,496 22,731 16,349
Automobile........................................ 8,767 14,819 7,656
Payroll Taxes..................................... 8,348 13,561 16,305
Depreciation...................................... 7,982 8,608 8,166
Rent (Note 6)..................................... 6,480 9,720 9,720
Utilities......................................... 6,279 10,125 11,377
Professional Fees................................. 5,426 13,219 13,462
Miscellaneous..................................... 4,279 10,244 15,504
Computer Supplies................................. 3,068 1,012 --
Dues and Subscription............................. 1,251 8,449 4,002
Uniforms.......................................... -- 1,033 1,210
Training and Education............................ -- 2,757 --
-------- -------- --------
Total Expenses......................................... 290,426 433,944 419,500
-------- -------- --------
Loss from Operations................................... (9,952) (34,648) (23,183)
Interest Expense....................................... 534 1,662 2,457
-------- -------- --------
Net Loss............................................... (10,486) (36,310) (25,640)
-------- -------- --------
Retained Earnings, Beginning........................... 240,427 276,737 302,377
-------- -------- --------
Retained Earnings, Ending.............................. $229,941 $240,427 $276,737
======== ======== ========
</TABLE>
The accompanying notes are an integral part of financial statements
F-96
<PAGE> 150
L. ELIZABETH BURNS, D.M.D., P.C.
STATEMENTS OF CASH FLOWS
FOR THE EIGHT MONTHS AND YEARS ENDED
<TABLE>
<CAPTION>
SEPTEMBER 30,
MAY 31, -----------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss.......................................... $(10,486) $(36,310) $(25,640)
Adjustments to Reconcile Net Loss to Net Cash
(Used in) Provided by Operating Activities:
Depreciation................................. 7,982 8,608 8,166
Decrease in Patient Receivables, Net......... 17,457 40,358 19,471
Decrease (Increase) in Other Current
Assets..................................... 500 2,430 (1,655)
Decrease (Increase) in Other Assets.......... 4,825 (3,966) --
(Decrease) Increase in Accounts Payable and
Accrued Expenses........................... (22,219) (7,844) 14,445
--------- --------- ---------
Net Cash (Used in) Provided by Operating Activities.... (1,941) 3,276 14,787
Cash Flows from Investing Activities:
Decrease (Increase) in Due from Stockholder....... 6,918 (2,301) (783)
Acquisition of Property and Equipment............. (2,638) (4,281) (2,813)
--------- --------- ---------
Net Cash Provided by (Used in) Investing Activities.... 4,280 (6,582) (3,596)
--------- --------- ---------
Cash Flows from Financing Activities:
Principal Repayments of Long-Term Debt............ (5,545) (8,115) (18,753)
Principal Repayments of Capital Lease
Obligation...................................... (2,412) (4,006) (4,822)
Proceeds from Issuance of Long-Term Debt.......... -- -- 21,829
--------- --------- ---------
Net Cash Used in Financing Activities.................. (7,957) (12,121) (1,746)
--------- --------- ---------
Net (Decrease) Increase in Cash........................ (5,618) (15,427) 9,445
--------- --------- ---------
Cash, Beginning........................................ 9,732 25,159 15,714
--------- --------- ---------
Cash, Ending........................................... $ 4,114 $ 9,732 $ 25,159
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for Interest:.............. $ 534 $ 1,662 $ 2,457
</TABLE>
During the year ended September 30, 1994, the Company financed the
acquisition of certain equipment with a capital lease obligation in the amount
of $11,240.
The accompanying notes are an integral part of financial statements
F-97
<PAGE> 151
L. ELIZABETH BURNS, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Entity:
L. Elizabeth Burns, D.M.D., P.C. (the Company) was incorporated on May 28,
1986, as a Massachusetts Corporation. The Company is a provider of dental
services to customers primarily living in the Lowell, Massachusetts area.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the related assets.
Income Taxes:
The Company and its stockholder have elected to be treated as an S
corporation under the provisions of the Internal Revenue Code, which provide
that, in lieu of federal and certain state corporate income taxes, the
stockholder is taxed individually on the Company's taxable income. Therefore, no
provision or liability for federal and certain state income taxes is presented
in the accompanying financial statements.
2. DUE FROM STOCKHOLDER:
Due from stockholder represented non-interest bearing cash advances made by
the Company to its sole stockholder during the normal course of business. As of
September 30, 1995 and 1994, the Company had net cash advances due from its sole
stockholder in the amount of $6,918, and $4,617, respectively. There were no
stated repayment terms.
3. LONG-TERM DEBT:
As of May 31, 1996 and September 30, 1995 and 1994, the Company is a party
to an unsecured, 6.5% installment note agreement, which is payable in monthly
principal and interest installments of $683 and which matures in December, 1996.
As of May 31, 1996, maturities of long-term debt amounted to $4,823.
F-98
<PAGE> 152
L. ELIZABETH BURNS, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment, as of May 31, 1996 and September 30, 1995 and 1994,
consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
MAY 31, ---------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operatory Equipment...................................... $ 75,528 $ 72,890 $ 72,890
Furniture and Fixtures................................... 23,686 23,686 20,226
Equipment Held Under Capital Lease....................... 11,240 11,240 11,240
Leasehold Improvements................................... 6,299 6,299 5,478
-------- -------- --------
116,753 114,115 109,834
Less: Accumulated Depreciation........................... 99,796 91,814 83,206
-------- -------- --------
$ 16,957 $ 22,301 $ 26,628
======== ======== ========
</TABLE>
5. RETIREMENT PLANS:
The Company sponsors a defined contribution profit sharing plan and a money
purchase retirement plan which cover certain employees of the Company. Under the
terms of the profit sharing plan, the Company, at the discretion of the Board of
Directors, may make contributions to the plan. Under the terms of the money
purchase plan, contributions are made each year based upon a specified
percentage of salaries. During the eight months ended May 31, 1996 and years
ended September 30, 1995 and 1994, the Company made contributions to the plans
in the aggregate amount of $15,219, $38,250 and $36,038, respectively.
6. LEASE COMMITMENTS:
The Company rents its operating facility in Lowell, Massachusetts on a
tenant-at-will basis. Rent expense incurred during the eight months ended May
31, 1995 and years ended September 31, 1995 and 1994, amounted to $6,480, $9,720
and $9,720, respectively.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
As of May 31, 1996 and September 30, 1995 and 1994, the carrying amounts of
cash, accounts receivable, and accounts payable and accrued expenses approximate
fair value due to the short-term nature of these financial instruments.
As of May 31, 1996 and September 30, 1995 and 1994, the carrying amount of
the long-term debt approximates fair value because the interest rate for this
financial instrument approximates current market interest rates.
8. SUBSEQUENT EVENT:
During June, 1996, under an asset purchase and sale agreement, the Company
sold a significant portion of its assets to First New England Dental Centers,
Inc.
F-99
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Steven R. Bader, D.M.D., and
Louis S. Shuman, D.M.D., P.C.
We have audited the accompanying balance sheets of Steven R. Bader, D.M.D.,
and Louis S. Shuman, D.M.D., P.C. as of December 31, 1995 and 1994, and the
related statements of current loss and deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Steven R. Bader, D.M.D., and
Louis S. Shuman, D.M.D., P.C., as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
de BAIROS & COMPANY, P.C.
Cambridge, Massachusetts
November 27, 1996
F-100
<PAGE> 154
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
BALANCE SHEET
DECEMBER 31, 1995 WITH COMPARATIVE FIGURES FOR 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash............................................................ $ 40,577 $ 58,186
Accounts receivable, net of allowance for doubtful accounts of
approximately $71,500 and $50,500 in 1995 and 1994,
respectively................................................... 213,502 210,345
Prepaid expenses and other current assets....................... 27,147 38,286
-------- --------
Total current assets....................................... 281,226 306,817
-------- --------
Equipment, fixtures and improvements:
Dental equipment................................................ 228,081 225,728
Office equipment................................................ 36,097 36,353
Furniture and fixtures.......................................... 15,064 15,064
Leasehold improvements.......................................... 242,671 192,689
-------- --------
521,913 469,834
Less accumulated depreciation and amortization.................. 161,574 118,207
-------- --------
360,339 351,627
-------- --------
Other assets:
Deposits........................................................ 2,873 2,873
-------- --------
$ 664,438 $ 661,317
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt............................... $ 104,921 $ 99,809
Current portion of capital lease obligations.................... 28,569 24,630
Accounts payable................................................ 46,172 54,182
Accrued expenses and other current liabilities.................. 190,758 108,609
Deferred revenue................................................ 36,100 43,900
-------- --------
Total current liabilities.................................. 406,520 331,130
-------- --------
Long-term debt, net of current portion............................... 175,167 278,890
Capital lease obligations, net of current portion.................... 97,562 121,078
Accrued rent......................................................... 88,920 35,568
-------- --------
361,649 435,536
-------- --------
Stockholders' deficit:
Common stock, no par value; 15,000 shares authorized, 2,000
shares issued and outstanding.................................. 2,000 2,000
Deficit......................................................... (125,731) (107,349)
-------- --------
Total stockholders' deficit................................ (123,731) (105,349)
-------- --------
$ 664,438 $ 661,317
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-101
<PAGE> 155
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
STATEMENTS OF CURRENT LOSS AND DEFICIT
YEAR ENDED DECEMBER 31, 1995 WITH COMPARATIVE FIGURES FOR 1994
CURRENT LOSS
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net revenue......................................................... $1,756,544 $1,582,391
---------- ----------
Costs and expenses:
Dentists' salaries............................................. 544,390 490,727
Clinical salaries.............................................. 308,736 280,007
Dental supplies and laboratory fees............................ 168,387 157,866
Rental and lease expense....................................... 54,782 82,629
Advertising and marketing...................................... 52,539 37,920
Depreciation and amortization.................................. 44,113 44,603
Other operating expenses....................................... 201,398 176,347
General and administrative expenses............................ 352,992 283,794
---------- ----------
1,727,337 1,553,893
---------- ----------
Earnings from operations.................................. 29,207 28,498
---------- ----------
Other expenses:
Interest expense, net of interest income of approximately
$2,800 and $300 in 1995 and 1994, respectively................ 45,885 42,379
Loss on disposal of fixed assets............................... 319 13,840
---------- ----------
46,204 56,219
---------- ----------
Loss before income taxes.................................. (16,997) (27,721)
Income tax expense.................................................. 1,385 456
---------- ----------
Net loss.................................................. $ (18,382) $ (28,177)
========== ==========
DEFICIT
Balance at beginning of year........................................ $ (107,349) $ (79,172)
Net loss............................................................ (18,382) (28,177)
---------- ----------
Balance at end of year.............................................. $ (125,731) $ (107,349)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-102
<PAGE> 156
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 WITH COMPARATIVE FIGURES FOR 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)........................................................... $ (18,382) $ (28,177)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation and amortization................................... 44,113 44,603
Loss on disposal of equipment, fixtures and improvements........ 319 13,840
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net............... (3,157) 8,187
Decrease (increase) in prepaid expenses and other current
assets....................................................... 11,139 (17,014)
(Decrease) in accounts payable................................ (8,010) (13,594)
Increase in accrued expenses and other current liabilities.... 82,149 18,468
(Decrease) in deferred revenue................................ (7,800) (5,400)
Increase in accrued rent...................................... 53,352 35,568
--------- ---------
Net cash flows from operating activities................... 153,723 56,481
--------- ---------
Cash flows from investing activities:
Acquisitions of equipment, fixtures and improvements............ (53,144) (212,407)
Proceeds from disposal of equipment, fixtures and
improvements................................................... -- 7,000
--------- ---------
Net cash flows from investing activities................... (53,144) (205,407)
--------- ---------
Cash flows from financing activities:
Proceeds from demand note payable, bank......................... -- 43,607
Proceeds from issuance of long-term debt and capital lease
obligations.................................................... 5,085 283,079
Payments on demand note payable, bank........................... -- (48,930)
Payments on long-term debt and capital lease obligations........ (123,273) (72,037)
--------- ---------
Net cash flows from financing activities................... (118,188) 205,719
--------- ---------
Decrease (increase) in cash.......................................... (17,609) 56,793
Cash at beginning of year............................................ 58,186 1,393
--------- ---------
Cash at end of year.................................................. $ 40,577 $ 58,186
========= =========
</TABLE>
The Company paid interest of approximately $48,700 and $42,700 in 1995 and 1994,
respectively.
The Company paid income taxes of $456 in 1995 and 1994.
Acquisitions of equipment, fixtures and improvements totaling $93,086 were
financed in 1994.
The accompanying notes are an integral part of the financial statements.
F-103
<PAGE> 157
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- ACCOUNTING POLICIES
A summary of the major accounting policies followed by the Company in
the preparation of the accompanying financial statements is set forth
below:
Business Activity -- The Company is a provider of general and
specialty dental services to the general public.
Basis of Financial Statement Presentation -- The financial statements
have been prepared in conformity with generally accepted accounting
principles. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and of net revenue and expenses for each
reporting period.
Revenue Recognition -- In general, the Company bills patients for
services at the commencement of a procedure. Net revenue is recognized as
the costs of services are incurred. Deferred revenue represents the
unearned portion of the amount billed to the patient for certain
in-progress procedures requiring multiple office visits.
Accounts Receivable -- Accounts receivable primarily consists of
receivables from patients and insurers for services provided. The Company
provides an allowance for doubtful accounts equal to estimated bad debt
losses. The estimated losses are based on historical collection experience
together with a review of the existing receivables.
Equipment, Fixtures and Improvements -- Equipment, fixtures and
improvements are stated at cost. Major additions and betterments are
charged to the property accounts while replacements, maintenance and
repairs which do not extend the lives of the respective assets are expensed
in the year incurred.
Depreciation and Amortization -- Depreciation and amortization are
computed using the straight-line method over the estimated useful lives
noted below:
<TABLE>
<CAPTION>
ASSET LIFE IN YEARS
------------------------------------------------- -------------
<S> <C>
Dental equipment................................. 4-10
Office equipment................................. 4-10
Furniture and fixtures........................... 4-10
Leasehold improvements........................... 15
</TABLE>
The total depreciation and amortization charged to expense was
$44,113 and $44,603 in 1995 and 1994, respectively.
Accounting for Compensated Absences -- No provision has been made for
the liability attributable to vested employees' compensated absences since
the amount cannot be reasonably estimated. In management's opinion, the
amount is not significant.
Income Taxes -- Income taxes are determined under the liability
method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and
are measured using the enacted marginal tax rates currently in effect.
Advertising -- Costs incurred for advertising are expensed when
incurred.
F-104
<PAGE> 158
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 2 -- DEMAND NOTE PAYABLE, BANK
In October, 1993 the Company entered into a line of credit agreement
with a bank whereby it may borrow amounts not to exceed $50,000. The note bears
interest at 2% above the bank's prime lending rate, is secured by all of the
Company's assets, and is guaranteed by the Company's stockholders (see Note 3).
There were no balances outstanding on this line of credit at December 31, 1995
and 1994.
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Note payable, bank in the original principal amount of $190,000 was
entered into in October, 1993, is secured by all of the Company's
assets, and is guaranteed by the Company's stockholders. The note which
bears interest at 1 1/2% above the bank's prime lending rate (10% at
December 31, 1995) requires monthly principal payments of $3,167 plus
accrued interest and is due in October, 1998. The proceeds from this
note and the demand note payable, bank, (see Note 2), were used to
repay, in full, note balances due to another bank...................... $107,450 $145,450
Note payable, equipment in the original principal amount of $3,558 is
secured by equipment with a cost of $3,558. The note which bears
interest at 11.26% requires monthly principal and interest payments of
$117 and is due in December, 1996...................................... 1,320 2,502
Note payable, bank in the original principal amount of $250,000 was
entered into in May, 1994, is secured by all of the Company's assets,
and is guaranteed by the Company's stockholders. The note which bore
interest at 8 3/4% for the first year bears interest at 2% above the
bank's prime lending rate for the remainder of the term (10.5% at
December 31, 1995). The note which required interest only payments
through August, 1994, requires monthly principal and interest payments
of $6,765 and is due in May, 1998...................................... 171,318 230,747
-------- --------
280,088 378,699
Less current portion........................................ 104,921 99,809
-------- --------
$175,167 $278,890
======== ========
</TABLE>
The following is a schedule of the approximate aggregate amounts due
under all long-term debt agreements:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
-------------------------------------------------- --------
<S> <C>
1996........................................... $104,900
1997........................................... 111,200
1998........................................... 64,000
--------
$280,100
========
</TABLE>
F-105
<PAGE> 159
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 4 -- CAPITAL LEASE OBLIGATIONS
The Company leases certain furniture and fixtures, and dental
equipment under lease purchase agreements. These leases have been capitalized at
a cumulative cost totaling approximately $130,000 with related accumulated
amortization totaling approximately $33,300 at December 31, 1995. As part of
these lease transactions, the Company received cash of approximately $38,200 in
excess of the cost of the related furniture and fixtures, and dental equipment.
Future minimum lease payments and the present value of minimum lease
payments for capital leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
-------------------------------------------------- --------
<S> <C>
1996........................................... $ 43,045
1997........................................... 43,606
1998........................................... 39,406
1999........................................... 30,322
2000........................................... 623
--------
Total minimum lease payments...................... 157,002
Less amount representing interest................. 30,871
--------
Present value of minimum lease payments........... 126,131
Less amount due within one year................... 28,569
--------
Long-term portion................................. $ 97,562
========
</TABLE>
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
On August 1, 1988 the Company entered into an agreement to lease its
facilities through January 31, 1996. This lease was terminated as of April, 1994
by mutual consent of the lessor and the Company and replaced with an agreement
for new facilities, as described in the following paragraph, between this lessor
and the Company. In addition to the minimum lease rentals, the Company also paid
additional rentals for its share of common area maintenance, real estate taxes
and promotional fees.
The Company entered into an agreement, effective May 1, 1994 to lease
new facilities through January, 2010. Under the terms of this lease, the lessor
has agreed to require no rental payments through May, 1998 in order to assist
the Company in meeting certain cash flow requirements associated with leasehold
improvements to the new facilities. In addition, as a further inducement to the
Company, the minimum monthly lease payments due from June, 1998 through January
31, 2010 under this lease have been reduced from the amounts required under the
previous agreement, and the Company is no longer required to pay additional
rentals for its share of common area maintenance, real estate taxes and
promotional fees. The Company accrues rent expense on this lease on a
straight-line basis over the lease term.
The amounts charged to operations under these leases, including
additional rentals, totaled approximately $53,400 and $82,600 in 1995 and 1994,
respectively.
F-106
<PAGE> 160
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 5 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The future minimum annual rental payments required under this lease
at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
-------------------------------------------------- --------
<S> <C>
1996........................................... $ --
1997........................................... --
1998........................................... 35,900
1999........................................... 61,500
2000........................................... 61,500
Later years....................................... 681,400
--------
$840,300
========
</TABLE>
NOTE 6 -- INCOME TAXES
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes. Deferred taxes are recognized for differences between the basis
of assets and liabilities for financial statement and income tax purposes. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. The differences are due, primarily, to
the use of the cash basis of accounting for income tax reporting and differences
in depreciation methods for equipment, fixtures, and improvements.
The Company has gross deferred income tax assets and gross deferred
income tax liabilities as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards............................................. $ 1,690 $ 16,580
Accounts payable and accrued expenses.................................... 47,490 36,130
Deferred revenue......................................................... 8,330 10,130
Accrued rent............................................................. 20,520 8,200
Depreciation............................................................. -- 3,940
Valuation allowance...................................................... (21,760) (18,740)
-------- --------
Net deferred income tax asset................................. 56,270 56,240
-------- --------
Deferred tax liabilities:
Accounts receivable...................................................... (49,260) (48,530)
Prepaid expenses......................................................... (5,470) (7,710)
Depreciation............................................................. (1,540) --
-------- --------
Net deferred income tax liability............................. (56,270) (56,240)
-------- --------
Net deferred tax asset (liability)............................ $ -- $ --
======== ========
</TABLE>
F-107
<PAGE> 161
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 6 -- INCOME TAXES -- (CONTINUED)
The operating loss carryforward tax asset relates to federal loss
carryforwards totaling approximately $11,240 at December 31, 1995. The federal
operating loss carryforward, if not utilized, is due to expire in 2009. The
Company utilized federal and state loss carryforwards totaling approximately
$67,800 and $58,400, respectively, in 1995. The valuation allowance relates to
the amount of the deferred tax asset which, it is believed, is not more likely
than not to be realized.
The current and deferred components of income tax expense for the
years ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current expense:
State............................................................... $ 1,385 $ 456
------- -------
Deferred (benefit) expense:
Federal............................................................. (1,775) (2,325)
State............................................................... (1,245) (1,625)
Change in valuation reserve......................................... 3,020 3,950
------- -------
-- --
------- -------
Income tax expense....................................................... $ 1,385 $ 456
======= =======
</TABLE>
Income tax expense for the years presented is different from the
amounts computed by applying the statutory federal income tax rate of 34% to
loss before income taxes. The following tabulation reconciles federal income tax
expense based on the statutory rates to the actual income tax expense for the
years ended December 31,:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Federal income tax (benefit) at statutory rates.................. $(5,780) $(9,425)
State income taxes, net of federal income tax (benefit).......... (1,370) (2,040)
Graduated tax benefit............................................ 2,920 4,765
Effect of non-deductible life insurance premiums................. 1,625 3,110
Other............................................................ 970 96
Change in valuation reserve...................................... 3,020 3,950
------- -------
$ 1,385 $ 456
======= =======
</TABLE>
The Corporation's federal income tax returns have not been examined
by the Internal Revenue Service in recent years. Management does not anticipate
any material assessments for the unexamined years.
NOTE 7 -- RELATED PARTY TRANSACTION
In December, 1995, the Board of Directors of the Company voted to pay
a cash bonus of $50,000 to each of the Company's two officers. The two officers
are also the sole stockholders of the Company. The $100,000 bonus has been
recorded and included at December 31, 1995 in accrued expenses and other current
liabilities and general and administrative expenses.
F-108
<PAGE> 162
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Steven R. Bader, D.M.D., and
Louis S. Shuman, D.M.D., P.C.
We have audited the accompanying balance sheet of Steven R. Bader, D.M.D.,
and Louis S. Shuman, D.M.D., P.C. as of May 31, 1996 and the related statements
of current earnings and deficit, and cash flows for the five months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Steven R. Bader, D.M.D., and
Louis S. Shuman, D.M.D., P.C., as of May 31, 1996, and the results of its
operations and its cash flows for the five months then ended in conformity with
generally accepted accounting principles.
de BAIROS & COMPANY, P.C.
Cambridge, Massachusetts
November 27, 1996
F-109
<PAGE> 163
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
BALANCE SHEET
MAY 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 31,823
Accounts receivable, net of allowance for doubtful accounts of approximately
$83,000..................................................................... 231,039
Refundable income taxes...................................................... 6,159
Prepaid expenses and other current assets.................................... 29,767
--------
Total current assets.................................................... 298,788
--------
Equipment, fixtures and improvements:
Dental equipment............................................................. 228,081
Office equipment............................................................. 36,097
Furniture and fixtures....................................................... 15,064
Leasehold improvements....................................................... 242,671
--------
521,913
Less accumulated depreciation and amortization............................... 178,390
--------
343,523
--------
Other assets:
Deposits..................................................................... 2,873
--------
$645,184
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt............................................ $107,433
Current portion of capital lease obligations................................. 30,467
Accounts payable............................................................. 94,369
Accrued expenses and other current liabilities............................... 104,045
Deferred revenue............................................................. 42,900
--------
Total current liabilities............................................... 379,214
--------
Long-term debt, net of current portion............................................ 126,768
Capital lease obligations, net of current portion................................. 84,250
Accrued rent...................................................................... 111,150
--------
322,168
--------
Stockholders' deficit:
Common stock, no par value; 15,000 shares authorized, 2000 shares issued and
outstanding................................................................. 2,000
Deficit...................................................................... (58,198)
--------
Total stockholders' deficit............................................. (56,198)
--------
$645,184
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-110
<PAGE> 164
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
STATEMENTS OF CURRENT EARNINGS AND DEFICIT
FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
CURRENT EARNINGS
Net revenue...................................................................... $ 838,084
---------
Costs and expenses:
Dentists' salaries.......................................................... 238,286
Clinical salaries........................................................... 135,996
Dental supplies and laboratory fees......................................... 83,205
Rental and lease expense.................................................... 23,004
Advertising and marketing................................................... 21,261
Depreciation and amortization............................................... 16,816
Other operating expenses.................................................... 95,350
General and administrative expenses......................................... 139,262
---------
753,180
---------
Earnings from operations............................................... 84,904
Other expense:
Interest expense, net of interest income of approximately $1,200............ 17,371
---------
Net earnings........................................................... $ 67,533
=========
DEFICIT
Balance at beginning of year..................................................... $(125,731)
Net earnings..................................................................... 67,533
---------
Balance at end of year........................................................... $ (58,198)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-111
<PAGE> 165
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
STATEMENT OF CASH FLOWS
FIVE MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net earnings...................................................................... $ 67,533
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................ 16,816
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net..................................... (17,537)
(Increase) in refundable income taxes...................................... (6,159)
(Increase) in prepaid expenses and other current assets.................... (2,620)
Increase in accounts payable............................................... 48,197
(Decrease) in accrued expenses and other current liabilities............... (86,713)
Increase in deferred revenue............................................... 6,800
Increase in accrued rent................................................... 22,230
--------
Net cash flows from operating activities................................ 48,547
--------
Cash flows from investing activities.............................................. --
--------
Cash flows from financing activities:
Payments on long-term debt and capital lease obligations..................... (57,301)
--------
Net cash flows from financing activities................................ (57,301)
--------
(Decrease) in cash................................................................ (8,754)
Cash at beginning of year......................................................... 40,577
--------
Cash at end of year............................................................... $ 31,823
========
</TABLE>
The Company paid interest of approximately $18,600 during the five months ended
May 31, 1996.
The Company paid income taxes of approximately $8,000 during the five months
ended May 31, 1996.
The accompanying notes are an integral part of the financial statements.
F-112
<PAGE> 166
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
NOTE 1 -- ACCOUNTING POLICIES
A summary of the major accounting policies followed by the Company in
the preparation of the accompanying financial statements is set forth
below:
Business Activity -- The Company is a provider of general and
specialty dental services to the general public.
Basis of Financial Statement Presentation -- The financial statements
have been prepared in conformity with generally accepted accounting
principles. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and of net revenue and expenses for each
reporting period.
Revenue Recognition -- In general, the Company bills patients for
services at the commencement of a procedure. Net revenue is recognized as
the costs of services are incurred. Deferred revenue represents the
unearned portion of the amount billed to the patient for certain
in-progress procedures requiring multiple office visits.
Accounts Receivable -- The Company provides an allowance for doubtful
accounts equal to estimated bad debt losses. The estimated losses are based
on historical collection experience together with a review of the existing
receivables.
Equipment, Fixtures and Improvements -- Equipment, fixtures and
improvements are stated at cost. Major additions and betterments are
charged to the property accounts while replacements, maintenance and
repairs which do not extend the lives of the respective assets are expensed
in the year incurred.
Depreciation and Amortization -- Depreciation and amortization are
computed using the straight-line method over the estimated useful lives
noted below:
<TABLE>
<CAPTION>
ASSET LIFE IN YEARS
------------------------------------------------- -------------
<S> <C>
Dental equipment................................. 4-10
Office equipment................................. 4-10
Furniture and fixtures........................... 4-10
Leasehold improvements........................... 15
</TABLE>
The total depreciation and amortization charged to expense during the
five months ended May 31, 1996 totaled $16,816.
Accounting for Compensated Absences -- No provision has been made for
the liability attributable to vested employees' compensated absences since
the amount cannot be reasonably estimated. In management's opinion, the
amount is not significant.
Income Taxes -- Income taxes are determined under the liability
method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and
are measured using the enacted marginal tax rates currently in effect.
Advertising -- Costs incurred for advertising are expensed when
incurred.
F-113
<PAGE> 167
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
NOTE 2 -- DEMAND NOTE PAYABLE, BANK
In October, 1993 the Company entered into a line of credit agreement
with a bank whereby it may borrow amounts not to exceed $50,000. The note bears
interest at 2% above the bank's prime lending rate, is secured by all of the
Company's assets, and is guaranteed by the Company's stockholders (see Note 3).
There were no balances outstanding on this line of credit at May 31, 1996.
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable, bank in the original principal amount of $190,000 was entered into
in October, 1993, is secured by all of the Company's assets, and is guaranteed by
the Company's stockholders. The note which bears interest at 1 1/2% above the
bank's prime lending rate (9 3/4% at May 31, 1996) requires monthly principal
payments of $3,167 plus accrued interest and is due in October, 1998. The proceeds
from this note and the demand note payable, bank, (see Note 2), were used to
repay, in full, note balances due to another bank. ............................... $ 88,450
Note payable, equipment in the original principal amount of $3,558 is secured by
equipment with a cost of $3,558. The note which bears interest at 11.26% requires
monthly principal and interest payments of $117 and is due in December, 1996. .... 790
Note payable, bank in the original principal amount of $250,000 was entered into
in May, 1994, is secured by all of the Company's assets, and is guaranteed by the
Company's stockholders. The note which bore interest at 8 3/4% for the first year,
bears interest at 2% above the bank's prime lending rate for the remainder of the
term (10 1/4% at May 31, 1996). The note which required interest only payments
through August, 1994, requires monthly principal and interest payments of $6,716
and is due in May, 1998. ......................................................... 144,961
--------
234,201
Less current portion................................................... 107,433
--------
$126,768
========
</TABLE>
The following is a schedule of the approximate aggregate amounts due
under all long-term debt agreements:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING
MAY 31, AMOUNT
-------------------------------------------------- ---------
<S> <C>
1997........................................... $ 107,400
1998........................................... 126,800
--------
$ 234,200
========
</TABLE>
F-114
<PAGE> 168
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
NOTE 4 -- CAPITAL LEASE OBLIGATIONS
The Company acquired certain furniture and fixtures, and dental
equipment in 1993 and 1994 and financed a major portion of the cost under lease
purchase agreements. These leases have been capitalized at a cumulative cost
totaling approximately $130,000 with related accumulated amortization totaling
approximately $40,400 at May 31, 1996. As part of these lease transactions, the
Company received cash of approximately $38,200 in excess of the cost of the
related furniture and fixtures, and dental equipment.
Future minimum lease payments and the present value of minimum lease
payments for capital leases at May 31, 1996 are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING
MAY 31, AMOUNT
-------------------------------------------------- ---------
<S> <C>
1997........................................... $ 43,845
1998........................................... 42,503
1999........................................... 36,425
2000........................................... 16,763
--------
Total minimum lease payments...................... 139,536
Less amount representing interest................. 24,819
--------
Present value of minimum lease payments........... 114,717
Less amount due within one year................... 30,467
--------
Long-term portion................................. $ 84,250
========
</TABLE>
NOTE 5 -- COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement, effective May 1, 1994, to lease
facilities through January, 2010. Under the terms of this lease, the lessor has
agreed to require no rental payments through May, 1998 in order to assist the
Company in meeting certain cash flow requirements associated with leasehold
improvements to the new facilities. In addition, as a further inducement to the
Company, the minimum monthly lease payments due from June, 1998 through January
31, 2010 under this lease have been reduced from the amounts required under the
previous agreement, and the Company is no longer required to pay additional
rentals for its share of common area maintenance, real estate taxes and
promotional fees. The Company accrues rent expense on this lease on a
straight-line basis over the lease term.
The amounts charged to operations under this lease totaled
approximately $22,200 during the five months ended May 31, 1996.
The future minimum annual rentals required under this lease at May 31,
1996, are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING
MAY 31, AMOUNT
-------------------------------------------------- ---------
<S> <C>
1997........................................... $ --
1998........................................... --
1999........................................... 61,500
2000........................................... 61,500
2001........................................... 61,500
Later years....................................... 655,800
--------
$ 840,300
========
</TABLE>
F-115
<PAGE> 169
STEVEN R. BADER, D.M.D.,
AND LOUIS S. SHUMAN, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1996
NOTE 6 -- INCOME TAXES
The Company, with the consent of its stockholders, has elected under
the Internal Revenue Code to be treated as an S Corporation. This election
became effective on January 1, 1996. In lieu of corporate income taxes, the
stockholders of an S corporation are taxed on their proportional share of the
Company's federal and state taxable income. Therefore, no provision or liability
for federal or state income taxes has been included in these financial
statements.
The Company's income tax returns have not been examined by the
Internal Revenue Service in recent years. Management does not anticipate any
material assessments for the unexamined years.
NOTE 7 -- RELATED PARTY TRANSACTIONS
In December, 1995, the Board of Directors of the Company voted to pay
a cash bonus of $50,000 to each of the Company's two officers. The $100,000
bonus which was recorded as an accrued expense at December 31, 1995, was paid
during the five months ended May 31, 1996.
F-116
<PAGE> 170
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Paul D. Silver, D.M.D.,
P.A. (an S Corporation) as of May 31, 1996 and December 31, 1995 and 1994, and
the related statements of operations, changes in stockholder's equity, and cash
flows for the five months ended May 31, 1996 and for the years ended December
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Paul D. Silver, D.M.D., P.A.
as of May 31, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the five months ended May 31, 1996 and for the
years ended December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-117
<PAGE> 171
PAUL D. SILVER, D.M.D., P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
-------- ---------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 6,916 $ 5,594 $ 11,478
Patient receivables, net of allowance for uncollectible
accounts of $38,000, $35,000, and $29,000 in 1996,
1995 and 1994, respectively........................... 109,849 90,806 136,925
-------- -------- --------
Total current assets............................. 116,765 96,400 148,403
-------- -------- --------
Property and equipment, net................................ 103,305 112,865 125,098
-------- -------- --------
Other assets............................................... 2,279 2,576 3,289
-------- -------- --------
$222,349 $211,841 $276,790
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit........................................... $ 22,000 $ -- $ --
Current portion of long-term debt........................ 3,140 5,380 25,653
Current portion of capital lease obligations............. 24,068 21,029 14,948
Advances from stockholder................................ -- 4,872 1,334
Accounts payable and accrued expenses.................... 31,338 23,991 19,605
-------- -------- --------
Total current liabilities........................ 80,546 55,272 61,540
-------- -------- --------
Long-term liabilities:
Long-term debt, net of current portion................... 78,967 82,733 68,869
Capital lease obligations, net of current portion........ 49,924 62,280 70,489
-------- -------- --------
Total long-term liabilities...................... 128,891 145,013 139,358
-------- -------- --------
Stockholder's equity:
Common stock, $0.01 par value, 17,715 shares authorized,
issued and outstanding................................ 177 177 177
Additional paid-in capital............................... 10,769 10,769 10,769
Retained earnings........................................ 1,966 610 64,946
-------- -------- --------
Total stockholder's equity....................... 12,912 11,556 75,892
-------- -------- --------
$222,349 $211,841 $276,790
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-118
<PAGE> 172
PAUL D. SILVER, D.M.D., P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED DECEMBER
MAY, 31, 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Net patient revenues...................................... $ 335,451 $865,417 $859,277
----------- -------- --------
Expenses:
Dentists' salaries...................................... 106,677 316,839 285,959
Clinical salaries....................................... 57,640 181,468 170,255
Dental supplies and laboratory fees..................... 37,337 89,497 89,226
Rental and lease expense - related party................ 14,166 43,075 43,199
Depreciation and amortization........................... 9,857 30,833 36,087
Bad debt expense........................................ 5,499 12,580 34,365
Other operating expenses................................ 37,593 73,612 68,386
General and administrative.............................. 55,911 153,500 119,511
----------- -------- --------
Total expenses.................................. 324,680 901,404 846,988
----------- -------- --------
Operating income (loss)......................... 10,771 (35,987) 12,289
Interest expense.......................................... 9,415 24,849 23,397
----------- -------- --------
Net income (loss)......................................... $ 1,356 $(60,836) $(11,108)
========= ======== ========
If all of the Company's operations had been subject to
income taxes, net income (loss) would have been as
follows (unaudited):
Historical income (loss) before income taxes......... $ 1,356 $(60,836) $(11,108)
Provision (benefit) for income taxes................. 600 (23,800) (4,500)
----------- -------- --------
Proforma net income (loss)........................... $ 756 $(37,036) $ (6,608)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-119
<PAGE> 173
PAUL D. SILVER, D.M.D., P.A.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED TOTAL
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............... 17,715 $177 $ 10,769 $ 76,054 $ 87,000
Net loss............................... -- -- -- (11,108) (11,108)
------ ---- ------- -------- --------
Balance at December 31, 1994............. 17,715 177 10,769 64,946 75,892
Net loss............................... -- -- -- (60,836) (60,836)
Distributions to stockholder........... -- -- -- (3,500) (3,500)
------ ---- ------- -------- --------
Balance at December 31, 1995............. 17,715 177 10,769 610 11,556
Net income............................. -- -- -- 1,356 1,356
------ ---- ------- -------- --------
Balance at May 31, 1996.................. 17,715 $177 $ 10,769 $ 1,966 $ 12,912
====== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-120
<PAGE> 174
PAUL D. SILVER, D.M.D., P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED DECEMBER
MAY 31, 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 1,356 $(60,836) $(11,108)
Adjustments:
Provision for bad debts.............................. 5,499 12,850 34,365
Depreciation and amortization........................ 9,857 30,833 36,087
Changes in operating assets and liabilities:
Patient receivables................................ (24,542) 33,269 (32,018)
Accounts payable and accrued expenses.............. 7,347 4,386 10,623
------- -------- --------
Net cash provided by (used in) operating
activities.................................... (483) 20,502 37,949
------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment................... -- (5,067) (48,031)
Acquisition of other assets............................. -- -- (1,461)
------- -------- --------
Net cash used in investing activities........... -- (5,067) (49,492)
------- -------- --------
Cash flows from financing activities:
Proceeds from line of credit............................ 22,000 -- --
Proceeds from long-term debt............................ -- 19,244 19,819
Payments on long-term debt.............................. (6,006) (25,653) (6,641)
Payments on capital lease obligations................... (9,317) (14,948) (7,533)
Net proceeds (payments) on advances from stockholder.... (4,872) 3,538 4,444
Distributions to stockholder............................ -- (3,500) --
------- -------- --------
Net cash provided by (used in) financing
activities.................................... 1,805 (21,319) 10,089
------- -------- --------
Increase (decrease) in cash and cash equivalents.......... 1,322 (5,884) (1,454)
Cash and cash equivalents, beginning of period............ 5,594 11,478 12,932
------- -------- --------
Cash and cash equivalents, end of period.................. $ 6,916 $ 5,594 $ 11,478
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-121
<PAGE> 175
PAUL D. SILVER, D.M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
FIVE MONTHS ENDED MAY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
The Company is a provider of dental services and products located in
Raymond, New Hampshire.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental revenue is recognized as the services are performed and
billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
forty years. Fully depreciated assets are retained in property and equipment
until they are removed from service. Fully depreciated assets as of May 31,
1996, December 31, 1995 and 1994 were $185,148. Maintenance and repairs are
charged to expenses whereas renewals and major replacements are capitalized.
Gains and losses from dispositions are included in operations.
Income Taxes
The Company is an S Corporation and, accordingly, all federal and state tax
liabilities are the responsibility of the stockholder.
Income taxes, including the proforma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
F-122
<PAGE> 176
PAUL D. SILVER, D.M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
FIVE MONTHS ENDED MAY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
-------- ---------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Property and equipment:
Equipment........................................... $174,142 $174,142 $169,075
Equipment under capital lease....................... 104,898 104,898 92,078
Leasehold improvements.............................. 87,511 87,511 87,511
Furniture and fixtures.............................. 53,325 53,325 53,325
-------- -------- --------
Total property and equipment................ 419,876 419,876 401,989
Less -- accumulated depreciation and amortization... 316,571 307,011 276,891
-------- -------- --------
Net property and equipment.................. $103,305 $112,865 $125,098
======== ======== ========
</TABLE>
For the five months ended May 31, 1996 and the years ended December 31,
1995 and 1994, depreciation and amortization relating to property and equipment
was $9,560, $30,120, and $35,593, respectively.
The amounts of accumulated amortization for equipment under capital leases
as of May 31, 1996, December 31, 1995 and 1994 were $6,405, $45,718 and $28,157,
respectively.
<TABLE>
<S> <C> <C> <C>
Accounts payable and accrued expenses:
Trade.................................................. $15,304 $14,046 $ 6,794
Accrued liabilities.................................... 16,034 9,945 12,811
------- ------- -------
$31,338 $23,991 $19,605
======= ======= =======
</TABLE>
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
------- --------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period...................... $35,000 $29,000 $ 29,000
Provision for bad debts............................. 5,499 12,850 34,365
Charge offs......................................... (2,499) (6,850) (34,365)
------- ------- --------
Balance at end of period............................ $38,000 $35,000 $ 29,000
======= ======= ========
</TABLE>
F-123
<PAGE> 177
PAUL D. SILVER, D.M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
FIVE MONTHS ENDED MAY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. LINE OF CREDIT
During the five months ended May 31, 1996 and the year ended December 31,
1995, the Company had available a revolving line of credit of $25,000 with a
bank, payable on demand, with interest at 2% above the bank's prime rate and
secured by substantially all corporate assets. The note is personally guaranteed
by the sole stockholder of the Company. The outstanding balance at May 31, 1996
and December 31, 1995 was $22,000 and $0, respectively.
5. LONG-TERM DEBT
Long-term debt at May 31, 1996, December 31, 1995, and December 31, 1994
consisted of the following:
<TABLE>
<CAPTION>
MAY 31, DECEMBER 31,
------- -------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Note payable to a bank, dated December 1990, payable in
240 monthly installments of $512 including interest at
9.75%, secured by equipment............................ $45,141 $48,264 $53,384
Note payable to a bank, dated November 1993, payable in
180 monthly installments of $227 including interest at
9.25%, secured by equipment............................ 20,189 20,605 21,319
Note payable to a bank, dated August 1995, payable in 60
monthly installments of $442 including interest at
11.5%, secured by equipment............................ 16,777 19,244 --
Note payable to a bank, dated July 1994, payable in one
year bearing interest at 11%, secured by all assets of
the company............................................ -- -- 19,819
------- ------- -------
82,107 88,113 94,522
Less - current portion................................... 3,140 5,380 25,653
------- ------- -------
Long-term debt, net of current portion................... $78,967 $82,733 $68,869
======= ======= =======
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1995 for each
of the next five years were as follows:
<TABLE>
<S> <C>
1996............................................................... $ 5,380
1997............................................................... 5,620
1998............................................................... 5,900
1999............................................................... 6,340
2000............................................................... 6,740
Thereafter......................................................... 58,133
-------
$88,113
=======
</TABLE>
F-124
<PAGE> 178
PAUL D. SILVER, D.M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
FIVE MONTHS ENDED MAY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases a portion of its property and equipment under capital
leases. Future minimum lease payments under capital leases with remaining terms
of one or more years consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996.............................................................. $ 34,529
1997.............................................................. 33,803
1998.............................................................. 24,052
1999.............................................................. 16,028
2000.............................................................. 8,787
--------
Total minimum lease obligations................................... 117,199
Less - amount representing interest............................. 33,890
--------
Present value of minimum lease obligations........................ 83,309
Less - current portion.......................................... 21,029
--------
Long-term capital lease obligations............................... $ 62,280
========
</TABLE>
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
7. INCOME TAXES
The differences between the federal tax rate and the Company's effective
tax rate at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED DECEMBER
MAY 31, 31,
----------- ----------------------
1996 1995 1994
----------- -------- -------
<S> <C> <C> <C>
Tax at U.S. statutory rate (35%)................... $ 500 $(21,000) $(4,000)
State income taxes, net of federal tax............. 100 (2,800) (500)
Income not subject to corporate level federal
tax.............................................. (600) 23,800 4,500
----- -------- -------
$ -- $ -- $ --
===== ======== =======
</TABLE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEARS ENDED DECEMBER
MAY 31, 31,
----------- ---------------------
1996 1995 1994
----------- ------- -------
<S> <C> <C> <C>
Cash paid during the period for interest............ $ 9,415 $24,849 $23,397
====== ======= =======
Cash paid during the period for income taxes........ $ -- $ -- $ --
====== ======= =======
Noncash transactions - capital lease obligations.... $ -- $12,820 $92,078
====== ======= =======
</TABLE>
F-125
<PAGE> 179
PAUL D. SILVER, D.M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
FIVE MONTHS ENDED MAY 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, line of
credit, advances from stockholder, and accounts payable and accrued expenses
approximate fair values due to the short-term maturities of these instruments.
The carrying amounts of the Company's fixed rate long-term debt and capital
lease obligations approximate fair value.
10. SUBSEQUENT EVENT
The Company was acquired by First New England Dental Centers, Inc.
effective July 1, 1996. The accompanying financial statements are presented on a
going concern basis and not on a liquidation basis.
11. RELATED PARTY TRANSACTIONS
Advances from Stockholder
Advances from stockholder, payable on demand, as of May 31, 1996, December
31, 1995 and 1994 were $0, $4,872, and $1,334, respectively.
Rent Expense
The Company rents its office facility from the stockholder of the Company
under a tenant at will agreement. Rent expense for the five months ended May 31,
1996 and the years ended December 31, 1995 and 1994 was approximately $15,200,
$35,500 and $39,600, respectively.
F-126
<PAGE> 180
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Cram-Chema, P.A. as of June
30, 1996 and December 31, 1995 and 1994, and the related statements of income
and retained earnings, and cash flows for the six months ended June 30, 1996 and
for the years ended December 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cram-Chema, P.A. as of June 30,
1996 and December 31, 1995 and 1994, and the results of its operations and its
cash flows for the six months ended June 30, 1996 and for the years ended
December 31, 1995 and 1994, in conformity with generally accepted accounting
principles.
Moody, Cavanaugh & Company, LLP
North Andover, Massachusetts
November 22, 1996
F-127
<PAGE> 181
CRAM-CHEMA, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Assets
Current Assets:
Cash................................................ $ 22,625 $ 6,215 $ 2,493
Patient Receivables, Net of Allowance for Doubtful
Accounts of $7,000, $4,000 and $4,000,
Respectively...................................... 54,388 40,653 28,983
-------- ------- -------
Total Current Assets..................................... 77,013 46,868 31,476
Property and Equipment, Net of Accumulated Depreciation
(Note 3)............................................... 29,628 33,458 33,571
Intangible Assets, Net of Accumulated Amortization
of $147,536............................................ -- -- 10,538
-------- ------- -------
Total Assets............................................. $106,641 $80,326 $75,585
======== ======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Expenses............. $ 27,896 $20,218 $21,029
Due to Stockholders (Note 4)...................... -- 36,185 38,391
Deferred Income Taxes (Note 5).................... 2,500 2,000 900
-------- ------- -------
Total Current Liabilities................................ 30,396 58,403 60,320
Deferred Income Taxes (Note 5)........................... 2,000 2,100 2,000
-------- ------- -------
Total Liabilities........................................ 32,396 60,503 62,320
-------- ------- -------
Stockholders' Equity:
Common Stock: No Par Value; 300 Shares Authorized;
150 Shares Issued and Outstanding................. 1,000 1,000 1,000
Retained Earnings................................... 73,245 18,823 12,265
-------- ------- -------
Total Stockholders' Equity............................... 74,245 19,823 13,265
-------- ------- -------
Total Liabilities and Stockholders' Equity............... $106,641 $80,326 $75,585
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE> 182
CRAM-CHEMA, P.A.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE SIX MONTHS AND YEARS ENDED
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Patient Revenues....................................... $313,933 $510,616 $464,042
-------- -------- --------
Expenses:
Clinical and Office Salaries...................... 94,089 141,855 142,841
Dentists' Salaries................................ 30,000 39,517 20,660
Dental Supplies and Laboratory Fees............... 25,432 67,090 33,623
Rent (Note 2)..................................... 23,175 46,350 46,350
Office............................................ 12,707 18,811 14,982
Payroll Taxes..................................... 10,908 17,822 15,084
Professional Fees................................. 8,501 6,109 6,919
Bad Debts......................................... 8,477 13,368 15,023
Officers' Salaries................................ 7,000 28,669 14,000
Utilities......................................... 5,169 6,768 13,099
Insurance......................................... 4,668 2,827 3,994
Depreciation and Amortization..................... 3,830 19,585 42,156
Temporary Help.................................... 3,472 11,287 8,146
Advertising....................................... 2,670 7,365 1,709
Repairs and Maintenance........................... 1,972 2,878 5,506
-------- -------- --------
Total Expenses......................................... 242,070 430,301 384,092
-------- -------- --------
Income Before Provision for State Income Taxes......... 71,863 80,315 79,950
-------- -------- --------
Provision for State Income Taxes (Note 1):
Current........................................... 4,600 4,700 5,500
Deferred.......................................... 400 1,200 200
-------- -------- --------
Total Provision for State Income Taxes................. 5,000 5,900 5,700
-------- -------- --------
Net Income............................................. 66,863 74,415 74,250
-------- -------- --------
Retained Earnings, Beginning........................... 18,823 12,265 16,465
-------- -------- --------
Distributions to Stockholders.......................... 12,441 67,857 78,450
-------- -------- --------
Retained Earnings, Ending.............................. $ 73,245 $ 18,823 $ 12,265
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE> 183
CRAM-CHEMA, P.A.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS AND YEARS ENDED
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income....................................... $ 66,863 $ 74,415 $ 74,250
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization............... 3,830 19,585 42,156
Deferred Income Taxes....................... 400 1,200 200
Increase in Patient Receivables, Net........ (13,735) (11,670) (3,438)
Increase (Decrease) in Accounts Payable and
Accrued Expenses.......................... 7,678 (811) 12,536
-------- -------- ---------
Net Cash Provided by Operating Activities............. 65,036 82,719 125,704
Cash Flows from Investing Activities:
Acquisition of Property and Equipment............ -- (8,934) (14,694)
-------- -------- ---------
Cash Flows from Financing Activities:
Repayments of Advances from Stockholders......... (36,185) (2,206) (44,109)
Distributions to Stockholders.................... (12,441) (67,857) (78,450)
-------- -------- ---------
Net Cash Used in Financing Activities................. (48,626) (70,063) (122,559)
-------- -------- ---------
Net Increase (Decrease) in Cash....................... 16,410 3,722 (11,549)
-------- -------- ---------
Cash, Beginning....................................... 6,215 2,493 14,042
-------- -------- ---------
Cash, Ending.......................................... $ 22,625 $ 6,215 $ 2,493
======== ======== =========
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for State Income Taxes:... $ 900 $ 1,672 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE> 184
CRAM-CHEMA, P. A.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Entity:
Cram-Chema, P.A. (the Company) was incorporated on April 19, 1990, as a New
Hampshire Corporation. The Company is a provider of dental services to customers
primarily living in the Exeter, New Hampshire area.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
Property and Equipment:
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets.
Intangible Assets:
Intangible assets, which represent non-compete agreements, a patient list
and organization costs, are being amortized their estimated useful lives of five
years. Amortization expense during the years ended December 31, 1995 and 1994,
amounted to $10,538 and $31,615, respectively.
Advertising Costs:
The Company expenses advertising costs as incurred. Advertising expense
during the six months and years ended June 30, 1996, December 31, 1995 and 1994,
amounted to $2,670, $7,365 and $1,709, respectively.
Income Taxes:
The Company and its stockholders have elected to be treated as an S
corporation under the provisions of the Internal Revenue Code, which provide
that, in lieu of federal corporate income taxes, the stockholders are taxed
individually on their proportionate share of the Company's federal taxable
income. Therefore, no provision or liability for federal income taxes is
presented in the accompanying financial statements. The State of New Hampshire
does not recognize S corporations; accordingly, the Company has recorded a
provision for state income taxes in the accompanying statement of income.
The Company reports under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred state income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred state tax assets to the amount
expected to be realized. State income tax expense is the state tax payable or
refundable for the period plus or minus the change during the period in deferred
state tax assets and liabilities.
F-131
<PAGE> 185
CRAM-CHEMA, P. A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. RELATED PARTY TRANSACTIONS:
The Company rents its operating facility from an affiliated entity on a
tenant-at-will basis. Rent expense incurred during the six months ended June 30,
1996 and each of the years ended December 31, 1995 and 1994, amounted to $23,175
and $46,350, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment, as of June 30, 1996 and December 31, 1995 and 1994,
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Operatory Equipment........................................... $ 43,232 $43,232 $41,706
Leasehold Improvements........................................ 18,990 18,990 14,896
Furniture and Fixtures........................................ 16,073 16,073 12,759
------- ------- -------
78,295 78,295 69,361
Less: Accumulated Depreciation................................ 48,667 44,837 35,790
------- ------- -------
$ 29,628 $33,458 $33,571
======= ======= =======
</TABLE>
4. DUE TO STOCKHOLDERS:
Due to stockholders represented non-interest bearing cash advances made to
the Company by such stockholders during the normal course of business. As of
December 31, 1995 and 1994, the Company had net cash advances due to such
stockholders in the amount of $35,185 and $38,391, respectively. There were no
stated repayment terms.
5. INCOME TAXES:
As discussed in Note 1, the Company reports under the provisions of SFAS
No. 109. Deferred state income taxes reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws. As of June 30, 1996 and
December 31, 1995 and 1994, the temporary differences which give rise to a
significant portion of the deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE DECEMBER 31,
30, -----------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Accrual to Cash Basis
Reporting Differences....................................... $2,500 $2,000 $ 900
Accumulated Depreciation......................................... 2,000 2,100 2,000
------ ------ ------
$4,500 $4,100 $2,900
====== ====== ======
</TABLE>
6. RETIREMENT PLAN:
The Company, during the six months ended June 30, 1996, commenced the
sponsoring of a salary deferral simplified employee plan covering substantially
all of its employees. Under the terms of the plan, the Company, at the
discretion of the Board of Directors, may make contributions to the plan. During
the six months ended June 30, 1996, the Board of Directors elected not to make
contributions to the plan.
F-132
<PAGE> 186
CRAM-CHEMA, P. A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
As of June 30, 1996 and December 31, 1995 and 1994, the carrying amounts of
cash, accounts receivable, accounts payable and accrued expenses, and due to
stockholders approximate fair value due to the short-term nature of these
financial instruments.
8. SUBSEQUENT EVENT:
During August, 1996, under an agreement of merger, the Company's
stockholders sold all issued and outstanding common shares of the Company to
First New England Dental Centers, Inc.
F-133
<PAGE> 187
ACCOUNTANTS' REPORT
To the Stockholders of
Buchwalter and Papuga, DDS, Inc.
175 Derby Street -- Suite 11
Hingham, Massachusetts 02043
We have audited the accompanying balance sheets of Buchwalter and Papuga,
DDS, Inc. as of December 31, 1994 and 1995 and June 30, 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Buchwalter and Papuga, DDS,
Inc., as of December 31, 1994 and 1995 and June 30, 1996, and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1995 and
the six months ended June 30, 1996, in conformity with generally accepted
accounting principles.
DEPAOLA, BEGG & ASSOCIATES, P.C.
Hyannis, Massachusetts
November 19, 1996
F-134
<PAGE> 188
BUCHWALTER AND PAPUGA, DDS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash..................................................... $ 56,108 $ 41,950 $ 43,536
Patient receivables, net of allowance for uncollectible
accounts of $32,982, $36,175 and $34,963 in 1994, 1995
and June 30, 1996, respectively....................... 65,964 72,350 69,926
Note receivable - stockholders........................... 23,851 -- --
Other current assets..................................... 763 1,792 1,821
-------- -------- --------
Total current assets............................. 146,686 116,092 115,283
Property and equipment, net - Note 2....................... 4,211 2,487 3,070
-------- -------- --------
Total assets..................................... $150,897 $118,579 $118,353
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses - Note 2........... $107,801 $ 56,581 $ 55,540
-------- -------- --------
Total current liabilities........................ 107,801 56,581 55,540
-------- -------- --------
Stockholders' equity:
Common stock, no par value, 12,500 shares authorized;
1,000 shares issued and outstanding................... 1,970 1,970 1,970
Retained earnings........................................ 41,126 60,028 60,843
-------- -------- --------
Total stockholders' equity....................... 43,096 61,998 62,813
-------- -------- --------
Total liabilities and stockholders' equity....... $150,897 $118,579 $118,353
======== ======== ========
</TABLE>
(See Accompanying Notes and Accountant's Report)
F-135
<PAGE> 189
BUCHWALTER AND PAPUGA, DDS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------- SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED
1994 1995 JUNE 30, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Net patient revenues................................. $740,463 $745,571 $ 372,589
Expenses:
Dentists salaries.................................. 212,547 268,000 139,204
Clinical salaries.................................. 121,403 125,400 69,878
Dental supplies and laboratory fees................ 52,826 56,306 31,796
Rental and lease expense........................... 42,400 48,200 21,600
Advertising and marketing.......................... 337 183 411
Depreciation and amortization...................... 3,582 3,175 2,081
Other operating expenses........................... 80,810 76,539 39,630
General and administrative......................... 209,103 130,318 65,174
-------- -------- --------
Total expenses............................. 723,008 708,121 369,774
-------- -------- --------
Operating income........................... 17,455 37,450 2,815
Interest expense........................... 1,291 4,524 --
-------- -------- --------
Net income........................................... $ 16,164 $ 32,926 $ 2,815
======== ======== ========
If all of the Company's operations had been subjected
to income taxes, net income would be as follows:
Net income................................. 16,164 32,926 2,815
Provisions for income tax.................. 7,456 14,024 2,000
-------- -------- --------
Proforma net income.................................. $ 8,708 $ 18,902 $ 815
======== ======== ========
</TABLE>
(See Accompanying Notes and Accountant's Report)
F-136
<PAGE> 190
BUCHWALTER AND PAPUGA, DDS, INC.
STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- -------
<S> <C> <C> <C> <C>
Balance - December 31, 1993............................ 1,000 $1,970 $ 32,418 $34,388
Net Income................................... 8,708 8,708
----- ------ ------- -------
Balance - December 31, 1994............................ 1,000 1,970 41,126 43,096
Net Income................................... 18,902 18,902
----- ------ ------- -------
Balance - December 31, 1995............................ 1,000 1,970 60,028 61,998
Net Income................................... 815 815
----- ------ ------- -------
Balance - June 30, 1996................................ 1,000 $1,970 $ 60,843 $62,813
===== ====== ======= =======
</TABLE>
(See Accompanying Notes and Accountant's Report)
F-137
<PAGE> 191
BUCHWALTER AND PAPUGA, DDS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------- SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED
1994 1995 JUNE 30, 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 8,708 $ 18,902 $ 815
Adjustments:
Provision for bad debts......................... (832) 3,193 (1,212)
Depreciation and amortization................... 3,582 3,175 2,081
Changes in operating assets and liabilities:
Patient receivables........................... 2,497 (9,579) 3,636
Other current assets.......................... (763) (1,029) (29)
Accounts payable and accrued expenses......... 27,434 (51,220) (1,041)
------- -------- -------
Net cash flows provided by (used in)
operating expenses....................... 40,626 (36,558) 4,250
------- -------- -------
Cash flows used in investing activities - capital
expenses........................................... -- (1,451) (2,664)
------- -------- -------
Cash flows from financing activities:
Note receivable stockholders....................... (23,637) 23,851 --
------- -------- -------
Net cash provided by (used in)
financing activities..................... (23,637) 23,851 --
------- -------- -------
Net change in cash................................... 16,989 (14,158) 1,586
Cash - beginning of period........................... 39,119 56,108 41,950
------- -------- -------
Cash - end of period................................. $ 56,108 $ 41,950 $43,536
======= ======== =======
</TABLE>
(See Accompanying Notes and Accountant's Report)
F-138
<PAGE> 192
BUCHWALTER AND PAPUGA, DDS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1996
NOTE 1 -- CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization. Buchwalter and Papuga, DDS, Inc. (The "Company")
was incorporated on November 1, 1977. The Company is a provider of dental
services and products that operates a dental office in Hingham, Massachusetts.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net revenue and expenses during each reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid debt
investments with original maturities of three months or less when purchased to
be cash equivalents. The carrying amounts approximate fair value because of the
short maturity. The Company maintains cash balances at various financial
institutions. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. The Company's accounts at these
institutions did not exceed the federally insured limits.
Revenue Recognition. Net patient revenues represent amounts billed to
patients for services performed by the dentists. Dental revenue is recognized as
the services are performed and billed. Accounts receivable primarily consist of
receivables from patients, insurers, government programs and other third-party
payers for services provided by physicians. An allowance for doubtful accounts
is recorded by the Company based on historical experience.
Property and Equipment. Property and equipment are stated at cost.
Depreciation and amortization of property and equipment are provided using the
straight-line method over the estimated useful lives of the various classes of
depreciable assets, ranging from five to ten years. Maintenance and repairs are
charged to expenses whereas renewals and major replacements are capitalized.
Gains and losses from dispositions are included in operations.
Income Taxes. Income taxes are determined under the liability method.
Under this method, deferred taxes are based on the difference between the
financial reporting and the tax basis of the assets and the liabilities and are
measured using the enacted marginal tax rates currently in effect.
Advertising. Costs incurred for advertising are expensed when incurred.
F-139
<PAGE> 193
BUCHWALTER AND PAPUGA, DDS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1996 -- (CONTINUED)
NOTE 2 -- SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Property and Equipment:
Equipment..................................... $ 16,717 $ 18,168 $ 18,168
Leasehold improvements........................ 1,840 1,840 1,840
Furniture and fixtures........................ 2,530 2,530 5,194
-------- ------- -------
Total Property and Equipment.......... 21,087 22,538 25,202
Less accumulated depreciation and
amortization............................... 16,876 20,051 22,132
-------- ------- -------
Net Property and Equipment............ $ 4,211 $ 2,487 $ 3,070
======== ======= =======
Accounts Payable and Accrued Expenses:
Trade......................................... $ 8,599 $ 13,581 $ 10,540
Accrued pension............................... 69,202 -- --
Liability for taxes on income................. 6,000 17,000 18,000
Deferred liability for taxes on income........ 24,000 26,000 27,000
-------- ------- -------
$107,801 $ 56,581 $ 55,540
======== ======= =======
</TABLE>
NOTE 3 -- COMMITMENTS -- RELATED PARTY TRANSACTIONS
The Company leases their office facilities from a Trust which is owned by
the stockholders of the Company. In general, the terms of the lease provide for
a monthly lease payment of $3,500. The Trust is Buchwalter and Papuga Realty
Trust.
NOTE 4 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Cash paid during the period for interest........ $1,291 $4,524 $ --
===== ===== =====
</TABLE>
NOTE 5 -- CREDIT RISK
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the credit worthiness of the
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
NOTE 6 -- SUBSEQUENT EVENTS
The assets of the Company were acquired by First New England Dental
Centers, Inc. on August 2, 1996.
F-140
<PAGE> 194
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying balance sheets of Edward P. Szlyk, D.D.S. as of
July 31, 1996 and December 31, 1995 and 1994 and the related statements of
income and deficit in proprietor's capital and statements of cash flows for the
seven months ended July 31, 1996 and the years ended December 31, 1995 and 1994.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Edward P. Szlyk, D.D.S. as of July
31, 1996 and December 31, 1995 and 1994, and the results of its operations and
its cash flows for the seven months period ended July 31, 1996 and the years
ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
JON H. FUDEMAN
Certified Public Accountant
Worcester, Massachusetts
November 15, 1996
F-141
<PAGE> 195
EDWARD P. SZLYK, D.D.S.
BALANCE SHEETS
JULY 31, 1996, DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.............................................. $ 2,341 $ 11,807 $ 4,018
Accounts receivable, less a reserve of $5,500 at
July 31, 1996, $5,955 at December 31, 1995 and
$7,185 at December 31, 1994..................... 49,082 56,185 54,287
-------- -------- --------
TOTAL CURRENT ASSETS......................... 51,423 67,992 58,305
EQUIPMENT, FURNITURE & FIXTURES
Dental Equipment.................................. 19,739 19,739 19,739
Furniture & Fixtures.............................. 2,597 2,597
Office Equipment.................................. 24,058 24,058 21,000
-------- -------- --------
46,394 46,394 40,739
Less accumulated depreciation..................... (46,394) (45,832) (38,422)
-------- -------- --------
NET EQUIPMENT, FURNITURE & FIXTURES.......... 0 562 2,317
-------- -------- --------
TOTAL ASSETS........................................... $ 51,423 $ 68,554 $ 60,622
======== ======== ========
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES
Accounts payable................................ $ 19,812 $ 21,192 $ 12,195
Accrued liabilities............................. 9,636 14,586 6,497
Current portion of long-term debt............... 16,202 17,844 18,329
-------- -------- --------
TOTAL CURRENT LIABILITIES.................... 45,650 53,622 37,021
LONG-TERM DEBT
Note payable - American Investment Bank, N.A.... 14,845 18,210 5,863
Note payable - AT&T Credit Corporation.......... 4,110
Note payable - Security Pacific Executive/...... 24,128 26,857 29,937
Professional Services
Note payable - Shawmut Bank, N.A................ 13,042 16,614
Note payable - Vanguard Leasing Corp............ 320 2,659 7,423
-------- -------- --------
52,335 64,340 47,333
Less current portion............................ (16,202) (17,844) (18,329)
-------- -------- --------
TOTAL LONG-TERM DEBT............................ 36,133 46,496 29,004
PROPRIETOR'S CAPITAL
Deficit in proprietor's capital................. (30,360) (31,564) (5,403)
-------- -------- --------
TOTAL LIABILITIES AND PROPRIETOR'S CAPITAL............. $ 51,423 $ 68,554 $ 60,622
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-142
<PAGE> 196
EDWARD P. SZLYK, D.D.S.
STATEMENTS OF INCOME AND PROPRIETOR'S CAPITAL
FOR THE SEVEN MONTHS ENDED JULY 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
REVENUES............................................. $355,962 $ 576,207 $ 571,758
OPERATING EXPENSES
Advertising and promotion....................... 121 327 4,493
Conventions, meetings and meals................. 3,458 6,410 6,723
Dental supplies................................. 16,232 53,080 34,439
Depreciation expense............................ 561 7,410 2,389
Employee health insurance....................... 169 7,234 6,713
Insurance....................................... 982 3,621 3,632
Laboratory charges.............................. 20,753 20,858 14,308
Office supplies and expense..................... 12,299 14,055 13,366
Other taxes..................................... 96 404 97
Payroll and payroll taxes....................... 124,236 206,940 276,856
Penalties and fines............................. 146 6,923 4,106
Professional fees............................... 1,250 6,268 6,056
Rent............................................ 17,400 24,000 23,548
Repairs and maintenance......................... 5,319 2,984 5,238
Subcontractor services.......................... 42,858 69,619 --
Utilities and telephone......................... 4,724 7,453 4,057
-------- -------- --------
TOTAL OPERATING EXPENSES................... 250,604 437,586 406,021
-------- -------- --------
INCOME FROM OPERATIONS............................... 105,358 138,621 165,737
INTEREST EXPENSE..................................... (5,296) (10,305) (20,148)
-------- -------- --------
NET INCOME........................................... 100,062 128,316 145,589
PROPRIETOR DISTRIBUTIONS............................. (98,858) (154,477) (136,363)
BEGINNING DEFICIT IN PROPRIETOR'S CAPITAL............ (31,564) (5,403) (14,629)
-------- -------- --------
ENDING DEFICIT IN PROPRIETOR'S CAPITAL............... $(30,360) $ (31,564) $ (5,403)
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-143
<PAGE> 197
EDWARD P. SZLYK, D.D.S.
STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 100,062 $ 128,316 $ 145,589
Adjustments to reconcile net income to cash
flow provided by operating activities:
Depreciation.............................. 561 7,410 2,389
Changes in assets and liabilities:
Accounts receivable............................ 7,103 (2,258) 7,562
Accounts payable............................... (1,380) 8,997 (967)
Accrued liabilities............................ (4,950) 8,089 (1,867)
--------- --------- ---------
NET CASH FLOW PROVIDED (USED) BY OPERATING
ACTIVITIES........................................ 101,396 150,554 152,706
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment, furniture & fixtures... (5,655)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal paid against notes payable........... (12,004) (22,633) (12,566)
Increase in notes payable...................... 40,000
Proprietor distributions....................... (98,858) (154,477) (136,363)
--------- --------- ---------
NET CASH FLOW PROVIDED (USED) BY FINANCING
ACTIVITIES........................................ (110,862) (137,110) (148,929)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH..................... (9,466) 7,789 3,777
CASH AT BEGINNING OF YEAR........................... 11,807 4,018 241
--------- --------- ---------
CASH AT END OF YEAR................................. $ 2,341 $ 11,807 $ 4,018
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest............................................ $ (5,296) $ (10,305) $ (20,148)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-144
<PAGE> 198
EDWARD P. SZLYK, D.D.S.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996, DECEMBER 31, 1995 AND 1994
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Description of Business
Dr. Edward P. Szlyk owns and manages a dental practice in Webster,
Massachusetts.
B. Revenue and Expense Recognition
These financial statements are presented on the accrual basis of
accounting.
C. Accounts Receivable
Accounts receivable are presented net of an estimated reserve for
uncollectability due to adjustments made by third-party payors.
D. Equipment, Furniture & Fixtures
Equipment and furniture & fixtures are stated at cost. Depreciation on
equipment and furniture & fixtures is calculated on the straight-line and
accelerated methods. The majority of equipment and furniture & fixtures is
depreciated over a seven-year life.
2. RELATED PARTY TRANSACTIONS
Edward P. Szlyk, D.D.S. rents its offices from a corporation owned by Dr.
Edward P. Szlyk. Rent expense for the years 1994, 1995 and the seven-month
period ending July 31, 1996 are $23,548, $24,000 and $17,400 respectively.
Edward P. Szlyk, D.D.S. is a tenant at will.
3. LONG-TERM DEBT
Long-term debt consists of equipment leases and bank loans used to finance
working capital needs of the practice. All of this debt is the personal
liability of Edward P. Szlyk. Interest expense consists of interest on equipment
leases and bank loans as well as interest paid to taxing authorities.
4. PROFIT SHARING PLAN
The dental practice maintains a profit sharing plan for the benefit of Dr.
Szlyk and employees of the practice. For the years 1994 and 1995 and the
seven-month period ending July 31, 1996 there were no contributions to the plan.
6. INCOME TAXES
Edward P. Szlyk, D.D.S. is classified as a sole proprietorship for Federal
and Massachusetts income tax purposes. The income and expense of the dental
practice are included on the personal income tax return of the proprietor.
Therefore, no provision is made for either Federal or Massachusetts income tax
expense.
7. SUBSEQUENT EVENT
Effective August 31, 1996 Dr. Szlyk sold the dental practice.
8. CONCENTRATION
Edward P. Szlyk, DDS has all operations concentrated in the Webster, MA
area and is subject to the economic risk of this concentration.
F-145
<PAGE> 199
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Dr. Edward S. Kollar
Edward S. Kollar, D.D.S.
Morrisville, Vermont
We have audited the accompanying balance sheets of Edward S. Kollar, D.D.S. as
of December 31, 1994, December 31, 1995, and August 31, 1996, and the related
statements of operations and proprietor's capital and statements of cash flows
for the years ended December 31, 1994, December 31, 1995, and the period ended
August 31, 1996. These financial statements are the responsibility of the
Proprietorship's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 6 to the financial statements, the Proprietorship entered
into an agreement to sell substantially all its assets including goodwill and to
cease operations as of September 6, 1996. The financial statements do not
include any adjustments nor recognition of this transaction.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edward S. Kollar, D.D.S. as of
December 31, 1994, December 31, 1995, and August 31, 1996, and the results of
its operations and its cash flows for the years ended December 31, 1994,
December 31, 1995 and period ended August 31, 1996 in conformity with generally
accepted accounting principles.
JURNAK & JURNAK, CPAS
Certified Public Accountant
Jeffersonville, Vermont
November 25, 1996
F-146
<PAGE> 200
EDWARD S. KOLLAR, DDS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AUGUST 31,
1994 1995 1996
------- -------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $13,595 $ 36,081 $ 13,873
Patient receivables, net of allowance for doubtful
accounts of $2,500, $3,500 and $7,000 in 1994,
1995 and 1996 respectfully....................... 23,650 20,023 43,662
Other current assets............................... 2,820 3,623 946
------- -------- ----------
Total Current Assets.......................... $40,065 $ 59,727 $ 58,481
Property and Equipment -- on the basis of cost net of
allowance for depreciation............................ $44,473 $134,056 $ 141,146
Other Assets............................................ $ 67 $ 988 $ 856
------- -------- ----------
Total Assets............................................ $84,605 $194,771 $ 200,483
======= ======== ========
LIABILITIES AND PROPRIETOR'S CAPITAL
Current Liabilities:
Current portion of long-term debt.................. $ 5,687 $ 16,772 $ 15,267
Accounts payable................................... 3,622 6,070 6,757
Accrued expenses and other current liabilities..... 2,512 2,432 1,941
------- -------- ----------
Total Current Liabilities..................... $11,821 $ 25,274 $ 23,965
Long-Term Debt, net of current portion............. $ 6,999 $ 60,227 $ 46,097
Proprietor's Capital............................... $65,785 $109,270 $ 130,421
------- -------- ----------
Total Liabilities and Proprietor's Capital.............. $84,605 $194,771 $ 200,483
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-147
<PAGE> 201
EDWARD S. KOLLAR, D.D.S.
STATEMENTS OF OPERATIONS AND PROPRIETOR'S CAPITAL
YEARS ENDING DECEMBER 31, 1994, DECEMBER 31, 1995 AND
PERIOD ENDING AUGUST 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 31,
----------------------- ------------
1994 1995 1996
-------- -------- ------------
<S> <C> <C> <C>
Net patient revenues................................. $302,615 $355,640 $290,543
Expenses:
Clinical and office salaries.................... $149,121 $141,508 $111,694
Dental supplies and laboratory fees............. 53,654 61,520 45,832
Repairs and maintenance......................... 6,877 8,303 5,135
Advertising and marketing....................... 5,664 7,749 4,758
Depreciation and amortization................... 9,699 9,444 10,274
Other operating expenses........................ 7,749 8,549 3,947
General and administrative...................... 15,859 24,434 25,471
-------- -------- --------
Total expenses............................. $248,623 $261,507 $207,111
-------- -------- --------
Interest expense..................................... $ 1,506 $ 1,183 $ 5,219
Other (income) expense............................... $ (728) $ (1,570) $ (1,000)
-------- -------- --------
Net income........................................... $ 53,214 $ 94,520 $ 79,213
Proprietor's capital at beginning of year............ $ 62,999 $ 65,785 $109,270
Contributions................................... 2,000 15,000 0
Withdrawals..................................... (52,428) (66,035) (58,062)
-------- -------- --------
Proprietor's capital at end of year.................. $ 65,785 $109,270 $130,421
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-148
<PAGE> 202
EDWARD S. KOLLAR, DDS
STATEMENTS OF CASH FLOWS
DECEMBER 31, 1994, DECEMBER 31, 1995 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- AUGUST 31,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 53,214 $ 94,520 $ 79,213
Adjustments:
Provisions for bad debts....................... 0 1,000 3,500
Depreciation and amortization.................. 9,699 9,444 10,274
Changes in operating assets and liabilities:
Patient receivables....................... 978 2,627 (27,139)
Other assets.............................. (371) (1,724) 2,809
Accounts payable and accrued
liabilities............................. 186 2,368 196
--------- --------- ---------
Net cash provided by operating
activities.............................. $ 63,706 $ 108,235 $ 68,853
--------- --------- ---------
Cash flows used in investing activities -- capital
expenditures...................................... $ (5,467) $ (99,027) $ (17,364)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from debt............................. 70,000
Repayment of debt.............................. (5,141) (5,687) (15,635)
Contribution by proprietor..................... 2,000 15,000 0
Withdrawal by proprietor....................... (52,428) (66,035) (58,062)
--------- --------- ---------
Net cash provided by (used in)
financing............................... $ (55,569) $ 13,278 $ (73,697)
--------- --------- ---------
Net change in cash and cash equivalents............. 2,670 22,486 (22,208)
Cash and cash equivalents at beginning of period.... 10,925 13,595 36,081
--------- --------- ---------
Cash and cash equivalents at end of period.......... $ 13,595 $ 36,081 $ 13,873
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-149
<PAGE> 203
EDWARD S. KOLLAR, D.D.S.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
Edward S. Kollar, D.D.S. operates a dental office providing general
dentistry in the Morrisville, Vermont area.
The statements reflect the operations of Edward S. Kollar D.D.S.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Proprietorship considers all highly liquid debt investments with
original maturities of three months or less when purchased to be cash
equivalents. The carrying amounts approximate fair value because of the short
maturity.
The Proprietorship maintains cash balances at one financial institution.
The accounts are insured by the Federal Deposit Insurance Corporation up to
$100,000. The Proprietorship's accounts may, at times, exceed the federally
insured limits. The Proprietorship has not experienced any losses in such
accounts.
Revenue Recognition
Net patients revenues represent amounts billed to patients for services
performed by dentist and clinical staff. Dental revenue is recognized as the
services are performed and billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third party payers for services provided
by the Proprietorship. An allowance for doubtful accounts is recorded by the
Proprietorship based on historical experience.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment are provided using the straight-line method over the
estimated useful lives of the various classes of depreciable assets, ranging
from five to thirty-one years. Fully depreciated assets are retained in property
and equipment until they are removed from service. Fully depreciated assets as
of August 31, 1996 were approximately $105,182. Maintenance and repairs are
charged to expenses whereas renewals and major replacements are capitalized.
Gains and losses from dispositions are included in operations.
Debt Issuance Costs
The costs related to debt issued to the Proprietorship are capitalized and
amortized using the straight-line method over the lives of the related debt.
Income Taxes
The Proprietorship itself is not a taxpaying entity for purposes of federal
and state income taxes. Federal and state income taxes of the proprietor are
computed on his total income from all sources; accordingly, no provision for
income taxes is made in these statements. The proprietor customarily makes
estimated tax
F-150
<PAGE> 204
EDWARD S. KOLLAR, D.D.S.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
payments toward his personal income tax liability from the Proprietorship's bank
account. These payments are treated as withdrawals of capital.
Advertising
Costs incurred for advertising are expenses when incurred.
Recent FASB Pronouncements
In March 1995, the Financial Account Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which establishes accounting standards for the impairment of long lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Proprietorship has adopted SFAS No. 121. Implementation of this
standard did not have a material effect on the Proprietorship's financial
position, results of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION:
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- AUGUST 31,
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Property and equipment:
Dental equipment................................... $ 78,701 $ 114,586 $ 117,337
Building improvements.............................. 59,255 120,562 134,269
Office equipment................................... 16,217 17,603 18,041
Furniture and fixtures............................. 17,819 18,256 18,592
--------- --------- ----------
Total property and equipment.................. $ 171,992 $ 271,007 $ 288,239
Less accumulated depreciation...................... (127,519) (136,951) (147,093)
--------- --------- ----------
Net property and equipment.................... $ 44,473 $ 134,056 $ 141,146
========= ========= =========
</TABLE>
3. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- AUGUST 31,
1994 1995 1996
------- -------- ----------
<S> <C> <C> <C>
Term loans.................................................. $12,686 $ 76,999 $ 61,364
Less current portion........................................ (5,687) (16,772) (15,267)
------- -------- ----------
Total long-term debt................................... $ 6,999 $ 60,227 $ 46,097
======= ======== ========
</TABLE>
The aggregate maturities of long-term debt as of August 31, 1996 for each
of the next five years were as follows:
<TABLE>
<S> <C>
1997....................................................... $15,267
1998....................................................... 13,881
1999....................................................... 15,449
2000....................................................... 16,767
2001....................................................... --
</TABLE>
F-151
<PAGE> 205
EDWARD S. KOLLAR, D.D.S.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In December 1995, the Proprietorship entered into a mortgage loan payable
for $70,000. Principal and interest are payable in monthly installments of
$1,514 (including interest) through December 20, 2000. The note accrued interest
at 10.75% per year. The loan is collateralized by a real estate mortgage
covering the real estate in Morrisville, Vermont owned by the proprietor and
used to house the dental practice.
4. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- AUGUST 31,
1994 1995 1996
------ ------ ----------
<S> <C> <C> <C>
Cash paid during the period for interest....................... $1,506 $1,183 $4,936
====== ====== ========
</TABLE>
5. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS:
Credit Risk
The Proprietorship grants patients credit in the normal course of business.
The credit risk with respect to these patient receivables is generally
considered minimal because procedures are in effect to monitor the
creditworthiness of patients and appropriate allowances are made to reduce
accounts to their net realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Proprietorship using available market information and
appropriate valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments. The carrying amounts of the Proprietorship's fixed rate long-term
borrowings as of December 31, 1994, December 31, 1995, and August 31, 1996
respectively, approximate their fair value.
6. SUBSEQUENT EVENT:
On September 6, 1996, the business and substantially all the assets (except
for the building improvements) of the Proprietorship were acquired by First New
England Dental Centers, Inc. As part of this agreement, the proprietor agreed to
cease operations as Edward S. Kollar, DDS and to enter into an employment
agreement with First New England Dental Centers, Inc.
7. RELATED PARTY TRANSACTIONS:
The Proprietorship is operated in a facility owned by the proprietor. No
rent has been charged to the Proprietorship during the periods covered in this
statement. The Proprietorship has paid for substantial building improvements
related to the operations of the dental practice. These building improvements
are reflected in these statements.
F-152
<PAGE> 206
INDEPENDENT AUDITOR'S REPORT
To Mark S. Ferriero, D.D.S., Proprietor
We have audited the accompanying balance sheets of Mark S. Ferriero,
D.D.S., (a proprietorship) as of December 31, 1995 and 1994, and the related
statements of income, proprietor's capital and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mark S. Ferriero, D.D.S., as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
RUCCI, BARDARO & BARRETT, P.C.
Certified Public Accountants
Malden, Massachusetts
November 20, 1996
F-153
<PAGE> 207
MARK S. FERRIERO, D.D.S.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash................................................................... $ 19,115 $ 19,095
Accounts receivable (net of allowances of $18,184 and $12,473,
respectively)....................................................... 22,625 31,258
-------- --------
TOTAL CURRENT ASSETS.............................................. 41,740 50,353
-------- --------
PROPERTY AND EQUIPMENT
Office equipment....................................................... 8,935 8,935
Dental equipment....................................................... 33,730 33,730
Vehicle................................................................ 21,865 21,865
Improvements........................................................... 28,000 28,000
-------- --------
TOTAL............................................................. 92,530 92,530
LESS: Accumulated depreciation......................................... (63,931) (54,023)
-------- --------
NET PROPERTY AND EQUIPMENT........................................ 28,599 38,507
-------- --------
OTHER ASSETS
Organization costs..................................................... 1,811 2,294
Goodwill............................................................... 6,152 19,581
-------- --------
TOTAL OTHER ASSETS................................................ 7,963 21,875
-------- --------
TOTAL ASSETS........................................................... $ 78,302 $110,735
======== ========
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt................................... $ 30,824 $ 30,902
Accounts payable....................................................... 1,279 2,483
Payroll taxes payable.................................................. -- 28
Accrued pension expense................................................ 3,119 6,991
-------- --------
TOTAL CURRENT LIABILITIES......................................... 35,222 40,404
-------- --------
LONG-TERM DEBT
Note payable - Ford Motor Credit Corp.................................. 7,394 12,929
Note payable - Professional Leasing Services........................... 2,661 5,737
Note payable - Amerivest............................................... 35,425 57,587
-------- --------
45,480 76,253
LESS: Current maturities of long-term debt............................. (30,824) (30,902)
-------- --------
NET LONG-TERM DEBT................................................ 14,656 45,351
-------- --------
TOTAL LIABILITIES................................................. 49,878 85,755
-------- --------
PROPRIETOR'S CAPITAL..................................................... 28,424 24,980
-------- --------
TOTAL LIABILITIES AND PROPRIETOR'S CAPITAL.......................... $ 78,302 $110,735
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-154
<PAGE> 208
MARK S. FERRIERO, D.D.S.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
PROFESSIONAL SERVICES................................................ $243,222 $250,383
-------- --------
OPERATING EXPENSES
Accounting and legal............................................... 2,433 1,558
Advertising........................................................ 401 693
Amortization....................................................... 13,912 13,912
Auto expense....................................................... 2,925 889
Bad debt expense................................................... 9,381 7,946
Bank charges....................................................... 80 205
Dental and drug supplies........................................... 11,379 10,325
Depreciation....................................................... 9,908 12,461
Donations.......................................................... 230 240
Dues and subscriptions............................................. 1,614 1,629
Education and training............................................. 2,459 775
Insurance.......................................................... 3,261 3,313
Lab expense........................................................ 10,436 10,068
License and permits................................................ 50 --
Miscellaneous...................................................... 224 100
Office expense..................................................... 6,099 5,598
Office salaries.................................................... 51,471 52,932
Outside services................................................... 3,518 2,089
Payroll taxes...................................................... 5,272 6,263
Pension expense.................................................... 9,119 8,991
Postage............................................................ 2,188 1,598
Rent............................................................... 12,000 12,000
Repairs and maintenance............................................ 3,005 3,479
Taxes - other...................................................... 1,208 2,125
Telephone.......................................................... 6,540 6,133
Travel and entertainment........................................... 6,272 971
Uniforms........................................................... 1,174 173
Utilities.......................................................... 1,887 1,592
-------- --------
TOTAL OPERATING EXPENSES........................................ 178,446 168,058
-------- --------
OPERATING INCOME................................................ 64,776 82,325
OTHER INCOME (EXPENSE)
Interest expense................................................... (5,875) (7,472)
-------- --------
NET INCOME........................................................... $ 58,901 $ 74,853
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-155
<PAGE> 209
MARK S. FERRIERO, D.D.S.
STATEMENTS OF PROPRIETOR'S CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
PROPRIETOR'S CAPITAL -- January 1,................................... $ 24,980 $ 8,577
Net income......................................................... 58,901 74,853
Owners withdrawals................................................. (55,457) (58,450)
-------- --------
PROPRIETOR'S CAPITAL -- December 31,................................. $ 28,424 $ 24,980
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-156
<PAGE> 210
MARK S. FERRIERO, D.D.S.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 58,901 $ 74,853
Adjustments to reconcile net income to net cash used by operations
Depreciation and amortization................................. 23,820 26,373
Change in receivables and payables............................ 3,529 (342)
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES...................................................... 86,250 100,884
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of dental equipment....................................... -- (3,460)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES.............................. -- (3,460)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt.................................................. (30,773) (30,708)
Withdrawals by proprietor.......................................... (55,457) (58,450)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES.............................. (86,230) (89,158)
-------- --------
NET INCREASE IN CASH............................................... 20 8,266
CASH AT BEGINNING OF YEAR............................................ 19,095 10,829
-------- --------
CASH AT END OF YEAR.................................................. $ 19,115 $ 19,095
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest...................................................... $ 5,875 $ 7,472
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-157
<PAGE> 211
MARK S. FERRIERO, D.D.S.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE A -- BUSINESS
Mark S. Ferriero, D.D.S., a proprietorship, provides dental services to
individuals in and around Hyannis, Massachusetts.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
Revenue is recognized as dental services are performed and billed.
Accounts receivable consists of receivables from patients, insurers,
government programs and third party payers for dental services provided.
2. Property and Equipment
Property and equipment, as presented on the balance sheet, are stated at
cost. Depreciation on property and equipment is provided on a straight-line
basis over lives ranging from 5 to 10 years, based on the estimated usefulness
of the related asset to operations. A half year of depreciation is provided in
the year of acquisition and disposition. Fully depreciated assets are retained
in property and equipment until they are removed from service. Fully depreciated
assets as of December 31, 1995 and 1994 were $28,000. Maintenance and repairs
are charged to expenses, whereas renewals and major replacements are
capitalized.
3. Income Taxes
The financial statements do not include a provision for income taxes
because the Proprietorship does not incur federal or state income taxes.
Instead, income from the proprietorship and the proprietor's income and expenses
from other sources are included in his individual federal and state income tax
returns, and are taxed based on his personal tax strategies.
The Proprietor customarily makes estimated tax payments towards his
personal income tax liability from his personal bank account.
4. Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates and
assumptions that affect certain amounts and disclosures. Accordingly, actual
results could differ from those estimates.
5. Other Matters
These financial statements are prepared solely from the accounts of Mark S.
Ferriero, D.D.S., and they do not include the personal accounts of the owner or
those of any other operations in which he is engaged.
F-158
<PAGE> 212
MARK S. FERRIERO, D.D.S.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE C -- LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Note payable -- Ford Motor Credit Corp. of $21,865 dated March
19, 1993, is payable in equal monthly installments of $512.49
including interest at 5.9% per annum. The note is secured by a
vehicle. The note matures in March, 1997....................... $ 7,394 $12,929
Note payable -- Professional Leasing Services of $8,935 under a
capital lease dated December 2, 1993, is payable in equal
monthly installments of $316.45 including interest imputed at
16.53% per annum.
The note is secured by computer equipment. The note matures in
September, 1996................................................ 2,661 5,737
Note payable -- Amerivest originally payable to Plymouth Federal
Savings Association for $125,000 dated October 6, 1989, and
restructured on July 31, 1992 is payable in equal monthly
principal installments of $1,857.65 with interest at 8.5% per
annum. This note is secured by proprietor's personal property.
The note matures in July, 1997................................. 35,425 57,587
------- -------
$45,480 $76,253
======= =======
</TABLE>
Current maturities
Principal payments due on long-term debt are as follows:
<TABLE>
<S> <C>
1996............................................................... $30,824
1997............................................................... 14,656
-------
$45,480
=======
</TABLE>
NOTE D -- RENT
Mark S. Ferriero, D.D.S., leases office and operational facilities in
Hyannis, Massachusetts under a 7 year lease which expires in October, 1996. The
proprietorship is responsible for all repairs, taxes, water, maintenance,
landscaping and utilities. Rent expense for the periods is $12,000,
respectively.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1996............................................................... $10,000
=======
</TABLE>
NOTE E -- OTHER ASSETS
Goodwill of $94,000 represents the excess of the cost of the assets
acquired over the fair value of the net assets at the date of acquisition on
October 6, 1989. Goodwill is being amortized using the straight-line method over
an estimated useful life of seven years and is shown net of accumulated
amortization on the balance sheets.
Organization costs of $4,830 at date of acquisition on October 6, 1989 are
being amortized using the straight-line method over an estimated useful life of
10 years. Organization costs are shown net of accumulated amortization on the
balance sheets.
F-159
<PAGE> 213
MARK S. FERRIERO, D.D.S.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
NOTE F -- PROPRIETOR'S CAPITAL
Prior to December 31, 1994, the Proprietorship's financial statements were
prepared on the cash basis of accounting. The following change was made to the
proprietor's capital to convert to the accrual basis.
<TABLE>
<S> <C>
Proprietor's capital, December 31, 1993 -- cash basis............. $ 23,310
Net adjustments to convert to the accrual basis................. (14,733)
--------
Proprietor's capital, January 1, 1993 -- accrual basis............ $ 8,577
========
</TABLE>
NOTE G -- SIMPLIFIED EMPLOYEE PENSION (SEP-IRA)
The Proprietorship has implemented a qualified pension plan, specifically a
simplified employee pension for all qualified employees and the proprietor. The
decision to make contributions to the plan are at the discretion of the
proprietor.
For tax years, 1995 and 1994, the proprietorship contributed $9,119 and
$8,991 to the SEP-IRA on behalf of the proprietor and eligible employees.
NOTE H -- SUBSEQUENT EVENTS
The assets and customer list of the Proprietorship were acquired by First
New England Dental in September, 1996.
F-160
<PAGE> 214
INDEPENDENT AUDITORS' REPORT
To Mark S. Ferriero, D.D.S., Proprietor
We have audited the accompanying balance sheet of Mark S. Ferriero, D.D.S.,
(a proprietorship) as of July 31, 1996, and the related statement of income,
proprietor's capital and cash flows for the seven months then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mark S. Ferriero, D.D.S., as
of July 31, 1996, and the results of its operations and its cash flows for the
seven months then ended in conformity with generally accepted accounting
principles.
RUCCI, BARDARO & BARRETT, P.C.
Certified Public Accountants
Malden, Massachusetts
November 20, 1996
F-161
<PAGE> 215
MARK S. FERRIERO, D.D.S.
BALANCE SHEET
JULY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash.................................................................. $ 30,039
Accounts receivable (net of allowance of $19,945)..................... 23,852
--------
TOTAL CURRENT ASSETS.......................................... $53,891
PROPERTY AND EQUIPMENT
Office equipment...................................................... 8,935
Dental equipment...................................................... 33,730
Vehicle............................................................... 21,865
Improvements.......................................................... 28,000
--------
TOTAL......................................................... 92,530
LESS: Accumulated depreciation........................................ (69,711)
--------
NET PROPERTY AND EQUIPMENT.................................... 22,819
OTHER ASSETS
Organization costs.................................................... 1,529
--------
TOTAL OTHER ASSETS............................................ 1,529
-------
TOTAL ASSETS.......................................................... $78,239
=======
LIABILITIES AND PROPRIETOR'S CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt.................................. $ 25,553
Accounts payable...................................................... 4,687
Accrued payroll....................................................... 1,063
Payroll taxes payable................................................. 124
--------
TOTAL CURRENT LIABILITIES..................................... $31,427
LONG-TERM DEBT
Note payable -- Ford Motor Credit Corp................................ 4,011
Note payable -- Professional Leasing Services......................... 620
Note payable -- Amerivest............................................. 20,922
--------
25,553
LESS: Current maturities of long-term debt............................ (25,553)
--------
NET LONG-TERM DEBT............................................ 0
-------
TOTAL LIABILITIES............................................. 31,427
-------
PROPRIETOR'S CAPITAL.................................................... 46,812
-------
TOTAL LIABILITIES AND PROPRIETOR'S CAPITAL............................ $78,239
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-162
<PAGE> 216
MARK S. FERRIERO, D.D.S.
STATEMENT OF INCOME
FOR THE SEVEN MONTHS ENDED JULY 31, 1996
<TABLE>
<S> <C> <C>
PROFESSIONAL SERVICES............................................................ $154,088
OPERATING EXPENSES
Accounting and legal............................................... $ 1,698
Advertising........................................................ 14
Amortization....................................................... 6,434
Auto expense....................................................... 1,412
Bad debt expense................................................... 2,944
Bank charges....................................................... 147
Dental and drug supplies........................................... 4,005
Depreciation....................................................... 5,780
Donations.......................................................... 132
Dues and subscriptions............................................. 811
Education and training............................................. 211
Insurance.......................................................... 978
Lab expense........................................................ 8,113
License and permits................................................ 180
Office expense..................................................... 1,910
Office salaries.................................................... 32,142
Outside services................................................... 1,342
Payroll taxes...................................................... 3,443
Pension expense.................................................... 2,000
Postage............................................................ 484
Rent............................................................... 7,000
Repairs and maintenance............................................ 2,056
Taxes -- other..................................................... 666
Telephone.......................................................... 3,847
Travel and entertainment........................................... 1,947
Uniforms........................................................... 373
Utilities.......................................................... 1,125
-------
TOTAL OPERATING EXPENSES............................................... 91,194
--------
OPERATING INCOME....................................................... 62,894
OTHER INCOME (EXPENSE)
Interest expense............................................................ (1,806)
--------
NET INCOME....................................................................... $ 61,088
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-163
<PAGE> 217
MARK S. FERRIERO, D.D.S.
STATEMENT OF PROPRIETOR'S CAPITAL
FOR THE SEVEN MONTHS ENDED JULY 31, 1996
<TABLE>
<S> <C>
PROPRIETOR'S CAPITAL -- January 1, 1996.......................................... $28,424
Net income..................................................................... 61,088
Owners withdrawals............................................................. (42,700)
-------
PROPRIETOR'S CAPITAL -- July 31, 1996............................................ $46,812
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-164
<PAGE> 218
MARK S. FERRIERO, D.D.S.
STATEMENT OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 1996
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................................... $ 61,088
Adjustments to reconcile net income to net cash used by operations
Depreciation and amortization..................................... 12,214
Change in receivables and payables................................ 249
--------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................ $ 73,551
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt.................................................... (19,927)
Withdrawals by proprietor............................................ (42,700)
--------
NET CASH USED BY FINANCING ACTIVITIES................................ (62,627)
--------
NET INCREASE IN CASH................................................. 10,924
CASH, JANUARY 1, 1996.................................................. 19,115
--------
CASH, JULY 31, 1996.................................................... $ 30,039
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the seven months ended July 31, 1996:
Interest.......................................................... $ 1,806
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-165
<PAGE> 219
MARK S. FERRIERO, D.D.S.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
NOTE A -- BUSINESS
Mark S. Ferriero, D.D.S., a proprietorship, provides dental services to
individuals in and around Hyannis, Massachusetts.
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
Revenue is recognized as dental services are performed and billed.
Accounts receivable consists of receivables from patients, insurers,
government programs and third party payers for dental services provided.
2. Property and Equipment
Property and equipment, as presented on the balance sheet, are stated at
cost. Depreciation on property and equipment is provided on a straight-line
basis over lives ranging from 5 to 10 years, based on the estimated usefulness
of the related asset to operations. A half year of depreciation is provided in
the year of acquisition and disposition. Fully depreciated assets are retained
in property and equipment until they are removed from service. Fully depreciated
assets as of July 31, 1996 were $28,000. Maintenance and repairs are charged to
expenses, whereas renewals and major replacements are capitalized.
3. Income Taxes
The financial statements do not include a provision for income taxes
because the Proprietorship does not incur federal or state income taxes.
Instead, income from the proprietorship and the proprietor's income and expenses
from other sources are included in his individual federal and state income tax
returns, and are taxed based on his personal tax strategies.
The Proprietor customarily makes estimated tax payments towards his
personal income tax liability from his personal bank account.
4. Estimates
The presentation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates and
assumptions that affect certain amounts and disclosures. Accordingly, actual
results could differ from those estimates.
5. Other Matters
These financial statements are prepared solely from the accounts of Mark S.
Ferriero, D.D.S., and they do not include the personal accounts of the owner or
those of any other operations in which he is engaged.
NOTE C -- LONG-TERM OBLIGATIONS
Note payable -- Ford Motor Credit Corp. of $21,865 dated March 19, 1993, is
payable in equal monthly installments of $512.49 including interest at 5.9% per
annum. The note is secured by a vehicle. The note matures in March, 1997.
Balance due on the note at July 31, 1996 is $4,011.
Note payable -- Professional Leasing Services of $8,935 under a capital
lease dated December 2, 1993, is payable in equal monthly installments of
$316.45 including interest imputed at 16.53% per annum. The note is secured by
computer equipment. The note matures in September, 1996. Balance due on the note
at July 31, 1996 is $620.
F-166
<PAGE> 220
MARK S. FERRIERO, D.D.S.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JULY 31, 1996
Note payable -- Amerivest originally payable to Plymouth Federal Savings
Association for $125,000 dated October 6, 1989 and restructured on July 31,
1992, is payable in equal monthly principal installments of $1,857.65 with
interest at 8.5% per annum. The note is secured by proprietor's personal
property. The note matures in July, 1997. Balance due on the note at July 31,
1996 is $20,922.
CURRENT MATURITIES
Principal payments due on long-term debt are as follows:
$25,553
--------
NOTE D -- RENT
Mark S. Ferriero, D.D.S., leases office and operational facilities in
Hyannis, Massachusetts under a 7 year lease which expires in October, 1996. The
proprietorship is responsible for all repairs, taxes, water, maintenance,
landscaping and utilities. Rent expense for the seven months ended July 31,
1996, is $7,000.
NOTE E -- OTHER ASSETS
Goodwill of $94,000 represents the excess of the cost of the assets
acquired over the fair value of the net assets at the date of acquisition on
October 6, 1989. Goodwill is being amortized using the straight-line method over
an estimated useful life of seven years. As of July 31, 1996, Goodwill has been
fully amortized.
Organization costs of $4,830 at date of acquisition on October 6, 1989 are
being amortized using the straight-line method over an estimated useful life of
10 years, and are shown net of accumulated amortization on the balance sheet.
NOTE F -- SIMPLIFIED EMPLOYEE PENSION (SEP-IRA)
The proprietorship has implemented a qualified pension plan, specifically a
simplified employee pension for all qualified employees and the proprietor. The
decision to make contributions to the plan are at the discretion of the
proprietor.
For the seven months ended July 31, 1996, the proprietorship contributed
$2,000 to the SEP-IRA on behalf of the proprietor and eligible employees.
NOTE G -- SUBSEQUENT EVENTS
The assets and customer list of the Proprietorship were acquired by First
New England Dental in September, 1996.
F-167
<PAGE> 221
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Mark E. Ellicson,
D.M.D., P.C. (a C Corporation) as of August 31, 1996, December 31, 1995 and
1994, and the related statements of operations, changes in stockholder's equity
(deficit), and cash flows for the eight months ended August 31, 1996 and for the
years ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mark E. Ellicson, D.M.D.,
P.C. as of August 31, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the eight months ended August 31, 1996 and for
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-168
<PAGE> 222
MARK E. ELLICSON, D.M.D., P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
---------- -------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ -- $ 955 $ 2,961
Patient receivables, net of allowance for uncollectible
accounts of $71,098, $63,483 and $39,660 in 1996, 1995,
and 1994,
respectively.............................................. 61,092 49,618 90,668
Deferred tax asset........................................... -- -- 9,000
Prepaid expenses............................................. 10,729 -- 10,386
-------- -------- --------
Total current assets................................. 71,821 50,573 113,015
-------- -------- --------
Property and equipment, net.................................... 36,159 90,247 94,443
-------- -------- --------
Other assets................................................... 517 517 517
-------- -------- --------
$ 108,497 $141,337 $207,975
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations................. $ 4,392 $ 6,395 $ 12,982
Advances from stockholder.................................... 14,526 30,338 89,714
Accounts payable and accrued expenses........................ 99,363 85,832 182,744
Cash overdraft............................................... 1,701 -- --
Income taxes payable......................................... 16,898 28,298 --
-------- -------- --------
Total current liabilities............................ 136,880 150,863 285,440
-------- -------- --------
Capital lease obligations, net of current portion.............. 7,730 9,659 15,224
-------- -------- --------
Stockholder's equity (deficit):
Common stock, no par value, 1,000 shares authorized, issued
and outstanding........................................... 1,806 1,806 1,806
Accumulated deficit.......................................... (37,919) (20,991) (94,495)
-------- -------- --------
Total stockholder's equity (deficit)................. (36,113) (19,185) (92,689)
-------- -------- --------
$ 108,497 $141,337 $207,975
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-169
<PAGE> 223
MARK E. ELLICSON, D.M.D., P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEARS ENDED DECEMBER
AUGUST 31, 31,
------------ ---------------------
1996 1995 1994
------------ -------- ----------
<S> <C> <C> <C>
Net patient revenues........................................ $466,543 $760,999 $ 969,105
-------- -------- ----------
Expenses:
Dentists' salaries........................................ -- -- 144,615
Clinical salaries......................................... 55,511 105,911 89,073
Dental supplies and laboratory fees....................... 84,699 91,944 306,856
Rental and lease expense -- related party................. 28,212 40,668 44,461
Advertising and marketing................................. 4,182 16,723 20,163
Depreciation and amortization............................. 14,600 12,217 17,215
Bad debt expense.......................................... 7,615 23,823 18,975
Other operating expenses.................................. 64,313 68,628 101,374
General and administrative................................ 191,198 287,540 345,949
-------- -------- ----------
Total expenses.................................... 450,330 647,454 1,088,681
-------- -------- ----------
Operating income (loss)........................... 16,213 113,545 (119,576)
-------- -------- ----------
Other income (expense):
Other income.............................................. -- 2,014 203
Loss on disposal of property and equipment................ (39,488) -- --
Interest expense.......................................... (5,053) (4,672) (2,799)
-------- -------- ----------
(44,541) (2,658) (2,596)
-------- -------- ----------
Income (loss) before income taxes........................... (28,328) 110,887 (122,172)
Provision (benefit) for income taxes........................ (11,400) 37,383 (9,000)
-------- -------- ----------
Net income (loss)........................................... $(16,928) $ 73,504 $ (113,172)
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-170
<PAGE> 224
MARK E. ELLICSON, D.M.D., P.C.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS TOTAL
----------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
------ ------ ------------ ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1994....................... 1,000 $1,806 $ 18,677 $ 20,483
Net loss....................................... -- -- (113,172) (113,172)
----- ------ --------- ---------
Balance at December 31, 1994..................... 1,000 1,806 (94,495) (92,689)
Net income..................................... -- -- 73,504 73,504
----- ------ --------- ---------
Balance at December 31, 1995..................... 1,000 1,806 (20,991) (19,185)
Net loss....................................... -- -- (16,928) (16,928)
----- ------ --------- ---------
Balance at August 31, 1996....................... 1,000 $1,806 $ (37,919) $ (36,113)
===== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-171
<PAGE> 225
MARK E. ELLICSON, D.M.D., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED
AUGUST 31, YEARS ENDED DECEMBER 31,
------------ ------------------------
1996 1995 1994
------------ -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(16,928) $ 73,504 $(113,172)
Adjustments:
Provision for bad debts................................ 7,615 23,823 18,975
Deferred taxes......................................... -- 9,000 (9,000)
Loss on disposal of property and equipment............. 39,488 -- --
Depreciation and amortization.......................... 14,600 12,213 17,215
Changes in operating assets and liabilities:
Patient receivables.................................. (19,089) 17,227 (10,134)
Prepaid expenses..................................... (10,729) 10,386 (1,510)
Other assets......................................... -- -- (517)
Accounts payable and accrued expenses................ 13,531 (96,912) 64,797
Income taxes payable................................. (11,400) 28,298 --
-------- -------- ---------
Net cash provided by (used in) operating
activities...................................... 17,088 77,539 (33,346)
-------- -------- ---------
Cash flows used in investing activities:
Acquisition of property and equipment..................... -- (8,017) (32,505)
-------- -------- ---------
Cash flows from financing activities:
Payments on capital lease obligations..................... (3,932) (12,152) --
Net proceeds (payments) on advances from stockholder...... (15,812) (59,376) 87,846
Net change in cash overdrafts............................. 1,701 -- (19,034)
-------- -------- ---------
Net cash provided by (used in) financing
activities...................................... (18,043) (71,528) 68,812
-------- -------- ---------
Increase (decrease) in cash and cash equivalents............ (955) (2,006) 2,961
Cash and cash equivalents, beginning of period.............. 955 2,961 --
-------- -------- ---------
Cash and cash equivalents, end of period.................... $ -- $ 955 $ 2,961
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-172
<PAGE> 226
MARK E. ELLICSON, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
The Company is a provider of dental services and products located in
Dalton, Massachusetts and Scottsdale, Arizona.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental revenue is recognized as the services are performed and
billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which includes the amortization of assets recorded under
capital leases, are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
thirty years. Fully depreciated assets are retained in property and equipment
until they are removed from service. Fully depreciated assets as of August 31,
1996, December 31, 1995 and 1994 were $199,050. Maintenance and repairs are
charged to expenses whereas renewals and major replacements are capitalized.
Gains and losses from dispositions are included in operations.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to the accrual method for financial reporting purposes and the
cash method for income tax purposes. The
F-173
<PAGE> 227
MARK E. ELLICSON, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Income Taxes -- (Continued)
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled net of the deferred tax benefits
recognized for tax basis net operating losses that are available to offset
future taxable income.
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
---------- ---------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Property and equipment:
Equipment........................................... $ 177,198 $177,198 $176,173
Equipment under capital lease....................... 54,160 54,160 54,160
Leasehold improvements.............................. 38,258 38,258 28,258
Furniture and fixtures.............................. 14,734 14,734 14,734
Motor vehicle....................................... -- 51,848 51,848
-------- -------- --------
Total property and equipment................ 284,350 336,198 325,173
Less -- accumulated depreciation and amortization... 248,191 245,951 230,730
-------- -------- --------
Net property and equipment.................. $ 36,159 $ 90,247 $ 94,443
======== ======== ========
</TABLE>
The amounts of accumulated amortization for equipment under capital lease as
of August 31, 1996, December 31, 1995 and 1994 were $22,402, $16,706, and
$11,010, respectively.
<TABLE>
<S> <C> <C> <C>
Accounts payable and accrued expenses:
Trade............................................... $ 54,698 $ 63,955 $168,244
Accrued expenses.................................... 44,665 21,877 14,500
-------- -------- --------
$ 99,363 $ 85,832 $182,744
======== ======== ========
</TABLE>
F-174
<PAGE> 228
MARK E. ELLICSON, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
---------- -------------------
1996 1995 1994
---------- ------- -------
<S> <C> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period........................ $ 63,483 $39,660 $20,685
Provision for bad debts............................... 7,615 23,823 18,975
Charge offs........................................... -- -- --
------- ------- -------
Balance at end of period................................ $ 71,098 $63,483 $39,660
======= ======= =======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases a portion of its property and equipment under capital
leases. Future minimum lease obligations under capital leases with remaining
terms of one or more years consisted of the following at December 31, 1995:
<TABLE>
<S> <C>
1996........................................................................ $6,395
1997........................................................................ 6,224
1998........................................................................ 6,224
1999........................................................................ 519
------
Total minimum lease obligations............................................. 19,362
Less - amount representing interest....................................... 3,308
------
Present value of minimum lease obligations.................................. 16,054
Less - current portion.................................................... 6,395
------
Long-term capital lease obligations......................................... $9,659
======
</TABLE>
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
F-175
<PAGE> 229
MARK E. ELLICSON, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The deferred tax
asset at August 31, 1996, December 31, 1995 and 1994, resulted from the
following differences:
<TABLE>
<CAPTION>
AUGUST 31, DECEMBER 31,
---------- ---------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Patient receivables, net........................... $ (24,600) $(20,000) $(36,500)
Accounts payable and accrued expenses.............. 40,000 34,600 73,600
Net operating loss carryforward.................... -- -- 9,000
Valuation allowance................................ (15,400) (14,600) (37,100)
---------- -------- --------
Deferred tax asset................................. $ -- $ -- $ 9,000
======== ======== ========
</TABLE>
Provision (benefit) for income taxes for the periods ended August 31, 1996,
December 31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
EIGHT
MONTHS
ENDED YEARS ENDED DECEMBER
AUGUST 31, 31,
---------- ----------------------
1996 1995 1994
---------- -------- -------
<S> <C> <C> <C>
Current.............................................. $ (11,400) $ 28,383 $ --
Deferred............................................. -- 9,000 (9,000)
---------- -------- -------
$ (11,400) $ 37,383 $(9,000)
======== ======== =======
</TABLE>
A reconciliation of the statutory U.S. federal rate and effective rates is as
follows:
<TABLE>
<CAPTION>
EIGHT
MONTHS
ENDED YEARS ENDED DECEMBER
AUGUST 31, 31,
---------- ---------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Statutory U.S. federal rate........................... 35% 35% 35%
State income taxes, net of federal tax benefit........ 7 7 7
Tax reporting period differences...................... -- -- (32)
Other................................................. (2) (8) (2)
---------- -------- --------
40% 34% 8%
======== ======== ========
</TABLE>
F-176
<PAGE> 230
MARK E. ELLICSON, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
EIGHT
MONTHS
ENDED
AUGUST 31, YEARS ENDED DECEMBER 31,
---------- ------------------------
1996 1995 1994
---------- ------ -------
<S> <C> <C> <C>
Cash paid during the period for interest............. $5,053 $4,672 $ 2,799
======== ====== =======
Cash paid during the period for income taxes......... $ -- $ -- $ --
======== ====== =======
Noncash transaction - capital lease obligations...... $ -- $ -- $22,598
======== ====== =======
</TABLE>
7. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, advances
from stockholder and accounts payable and accrued expenses approximate fair
values due to the short-term maturities of these instruments. The carrying
amount of capital lease obligations approximates fair value.
8. SUBSEQUENT EVENT
Certain assets of the Company were acquired by First New England Dental
Centers, Inc. effective September 1, 1996. The accompanying financial statements
are presented on a going concern basis and not on a liquidation basis.
9. RELATED PARTY TRANSACTIONS
Rent Expense
The Company rents office space from the stockholder of the Company under a
tenant at will agreement. Rent expense for the eight months ended August 31,
1996 and the years ended December 31, 1995 and 1994 was approximately $24,000,
$36,000, and $36,000, respectively.
Advances from Stockholder
Advances from stockholder, payable on demand, as of August 31, 1996,
December 31, 1995 and 1994 were $14,526, $30,338, and $89,714.
F-177
<PAGE> 231
MARK E. ELLICSON, D.M.D., P.C.
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
10. CONDENSED FINANCIAL INFORMATION BY LOCATION
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------- ----------------------------------- ------------------------------------
MASSACHUSETTS ARIZONA TOTAL MASSACHUSETTS ARIZONA TOTAL MASSACHUSETTS ARIZONA TOTAL
------------- -------- -------- ------------- -------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........ $ 406,898 $ 59,645 $466,543 $ 698,693 $ 62,306 $760,999 $ 969,105 $-- $ 969,105
Expenses....... 421,233 62,238 483,471 594,564 92,931 687,495 1,082,277 -- 1,082,277
-
-------- -------- -------- -------- -------- -------- ---------- ----------
Net income
(loss)....... $ (14,335) $ (2,593) $(16,928) $ 104,129 $(30,625) $ 73,504 $ (113,172) $-- $ (113,172)
======== ======== ======== ======== ======== ======== ========== = ==========
Assets......... $ 79,134 $ 29,363 $108,497 $ 110,933 $ 30,404 $141,337 $ 207,975 $-- $ 207,975
======== ======== ======== ======== ======== ======== ========== = ==========
Liabilities.... $ 82,029 $ 62,581 $144,610 $ 99,493 $ 61,029 $160,522 $ 300,664 $-- $ 300,664
======== ======== ======== ======== ======== ======== ========== = ==========
Equity
(deficit).... $ (2,895) $(33,218) $(36,113) $ 11,440 $(30,625) $(19,185) $ (92,689) $-- $ (92,689)
======== ======== ======== ======== ======== ======== ========== = ==========
</TABLE>
F-178
<PAGE> 232
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of
Drs. Feingold and Rappaport, P.C.
We have audited the accompanying balance sheets of Drs. Feingold and
Rappaport, P.C. as of December 31, 1994 and 1995 and August 31, 1996, and the
related statements of income and retained earnings and statements of cash flows
for the years ended December 31, 1994 and 1995 and the eight month period ended
August 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Drs. Feingold and Rappaport,
P.C. as of December 31, 1994 and 1995, and the results of its operation and its
cash flows for the years ended December 31, 1994 and 1995 and the eight month
period ended August 31, 1996, in conformity with generally accepted accounting
principles.
BEERS, HAMERMAN & COMPANY, P.C.
New Haven, Connecticut
November 20, 1996
F-179
<PAGE> 233
DRS. FEINGOLD & RAPPAPORT, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- AUGUST 31,
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 1,969 $ 1,515 $ 25,363
Patient receivables, net of allowance for
uncollectible accounts of $19,011 for 1994, $22,731
for 1995 and $24,510 for 1996....................... 116,781 110,980 111,658
Prepaid insurance..................................... 5,063 5,043 8,605
-------- -------- --------
Total current assets............................. 123,813 117,538 145,626
Property and equipment, net................................ 2,967 2,347 2,006
Due from shareholders...................................... 9,046 9,620 9,620
-------- -------- --------
Total assets..................................... $135,826 $129,505 $ 157,252
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable/accrued expenses..................... $ 44,709 $ 20,052 $ 40,652
State income tax payable.............................. 632 1,566 527
Note payable -- bank.................................. 38,404 32,778 46,500
Deferred state income tax............................. 8,040 9,755 7,620
Unearned revenue...................................... 8,844 5,229 7,040
-------- -------- --------
Total current liabilities........................ 100,629 69,380 102,339
-------- -------- --------
Shareholders' equity:
Common stock, $100 par value, 5,000 shares authorized,
12 shares issued, 8 shares outstanding.............. 1,200 1,200 1,200
Retained earnings..................................... 50,902 75,830 70,618
-------- -------- --------
52,102 77,030 71,818
Less: treasury stock, 4 shares at cost................ 16,905 16,905 16,905
-------- -------- --------
Total shareholders' equity....................... 35,197 60,125 54,913
-------- -------- --------
Total liabilities and shareholders' equity....... $135,826 $129,505 $ 157,252
======== ======== ========
</TABLE>
See accompanying notes to the financial statements
F-180
<PAGE> 234
DRS. FEINGOLD & RAPPAPORT, P.C.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTH
DECEMBER 31, PERIOD ENDED
----------------------- AUGUST 31,
1994 1995 1996
--------- --------- ------------
<S> <C> <C> <C>
Net patient revenues................................... $ 726,800 $ 787,211 $ 536,622
--------- --------- ---------
Expenses:
Dentists' salaries................................ 242,073 227,475 159,598
Clinical and office salaries...................... 161,118 180,373 124,496
Dental supplies/laboratory fees................... 119,900 117,947 87,628
Rental and lease costs............................ 42,396 45,352 28,906
Advertising and marketing......................... 13,645 18,050 11,773
Depreciation...................................... 572 1,602 341
Insurance......................................... 16,073 16,764 12,048
Repairs and maintenance........................... 2,770 8,357 4,262
Payroll taxes..................................... 28,857 34,303 27,800
Continuing education.............................. 5,953 3,227 3,733
Dues and subscriptions............................ 8,100 7,348 3,816
Officers' life insurance.......................... 5,268 4,209 3,784
Legal and accounting.............................. 13,162 11,389 18,071
Office supplies................................... 22,734 18,357 10,223
Postage........................................... 5,079 5,289 2,680
Property and other taxes.......................... 2,725 2,302 711
Telephone......................................... 6,087 6,015 4,061
Utilities......................................... 3,407 3,317 1,984
Other............................................. 2,876 3,103 2,279
Provision for bad debts........................... 18,060 41,032 31,794
--------- --------- ---------
Total expenses............................... 720,855 755,811 539,988
--------- --------- ---------
Operating income (loss)................................ 5,945 31,400 (3,366)
--------- --------- ---------
Other income (expense):
Interest income................................... 134 264 295
Interest expense.................................. (2,617) (3,455) (2,674)
--------- --------- ---------
Total other income (expense)................. (2,483) (3,191) (2,379)
--------- --------- ---------
Income (loss) before provision (benefit) for state
income tax........................................... 3,462 28,209 (5,745)
Provision (benefit) for state income tax............... 544 3,281 (533)
--------- --------- ---------
Net income (loss)...................................... 2,918 24,928 (5,212)
Retained earnings -- beginning......................... 47,984 50,902 75,830
--------- --------- ---------
Retained earnings -- ending............................ $ 50,902 $ 75,830 $ 70,618
========= ========= =========
</TABLE>
See accompanying notes to the financial statements
F-181
<PAGE> 235
DRS. FEINGOLD & RAPPAPORT, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTH
DECEMBER 31, PERIOD ENDED
-------------------- AUGUST 31,
1994 1995 1996
------- -------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(2,918) $ 24,928 $ (5,212)
Adjustments:
Depreciation....................................... 572 1,602 341
Changes in operating assets and liabilities:
Patient receivables, net........................ (3,608) 5,801 (678)
Prepaid insurance............................... 22 20 (3,562)
Accounts payable/accrued expenses............... 2,947 (24,657) 20,600
State income tax payable........................ 382 934 (1,039)
Deferred tax liability.......................... (162) 1,715 (2,135)
Unearned revenue................................ 856 (3,615) 1,811
------- -------- ------------
Net cash provided by operating activities............ 4,251 6,728 10,126
------- -------- ------------
Cash flows from investing activities:
Provide leasehold improvements....................... (1,742)
Purchase furniture................................... (395) (982) --
------- -------- ------------
Net cash used in investing activities................ (2,137) (982) --
------- -------- ------------
Cash flows from financing activities:
Proceeds from borrowing.............................. 920 -- 13,722
Repayment of debt.................................... -- (5,626) --
Advances to shareholders............................. (3,217) (574) --
------- -------- ------------
Net cash provided by (used in) financing
activities......................................... (2,297) (6,200) 13,722
------- -------- ------------
Net change in cash and cash equivalents................... (183) (454) 23,848
Cash and cash equivalents -- beginning of period.......... (2,152) 1,969 1,515
------- -------- ------------
Cash and cash equivalents -- end of period................ $ 1,969 $ 1,515 $ 25,363
======= ======== ============
</TABLE>
See accompanying notes to the financial statements
F-182
<PAGE> 236
DRS. FEINGOLD & RAPPAPORT, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, DECEMBER 31, 1995 AND AUGUST 31, 1996
NOTE 1 -- CORPORATE ORGANIZATION
Drs. Feingold and Rappaport, P.C. (the "Company") is a provider of dental
services that owns and operates a dental center in Orange, Connecticut.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the accrual basis of
accounting. The Company uses the cash basis of accounting for income tax
purposes.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt investments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
The Company records revenues from dental procedures, in full, when the
services are initiated. However, an adjustment for revenues recorded, but
unearned, is made to the financial statements for services initiated in the
current period and continued into the succeeding period.
Accounts receivable primarily consist of receivables from patients,
insurers and other third party payers for services provided by the dentists and
dental hygienists. An allowance for uncollectible accounts is recorded by the
Company based on historical experience.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
declining balance methods for equipment and furniture and the straight-line
method for leasehold improvements over the estimated lives of the assets.
Maintenance and repairs are charged to expense when incurred. When assets are
disposed of, the related cost and accumulated depreciation are removed from the
respective accounts, and any profit or loss on disposition is credited or
charged to earnings.
Income Taxes
The Company is a Subchapter S entity and, accordingly, federal tax
liabilities are the responsibility of the shareholders. The State of Connecticut
does not recognize Subchapter S entities, therefore the Company is liable for
state income taxes.
F-183
<PAGE> 237
DRS. FEINGOLD & RAPPAPORT, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, DECEMBER 31, 1995 AND AUGUST 31, 1996
Deferred state income taxes are determined under the liability method.
Under this method, deferred taxes are based on the differences between the
financial reporting and tax basis of assets and liabilities and are measured
using the enacted marginal state income tax rates currently in effect. The
differences relate primarily to the use of the accrual basis of accounting for
financial statement purposes and the cash basis for income tax purposes.
NOTE 3 -- SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- AUGUST 31,
1994 1995 1996
------- ------- ----------
<S> <C> <C> <C>
Property and equipment:
Equipment............................................... $26,326 $26,326 $ 26,326
Furniture and fixtures.................................. 5,722 6,704 6,704
Leasehold improvements.................................. 1,742 1,742 1,742
------- ------- -------
Total property and equipment....................... 33,790 34,772 34,772
Less accumulated depreciation........................... 30,823 32,425 32,766
------- ------- -------
$ 2,967 $ 2,347 $ 2,006
======= ======= =======
Accounts payable/accrued expenses:
Trade accounts payable.................................. 41,535 18,704 31,019
Accrued payroll and payroll taxes....................... 3,174 1,348 9,633
------- ------- -------
$44,709 $20,052 $ 40,652
======= ======= =======
</TABLE>
NOTE 4 -- NOTE PAYABLE -- BANK
In March, 1990 the Company entered into a line of credit agreement with
Primebank. The amount of availability on the credit line was increased from
$40,000 to $75,000 in January, 1994. Advances on the line of credit are
guaranteed by the shareholders, and payable on demand to the bank. Interest is
paid on a monthly basis at the bank's base rate plus 1 1/2%. The interest rate
on the outstanding balances at December 31, 1994 and 1995, and August 31, 1996
was 10.0%, 10.5% and 10.0%, respectively. The outstanding balance was paid off
in November, 1996.
NOTE 5 -- OPERATING LEASES
The Company leases various items of equipment and furniture from a trust
whose beneficiaries are related to a shareholder. The rental expense
attributable to these operating leases during the years ended December 31, 1994
and 1995, and the period ended August 31, 1996 was $11,795, $14,430 and $5,502,
respectively. Certain other equipment is rented under operating leases with
third parties.
The Company's five year lease agreement on its office facilities expires
April 30, 1999. Scheduled annual rental payments under this agreement are:
<TABLE>
<S> <C>
May 1, 1994 to April 30, 1995..................................... $ 29,248
May 1, 1995 to April 30, 1996..................................... 30,348
May 1, 1996 to April 30, 1997..................................... 31,548
May 1, 1997 to April 30, 1998..................................... 32,748
May 1, 1998 to April 30, 1999..................................... 33,948
--------
$157,840
========
</TABLE>
F-184
<PAGE> 238
DRS. FEINGOLD & RAPPAPORT, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, DECEMBER 31, 1995 AND AUGUST 31, 1996
Rental expense for the office facilities during the years ended December
31, 1994 and 1995 and the period ended August 31, 1996 was $29,248, $30,348 and
$21,032, respectively.
Future minimum annual rental commitments under noncancelable operating
leases are:
<TABLE>
<S> <C>
September 1, 1996 to December 31, 1996............................. $10,516
Year ending December 31, 1997...................................... 32,348
Year ending December 31, 1998...................................... 33,548
Year ending December 31, 1999...................................... 11,316
-------
Total.................................................... $87,728
=======
</TABLE>
NOTE 6 -- STATE INCOME TAX
The components of the provision for state income tax are:
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTH
DECEMBER 31, PERIOD ENDED
----------------- AUGUST 31,
1994 1995 1996
------ ------ ------------
<S> <C> <C> <C>
Current tax expense.................................... $ 382 $1,566 $ 1,602
Deferred tax expense (benefit)......................... 162 1,715 (2,135)
------ ------ -------
Provision for state income tax......................... $ 544 $3,281 $ (533)
====== ====== =======
</TABLE>
NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED EIGHT MONTH
DECEMBER 31, PERIOD ENDED
----------------- AUGUST 31,
1994 1995 1996
------ ------ ------------
<S> <C> <C> <C>
Cash paid for interest................................. $2,617 $3,455 $ 2,674
====== ====== =======
Cash paid for income taxes............................. $ 250 $ 632 $ 2,641
====== ====== =======
</TABLE>
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies:
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments.
The carrying value of the Company's line of credit agreement approximates
fair value since the rate on the agreement is variable, based on current market
interest rates.
NOTE 9 -- CREDIT RISK
The Company grants credit to patients in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and appropriate allowances are made to reduce accounts to their net
realizable values.
F-185
<PAGE> 239
DRS. FEINGOLD & RAPPAPORT, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994, DECEMBER 31, 1995 AND AUGUST 31, 1996
NOTE 10 -- SUBSEQUENT EVENTS
In October, 1996, the assets of the Company were acquired by Feingold and
Rappaport Sub, Inc., and then the common stock of Feingold and Rappaport Sub,
Inc. was acquired by First New England Dental Centers, Inc. The lease on the
Company's office facilities, which is described in Note 5, was assumed as a part
of this acquisition.
F-186
<PAGE> 240
INDEPENDENT AUDITOR'S REPORT
To The Stockholder and Board of Directors
Frank Weisner, DMD, Orthodontist, P.C.
Fitchburg, Massachusetts
We have audited the accompanying balance sheets of Frank Weisner, DMD,
Orthodontist, P.C. as of September 30, 1996 and December 31, 1995 and 1994, and
the related statements of income and accumulated deficit and cash flows for the
nine months ended September 30, 1996, and for the years ended December 31, 1995
and 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Frank Weisner, DMD,
Orthodontist, P.C. as of September 30, 1996 and December 31, 1995 and 1994, and
the results of its operations and its cash flows for the periods then ended, in
conformity with generally accepted accounting principles.
GOFF, CARLIN & CAGAN LLP
Worcester, Massachusetts
November 15, 1996
F-187
<PAGE> 241
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash.............................................. $ 23,989 $ 16,828 $ 11,518
Accounts receivable............................... 185,490 248,477 287,950
Due from officer.................................. 1,323 1,641 13,280
-------- -------- --------
TOTAL CURRENT ASSETS......................... 210,802 266,946 312,748
-------- -------- --------
PROPERTY AND EQUIPMENT
Equipment......................................... 85,033 84,768 83,445
Furniture and fixtures............................ 48,924 47,340 45,735
Leasehold improvements............................ 39,187 39,187 39,187
Motor vehicle..................................... 21,312 21,312 20,071
Computer equipment................................ 17,188 1,735 1,735
-------- -------- --------
TOTAL........................................ 211,644 194,342 190,173
Less - accumulated depreciation................... 158,268 149,798 160,407
-------- -------- --------
NET PROPERTY AND EQUIPMENT................... 53,376 44,544 29,766
-------- -------- --------
TOTAL ASSETS........................................... $264,178 $311,490 $342,514
======== ======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable.................................. $ 8,000 $ 10,531 $ 8,756
Accrued expenses and other current liabilities.... 19,794 31,168 33,754
Deferred revenue.................................. 150,000 180,000 172,000
-------- -------- --------
TOTAL CURRENT LIABILITIES.................... 177,794 221,699 214,510
LONG-TERM LIABILITIES
Deferred revenue.................................. 149,473 176,966 171,250
-------- -------- --------
TOTAL LIABILITIES...................................... 327,267 398,665 385,760
-------- -------- --------
STOCKHOLDER'S DEFICIT
Common stock, no par value, 12,500 shares
authorized, 100 shares issued and outstanding... 1,000 1,000 1,000
Accumulated deficit............................... (64,089) (88,175) (44,246)
-------- -------- --------
TOTAL STOCKHOLDER'S DEFICIT.................. (63,089) (87,175) (43,246)
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT............ $264,178 $311,490 $342,514
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-188
<PAGE> 242
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SERVICE INCOME......................................... $366,505 $470,320 $480,178
OPERATING EXPENSES..................................... 342,419 521,005 509,294
-------- -------- --------
OPERATING INCOME (LOSS)................................ 24,086 (50,685) (29,116)
-------- -------- --------
OTHER INCOME
Interest income................................... -- 1,483 297
Gain on sale of property and equipment............ -- 5,273 --
-------- -------- --------
TOTAL OTHER INCOME.............................. -- 6,756 297
-------- -------- --------
NET INCOME (LOSS)...................................... 24,086 (43,929) (28,819)
ACCUMULATED DEFICIT -- BEGINNING....................... (88,175) (44,246) (15,427)
-------- -------- --------
ACCUMULATED DEFICIT -- ENDING.......................... $(64,089) $(88,175) $(44,246)
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-189
<PAGE> 243
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Receipts:
Cash received from patients....................... $371,999 $523,509 $514,728
Interest received................................. -- 1,483 297
-------- -------- --------
Total Cash Receipts............................. 371,999 524,992 515,025
-------- -------- --------
Cash Payments:
Cash paid to suppliers and employees.............. 347,854 513,222 501,678
Interest paid..................................... -- -- --
Income taxes paid................................. -- 471 --
-------- -------- --------
Total Cash Payments............................. 347,854 513,693 501,678
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 24,145 11,299 13,347
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to officer.................................. -- -- (13,280)
Repayments from officer.............................. 318 11,639 --
Acquisition of property and equipment................ (17,302) (24,239) (491)
Proceeds from sale of property and equipment......... -- 6,611 --
-------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES................. (16,984) (5,989) (13,771)
-------- -------- --------
INCREASE (DECREASE) IN CASH............................ 7,161 5,310 (424)
CASH - BEGINNING....................................... 16,828 11,518 11,942
-------- -------- --------
CASH - ENDING.......................................... $ 23,989 $ 16,828 $ 11,518
======== ======== ========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss)................................. $ 24,086 $(43,929) $(28,819)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation.................................... 8,470 8,123 12,013
Gain on sale of property and equipment.......... -- (5,273) --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable........................ 62,987 39,473 (43,063)
Increase (decrease) in:
Accounts payable........................... (2,531) 1,775 (5,630)
Accrued expenses and other current
liabilities............................. (11,374) (2,586) 1,233
Deferred revenue........................... (57,493) 13,716 77,613
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $ 24,145 $ 11,299 $ 13,347
======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-190
<PAGE> 244
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations
Frank Weisner, DMD, Orthodontist, P.C., provides dentistry services,
specializing in orthodontic medicine. The Company was incorporated in 1983 and
operates in Fitchburg, Gardner and Athol, Massachusetts.
(b) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method at rates sufficient to write off the cost of the
applicable assets over their estimated useful lives.
(c) Revenue Recognition
Company revenue is recognized in accordance with the proportional
performance method of accounting for service contracts. Under this method,
revenue is recognized as services are performed and the costs associated
therewith are incurred under the terms of contractual agreements with each
patient. A significant portion, approximately 25%, of the services are performed
in the initial month of the contract. Accordingly, a proportionate share of
revenue is recognized. The balance of revenues is recognized over the remaining
term of the contract, which averages 24 months.
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(e) Income Taxes
The Company records taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial statement
and income tax bases of assets and liabilities using enacted tax rates in effect
for the years in which those differences are expected to reverse.
(f) Advertising
Advertising costs are charged to operations when incurred.
(2) RELATED PARTY TRANSACTIONS
(a) Due from Officer
The balance represents non-interest bearing, unsecured, demand cash advances to
an officer.
(b) Rent
The Company leases some of its office space from its stockholder. These rental
expenditures totaled $13,200 for the nine months ended September 30, 1996 and
$19,200 for each of the years ended December 31, 1995 and 1994.
(continued)
F-191
<PAGE> 245
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Rent (continued)
The following is a schedule of future minimum lease payments.
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
------------------------------------------------------------- --------
<S> <C>
1997....................................................... $ 24,000
1998....................................................... 24,000
1999....................................................... 24,000
2000....................................................... 24,000
2001....................................................... 8,000
--------
TOTAL...................................................... $104,000
========
</TABLE>
(3) INCOME TAXES
The Company has deferred tax assets due to deferred revenues and net
operating loss carryforwards, which are partly offset by deferred tax
liabilities due to unrecognized accounts receivable. The remaining deferred tax
assets are offset by a valuation reserve, as the net operating loss
carryforwards will never be utilized.
(4) PROFIT SHARING PLAN
The Company has a qualified profit sharing plan covering all eligible
employees. Contributions to the plan are discretionary and are determined
annually by the Board of Directors. Company contributions were $-0- for the nine
months ended September 30, 1996 and $29,567 and $31,383 for the years ended
December 31, 1995 and 1994, respectively.
(5) ADVERTISING EXPENSE
Advertising expense was $7,335 for the nine months ended September 30, 1996
and $8,873 and $7,570 for the years ended December 31, 1995 and 1994,
respectively.
(6) COMMITMENTS AND CONTINGENCIES
The Company also leases office space from unrelated parties. These rental
expenditures totaled $11,105 for the nine months ended September 30, 1996, and
$14,074 and $18,465 for the years ended December 31, 1995 and 1994,
respectively. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, AMOUNT
---------------------------------------------------------------- -------
<S> <C>
1997.......................................................... $11,825
1998.......................................................... 6,600
1999.......................................................... 1,650
-------
TOTAL......................................................... $20,075
=======
</TABLE>
(7) SUBSEQUENT EVENT
In November of 1996, the Company's stock was sold.
F-192
<PAGE> 246
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplementary information
presented in the following schedules of operating expenses is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
GOFF, CARLIN & CAGAN LLP
Worcester, Massachusetts
November 15, 1996
F-193
<PAGE> 247
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
SCHEDULES OF OPERATING EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Officer's salary............................................. $129,865 $202,025 $177,750
Administrative payroll....................................... 85,967 113,752 122,453
Payroll taxes................................................ 13,941 18,633 19,619
Drugs and supplies........................................... 22,222 21,025 28,050
General insurance............................................ 4,163 9,278 5,783
Group insurance.............................................. 3,628 7,497 7,143
Rent......................................................... 24,305 33,274 37,665
Utilities.................................................... 2,465 3,429 3,070
Depreciation................................................. 8,470 8,123 12,013
Telephone.................................................... 4,462 6,122 8,217
Advertising.................................................. 7,335 8,873 7,570
Repairs and maintenance...................................... 2,675 4,953 5,491
Motor vehicle expense........................................ 2,966 5,064 4,439
Training and development..................................... 7,945 7,519 7,893
Profit sharing plan.......................................... -- 29,567 31,383
Professional services........................................ 5,734 4,825 4,650
Outside services............................................. 448 1,719 362
Dues and subscriptions....................................... 1,700 2,629 2,035
Office supplies.............................................. 6,131 11,582 12,346
Postage...................................................... 1,630 2,577 2,158
Travel and entertainment..................................... 3,272 10,674 3,611
General taxes................................................ 1,513 2,477 3,602
Laundry and uniforms......................................... 985 1,430 1,991
Computer expense............................................. 597 3,958 --
-------- -------- --------
TOTAL OPERATING EXPENSES..................................... $342,419 $521,005 $509,294
======== ======== ========
</TABLE>
F-194
<PAGE> 248
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Belknap Dental
Associates, P.C. (a C Corporation) as of October 31, 1996, December 31, 1995 and
1994, and the related statements of operations, changes in stockholder's equity,
and cash flows for the ten months ended October 31, 1996 and for the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Belknap Dental Associates,
P.C. as of October 31, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the ten months ended October 31, 1996 and for
the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 15, 1996
Boston, Massachusetts
F-195
<PAGE> 249
BELKNAP DENTAL ASSOCIATES, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
OCTOBER 31, ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 44,754 $ 290 $ --
Patient receivables, net of allowance for uncollectible
accounts of $68,000, $58,000 and $58,000 in 1996, 1995
and 1994, respectively................................ 354,775 330,082 267,784
Other current assets..................................... 8,635 7,732 8,178
------- ------- -------
Total current assets............................. 408,164 338,104 275,962
------- ------- -------
Property and equipment, net................................ 241,835 238,288 218,248
------- ------- -------
$ 649,999 $576,392 $494,210
======= ======= =======
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt........................ $ 145,373 $159,200 $ 28,493
Current portion of capital lease obligations............. 4,138 9,848 7,754
Advances from stockholder................................ 4,305 7,776 27,369
Accounts payable and accrued expenses.................... 24,437 14,586 10,420
Cash overdraft........................................... -- -- 13,550
Income taxes payable..................................... 44,630 32,386 23,722
Deferred revenue......................................... 34,321 28,805 27,043
Deferred tax liability................................... 117,075 113,387 81,958
----------- -------- --------
Total current liabilities........................ 374,279 365,988 220,309
----------- -------- --------
Long-term liabilities:
Long-term debt, net of current portion................... 11,467 -- 159,200
Capital lease obligations, net of current portion........ 12,529 16,047 6,081
----------- -------- --------
Total long-term liabilities...................... 23,996 16,047 165,281
----------- -------- --------
Stockholder's equity:
Common stock, no par value, 300 shares authorized,
100 shares issued and 10 shares outstanding........... 1,500 1,500 1,500
Retained earnings........................................ 310,224 252,857 167,120
----------- -------- --------
311,724 254,357 168,620
Less - cost of treasury stock............................ 60,000 60,000 60,000
----------- -------- --------
Total stockholder's equity....................... 251,724 194,357 108,620
----------- -------- --------
$ 649,999 $576,392 $494,210
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-196
<PAGE> 250
BELKNAP DENTAL ASSOCIATES, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER
31, YEARS ENDED DECEMBER 31,
---------- -------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net patient revenues................................... $1,562,706 $1,837,463 $1,687,228
---------- ---------- ----------
Expenses:
Dentists' salaries................................... 494,814 539,324 509,722
Clinical salaries.................................... 211,213 273,439 252,130
Dental supplies and laboratory fees.................. 197,791 248,433 208,689
Rental and lease expense............................. 45,249 49,382 48,579
Advertising and marketing............................ 17,605 7,214 5,701
Depreciation and amortization........................ 41,252 44,209 45,189
Bad debt expense..................................... 21,749 13,633 12,608
Other operating expenses............................. 172,257 187,359 187,632
General and administrative........................... 250,962 297,573 285,895
---------- ---------- ----------
Total expenses............................... 1,452,892 1,660,566 1,556,145
---------- ---------- ----------
Operating income............................. 109,814 176,897 131,083
Interest expense....................................... 14,915 22,819 19,893
---------- ---------- ----------
Income before income taxes............................. 94,899 154,078 111,190
Provision for income taxes............................. 37,532 60,938 43,976
---------- ---------- ----------
Net income............................................. $ 57,367 $ 93,140 $ 67,214
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-197
<PAGE> 251
BELKNAP DENTAL ASSOCIATES, P.C.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED TREASURY TOTAL
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............... 10 $1,500 $101,826 $(60,000) $ 43,326
Net income............................. -- -- 67,214 -- 67,214
Stockholder dividends.................. -- -- (1,920) -- (1,920)
--- ------ -------- -------- --------
Balance at December 31, 1994............. 10 1,500 167,120 (60,000) 108,620
Net income............................. -- -- 93,140 -- 93,140
Stockholder dividends.................. -- -- (7,403) -- (7,403)
--- ------ -------- -------- --------
Balance at December 31, 1995............. 10 1,500 252,857 (60,000) 194,357
Net income............................. -- -- 57,367 -- 57,367
--- ------ -------- -------- --------
Balance at October 31, 1996.............. 10 $1,500 $310,224 $(60,000) $251,724
=== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-198
<PAGE> 252
BELKNAP DENTAL ASSOCIATES, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER YEARS ENDED DECEMBER
31, 31,
---------- ---------------------
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 57,367 $ 93,140 $ 67,214
Adjustments:
Provision for bad debts.............................. 21,794 13,633 12,608
Deferred taxes....................................... 3,688 31,429 11,645
Depreciation and amortization........................ 41,252 44,209 45,189
Changes in operating assets and liabilities:
Patient receivables................................ (46,487) (75,931) (68,439)
Other current assets............................... (903) 446 25
Accounts payable and accrued expenses.............. 9,851 4,166 5,252
Income taxes payable............................... 12,244 8,664 20,783
Deferred revenue................................... 5,516 1,762 --
------- ------- -------
Net cash provided by operating activities....... 104,322 121,518 94,277
------- ------- -------
Cash flows used in investing activities:
Acquisition of property and equipment................... (44,799) (41,902) (38,439)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt............................ 18,000 -- --
Payments on long-term debt.............................. (20,360) (28,493) (31,469)
Payments on capital lease obligations................... (9,228) (10,287) (7,837)
Net payments on advances from stockholder............... (3,471) (19,593) (22,402)
Net change in cash overdrafts........................... -- (13,550) 7,790
Stockholder dividends................................... -- (7,403) (1,920)
------- ------- -------
Net cash used in financing activities........... (15,059) (79,326) (55,838)
------- ------- -------
Increase in cash and cash equivalents..................... 44,464 290 --
Cash and cash equivalents, beginning of period............ 290 -- --
------- ------- -------
Cash and cash equivalents, end of period.................. $ 44,754 $ 290 $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-199
<PAGE> 253
BELKNAP DENTAL ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED OCTOBER 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
The Company is a provider of dental and orthodontic services and products
located in Dover, New Hampshire.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less when purchased to be cash equivalents. The
carrying amounts approximate fair value because of the short maturity.
The Company maintains cash balances at a single financial institution.
Accounts at this institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. The Company's accounts at this institution may, at
times, exceed the federally insured limits. The Company has not experienced any
losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental and orthodontic revenue is recognized as the services are
performed and billed. Amounts billed in advance of completing the procedures are
deferred and recorded as a liability until the services have been performed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
At October 31, 1996, December 31, 1995 and 1994, approximately thirty
percent of the Company's accounts receivable and net patient revenues were from
a single commercial insurance provider.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment, which include the amortization of assets recorded under
capital leases are provided using the straight-line method over the estimated
useful lives of the various classes of depreciable assets, ranging from five to
fifteen years. Fully depreciated assets are retained in property and equipment
until they are removed from service. Fully depreciated assets as of October 31,
1996, December 31, 1995 and 1994 were $0, $34,327, and $96,362, respectively.
Maintenance and repairs are charged to expenses whereas renewals and major
replacements are capitalized. Gains and losses from dispositions are included in
operations.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to the accrual method for financial reporting purposes and the
cash method for income tax purposes. The
F-200
<PAGE> 254
BELKNAP DENTAL ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED OCTOBER 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Income Taxes -- (Continued)
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled net of the deferred tax benefits
recognized for tax basis net operating losses that are available to offset
future taxable income.
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company adopted SFAS No. 121 during the first quarter of 1996.
Implementation of this standard did not have a material effect on the Company's
financial position, results of operations or cash flows.
2. SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Property and equipment:
Equipment........................................... $ 119,261 $ 95,183 $ 71,898
Equipment under capital leases...................... 50,447 50,447 28,100
Leasehold improvements.............................. 223,506 203,207 187,782
Furniture and fixtures.............................. 105,859 105,437 102,245
-------- -------- --------
Total property and equipment................ 499,073 454,274 390,025
Less - accumulated depreciation and amortization.... 257,238 215,986 171,777
-------- -------- --------
Net property and equipment.................. $ 241,835 $238,288 $218,248
======== ======== ========
</TABLE>
The amounts of accumulated amortization for equipment under capital lease as
of October 31, 1996, December 31, 1995 and 1994, were $42,426, $39,113, and
$18,489, respectively.
<TABLE>
<S> <C> <C> <C>
Accounts payable and accrued expenses:
Trade............................................... $ 24,437 $ 11,605 $ 8,882
Accrued expenses.................................... -- 2,981 1,538
-------- -------- --------
$ 24,437 $ 14,586 $ 10,420
======== ======== ========
</TABLE>
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period...................... $ 58,000 $ 58,000 $ 58,000
Provision for bad debts............................. 21,749 13,633 12,608
Charge offs......................................... (11,749) (13,633) (12,608)
-------- -------- --------
Balance at end of period............................ $ 68,000 $ 58,000 $ 58,000
======== ======== ========
</TABLE>
F-201
<PAGE> 255
BELKNAP DENTAL ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED OCTOBER 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. LONG-TERM DEBT
Long-term debt at October 31, 1996, December 31, 1995, and 1994 consisted of
the following:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Note payable to a bank, dated August 7, 1996, payable
in 36 monthly installments of $133 including
interest of 1.5% over the prime rate, maturing
August, 1999 and secured by all assets of the
Company............................................. $ 17,069 $ -- $ --
Note payable to a bank, dated November 26, 1991,
payable in 259 weekly installments of $685 including
interest of 2% over the prime rate, with a balloon
payment of $144,004 at November 19, 1996 and secured
by all assets of the Company........................ 139,771 156,850 174,212
Note payable to a bank, dated March 27, 1994, payable
in 24 monthly installments of $244 including
interest of 2% over the prime rate, maturing March,
1996 and secured by all assets of the Company....... -- 2,350 13,481
------- ------- -------
156,840 159,200 187,693
Less - current portion................................ 145,373 159,200 28,493
------- ------- -------
Long term debt, net of current portion................ $ 11,467 $ -- $159,200
======= ======= =======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases a portion of its property and equipment under capital
and operating leases. Future minimum lease payments under capital leases and
noncancelable operating leases with remaining terms of one or more years
consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1996............................................................ $10,341 $ 46,800
1997............................................................ 6,036 46,800
1998............................................................ 6,036 46,800
1999............................................................ 6,036 46,300
2000............................................................ 6,036 44,000
Thereafter...................................................... 1,509 29,300
------- --------
Total minimum lease obligations................................. 35,994 $ 260,000
========
Less - amounts representing interest....................... 10,099
-------
Present value of minimum lease obligations...................... 25,895
Less - current portion..................................... 9,848
-------
Long-term capital lease obligations............................. $16,047
=======
</TABLE>
The Company entered into a ten year lease with two five year renewal
periods for its office space in Dover, New Hampshire in 1991.
F-202
<PAGE> 256
BELKNAP DENTAL ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED OCTOBER 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Litigation
The Company is from time to time subject to claims and suits arising in the
ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.
6. INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The deferred tax
liability at October 31, 1996, December 31, 1995 and 1994, resulted from the
following differences:
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
----------- ---------------------
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
Patient receivables, net........................... $ 140,314 $130,548 $ 96,775
Accounts payable and accrued expenses.............. (9,665) (5,769) (4,121)
Deferred revenue................................... (13,574) (11,392) (10,696)
-------- -------- --------
Deferred tax liability............................. $ 117,075 $113,387 $ 81,958
======== ======== ========
</TABLE>
Provision for income taxes for the periods ended October 31, 1996, December
31, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER YEARS ENDED
31, DECEMBER 31,
---------- -------------------
1996 1995 1994
---------- ------- -------
<S> <C> <C> <C>
Current............................................. $ 33,844 $29,509 $32,331
Deferred............................................ 3,688 31,429 11,645
------- ------- -------
$ 37,532 $60,938 $43,976
======= ======= =======
</TABLE>
A reconciliation of the statutory U.S. federal rate and effective rates is
as follows:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER YEARS ENDED
31, DECEMBER 31,
---------- -------------
1996 1995 1994
---------- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal rate................................ 35% 35% 35%
State income taxes, net of federal tax..................... 5 5 5
--- --- ---
40% 40% 40%
=== === ===
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER YEARS ENDED
31, DECEMBER 31,
---------- -------------------
1996 1995 1994
---------- ------- -------
<S> <C> <C> <C>
Cash paid during the period for interest............ $ 14,915 $22,819 $19,893
======= ======= =======
Cash paid during the period for income taxes........ $ 24,183 $19,476 $12,360
======= ======= =======
Noncash transaction - capital lease obligations..... $ -- $22,347 $ --
======= ======= =======
</TABLE>
F-203
<PAGE> 257
BELKNAP DENTAL ASSOCIATES, P.C.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED OCTOBER 31, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
8. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Company grants patients credit in the normal course of business. The
credit risk with respect to these patient receivables is generally considered
minimal because procedures are in effect to monitor the creditworthiness of
patients and insurers, and appropriate allowances are made to reduce accounts to
their net realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Company using available market information and appropriate
valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, advances
from stockholder, and accounts payable and accrued expenses approximate fair
values due to the short-term maturities of these instruments. The carrying
amounts of the Company's fixed rate long-term borrowings approximate their fair
value.
9. SUBSEQUENT EVENT
The Company was acquired by First New England Dental Centers, Inc.
effective November 1, 1996. The accompanying financial statements are presented
on a going concern basis and not on a liquidation basis.
10. RELATED PARTY TRANSACTION
Advances from stockholder, payable on demand, as of October 31, 1996,
December 31, 1995 and 1994, were $4,305, $7,776, and $27,369, respectively.
F-204
<PAGE> 258
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Ingoldsby and Bergman, P.C.
We have audited the accompanying balance sheets of Ingoldsby & Bergman,
P.C. as of December 31, 1995 and 1994, and the related statements of current
earnings and retained earnings (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ingoldsby & Bergman, P.C.,
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
de BAIROS & COMPANY, P.C.
Cambridge, Massachusetts
December 10, 1996
F-205
<PAGE> 259
INGOLDSBY & BERGMAN, P.C.
BALANCE SHEET
DECEMBER 31, 1995 WITH COMPARATIVE FIGURES FOR 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 4,103 $ 19,602
Accounts receivable, net of allowance for doubtful accounts of
approximately $54,000 and $31,500 in 1995 and 1994,
respectively..................................................... 123,630 83,357
Prepaid expenses and other current assets......................... 14,287 16,420
-------- --------
Total current assets......................................... 142,020 119,379
-------- --------
Equipment, fixtures and improvements:
Dental equipment.................................................. 68,656 12,911
Furniture and fixtures............................................ 16,151 10,455
Leasehold improvements............................................ 100,029 100,029
-------- --------
184,836 123,395
Less accumulated depreciation and amortization.................... 61,021 33,592
-------- --------
123,815 89,803
-------- --------
Other assets:
Deposits.......................................................... 3,410 10,560
Organization costs, net of accumulated amortization of $1,443 and
$963 in 1995 and, 1994, respectively............................. 973 1,453
-------- --------
4,383 12,013
-------- --------
$270,218 $221,195
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt................................. $ 23,800 $ 25,438
Accounts payable.................................................. 36,524 19,355
Accrued expenses and other current liabilities.................... 61,512 53,533
Deferred revenue.................................................. 22,900 11,100
-------- --------
Total current liabilities.................................... 144,736 109,426
-------- --------
Long-term debt, net of current portion................................. 103,457 125,299
-------- --------
Stockholders' equity (deficit):
Common stock, no par value; 20,000 shares authorized, 1,000 shares
issued and outstanding........................................... 200 200
Retained earnings (deficit)....................................... 21,825 (13,730)
-------- --------
Total stockholders' equity (deficit)......................... 22,025 (13,530)
-------- --------
$270,218 $221,195
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-206
<PAGE> 260
INGOLDSBY & BERGMAN, P.C.
STATEMENTS OF CURRENT EARNINGS AND RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31, 1995 WITH COMPARATIVE FIGURES FOR 1994
CURRENT EARNINGS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net revenue............................................................ $935,910 $823,524
-------- --------
Costs and expenses:
Dentists' salaries................................................ 257,296 206,573
Clinical salaries................................................. 135,612 120,234
Dental supplies and laboratory fees............................... 112,694 94,520
Rental and lease expense.......................................... 38,340 113,340
Advertising and marketing......................................... 12,575 20,743
Depreciation and amortization..................................... 27,909 23,001
Other operating expenses.......................................... 109,411 92,555
General and administrative expenses............................... 154,838 116,148
-------- --------
848,675 787,114
-------- --------
Earnings from operations..................................... 87,235 36,410
Other expense:
Interest expense.................................................. 18,050 16,496
-------- --------
Net earnings................................................. $ 69,185 $ 19,914
======== ========
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year........................................... $(13,730) $(21,722)
Net earnings........................................................... 69,185 19,914
Distributions.......................................................... (33,630) (11,922)
-------- --------
Balance at end of year................................................. $ 21,825 $(13,730)
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-207
<PAGE> 261
INGOLDSBY & BERGMAN, P.C.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 WITH COMPARATIVE FIGURES FOR 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................................... $ 69,185 $ 19,914
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization..................................... 27,909 23,001
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, net.............. (40,273) 22,721
Decrease in prepaid expenses and other current assets........ 2,133 9,432
Decrease in deposits......................................... 7,150 --
Increase (decrease) in accounts payable...................... 17,169 (12,038)
Increase (decrease) in accrued expenses and other current
liabilities................................................ 7,979 (10,608)
Increase in deferred revenue................................. 11,800 4,600
-------- --------
Net cash flows from operating activities.......................... 103,052 57,022
-------- --------
Cash flows from investing activities:
Acquisitions of equipment, fixtures and improvements.............. (55,758) (5,653)
-------- --------
Net cash flows from investing activities.......................... (55,758) (5,653)
-------- --------
Cash flows from financing activities:
Payments on long-term debt........................................ (29,163) (24,926)
Payments of distributions......................................... (33,630) (11,922)
-------- --------
Net cash flows from financing activities.......................... (62,793) (36,848)
-------- --------
Decrease (increase) in cash............................................ (15,499) 14,521
Cash at beginning of year.............................................. 19,602 5,081
-------- --------
Cash at end of year.................................................... $ 4,103 $ 19,602
======== ========
</TABLE>
The Company paid interest of approximately $18,000 and $16,500 in 1995 and 1994,
respectively.
The Company paid income taxes of $456 in 1995 and 1994.
Acquisitions of equipment, fixtures and improvements totaling $5,683 were
financed in 1995.
The accompanying notes are an integral part of the financial statements.
F-208
<PAGE> 262
INGOLDSBY & BERGMAN, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- ACCOUNTING POLICIES
A summary of the major accounting policies followed by the Company in
the preparation of the accompanying financial statements is set forth below:
Business Activity -- The Company is a provider of general and
specialty dental services to the general public.
Basis of Financial Statement Presentation -- The financial statements
have been prepared in conformity with generally accepted accounting
principles. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and of net revenue and expenses for each
reporting period.
Revenue Recognition -- In general, the Company bills patients for
services at the commencement of a procedure. Net revenue is recognized as
the costs of services are incurred. Deferred revenue represents the
unearned portion of the amount billed to the patient for certain
in-progress procedures requiring multiple office visits.
Accounts Receivable -- Accounts receivable primarily consists of
receivables from patients and insurers for services provided. The Company
provides an allowance for doubtful accounts equal to estimated bad debt
losses. The estimated losses are based on historical collection experience
together with a review of the existing receivables.
Equipment, Fixtures and Improvements -- Equipment, fixtures and
improvements are stated at cost. Major additions and betterments are
charged to the property accounts while replacements, maintenance and
repairs which do not extend the lives of the respective assets are expensed
in the year incurred.
Depreciation and Amortization -- Depreciation and amortization are
computed using the straight-line method over the estimated useful lives
noted below:
<TABLE>
<CAPTION>
LIFE IN
ASSET YEARS
------------------------------------------------------------- -------
<S> <C>
Dental equipment............................................. 7-10
Furniture and fixtures....................................... 3-10
Leasehold improvements....................................... 5
</TABLE>
The total depreciation and amortization charged to expense was
$27,429 and $22,521 in 1995 and 1994, respectively.
Organization Costs -- The Company was incorporated in December, 1992.
Organization costs are being amortized over a five year period.
Accounting for Compensated Absences -- No provision has been made for
the liability attributable to vested employees' compensated absences since
the amount cannot be reasonably estimated. In management's opinion, the
amount is not significant.
Advertising -- Costs incurred for advertising are expensed when
incurred.
F-209
<PAGE> 263
INGOLDSBY & BERGMAN, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 2 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Note payable, bank in the original principal amount of $170,000 was
entered into in February, 1993, is secured by all of the Company's
assets, and is guaranteed by the Company's stockholders. The note which
bears interest at 2% above the bank's prime lending rate (10 1/2% at
December 31, 1995) requires monthly principal payments of $1,733 plus
accrued interest and is due in February, 2000 ......................... $123,200 $144,000
Note payable, equipment in the original principal amount of $5,683 is
secured by equipment with a cost of $12,056. The note which bears
interest at 12.1% requires monthly principal and interest payments of
$283 and is due in July, 1997. ........................................ 4,057 --
Note payable, supplier in the original principal amount of $13,056 was
secured by equipment with a cost of $8,056. The note which bore
interest at 11.76% required monthly principal and interest payments of
$432 and was due in May, 1996. The Company prepaid the outstanding
balance in October, 1995. ............................................. -- 6,737
-------- --------
127,257 150,737
Less current portion....................................... 23,800 25,438
-------- --------
$103,457 $125,299
======== ========
</TABLE>
The following is a schedule of the approximate aggregate amounts due
under all long-term debt agreements:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
-------------------------------------------------- --------
<S> <C>
1996............................................ $ 23,800
1997............................................ 21,900
1998............................................ 20,800
1999............................................ 20,800
2000............................................ 40,000
--------
$127,300
========
</TABLE>
F-210
<PAGE> 264
INGOLDSBY & BERGMAN, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
NOTE 3 -- COMMITMENTS AND CONTINGENCIES
In December, 1992 the Company entered into an agreement to lease its
facilities commencing on February 1, 1993 for an initial term of five years
expiring January, 1998, with two options to extend the term for an additional
five years each. In addition to the base annual rent, the Company must pay its
share of any increases in the building's operating expenses. Rent under this
lease totaled approximately $38,400 in 1995 and 1994 respectively.
The future minimum annual rentals required under this lease,
including renewal options, at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
-------------------------------------------------- --------
<S> <C>
1996............................................ $ 40,700
1997............................................ 40,900
1998............................................ 40,900
1999............................................ 40,900
2000............................................ 40,900
Later years....................................... 302,400
--------
$506,700
========
</TABLE>
NOTE 4 -- INCOME TAXES
The Company with the consent of its stockholders, has elected under
the Internal Revenue Code to be treated as an S Corporation. In lieu of
corporate income taxes, the stockholders of an S Corporation are taxed on their
proportional share of the Company's federal and state taxable income. Therefore,
no provision or liability for federal or state income taxes has been included in
these financial statements.
NOTE 5 -- RELATED PARTY TRANSACTION
The Company leased certain assets from an affiliate through December
31, 1994. The two stockholders of the Company were also the sole stockholders of
the affiliate. Rent expense related to this lease totaled approximately $75,000
in 1994.
The Company purchased certain equipment from its two stockholders in
1995 at a cost of approximately $37,000.
F-211
<PAGE> 265
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Ingoldsby and Bergman, P.C.
We have audited the accompanying balance sheet of Ingoldsby & Bergman, P.C.
as of September 30, 1996, and the related statements of current loss and
(deficit), and cash flows for the nine months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ingoldsby & Bergman, P.C.,
as of September 30, 1996, and the results of its operations and its cash flows
for the nine months then ended in conformity with generally accepted accounting
principles.
de BAIROS & COMPANY, P.C.
Cambridge, Massachusetts
December 10, 1996
F-212
<PAGE> 266
INGOLDSBY & BERGMAN, P.C.
BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 15,697
Accounts receivable, net of allowance for doubtful accounts of approximately
$71,500..................................................................... 122,213
Prepaid expenses and other current assets.................................... 14,595
--------
Total current assets.................................................... 152,505
--------
Equipment, fixtures and improvements:
Dental equipment............................................................. 50,876
Office equipment............................................................. 30,477
Furniture and fixtures....................................................... 46,628
Leasehold improvements....................................................... 100,029
--------
228,010
Less accumulated depreciation and amortization.................................... (88,437)
--------
139,573
--------
Other assets:
Deposits..................................................................... 4,010
Organization costs, net of accumulated amortization of $1,803................ 613
--------
4,623
--------
$296,701
========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Current portion of long-term debt............................................ $ 22,853
Accounts payable............................................................. 68,838
Accrued expenses and other current liabilities............................... 101,487
Deferred revenue............................................................. 34,900
--------
Total current liabilities............................................... 228,078
--------
Long-term debt, net of current portion............................................ 86,800
--------
Stockholders' (deficit):
Common stock, no par value; 20,000 shares authorized, 1000 shares issued and
outstanding................................................................. 200
(Deficit).................................................................... (18,377)
--------
Total stockholders' (deficit)........................................... (18,177)
--------
$296,701
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-213
<PAGE> 267
INGOLDSBY & BERGMAN, P.C.
STATEMENTS OF CURRENT LOSS AND (DEFICIT)
YEAR ENDED SEPTEMBER 30, 1996
CURRENT LOSS
<TABLE>
<S> <C>
Net revenue..................................................................... $731,557
---------
Costs and expenses:
Dentists' salaries......................................................... 214,037
Clinical salaries.......................................................... 124,905
Dental supplies and laboratory fees........................................ 94,163
Rental and lease expense................................................... 36,571
Advertising and marketing.................................................. 15,305
Depreciation and amortization.............................................. 27,776
Other operating expenses................................................... 81,364
General and administrative expenses........................................ 128,180
---------
722,301
---------
Earnings from operations.............................................. 9,256
Other expense:
Interest expense........................................................... 12,529
---------
Net (loss)............................................................ $ (3,273)
=========
(DEFICIT)
Balance at beginning of year.................................................... $ 21,825
Net (loss)...................................................................... (3,273)
Distributions................................................................... (36,929)
---------
Balance at end of year.......................................................... $(18,377)
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-214
<PAGE> 268
INGOLDSBY & BERGMAN, P.C.
STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net (loss)........................................................................ $ (3,273)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization................................................ 27,776
Changes in operating assets and liabilities:
Decrease in accounts receivable, net......................................... 1,417
(Increase) in prepaid expenses and other current assets...................... (308)
(Increase) in deposits....................................................... (600)
Increase in accounts payable................................................. 32,314
Increase in accrued expenses and other current liabilities................... 39,975
Increase in deferred revenue................................................. 12,000
--------
Net cash flows from operating activities................................ 109,301
--------
Cash flows from investing activities:
Acquisitions of equipment, fixtures and improvements......................... (43,174)
--------
Net cash flows from investing activities................................ (43,174)
--------
Cash flows from financing activities:
Payments on long-term debt................................................... (17,604)
Payments of distributions.................................................... (36,929)
--------
Net cash flows from financing activities................................ (54,533)
--------
Increase in cash.................................................................. 11,594
Cash at beginning of year......................................................... 4,103
--------
Cash at end of year............................................................... $ 15,697
========
</TABLE>
The Company paid interest of approximately $12,500 during the nine months ended
September 30, 1996.
The Company paid income taxes of $456 during the nine months ended September 30,
1996.
The accompanying notes are an integral part of the financial statements.
F-215
<PAGE> 269
INGOLDSBY & BERGMAN, P.C.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 -- ACCOUNTING POLICIES
A summary of the major accounting policies followed by the Company in
the preparation of the accompanying financial statements is set forth below:
Business Activity -- The Company is a provider of general and
specialty dental services to the general public.
Basis of Financial Statement Presentation -- The financial statements
have been prepared in conformity with generally accepted accounting
principles. In preparing the financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and of net revenue and expenses for each
reporting period.
Revenue Recognition -- In general, the Company bills patients for
services at the commencement of a procedure. Net revenue is recognized as
the costs of services are incurred. Deferred revenue represents the
unearned portion of the amount billed to the patient for certain
in-progress procedures requiring multiple office visits.
Accounts Receivable -- Accounts receivable primarily consists of
receivables from patients and insurers for services provided. The Company
provides an allowance for doubtful accounts equal to estimated bad debt
losses. The estimated losses are based on historical collection experience
together with a review of the existing receivables.
Equipment, Fixtures and Improvements -- Equipment, fixtures and
improvements are stated at cost. Major additions and betterments are
charged to the property accounts while replacements, maintenance and
repairs which do not extend the lives of the respective assets are expensed
in the year incurred.
Depreciation and Amortization -- Depreciation and amortization are
computed using the straight-line method over the estimated useful lives
noted below:
<TABLE>
<CAPTION>
ASSET LIFE IN YEARS
------------------------------------------------- -------------
<S> <C>
Dental equipment................................. 7-10
Office Equipment................................. 5
Furniture and fixtures........................... 3-10
Leasehold improvements........................... 5
</TABLE>
The total depreciation and amortization charged to expense was
$27,416 during the nine months ended September 30, 1996.
Organization Costs -- The Company was incorporated in December, 1992.
Organization costs are being amortized over a five year period.
Accounting for Compensated Absences -- No provision has been made for
the liability attributable to vested employees' compensated absences since
the amount cannot be reasonably estimated. In management's opinion, the
amount is not significant.
Advertising -- Costs incurred for advertising are expensed when
incurred.
F-216
<PAGE> 270
INGOLDSBY & BERGMAN, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
NOTE 2 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Note payable, bank in the original principal amount of $170,000 was entered into
in February, 1993, is secured by all of the Company's assets, and is guaranteed by
the Company's stockholders. The note which bears interest at 2% above the bank's
prime lending rate (10 1/4% at September 30, 1996) requires monthly principal
payments of $1,733 plus accrued interest and is due in February, 2000............. $107,600
Note payable, equipment in the original principal amount of $5,683 is secured by
equipment with a cost of $12,056. The note which bears interest at 12.1% requires
monthly principal and interest payments of $283 and is due in July, 1997.......... 2,053
--------
109,653
Less current portion.................................................... 22,853
--------
$ 86,800
========
</TABLE>
The following is a schedule of the approximate aggregate amounts due
under all long-term debt agreements:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING SEPTEMBER 30, AMOUNT
-------------------------------------------------- --------
<S> <C>
1997....................................... $ 22,900
1998....................................... 20,800
1999....................................... 20,800
2000....................................... 45,200
--------
$109,700
========
</TABLE>
NOTE 3 -- COMMITMENTS AND CONTINGENCIES
In December, 1992 the Company entered into an agreement to lease its
facilities commencing on February 1, 1993 for an initial term of five years
expiring January, 1998, with two options to extend the term for an additional
five years each. In addition to the base annual rent, the Company must pay its
share of any increases in the building's operating expenses. Rent under this
lease totaled approximately $36,600, including additional rentals, during the
nine months ended September 30, 1996.
The future minimum annual rentals required under this lease,
including renewal options, at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDING SEPTEMBER 30, AMOUNT
-------------------------------------------------- --------
<S> <C>
1997....................................... $ 40,900
1998....................................... 40,900
1999....................................... 40,900
2000....................................... 40,900
2001....................................... 40,900
Later years................................ 271,700
--------
$476,200
========
</TABLE>
F-217
<PAGE> 271
INGOLDSBY & BERGMAN, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
NOTE 4 -- INCOME TAXES
The Company with the consent of its stockholders, has elected under
the Internal Revenue Code to be treated as an S Corporation. In lieu of
corporate income taxes, the stockholders of an S Corporation are taxed on their
proportional share of the Company's federal and state taxable income. Therefore,
no provision or liability for federal or state income taxes has been included in
these financial statements.
F-218
<PAGE> 272
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of David I. Peck. D.M.D. (a
proprietorship) as of September 30, 1996, December 31, 1995 and December 31,
1994, and the related statements of income and proprietor's capital, and cash
flows for the periods then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly,
in all material respects, the financial position of David I. Peck, D.M.D. as of
September 30, 1996, December 31, 1995 and December 31, 1994, and the results of
its operations and its cash flows for the periods then ended in conformity with
generally accepted accounting principles.
/s/ Joseph D. Kalicka & Company, LLP
JOSEPH D. KALICKA & COMPANY, LLP
Certified Public Accountants
November 25, 1996
F-219
<PAGE> 273
DAVID I. PECK, D.M.D.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
1996 1995 1994
------------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ 14,714 $ 27,441 $ 10,530
Patient receivables, net................... 55,421 82,653 69,580
--------- --------- ---------
Total current assets.................. 70,135 110,094 80,110
--------- --------- ---------
Fixtures and equipment.......................... 192,403 185,416 184,405
Accumulated depreciation................... (175,046) (170,508) (161,825)
--------- --------- ---------
Fixtures and equipment, net..................... 17,357 14,908 22,580
--------- --------- ---------
Other assets:
Reserve -- patient bank charge............. 2,311 3,074 3,164
--------- --------- ---------
Total assets.................................... $ 89,803 $ 128,076 $ 105,854
========= ========= =========
LIABILITIES AND PROPRIETOR'S CAPITAL
Current liabilities:
Accounts payable........................... $ 6,518 $ 7,611 $ 7,645
Payroll taxes withheld and payable......... 3,464 148 2,873
Accrued profit sharing contribution........ 21,750 -- 10,000
Deferred revenue........................... 9,471 7,204 8,760
Notes payable -- current portion........... 9,996 13,429 28,260
Line of credit............................. 8,000 -- --
--------- --------- ---------
Total current liabilities............. 59,199 28,392 57,538
Long-term liabilities:
Notes payable, net of current portion...... 37,481 49,938 63,367
--------- --------- ---------
Total liabilities............................... 96,680 78,330 120,905
Proprietor's capital (deficit).................. (6,877) 49,746 (15,051)
--------- --------- ---------
Total liabilities and proprietor's capital...... $ 89,803 $ 128,076 $ 105,854
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-220
<PAGE> 274
DAVID I. PECK, D.M.D.
INCOME STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Net patient revenues..................................... $ 418,743 $634,998 $572,720
-------- -------- --------
Operating expenses:
Purchased services.................................. 1,268 2,883 6,997
Salaries and wages.................................. 90,052 120,013 114,088
Payroll taxes....................................... 12,866 9,365 12,128
Parking............................................. 4,005 4,505 5,275
Insurance........................................... 9,562 12,835 15,182
Maintenance and repair.............................. 2,664 3,385 3,053
Product cost........................................ 7,459 11,812 11,810
Dues and subscriptions.............................. 1,467 2,645 1,724
Laboratory.......................................... 17,928 20,157 17,995
Dental supplies..................................... 13,307 25,316 19,291
Computer expense.................................... 4,531 3,147 4,818
Telephone........................................... 1,549 1,157 2,766
Professional fees................................... 1,619 613 943
Rent................................................ 10,015 12,195 13,620
Property taxes...................................... 371 512 672
Bad debt expense.................................... 12,815 11,346 4,588
Utilities........................................... 3,571 4,078 5,474
Profit sharing contribution......................... 21,750 -- 10,000
Office expenses..................................... 4,416 12,270 6,539
Advertising......................................... 9,653 20,711 20,083
Depreciation........................................ 4,538 8,683 10,814
Professional development............................ 1,993 585 2,430
-------- -------- --------
Total operating expenses....................... 237,399 288,213 290,290
-------- -------- --------
Operating income......................................... 181,344 346,785 282,430
Other income (expense):
Interest expense.................................... (2,251) (4,906) (5,663)
Interest income..................................... 165 233 156
-------- -------- --------
Net income............................................... $ 179,258 $342,112 $276,923
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-221
<PAGE> 275
DAVID I. PECK, D.M.D.
STATEMENTS OF CHANGES IN PROPRIETOR'S CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31,
30, -----------------------
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period...................... $ 49,746 $ (15,051) $ (26,412)
Net income.......................................... 179,258 342,112 276,923
Draw................................................ (235,881) (277,315) (265,562)
--------- --------- ---------
Balance at end of period............................ $ (6,877) $ 49,746 $ (15,051)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-222
<PAGE> 276
DAVID I. PECK, D.M.D.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 179,258 $342,112 $276,923
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on accounts
receivable................................. (1,400) 700 --
Depreciation................................. 4,538 8,683 10,814
Net changes in operating assets and
liabilities:
Accounts receivable........................ 28,632 (13,773) (551)
Reserve -- patient bank charge............. 763 90 --
Accounts payable........................... (1,093) (34) 5,238
Payroll taxes withheld and payable......... 3,316 (2,725) (107)
Accrued profit sharing contribution........ 21,750 (10,000) 10,000
Deferred revenue........................... 2,267 (1,556) 728
--------- --------- ---------
Net cash provided by operating activities......... 238,031 323,497 303,045
--------- --------- ---------
Cash flows from investing activities:
Equipment additions............................. (6,987) (1,011) (9,552)
--------- --------- ---------
Net cash used by investing activities............. (6,987) (1,011) (9,552)
--------- --------- ---------
Cash flows from financing activities:
Proprietor draw................................. (235,881) (277,315) (265,562)
Short-term borrowings, net...................... 8,000 -- --
Repayments of long-term borrowings.............. (15,890) (28,260) (21,930)
--------- --------- ---------
Net cash used by financing activities............. (243,771) (305,575) (287,492)
--------- --------- ---------
Net increase (decrease) in cash................... (12,727) 16,911 6,001
Cash balance -- beginning......................... 27,441 10,530 4,529
--------- --------- ---------
Cash balance -- ending............................ $ 14,714 $ 27,441 $ 10,530
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest............ $ 2,251 $ 4,906 $ 5,663
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-223
<PAGE> 277
DAVID I. PECK, D.M.D.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES:
A. Organization:
David I. Peck, D.M.D. (the "Proprietor") provides cosmetic and general
dentistry to patients in the Springfield, Massachusetts area.
B. Revenue recognition and concentration of credit risk:
Net patient revenues represent amounts billed to patients in the normal
course of operations. Dental revenue is recognized as the services are performed
and billed. Procedures requiring multiple visits are billed at the time of the
initial visit. Deferred revenue represents patient prepayments for services to
be provided.
The dental practice grants credit to patients, all of whom are located in
the Western Massachusetts area. An allowance for doubtful accounts is recorded
based on historical experience and approximates 5% of gross accounts receivable.
The allowance and bad debt expense as of and for the periods ended are as
follows:
<TABLE>
<CAPTION>
9/30/96 12/31/95 12/31/94
------- -------- --------
<S> <C> <C> <C>
Allowance for doubtful accounts................................ $3,000 $ 4,400 $ 3,700
======= ======= =======
Bad debt expense............................................... $12,815 $11,346 $ 4,588
======= ======= =======
</TABLE>
C. Fixtures and equipment:
Fixtures and equipment are recorded at cost and depreciation is provided on
the straight line method over estimated useful lives of five to ten years.
Expenditures for maintenance and repairs are charged against income as
incurred. Company policy is to charge or credit to income any loss or gain
resulting from disposal or retirements.
D. Income taxes:
The accompanying financial statements have been prepared solely from the
accounts of David I. Peck, D.M.D. (a proprietorship), and they do not include
the personal accounts of the owner or those of any other operations in which he
is engaged. Income from the proprietorship is reported in the proprietor's
income tax return. Accordingly, no provision for such taxes is included in these
financial statements.
E. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. PROFIT SHARING PLAN:
The Proprietorship has a profit sharing plan for qualified employees.
Contributions are at the discretion of the owner.
3. LEASED FACILITIES:
The Proprietorship leases its office facilities. The lease commenced
January, 1991 and calls for monthly payments of $1,135. The lease was renewed
January, 1996 with no change in monthly rent. The lease contains
F-224
<PAGE> 278
DAVID I. PECK, D.M.D.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
an option to renew for four, five year intervals. Future minimum rental payments
required as of September 30, 1996 are as follows:
<TABLE>
<S> <C>
9/30/97......................................................... $13,620
9/30/98......................................................... 13,620
9/30/99......................................................... 13,620
9/30/00......................................................... 13,620
9/30/01......................................................... 3,405
-------
$57,885
=======
</TABLE>
4. NOTES PAYABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1996 1995 1994
-------------- ------- -------
<S> <C> <C> <C> <C>
A. Installment notes payable to a bank. Repayment terms
vary. Payments due monthly including interest at
variable rates. These notes were paid in full by
September 30, 1996.................................... $ -- $13,429 $41,689
B. Note payable to a bank. Originally interest-only
payments due monthly. Converted to a term loan May,
1996. Payable in sixty monthly installments of $833
plus interest at prime plus one percent per annum.
Final payment due June 2001........................... $47,477 $49,938 $49,938
------- ------- -------
Total................................................. 47,477 63,367 91,627
Current portion....................................... 9,996 13,429 28,260
------- ------- -------
Long-term portion..................................... $37,481 $49,938 $63,367
======= ======= =======
</TABLE>
Current maturities of long term debt:
<TABLE>
<S> <C>
September 30, 1997.............................................. $ 9,996
1998............................................. 9,996
1999............................................. 9,996
2000............................................. 9,996
2001............................................. 7,493
-------
$47,477
=======
</TABLE>
5. LINE OF CREDIT:
The Proprietorship has a line of credit with a bank with a limit of
$25,000. This line is an unsecured demand obligation which originated May, 1996.
Interest is payable monthly on the outstanding balance at 1.5% over the bank's
prime rate. The rate at September 30, 1996 was 9.5%.
6. SUBSEQUENT EVENT:
In November, 1996, David I. Peck, D.M.D. transferred ownership interest of
the dental practice to First New England Dental Center, Inc., a Delaware
corporation, for consideration received.
F-225
<PAGE> 279
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Geoffrey M. Parrillo, D.M.D.
(a Proprietorship) as of September 30, 1996, December 31, 1995 and 1994, and the
related statements of operations, changes in proprietor's capital, and cash
flows for the nine months ended September 30, 1996 and for the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Geoffrey M. Parrillo, D.M.D. as
of September 30, 1996, December 31, 1995 and 1994, and the results of its
operations and its cash flows for the nine months ended September 30, 1996 and
for the years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
VITALE, CATURANO AND COMPANY, P.C.
November 23, 1996
Boston, Massachusetts
F-226
<PAGE> 280
GEOFFREY M. PARRILLO, D.M.D.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalent............................ $ 15,820 $ 9,653 $ 15,577
Patient receivables, net of allowance for
uncollectible accounts of $12,813, $9,000 and
$5,424 in 1996, 1995, and 1994, respectively...... 41,986 66,796 63,639
-------- -------- --------
Total current assets........................... 57,806 76,449 79,216
-------- -------- --------
Property and equipment, net.............................. 52,517 67,995 84,631
-------- -------- --------
Other assets............................................. 71,892 87,891 109,223
-------- -------- --------
$ 182,215 $232,335 $273,070
======== ======== ========
LIABILITIES AND PROPRIETOR'S CAPITAL
Current liabilities:
Accounts payable.................................... $ 5,082 $ 7,070 $ 12,773
-------- -------- --------
Proprietor's capital................................ 177,133 225,265 260,297
-------- -------- --------
$ 182,215 $232,335 $273,070
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-227
<PAGE> 281
GEOFFREY M. PARRILLO, D.M.D.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30,
------------- ------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net patient revenues................................. $ 272,258 $ 376,651 $ 280,496
-------- -------- --------
Expenses:
Clinical salaries............................... 36,135 55,494 38,379
Dental supplies and laboratory fees............. 30,181 45,767 28,207
Rental expense.................................. 5,651 16,399 18,191
Advertising and marketing....................... 1,640 705 1,306
Depreciation and amortization................... 31,477 45,768 29,838
Bad debt expense................................ 3,813 3,576 5,424
Other operating expenses........................ 28,675 41,541 21,728
General and administrative...................... 63,147 57,917 58,683
-------- -------- --------
Total expenses............................. 200,719 267,167 201,756
-------- -------- --------
Net income........................................... $ 71,539 $ 109,484 $ 78,740
======== ======== ========
If all of the Proprietorship's operations had been
subject
to income taxes, net income would have been as
follows (unaudited):
Historical income before income taxes........... $ 71,539 $ 109,484 $ 78,740
Provision for income taxes...................... 29,500 45,100 32,500
-------- -------- --------
Proforma net income........................ $ 42,039 $ 64,384 $ 46,240
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-228
<PAGE> 282
GEOFFREY M. PARRILLO, D.M.D.
STATEMENTS OF CHANGES IN PROPRIETOR'S CAPITAL
<TABLE>
<S> <C>
Balance at January 1, 1994...................................................... $ 47,165
Capital contributions...................................................... 212,234
Net income................................................................. 78,740
Withdrawals................................................................ (77,842)
--------
Balance at December 31, 1994.................................................... 260,297
Capital contributions...................................................... 13,149
Net income................................................................. 109,484
Withdrawals................................................................ (157,665)
--------
Balance at December 31, 1995.................................................... 225,265
Net income................................................................. 71,539
Withdrawals................................................................ (119,671)
--------
Balance at September 30, 1996................................................... $ 177,133
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-229
<PAGE> 283
GEOFFREY M. PARRILLO, D.M.D.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
------------- ---------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 71,539 $109,484 $ 78,740
Adjustments:
Provision for bad debts............................ 3,813 3,576 5,424
Depreciation and amortization...................... 31,477 45,768 29,838
Changes in operating assets and liabilities:
Patient receivables.............................. 20,997 (6,733) (58,212)
Accounts payable................................. (1,988) (5,703) 11,694
-------- -------- --------
Net cash provided by operating activities..... 125,838 146,392 67,484
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment................. -- (7,800) (77,529)
Acquisition of other assets........................... -- -- (120,000)
-------- -------- --------
Net cash used in investing activities......... -- (7,800) (197,529)
-------- -------- --------
Cash flows from financing activities:
Capital contributions................................. -- 13,149 212,234
Withdrawals by proprietor............................. (119,671) (157,665) (77,842)
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. (119,671) (144,516) 134,392
-------- -------- --------
Increase (decrease) in cash and cash equivalents........ 6,167 (5,924) 4,347
Cash and cash equivalents, beginning of period.......... 9,653 15,577 11,230
-------- -------- --------
Cash and cash equivalents, end of period................ $ 15,820 $ 9,653 $ 15,577
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-230
<PAGE> 284
GEOFFREY M. PARRILLO, D.M.D.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Organization
Geoffrey M. Parrillo, D.M.D., a Proprietorship, is a provider of dental
services and products located in Cranston, Rhode Island.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenues and expenses during each
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Proprietorship considers all highly liquid debt instruments with
original maturities of three months or less when purchased to be cash
equivalents. The carrying amounts approximate fair value because of the short
maturity.
The Proprietorship maintains cash balances at various financial
institutions. Accounts at each institution are insured by the Federal Deposit
Insurance Corporation up to $100,000. The Proprietorship's accounts at these
institutions may, at times, exceed the federally insured limits. The
Proprietorship has not experienced any losses in such accounts.
Revenue Recognition
Net patient revenues represent amounts billed to patients for services
performed. Dental revenue is recognized as the services are performed and
billed.
Accounts receivable primarily consist of receivables from patients,
insurers, government programs and other third-party payers for services provided
by dentists. An allowance for uncollectible accounts is provided for those
accounts receivable considered to be uncollectible, based upon historical
experience and management's evaluation.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment, are provided using the straight-line method over the estimated useful
lives of the various classes of depreciable assets, ranging from five to seven
years. Fully depreciated assets are retained in property and equipment until
they are removed from service. Fully depreciated assets as of September 30,
1996, December 31, 1995 and 1994 were $42,638, $42,638, and $22,538,
respectively. Maintenance and repairs are charged to expenses whereas renewals
and major replacements are capitalized. Gains and losses from dispositions are
included in operations.
Income Taxes
Income from the Proprietorship is combined with the income and expenses of
the proprietor from other sources and reported in the proprietor's individual
federal and state income tax returns. The Proprietorship is not a taxpaying
entity for purposes of federal and state income taxes and thus, no income taxes
have been recorded in these statements.
F-231
<PAGE> 285
GEOFFREY M. PARRILLO, D.M.D.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. CORPORATE ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
Income Taxes -- (Continued)
Income taxes, including the proforma calculations, are determined under the
liability method. Under this method, deferred taxes are based on the differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted marginal tax rates currently in effect.
Recent FASB Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
which established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Proprietorship adopted SFAS No. 121 during the first quarter of
1996. Implementation of this standard did not have a material effect on the
Proprietorship's financial position, results of operations or cash flows.
Other Assets
Goodwill consisting of $20,000 of the excess of the fair value over the
purchase price of the assets acquired in the purchase of a dental practice in
August 1994, is being amortized using the straight-line method over a 15 year
period.
Patient list consisting of the purchase price of $100,000 of a patient list
acquired in the purchase of a dental practice in August 1994, is being amortized
using the straight-line method over a 5 year period.
2. SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Property and equipment
Equipment..................................... $ 152,967 $152,967 $145,167
Less -- accumulated depreciation.............. 100,450 84,972 60,536
-------- -------- --------
$ 52,517 $ 67,995 $ 84,631
======== ======== ========
</TABLE>
For the nine months ended September 30, 1996 and for the years ended December
31, 1995 and 1994, depreciation relating to property and equipment was $15,478,
$24,436 and $19,061, respectively.
<TABLE>
<S> <C> <C> <C>
Other assets:
Patient list, net of amortization............. $ 55,000 $ 70,000 $ 90,000
Goodwill, net of amortization................. 16,892 17,891 19,233
------------- -------- --------
$ 71,892 $ 87,891 $109,223
========== ======== ========
</TABLE>
For the nine months ended September 30, 1996 and for the years ended December
31, 1995 and 1994, amortization relating to the patient list and goodwill was
$15,999, $21,332 and $10,777, respectively.
F-232
<PAGE> 286
GEOFFREY M. PARRILLO, D.M.D.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
3. ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ----------------
1996 1995 1994
------------- ------ ------
<S> <C> <C> <C>
Allowance for uncollectible accounts:
Balance at beginning of period.................... $ 9,000 $5,424 $ --
Provision for bad debts........................... 3,813 3,576 5,424
Charge offs....................................... -- -- --
------------- ------ ------
Balance at end of period.......................... $12,813 $9,000 $5,424
========== ====== ======
</TABLE>
4. CONTINGENCIES
Litigation
The Proprietorship is from time to time subject to claims and suits arising
in the ordinary course of operations. In the opinion of management, the ultimate
resolution of such pending legal proceedings will not have a material adverse
effect on the Proprietorship's financial position, results of operations or
liquidity.
5. INCOME TAXES
The differences between the federal tax rate and the Proprietorship's
effective tax rate at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
-------------
SEPTEMBER 30, DECEMBER 31,
------------- -------------------
1996 1995 1994
------------- -------- --------
<S> <C> <C> <C>
Tax at U.S. statutory rate (35%)..................... $ 25,000 $ 38,300 $ 27,600
State income taxes, net of federal tax............... 4,500 6,800 4,900
Income not subject to corporate level federal tax.... (29,500) (45,100) (32,500)
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
</TABLE>
6. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Credit Risk
The Proprietorship grants patients credit in the normal course of business.
The credit risk with respect to these patient receivables is generally
considered minimal because procedures are in effect to monitor the
creditworthiness of patients and appropriate allowances are made to reduce
accounts to their net realizable values.
Fair Value of Financial Instruments
The following estimated fair values of financial instruments have been
determined by the Proprietorship using available market information and
appropriate valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair values due to the short-term maturities of these
instruments.
F-233
<PAGE> 287
GEOFFREY M. PARRILLO, D.M.D.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. SUBSEQUENT EVENT
Certain assets of the Proprietorship were acquired by First New England
Dental Centers, Inc. effective October 1, 1996. The accompanying financial
statements are presented on a going concern basis and not on a liquidation
basis.
8. RELATED PARTY TRANSACTIONS
The Proprietorship is located in space provided by the proprietor at no
cost.
F-234
<PAGE> 288
INDEPENDENT AUDITOR'S REPORT
To The Partners of Knudson, Knights & Predmore
We have audited the accompanying balance sheets of Knudson, Knights and
Predmore (a New Hampshire partnership) as of December 31, 1995 and 1994 and the
related statements of operations and partners' equity and statement of cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Knudson, Knights & Predmore
as of December 31, 1995 and 1994 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The supporting schedules of cost of fees
collected on page F-242 and supporting schedules of selling, general and
administrative expenses on page F-243 are presented for the purpose of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the financial statements, and, in our opinion, are fairly stated in all
material respects in relation to the financial statements taken as a whole.
BARRETT & DATTILIO, P.C.
November 15, 1996
Quechee, Vermont
F-235
<PAGE> 289
KNUDSON, KNIGHTS AND PREDMORE
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash.............................................................. $ 423 $ 293
Accounts receivable (net of allowance for doubtful accounts of
$22,150 and $16,554 respectively)................................ 199,353 148,989
Prepaid insurance................................................. 16,519 14,928
-------- --------
Total Current Assets......................................... 216,295 164,210
-------- --------
Fixed Assets
Office furniture.................................................. 58,937 39,983
Dental equipment.................................................. 131,180 112,325
Leasehold improvements............................................ 60,265 60,265
-------- --------
250,382 212,573
Less accumulated depreciation..................................... 138,144 119,922
-------- --------
112,238 92,651
-------- --------
$328,533 $256,861
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable.................................................. $ 53,549 $ 37,822
Accrued payroll................................................... 19,813 18,464
Accrued payroll taxes............................................. 251 0
Current portion capital lease..................................... 2,200 0
-------- --------
Total Current Liabilities.................................... 75,813 56,286
-------- --------
Capital Lease.......................................................... 13,034 0
-------- --------
Partners' Capital...................................................... 239,686 200,575
-------- --------
$328,533 $256,861
======== ========
</TABLE>
See independent auditor's report and accompanying notes to financial statements
F-236
<PAGE> 290
KNUDSON, KNIGHTS AND PREDMORE
STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net patient service revenue......................................... $1,551,190 $1,300,202
Cost of Fees Collected.............................................. 628,559 461,425
---------- ----------
Gross Profit................................................... 922,631 838,777
---------- ----------
Selling, General and Administrative Expenses........................ 382,692 389,012
Depreciation and amortization....................................... 18,222 15,186
---------- ----------
400,914 404,198
---------- ----------
Other Income (Expense)
Rental income.................................................. 0 200
Miscellaneous income........................................... 2,025 0
Interest income................................................ 313 71
Interest expense............................................... (209) (143)
---------- ----------
2,129 128
---------- ----------
Net Income.......................................................... 523,846 434,707
Partners' Equity -- Beginning of period............................. 200,575 203,069
Withdrawals.................................................... (484,735) (437,201)
---------- ----------
Partners' Equity -- Ending of period................................ $ 239,686 $ 200,575
========== ==========
</TABLE>
See independent auditor's report and accompanying notes to financial statements
F-237
<PAGE> 291
KNUDSON, KNIGHTS AND PREDMORE
CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net Income...................................................... $ 523,846 $ 434,707
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 18,222 15,186
(Increase) decrease in accounts receivable................. (50,364) (19,916)
(Increase) decrease in prepaid insurance................... (1,591) (4,134)
Increase (decrease) in accounts payable.................... 15,727 21,021
Increase (decrease) in accrued liabilities................. 1,600 6,650
--------- ---------
Total Adjustments..................................... (16,406) 18,807
--------- ---------
Net cash provided (used) by operating activities..................... 507,440 453,514
--------- ---------
Cash flows from investing activities:
Cash payments for the purchase of equipment..................... (22,407) (17,142)
--------- ---------
Net cash provided (used) by investing activities................ (22,407) (17,142)
--------- ---------
Cash flows from financing activities:
Partner distributions........................................... (484,735) (437,201)
Net borrowings on line of credit................................ 0 (8,270)
Principal payments of long-term debt............................ (168) 0
--------- ---------
Net cash provided (used) by financing activities................ (484,903) (445,471)
--------- ---------
Net increase (decrease) in cash and equivalents...................... 130 (9,099)
Cash and cash equivalents, beginning of year......................... 293 9,392
--------- ---------
Cash and cash equivalents, end of year............................... $ 423 $ 293
========= =========
Schedule of noncash investing and financing activities:
Acquisition of dental and office equipment
Cost of equipment.......................................... $ 37,809 $ 17,142
Loans...................................................... (15,402) 0
--------- ---------
Cash paid to acquire dental and office equipment................ $ 22,407 $ 17,142
========= =========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest expense................................................ $ 209 $ 143
========= =========
Income taxes.................................................... $ 3,079 $ 3,582
========= =========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-238
<PAGE> 292
KNUDSON, KNIGHTS AND PREDMORE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -- Knudson, Knights and Predmore is a New Hampshire
Partnership organized to provide dental healthcare in the Upper Valley Area
surrounding Lebanon, New Hampshire. The Partnership was organized and began
operations on April 1, 1983.
CASH AND CASH EQUIVALENTS -- For purposes of the statements of cash flows,
the Partnership considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NET PATIENT SERVICE REVENUE -- Net patient service revenue is reported at
the estimated net realizable amounts from patients, third-party payors, and
others for services rendered.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS -- An allowance for uncollectibles is
recorded to report the receivables for health care services at their net
realizable value. Estimates for uncollectible accounts are reported in the
period during which the services are provided even though the actual amounts may
become known at a later date.
PROPERTY AND EQUIPMENT -- Property and equipment acquisitions are recorded
at cost. Depreciation is provided over the estimated useful life of each class
of depreciable asset and is computed on the MACRS method. The principal
estimated useful lives are: furniture and equipment, 5 to 7 years; leasehold
improvements 19 to 31 years.
INCOME TAXES -- Prorata income from the Partnership is combined with the
income and expenses of the partners from other sources and reported in the
partners' individual Federal tax returns. The Partnership pays only a Business
Enterprise tax to the State of New Hampshire. Therefore, no federal income taxes
have been recorded on these statements.
ESTIMATES -- Generally accepted accounting principles require management to
estimate some amounts reported in the financial statements; actual amounts could
differ. One such estimate is the net amount the Partnership will realize from
collecting receivables.
2. LINE OF CREDIT
The Partnership has an available line of credit with a local bank that
provides an available line of up to $25,000. As of December 31, 1995 and 1994,
there was no money borrowed on the line. The line is secured by the personal
guarantees of the Partners.
F-239
<PAGE> 293
KNUDSON, KNIGHTS AND PREDMORE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
3. CAPITALIZED EQUIPMENT LEASE
The Partnership acquired phone equipment under the provisions of a
long-term lease. The lease agreement provides for minimum annual lease payments
as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 4,524
1997.......................................................... 4,524
1998.......................................................... 4,524
1999.......................................................... 4,524
2000.......................................................... 4,148
-------
$22,243
Less amount representing interest.................................. 7,010
-------
Present Value of Minimum Capital Lease Payments.................... 15,234
Less Current Portion............................................... 2,200
-------
Long Term Portion.................................................. $13,034
=======
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Partnership rents its office space from K K and P Enterprises, a real
estate partnership owned by Drs. Knudson, Knights and Predmore. The Partnership
generally signs a five year lease with a renewal option for another five years.
The last signed lease was for the five year period ended August 1994. The
Partnership is currently renting without a lease. The present rate has been set
at $4,100 basic monthly rent with a variable rent based on the Partnerships
share of operational costs. The Partnership is currently renting approximately
75% of the building space. Rent paid to the partnership was $71,215 for the year
ended December 1995 and $73,749 for the year ended December 31, 1994.
5. COMPENSATED ABSENCES
Employees are entitled to one week of paid vacation within the first year
of employment. Additionally, employees are entitled to the following paid
vacation policies; Two weeks after year one, three weeks after year five and
four weeks after year ten.
Accrued vacation does not normally exceed a normal year accumulation.
Employees are also entitled to five personal days. These personal days do
not accumulate.
6. EMPLOYEE BENEFIT PLANS
The Partnership offers a healthcare plan that allows employees to deduct
their share of medical insurance premiums on a pre tax basis.
F-240
<PAGE> 294
SUPPLEMENTARY SCHEDULES
F-241
<PAGE> 295
KNUDSON, KNIGHTS & PREDMORE
SUPPORTING SCHEDULE OF COST OF FEES COLLECTED
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
SCHEDULE I
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Lab fees............................................................... $154,401 $119,183
Dental supplies........................................................ 114,468 87,959
Hygienist salary....................................................... 191,653 148,887
Assistant salary....................................................... 160,129 98,903
Uniforms............................................................... 7,908 6,493
-------- --------
$628,559 $461,425
======== ========
</TABLE>
See independent auditor's report
F-242
<PAGE> 296
KNUDSON, KNIGHTS & PREDMORE
SUPPORTING SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
SCHEDULE II
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Office salary.......................................................... $119,610 $117,048
Office rent............................................................ 71,215 73,749
Payroll taxes.......................................................... 39,376 30,921
Medical insurance...................................................... 28,984 41,177
Business insurance..................................................... 20,917 18,055
Cleaning and maintenance............................................... 14,876 19,228
Bad debts.............................................................. 12,672 16,554
Office supplies........................................................ 11,234 13,059
Telephone.............................................................. 10,292 7,933
Professional education................................................. 8,512 6,232
Service charges........................................................ 7,795 6,422
Consulting............................................................. 6,000 12,000
Repairs................................................................ 5,259 4,163
Computer software...................................................... 4,731 1,468
Legal & accounting..................................................... 3,378 3,598
Other taxes............................................................ 3,079 3,582
Miscellaneous.......................................................... 2,722 4,618
Utilities.............................................................. 2,643 3,949
Meetings and seminars.................................................. 2,560 0
Dues................................................................... 2,052 1,629
Subscriptions.......................................................... 1,769 1,403
Entertainment.......................................................... 1,450 951
Printing............................................................... 1,023 0
Computer services...................................................... 367 896
Advertising............................................................ 176 377
-------- --------
$382,692 $389,012
======== ========
</TABLE>
See independent auditor's report
F-243
<PAGE> 297
INDEPENDENT AUDITOR'S REPORT
To The Partners of Knudson, Knights & Predmore
We have audited the accompanying balance sheets of Knudson, Knights and
Predmore (a New Hampshire partnership) as of September 30, 1996 and the related
statements of operations and partners' equity and statement of cash flows for
the nine months then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Knudson, Knights & Predmore
as of September 30, 1996 and the results of its operations and its cash flows
for the nine months then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The supporting schedules of cost of fees
collected on page F-251 and supporting schedules of selling, general and
administrative expenses on page F-252 are presented for the purpose of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the financial statements, and, in our opinion, are fairly stated in all
material respects in relation to the financial statements taken as a whole.
BARRETT & DATTILIO, P.C.
November 15, 1996
Quechee, Vermont
F-244
<PAGE> 298
KNUDSON, KNIGHTS AND PREDMORE
BALANCE SHEETS
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
--------
<S> <C>
ASSETS
Current Assets
Cash......................................................................... $ 362
Accounts receivable (net of allowance for doubtful accounts of $27,788)...... 250,095
Prepaid insurance............................................................ 17,725
--------
Total Current Assets.................................................... 268,182
--------
Fixed Assets
Office furniture............................................................. 60,688
Dental equipment............................................................. 141,008
Leasehold improvements....................................................... 60,265
--------
261,961
Less accumulated depreciation................................................ 154,584
--------
107,377
--------
$375,559
========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable............................................................. $ 66,497
Accrued payroll.............................................................. 10,893
Current portion capital lease................................................ 2,267
--------
Total Current Liabilities............................................... 79,657
--------
Capital Lease..................................................................... 11,351
--------
Partners' Capital................................................................. 284,551
--------
$375,559
========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-245
<PAGE> 299
KNUDSON, KNIGHTS AND PREDMORE
STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Net patient service revenue...................................................... $1,265,528
Cost of Fees Collected........................................................... 397,143
----------
Gross Profit................................................................ 868,385
----------
Selling, General and Administrative Expenses..................................... 405,074
Depreciation and amortization.................................................... 16,440
----------
421,514
----------
Other Income (Expense)
Interest income............................................................. 16
Interest expense............................................................ (1,777)
----------
(1,761)
----------
Net Income....................................................................... 445,110
Partners' Equity -- Beginning of period.......................................... 239,686
Withdrawals................................................................. (400,245)
----------
Partners' Equity -- Ending of period............................................. $ 284,551
==========
</TABLE>
See independent auditor's report and accompanying notes to financial statements
F-246
<PAGE> 300
KNUDSON, KNIGHTS AND PREDMORE
CASH FLOW STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Cash flows from operating activities:
Net Income.................................................................. $ 445,110
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.......................................... 16,440
(Increase) decrease in accounts receivable............................. (50,742)
(Increase) decrease in prepaid insurance............................... (1,206)
Increase (decrease) in accounts payable................................ 12,948
Increase (decrease) in accrued liabilities............................. (9,171)
---------
Total Adjustments...................................................... (31,731)
---------
Net cash provided (used) by operating activities............................ 413,379
---------
Cash flows from investing activities:
Cash payments for the purchase of equipment................................. (11,579)
---------
Net cash provided (used) by investing activities............................ (11,579)
---------
Cash flows from financing activities:
Partner distributions....................................................... (400,245)
Principal payments of long-term debt........................................ (1,616)
---------
Net cash provided (used) by financing activities............................ (401,861)
---------
Net increase (decrease) in cash and equivalents.................................. (61)
Cash and cash equivalents, beginning of year..................................... 423
---------
Cash and cash equivalents, end of year........................................... $ 362
=========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest expense............................................................ $ 1,777
=========
Income taxes................................................................ $ 2,087
=========
</TABLE>
See independent auditor's report and accompanying notes to financial statements
F-247
<PAGE> 301
KNUDSON, KNIGHTS AND PREDMORE
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -- Knudson, Knights and Predmore is a New Hampshire
Partnership organized to provide dental healthcare in the Upper Valley Area
surrounding Lebanon, New Hampshire. The Partnership was organized and began
operations on April 1, 1983.
CASH AND CASH EQUIVALENTS -- For purposes of the statements of cash flows,
the Partnership considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
NET PATIENT SERVICE REVENUE -- Net patient service revenue is reported at
the estimated net realizable amounts from patients, third-party payors, and
others for services rendered.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS -- An allowance for uncollectibles is
recorded to report the receivables for health care services at their net
realizable value. Estimates for uncollectible accounts are reported in the
period during which the services are provided even though the actual amounts may
become known at a later date.
PROPERTY AND EQUIPMENT -- Property and equipment acquisitions are recorded
at cost. Depreciation is provided over the estimated useful life of each class
of depreciable asset and is computed on the MACRS method. The principal
estimated useful lives are: furniture and equipment, 5 to 7 years; leasehold
improvements 19 to 31 years.
INCOME TAXES -- Prorata income from the Partnership is combined with the
income and expenses of the partners from other sources and reported in the
partners' individual Federal tax returns. The Partnership pays only a Business
Enterprise tax to the State of New Hampshire. Therefore, no federal income taxes
have been recorded on these statements.
ESTIMATES -- Generally accepted accounting principles require management to
estimate some amounts reported in the financial statements; actual amounts could
differ. One such estimate is the net amount the Partnership will realize from
collecting receivables.
2. CAPITALIZED EQUIPMENT LEASE
The Partnership acquired phone equipment under the provisions of a
long-term lease. The lease agreement provides for minimum annual lease payments
as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 1,131
1997.......................................................... 4,524
1998.......................................................... 4,524
1999.......................................................... 4,524
2000.......................................................... 4,148
-------
$18,851
Less amount representing interest.................................. 5,233
-------
Present Value of Minimum
Capital Lease Payments........................................... 13,618
Less Current Portion............................................... 2,267
-------
Long Term Portion.................................................. $11,351
=======
</TABLE>
F-248
<PAGE> 302
KNUDSON, KNIGHTS AND PREDMORE
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
3. RELATED PARTY TRANSACTIONS
The Partnership rents its office space from K K and P Enterprises, a real
estate partnership owned by Drs. Knudson, Knights and Predmore. The Partnership
generally signs a five year lease with a renewal option for another five years.
The last signed lease was for the five year period ended August 1994. The
Partnership is currently renting without a lease. The present rent has been set
at $4,100 basic monthly rent with a variable rent based on the Partnerships
share of operational costs. The Partnership is currently renting approximately
75% of the building space. Rent paid to the partnership was $48,963 for the nine
months ended September 30, 1996.
4. COMPENSATED ABSENCES
Employees are entitled to one week of paid vacation within the first year
of employment. Additionally, employees are entitled to the following paid
vacation policies; Two weeks after year one, three weeks after year five and
four weeks after year ten.
Accrued vacation does not normally exceed a normal year accumulation.
Employees are also entitled to five personal days. These personal days do
not accumulate.
5. EMPLOYEE BENEFIT PLANS
The Partnership offers a healthcare plan that allows employees to deduct
their share of medical insurance premiums on a pre tax basis.
The Partnership also sponsors a 401(k) plan under Section 401(k) of the
Internal Revenue Code. Under the plan, employees may elect to defer up to 15% of
their salary, subject to Internal Revenue Service limits. The Partnership may
make a discretionary match as well as a discretionary contribution. The
Partnership has made no discretionary contribution as of this date.
F-249
<PAGE> 303
SUPPLEMENTARY SCHEDULES
F-250
<PAGE> 304
KNUDSON, KNIGHTS & PREDMORE
SUPPORTING SCHEDULE OF COST OF FEES COLLECTED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
SCHEDULE I
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Lab fees.......................................................................... $154,350
Dental supplies................................................................... 59,909
Hygienist salary.................................................................. 94,169
Assistant salary.................................................................. 82,369
Uniforms.......................................................................... 6,346
--------
$397,143
========
</TABLE>
See independent auditor's report
F-251
<PAGE> 305
KNUDSON, KNIGHTS & PREDMORE
SUPPORTING SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
SCHEDULE II
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Office salary................................................... $173,756
Office rent..................................................... 48,963
Payroll taxes................................................... 49,540
Medical insurance............................................... 32,016
Business insurance.............................................. 13,162
Cleaning and maintenance........................................ 12,511
Bad debts....................................................... 5,638
Office supplies................................................. 11,553
Telephone....................................................... 5,980
Professional education.......................................... 3,451
Service charges................................................. 4,218
Consulting...................................................... 14,851
Repairs......................................................... 5,260
Legal & accounting.............................................. 2,134
Other taxes..................................................... 2,087
Miscellaneous................................................... 2,835
Utilities....................................................... 2,705
Meetings and seminars........................................... 1,917
Dues............................................................ 2,627
Entertainment................................................... 309
Computer services............................................... 9,353
Advertising..................................................... 208
--------
$405,074
========
</TABLE>
See independent auditor's report
F-252
<PAGE> 306
INDEPENDENT AUDITOR'S REPORT
To Robert W. Seniff, DDS
We have audited the accompanying balance sheets of Robert W. Seniff, DDS (a
New Hampshire Proprietorship) as of December 31, 1995 and the six months ended
December 31, 1994 and the related statements of operations and Proprietor's
equity and statement of cash flows for the years then ended. These financial
statements are the responsibility of the Proprietorship's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of Robert W. Seniff, DDS as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The supporting schedules of cost of fees
collected on page F-260 and supporting schedules of selling, general and
administrative expenses on page F-261 are presented for the purpose of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the financial statements, and, in our opinion, are fairly stated in all
material respects in relation to the financial statements taken as a whole.
BARRETT & DATTILIO, P.C.
Registration #440
December 13, 1996
Quechee, Vermont
F-253
<PAGE> 307
ROBERT W. SENIFF, DDS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash.............................................................. $ 59,699 $ 38,749
Contracts and accounts receivable................................. 211,475 181,999
-------- --------
Total Current Assets......................................... 271,174 220,748
-------- --------
Fixed Assets
Office furniture.................................................. 4,881 4,881
Dental equipment.................................................. 36,138 36,138
-------- --------
41,019 41,019
Less accumulated depreciation..................................... 36,159 35,093
-------- --------
Net Fixed Assets............................................. 4,860 5,926
-------- --------
Other Assets
Contracts receivable (less current portion above)................. 37,040 44,139
-------- --------
Total Assets................................................. $313,074 $270,813
======== ========
LIABILITIES AND PROPRIETOR'S CAPITAL
Current Liabilities
Accounts payable.................................................. $ 3,873 $ 2,610
Deferred revenue current.......................................... 166,813 134,556
-------- --------
Total Current Liabilities.................................... 170,686 137,166
-------- --------
Long Term Liabilities
Deferred revenue.................................................. 37,040 44,139
-------- --------
Proprietor's Capital................................................... 105,348 89,508
-------- --------
Total Liabilities and Proprietor's Capital................... $313,074 $270,813
======== ========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-254
<PAGE> 308
ROBERT W. SENIFF, DDS
STATEMENTS OF OPERATIONS AND PROPRIETOR'S CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Net patient service revenue........................................... $ 357,000 $198,752
Cost of Fees collected................................................ 26,489 12,252
--------- --------
Gross Profit..................................................... 330,511 186,500
--------- --------
Selling, General and Administrative Expenses.......................... 82,018 46,401
Depreciation and amortization......................................... 1,066 480
--------- --------
83,084 46,881
--------- --------
Other Income (Expense)
Interest income.................................................. 777 235
--------- --------
777 235
--------- --------
Net Income............................................................ 248,204 139,854
Proprietor's Capital -- Beginning..................................... 89,508 39,841
Withdrawals...................................................... (232,364) (90,187)
--------- --------
Proprietor's Capital -- Ending........................................ $ 105,348 $ 89,508
========= ========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-255
<PAGE> 309
ROBERT W. SENIFF, DDS
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income..................................................... $ 248,204 $139,854
--------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 1,066 480
(Increase) decrease in accounts receivable................... (22,377) (14,245)
Increase (decrease) in accounts payable...................... 1,263 (875)
Increase (decrease) in deferred revenues..................... 25,158 (19,399)
--------- --------
Total Adjustments......................................... 5,110 (34,039)
--------- --------
Net cash provided (used) by operating activities............... 253,314 105,815
--------- --------
Cash flows from investing activities:
Cash payments for the purchase of property..................... 0 (320)
--------- --------
Net cash provided (used) by investing activities............... 0 (320)
--------- --------
Cash flows from financing activities:
Proprietor's draw.............................................. (232,364) (90,187)
--------- --------
Net cash provided (used) by financing activities............... (232,364) (90,187)
--------- --------
Net increase (decrease) in cash and equivalents..................... 20,950 15,308
Cash and cash equivalents, beginning of period...................... 38,749 23,441
--------- --------
Cash and cash equivalents, end of period............................ $ 59,699 $ 38,749
========= ========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-256
<PAGE> 310
ROBERT W. SENIFF, DDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -- Robert W. Seniff, DDS is a New Hampshire
Proprietorship organized to provide dental health care in the Upper Valley Area
surrounding Lebanon, New Hampshire. The Proprietorship was organized and began
operations on July 1, 1994. The Proprietorship specializes in orthodontics.
CASH AND CASH EQUIVALENTS -- For purposes of the statements of cash flows,
the Proprietorship considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
NET PATIENT SERVICE REVENUE -- Revenue is recognized in accordance with the
proportional performance method of accounting for service contracts. Under this
method, revenue is recognized as services are performed and the costs associated
therewith are incurred under the terms of contractual agreements with each
patient. A significant portion, approximately twenty-five (25) percent of the
services are performed in the initial month of the contract. Accordingly, a
proportionate share of revenue is recognized. The balance of revenue is
recognized over the remaining term of the contract, which averages twenty-four
(24) months.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS -- The Proprietorship has not incurred
any material writeoffs for uncollectible accounts. No provision has been set up
to provide for doubtful accounts due to past collection experience.
PROPERTY AND EQUIPMENT -- Property and equipment acquisitions are recorded
at cost. Depreciation is provided over the estimated useful life of each class
of depreciable asset and is computed on the MACRS method. The principal
estimated useful lives are: furniture and equipment, 5 to 7 years.
INCOME TAXES -- Income from the Proprietorship is combined with the income
and expenses of the Proprietorship from other sources and reported in the
proprietor's individual Federal tax returns. The Proprietorship pays only a
Business Enterprise tax to the State of New Hampshire. Therefore, no federal
income taxes have been recorded on these statements.
ESTIMATES -- Generally accepted accounting principles require management to
estimate some amounts reported in the financial statements; actual amounts could
differ. One such estimate is the net amount the Proprietorship will realize from
collecting receivables. Deferred revenues represent another estimated balance.
2. CONTRACTS RECEIVABLE
The Proprietorship generally creates a contract with its patients for
services rendered. The period covered by the contract is usually a two year
period. The Proprietorship requests a down payment of twenty-five (25) percent
of the contract at the beginning of treatment, and the remainder paid over a
twenty-four (24) month period. The amount that will be collected on existing
contracts in the next twelve month period is treated as a current asset. Those
payments that will be made after the next twelve month period are treated as a
non current asset.
3. DEFERRED REVENUES
As noted above in notes 1 and 2, the Proprietorship enters into contracts
for which services will be performed over a two year period. The Proprietorship
recognizes the contract receivable as an asset at the time it is entered into
with the patient. It is estimated that twenty-five (25) percent of the contract
is earned at the beginning of the treatment period with the balance earned
ratably over the remaining two years of the contract. Accordingly, deferred
revenues are recognized for that portion of the contract that has not been
earned at the end of the reporting period. The deferred revenues are reported as
current for those that will be earned during the next twelve month period, and
long term for those that will be earned during the period following the next
twelve months.
F-257
<PAGE> 311
ROBERT W. SENIFF, DDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
4. LEASES
The Proprietorship currently leases its offices under a contract that
extends to October 1, 1996. The Proprietorship pays $837 monthly. In addition,
the Proprietorship is billed for and pays variable costs that are billed monthly
by the lessor. These costs include property taxes, utilities, building
maintenance and parking lot maintenance.
The future minimum rental payment required under the lease during the
remainder of the lease period is as follows:
<TABLE>
<S> <C>
1996................................................ $8,370
</TABLE>
F-258
<PAGE> 312
SUPPLEMENTARY INFORMATION
F-259
<PAGE> 313
ROBERT W. SENIFF, DDS
SUPPORTING SCHEDULE OF COST OF FEES COLLECTED
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED DECEMBER 31, 1994
SCHEDULE I
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Lab Fees................................................................. $ 11,457 $ 5,133
Dental Supplies.......................................................... 12,839 6,885
Uniforms................................................................. 2,193 234
------- -------
$ 26,489 $ 12,252
======= =======
</TABLE>
See independent auditor's report.
F-260
<PAGE> 314
ROBERT W. SENIFF, DDS
STATEMENTS OF OPERATIONS AND PROPRIETOR'S CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE SIX MONTHS ENDED DECEMBER 31, 1994
SCHEDULE II
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Office salary.................................................... $18,956 $13,728
Office rent...................................................... 15,190 7,718
Payroll taxes.................................................... 2,178 2,146
Business insurance............................................... 6,795 5,625
Office supplies.................................................. 8,826 4,755
Telephone........................................................ 6,759 3,228
Service charges.................................................. 67 16
Repairs.......................................................... 9,169 3,164
Professional services............................................ 2,500 0
Utilities........................................................ 516 288
Meetings and seminars............................................ 2,918 1,249
Dues and licenses................................................ 2,092 1,993
Entertainment.................................................... 4,404 684
Travel........................................................... 1,097 730
Advertising...................................................... 551 1,077
------- -------
$82,018 $46,401
======= =======
</TABLE>
See independent auditor's report.
F-261
<PAGE> 315
INDEPENDENT AUDITOR'S REPORT
To Dr. Robert W. Seniff, DDS
We have audited the accompanying balance sheet of Dr. Robert W. Seniff, DDS
(a New Hampshire proprietorship) as of September 30, 1996 and the related
statement of operations and proprietor's capital and
statement of cash flows for the nine months then ended. These financial
statements are the responsibility of the Proprietorship's management. Our
responsibility is to express an opinion on these financial statements based on
our audit
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dr. Robert W. Seniff, DDS as
of September 30, 1996 and the results of its operations and its cash flows for
the nine months then ended in conformity with generally accepted accounting
principles.
Our audit was conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The supporting schedules of cost of fees
collected on page F-269 and supporting schedules of selling, general and
administrative expenses on page F-270 are presented for the purpose of
additional analysis and are not a required part of the financial statements.
Such information has been subjected to the auditing procedures applied in the
audit of the financial statements, and, in our opinion, are fairly stated in all
material respects in relation to the financial statements taken as a whole.
BARRETT & DATTILIO, P.C.
Registration #444
December 13, 1996
Quechee, Vermont
F-262
<PAGE> 316
ROBERT W. SENIFF, DDS
BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
--------
<S> <C>
ASSETS
Current Assets
Cash......................................................................... $ 30,154
Contracts and accounts receivable............................................ 194,878
-------
Total Current Assets.................................................... 225,032
-------
Fixed Assets
Office furniture............................................................. 8,126
Dental equipment............................................................. 36,138
-------
44,264
Less accumulated depreciation................................................ 36,959
-------
Net Fixed Assets........................................................ 7,305
-------
Other Assets
Contracts receivable (less current portion above)............................ 46,578
-------
Total Assets............................................................ $278,915
=======
LIABILITIES AND PROPRIETOR'S CAPITAL
Current Liabilities
Accounts payable............................................................. $ 4,546
Deferred revenue current..................................................... 155,288
-------
Total Current Liabilities............................................... 159,834
-------
Long Term Liabilities
Deferred revenue............................................................. 46,578
-------
Proprietor's Capital.............................................................. 72,503
-------
Total Liabilities and Proprietor's Capital.............................. $278,915
=======
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-263
<PAGE> 317
ROBERT W. SENIFF, DDS
STATEMENT OF OPERATIONS AND PROPRIETOR'S CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Net patient service revenue.................................................... $ 250,008
Cost of Fees Collected......................................................... 22,140
--------
Gross Profit.............................................................. 227,868
--------
Selling, General and Administrative Expenses................................... 57,239
Depreciation................................................................... 800
--------
58,039
--------
Other Income (Expense)......................................................... 463
--------
Interest income........................................................... 463
--------
Net Income..................................................................... 170,292
Proprietor's Capital -- Beginning of period.................................... 105,348
Withdrawals............................................................... (203,137)
--------
Proprietor's Capital -- Ending of period....................................... $ 72,503
========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-264
<PAGE> 318
ROBERT W. SENIFF, DDS
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Cash flows from operating activities:
Net income.................................................................. $ 170,292
---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 800
(Increase) decrease in accounts receivable................................ 7,059
Increase (decrease) in accounts payable................................... 673
Increase (decrease) in deferred revenues.................................. (1,987)
---------
Total Adjustments...................................................... 6,545
---------
Net cash provided (used) by operating activities............................ 176,837
---------
Cash flows from investing activities
Cash payments for the purchase of property.................................. (3,245)
---------
Net cash provided (used) by investing activities............................ (3,245)
---------
Cash flows from financing activities:
Proprietor's draw........................................................... (203,137)
---------
Net cash provided (used) by financing activities............................ (203,137)
---------
Net increase (decrease) in cash and equivalents.................................. (29,545)
Cash and cash equivalents, beginning of period................................... 59,699
---------
Cash and cash equivalents, end of period......................................... $ 30,154
=========
</TABLE>
See independent auditor's report and accompanying notes to financial statements.
F-265
<PAGE> 319
DR. ROBERT W. SENIFF, DDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -- Dr. Robert W. Seniff, DDS is a New Hampshire
Proprietorship organized to provide dental health care in the Upper Valley Area
surrounding Lebanon, New Hampshire. The Proprietorship was organized and began
operations on July 1, 1994. Dr. Seniff specializes in orthodontics.
CASH AND CASH EQUIVALENTS -- For purposes of the statements of cash flows,
the Proprietorship considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
NET PATIENT SERVICE REVENUE -- Revenue is recognized in accordance with the
proportional performance method of accounting for service contracts. Under this
method, revenue is recognized as services are performed and the costs associated
therewith are incurred under the terms of contractual agreements with each
patient. A significant portion, approximately twenty-five (25) percent of the
services are performed in the initial month of the contract. Accordingly, a
proportionate share of revenue is recognized. The balance of revenue is
recognized over the remaining term of the contract, which averages twenty four
(24) months.
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS -- The Proprietorship has not incurred
any material writeoffs for uncollectible accounts. No provision has been set up
to provide for doubtful accounts due to past collection experience.
PROPERTY AND EQUIPMENT -- Property and equipment acquisitions are recorded
at cost. Depreciation is provided over the estimated useful life of each class
of depreciable asset and is computed on the MACRS method. The principal
estimated useful lives are: furniture and equipment, 5 to 7 years.
INCOME TAXES -- Income from the Proprietorship is combined with the income
and expenses of the proprietor from other sources and reported in the
proprietor's individual Federal tax returns. The Proprietorship pays only a
Business Enterprise tax to the State of New Hampshire. Therefore, no federal
income taxes have been recorded on these statements.
ESTIMATES -- Generally accepted accounting principles require management to
estimate some amounts reported in the financial statements; actual amounts could
differ. One such estimate is the net amount the Proprietorship will realize from
collecting receivables.
2. CONTRACTS RECEIVABLE
The Proprietorship generally creates a contract with its patients for
services rendered. The period covered by the contract is usually a two year
period. The Proprietorship requests a down payment of twenty-five (25) percent
of the contract at the beginning of treatment, and the remainder paid over a
twenty-four (24) month period. The amount that will be collected on existing
contracts in the next twelve month period is treated as a current asset. Those
payments that will be collected after the next twelve month period are treated
as a non current asset.
3. DEFERRED REVENUES
As noted above in notes 1 and 2, the Proprietorship enters into contracts
for which services will be performed over a two year period. The Proprietorship
recognizes the contract receivable as an asset at the time it is entered into
with the patient. It is estimated that twenty-five percent of the contract is
earned at the beginning of the treatment period with the balance earned ratably
over the remaining two years of the contract. Accordingly, deferred revenues are
recognized for that portion of the contract that has not been earned at the end
of the reporting period. The deferred revenues are reported as current for those
that will be earned during the next twelve month period, and long term for those
that will be earned during the period following the next twelve months.
F-266
<PAGE> 320
DR. ROBERT W. SENIFF, DDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
4. LEASES
The Proprietorship currently leases its offices on a month to month basis,
the lease that expired October 1 has not been renewed as of the audit date.
5. SUBSEQUENT EVENTS
On December 4, 1996, the Proprietorship sold its assets and discontinued
operations as a Proprietorship. The Proprietor is currently working for the
acquiring corporation as an employee.
F-267
<PAGE> 321
SUPPLEMENTARY SCHEDULES
F-268
<PAGE> 322
ROBERT W. SENIFF, DDS
SUPPORTING SCHEDULE OF COST OF FEES COLLECTED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
SCHEDULE I
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Lab fees......................................................................... $ 6,947
Dental supplies.................................................................. 14,161
Uniforms......................................................................... 1,032
-------
$22,140
=======
</TABLE>
See independent auditor's report.
F-269
<PAGE> 323
ROBERT W. SENIFF, DDS
SUPPORTING SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
SCHEDULE II
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Office salary...................................................................... $11,748
Office rent........................................................................ 13,293
Payroll taxes...................................................................... 1,324
Business insurance................................................................. 8,714
Office supplies.................................................................... 4,570
Telephone.......................................................................... 4,022
Service charges.................................................................... 30
Repairs............................................................................ 3,691
Professional services.............................................................. 405
Utilities.......................................................................... 394
Meetings and seminars.............................................................. 2,492
Dues and licenses.................................................................. 2,058
Entertainment...................................................................... 2,960
Travel............................................................................. 1,349
Advertising........................................................................ 190
-------
$57,239
=======
</TABLE>
See independent auditor's report.
F-270
<PAGE> 324
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information..................... 2
Prospectus Summary......................... 3
Risk Factors............................... 6
Use of Proceeds............................ 13
Dividend Policy............................ 13
Capitalization............................. 14
Dilution................................... 15
Selected Combined Financial Information.... 16
Selected Unaudited Pro Forma Condensed
Combined Financial Information........... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 23
Pending Acquisitions....................... 36
Management................................. 37
Certain Transactions....................... 43
Principal Stockholders..................... 44
Description of Capital Stock............... 46
Shares Eligible for Future Sale............ 47
Underwriting............................... 49
Legal Matters.............................. 50
Experts.................................... 50
Index to Financial Statements.............. F-1
</TABLE>
------------------------
Until [ ], 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
SHARES
[LOGO]
FIRST NEW ENGLAND
DENTAL CENTERS, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
FURMAN SELZ
PRUDENTIAL SECURITIES INCORPORATED
------------------------
[ ], 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 325
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses payable in connection with the
registration of the Common Stock that is the subject of this Registration
Statement, all of which shall be borne by the Company. All the amounts shown are
estimates except for the registration fee, the Nasdaq listing fee, and the NASD
filing fee.
<TABLE>
<CAPTION>
TO BE PAID BY REGISTRANT
-----------------------------------------------------------------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 8,364
Nasdaq listing fee............................................... $ *
National Association of Securities Dealers filing fee............ $ 3,260
Printing and engraving expenses.................................. $ *
Legal fees and expenses.......................................... $ *
Accounting fees and expenses..................................... $ *
Blue sky fees and disbursements.................................. $ *
Miscellaneous.................................................... $ *
Total.................................................. $ *
</TABLE>
- ---------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-laws provide for indemnification of directors, officers,
employees, and agents of the Company to the extent permitted by The Delaware
General Corporation Law. Under Delaware law, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to an action
(other than an action by or in the right of the corporation) by reason of his
service as a director or officer of the corporation, or his service, at the
corporation's request, as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees)
that are actually and reasonably incurred by him ("Expenses"), and judgments,
fines and amounts paid in settlement that are actually and reasonably incurred
by him, in connection with the defense or settlement of such action, provided
that he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. Although Delaware law permits a corporation to indemnify
any person referred to above against Expenses in connection with the defense or
settlement of an action by or in the right of the corporation, provided that he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, if such person has been judged
liable to the corporation, indemnification is only permitted to the extent that
the Court of Chancery (or the court in which the action was brought) determines
that, despite the adjudication of liability, such person is entitled to
indemnity for such Expenses as the court deems proper. The determination as to
whether a person seeking indemnification has met the required standard of
conduct is to be made (1) by a majority vote of a quorum of disinterested
members of the board of directors, or (2) by independent legal counsel in a
written opinion, if such a quorum does not exist or if the disinterested
directors so direct, or (3) by the stockholders. The General Corporation Law of
the State of Delaware also provides for mandatory indemnification of any
director, officer, employee or agent against Expenses to the extent such person
has been successful in any proceeding covered by the statute. In addition, the
General Corporation Law of the State of Delaware provides the general
authorization of advancement of a director's or officer's litigation expenses in
lieu of requiring the authorization of such advancement by the board of
directors in specific cases, and that indemnification and advancement of
expenses provided by the statute shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement or otherwise.
II-1
<PAGE> 326
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, the Registrant has sold or issued the following
unregistered securities:
(1) On November 22, 1995, Registrant issued 4,754 shares at $60.00 per
share (950,800 shares at $0.30 per share after giving effect to 199
for 1 stock dividend), pursuant to a rights offering to Penzance
Partners II, Inc.
(2) On November 22, 1995, Registrant issued 5,247 shares (1,049,400
after giving effect to 199 for 1 stock dividend), the remainder of
the rights offering, at $0.10 per share to certain shareholders of
Penzance Partners II, Inc.
(3) On November 24, 1995, Registrant declared a 199 for 1 stock
dividend effective as of that date.
(4) On December 15, 1995, Registrant issued 1,100,800 shares to
stockholders of Penzance Partners II, Inc. pursuant to its merger
with Registrant.
(5) Between December 1995 and March 1996, Registrant issued 713,196
shares to investors at a price of $4.50 per share.
(6) On March 15, 1996, Registrant issued 10,000 shares for past
consulting services.
(7) In May 1996, Registrant issued 29,914 shares to investors at prices
of $4.50 and $6.50 per share.
(8) In June 1996, Registrant issued 76,923 shares to investors at a
price of $6.50 per share.
(9) In July 1996, Registrant issued 458,574 shares pursuant to the
exercise of various warrants and stock options at an exercise price
of $0.01 per share.
(10) In September 1996, Registrant issued 25,089 shares to investors at
prices of $4.50 and $6.50 per share.
(11) On October 1, 1996, Registrant issued 15,385 shares pursuant to the
terms of an employment agreement at a price of $6.50 per share.
(12) In October 1996, Registrant issued 10,000 shares to investors at a
price of $8.50 per share.
(13) On October 31, 1996 and November 21, 1996, Registrant issued a
total of 662,142 shares at a price of $8.50 per share, through a
private offering to non-U.S. residents and U.S. accredited
investors conducted by Oakes Fitzwilliams & Co., Limited.
(14) On November 22, 1996, Registrant issued 625,785 shares at a price
of $8.50 per share, through a private offering to U.S. accredited
investors.
(15) In November 1996, Registrant issued 57,148 shares to investors at
prices of $6.50 and $8.50 per share.
(16) Between December 29, 1995 and November 19, 1996, Registrant issued
971,568 shares as part of purchase consideration for the operating
assets of certain dental practices at prices varying from $4.50 to
$10.00 per share which reflected the market price at the time such
shares were issued.
The issuances of securities in the above transactions were deemed to be
exempt from registration under the Act in reliance on Section 4(2) thereof as
transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits furnished:
<TABLE>
<S> <C>
1* Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of First New England Dental Centers, Inc.
</TABLE>
II-2
<PAGE> 327
<TABLE>
<S> <C>
3.2 By-laws of First New England Dental Centers, Inc.
4.1* Specimen of First New England Dental Centers, Inc. Common Stock Certificate.
5.1 Opinion of Lyne, Woodworth & Evarts LLP as to the Common Stock being registered.
10.1 Revolving Line of Credit Note dated as of June 14, 1996 between the Company,
Osorio and Watkin, D.M.D., P.C. and Fleet National Bank.
10.2 Loan Agreement dated as of June 14, 1996 between the Company, Osorio and Watkin,
D.M.D., P.C. and Fleet National Bank.
10.3 Security Agreement dated as of June 14, 1996 between the Company, Osorio and
Watkin, D.M.D., P.C. and Fleet National Bank.
10.4 Guaranty Agreement dated as of June 14, 1996 between the Company, Osorio and
Watkin, D.M.D., P.C., Fleet National Bank and John R. Lakian.
10.5 Guaranty Agreement dated as of June 14, 1996 between the Company, Osorio and
Watkin, D.M.D., P.C., Fleet National Bank and George R. Begley.
10.6 Management Agreement effective as of August 4, 1995 between First New England
Dental Centers, Inc. and Osorio and Watkin, D.M.D., P.C.
10.7 Revolving Credit Agreement between First New England Dental Centers, Inc. and
Osorio and Watkin, D.M.D., P.C. effective as of August 4, 1995.
10.8 Security Agreement between First New England Dental Centers, Inc. and Osorio and
Watkin, D.M.D., P.C. dated as of August 4, 1995.
10.9 Amended and Restated Stock Transfer Restriction Agreement by and among First New
England Dental Centers, Inc., Osorio and Watkin, D.M.D., P.C., Arnold Watkin,
D.D.S. and Julian Osorio, D.M.D., dated as of November 15, 1996.
10.10 Employment Agreement with Donald E. Strange dated September 30, 1996.
10.11 Employment Agreement with Jerald Robbins dated November 7, 1996.
10.12 Consulting Agreement with Arnold Watkin, D.D.S. dated December 29, 1995.
10.13 Consulting Agreement with Julian Osorio, D.M.D. dated December 29, 1995.
10.14 Consulting Agreement with The Fort Hill Group, Inc. dated November 1, 1996.
10.15 1996 Stock Plan.
10.16 Commitment Letter dated as of November 26, 1996 between First New England Dental
Centers, Inc. and Fleet National Bank, regarding Revolving Line of Credit.
10.17 Lease between Landman Omnibus VII Limited Partnership and First New England
Dental Centers, Inc. for space at 85 Devonshire Street, Boston, Massachusetts
dated as of April 12, 1996.
10.18 License of Dentech Dental Office Management Computer System.
10.19 Binding Letter of Intent for New England Dental Center, Inc. acquisition.
10.20 Letter of Intent for Group Dental Associates acquisition.
11* Computation of Net Income Per Share.
23.1 Consent of KPMG Peat Marwick, LLP.
23.2 Consent of Vitale, Caturano and Company, P.C.
23.3 Consent of Caras & Shulman, P.C.
23.4 Consent of Vitale, Caturano and Company, P.C.
23.5 Consent of Vitale, Caturano and Company, P.C.
23.6 Consent of Ellie Rozinsky.
23.7 Consents of Caras & Shulman, P.C.
23.8 Consent of Vitale, Caturano and Company, P.C.
</TABLE>
II-3
<PAGE> 328
<TABLE>
<S> <C>
23.9 Consent of Moody, Cananaugh & Company, LLP.
23.10 Consent of DeBairos & Company, P.C.
23.11 Consent of Vitale, Caturano and Company, P.C.
23.12 Consent of Moody, Cavanaugh & Company, LLP.
23.13 Consent of DePaola, Begg & Associates, P.C.
23.14 Consent of Jon H. Fudeman.
23.15 Consent of Jurnak & Jurnak, CPAs.
23.16 Consent of Rucci, Bardaro & Barrett, P.C.
23.17 Consent of Vitale, Caturano and Company, P.C.
23.18 Consent of Beers, Hamerman & Company, P.C.
23.19 Consent of Goff, Carlin & Cagan LLP.
23.20 Consent of Vitale, Caturano and Company, P.C.
23.21 Consent of DeBairos & Company, P.C.
23.22 Consent of Joseph D. Kalicka & Company LLP.
23.23 Consent of Vitale, Caturano and Company, P.C.
23.24 Consent of Barrett & Dattilio, P.C.
23.25 Consent of Barrett & Dattilio, P.C.
23.26 Consent of Lyne, Woodworth & Evarts LLP (included as part of Exhibit 5.1).
24 Powers of Attorney (included at Pages II-7 to II-8 of the Registration
Statement).
27 Financial Data Schedule for year ended December 31, 1995 and 9 months ended
September 30, 1996 (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment
Exhibits and schedules not listed above have been omitted because they are
not applicable or because required information is included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such Director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or
II-4
<PAGE> 329
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 330
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and Commonwealth
of Massachusetts on the 31st day of January, 1997.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: /s/ DONALD E. STRANGE
---------------------------------------
Donald E. Strange
Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------ -----------------
<C> <S> <C>
/s/ DONALD E. STRANGE Chairman, Chief Executive January 31, 1997
- --------------------------------------------- Officer, President and
Donald E. Strange Director
/s/ JOSEPH A. ANOLI* Senior Vice President and January 31, 1997
- --------------------------------------------- Chief Financial Officer
Joseph A. Anoli
/s/ ARNOLD WATKIN, D.D.S.* Senior Vice President and January 31, 1997
- --------------------------------------------- Director
Arnold Watkin, D.D.S.
/s/ THOMAS R. SAHRMANN* Vice President and Controller January 31, 1997
- ---------------------------------------------
Thomas R. Sahrmann
/s/ GEORGE R. BEGLEY* Director January 31, 1997
- ---------------------------------------------
George R. Begley
/s/ AUSTIN BROADHURST, JR.* Director January 31, 1997
- ---------------------------------------------
Austin Broadhurst, Jr.
/s/ GEORGE R. HORNIG* Director January 31, 1997
- ---------------------------------------------
George R. Hornig
/s/ DONALD J. LARSON* Director January 31, 1997
- ---------------------------------------------
Donald J. Larson
/s/ JOHN A. SPRAGUE* Director January 31, 1997
- ---------------------------------------------
John A. Sprague
</TABLE>
*By: /s/ DONALD E. STRANGE
-------------------------------
Donald E. Strange
Their Attorney-in-Fact
II-6
<PAGE> 331
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that First New England Dental Centers,
Inc., a corporation organized under the laws of the State of Delaware (the
"Corporation"), and the undersigned Officers and Directors of the Corporation,
individually and in their respective capacities indicated below, hereby make,
constitute, and appoint Donald E. Strange and Joseph A. Anoli its and their true
and lawful attorneys, their separate or joint signatures sufficient to bind,
with power of substitution, to execute, deliver, and file in its or their
behalf, and in each person's respective capacity or capacities as shown below, a
registration statement on Form S-1 under the Securities Act of 1933, any and all
documents in support of or supplemental to said registration statement and any
and all amendments thereto with respect to the initial public offering of shares
of Common Stock by the Corporation; and the Corporation and each said person
hereby grant to said attorneys full power and authority to do and perform each
and every act and thing whatsoever as any one of said attorneys may deem
necessary or advisable to carry out the full intent of this Power of Attorney to
the same extent and with the same effect as the Corporation or the undersigned
Officers and Directors of the Corporation might or could do personally in its or
their capacity or capacities as aforesaid; and the Corporation and each of said
persons hereby ratify, confirm, and approve all acts and things that any one of
said attorneys may do or cause to be done by virtue of this Power of Attorney
and its signature or their signatures as the same may be signed by any one of
said attorneys to said registration statement and any and all documents in
support of or supplemental to said registration statement and any and all
amendments thereto.
Dated as of January 22, 1997
First New England Dental Centers, Inc.
<TABLE>
<S> <C>
By: /s/ DONALD E. STRANGE
Attest: /s/ JOSHUA VERNAGLIA ------------------------------------------
- ----------------------------------- Donald E. Strange
Joshua Vernaglia Chief Executive Officer
Secretary
/s/ DONALD E. STRANGE
----------------------------------------------
Donald E. Strange
Chairman, President, Chief Executive Officer,
and Director
/s/ JOSEPH A. ANOLI
----------------------------------------------
Joseph A. Anoli
Chief Financial Officer
/s/ THOMAS R. SAHRMANN
----------------------------------------------
Thomas R. Sahrmann
Vice President and Controller
/s/ ARNOLD WATKIN, D.D.S.
----------------------------------------------
Arnold Watkin, D.D.S.
Senior Vice President and Director
</TABLE>
II-7
<PAGE> 332
<TABLE>
<S> <C>
/s/ GEORGE R. BEGLEY
----------------------------------------------
George R. Begley
Director
/s/ AUSTIN BROADHURST, JR.
----------------------------------------------
Austin Broadhurst, Jr.
Director
/s/ GEORGE R. HORNIG
----------------------------------------------
George R. Hornig
Director
/s/ DONALD J. LARSON
----------------------------------------------
Donald J. Larson
Director
/s/ JOHN A. SPRAGUE
----------------------------------------------
John A. Sprague
Director
</TABLE>
II-8
<PAGE> 333
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT RESERVE AMOUNT MANAGEMENT BALANCE AT
BEGINNING BALANCES CHARGED TO INCREASES END OF
OF PERIOD ACQUIRED RESERVE TO RESERVE PERIOD
---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
12/31/95........................... $ -- 445,000 (212,892) 212,892 $ 445,000
9/30/96............................ 445,000 340,000 (820,597) 820,597 785,000
</TABLE>
S-1
<PAGE> 1
Exhibit 3.1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATION OF
INCORPORATION OF "STANWICH, INC.", FILED IN THIS OFFICE ON THE EIGHTH DAY OF
MAY, A.D. 1991, AT 2 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203679
DATE: 11-21-96
<PAGE> 2
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 2:00 PM 05/08/1991
731128015-2262494
CERTIFICATE OF INCORPORATION
OF
STANWICH, INC.
* * * * *
1. The name of the corporation is
STANWICH, INC.
2. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall
have authority to issue is three thousand (3,000) and the par value of each of
such shares is Ten Cents ($0.10) amounting in the aggregate to Three Hundred
Dollars ($300.00).
5. The name and mailing address of each incorporator is as
follows:
<PAGE> 3
NAME MAILING ADDRESS
---- ---------------
J. L. Austin Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
M. C. Kinnamon Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
D. L. Sipple Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directos is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real
and personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The board may designate one or more directors as alternate members of any
committee,
<PAGE> 4
who may replace any absent or disqualified member at any meeting of the
committee. The by-laws may provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
or in the by-laws of the corporation, shall have and may exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the by-laws of the corporation; and, unless the resolution or
by-laws, expressly so provide, no such committee shall have the power or
authority to declare a dividend or
<PAGE> 5
to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute,
to sell, lease or exchange all or substantially all of the property and assets
of the corporations, including its good will and its corporate franchises, upon
such terms and conditions and for such consideration, which may consist in
whole or in part of money or property including shares of stock in, and/or
other securities of, any other corporation or corporations, as its board of
directors shall deem expedient and for the best interests of the corporation.
8. Elections of directors need not be by written ballot unless the
by-laws of the corporations shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors of in the by-laws of the corporation.
9. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders
<PAGE> 6
herein are granted subject to this reservation.
10. A director of the corporation shall not be personally liable to
the corporation or its stockholders for monetary damages for beach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing volation of law, (iii) under Section 174 of the Delaware General
Corproation Law, or (iv) for any transaction from which the director derived
any improper personal benefit.
WE, THE UNDERSIGNED, being each of the incorporators herebefore named,
for the purpose of forming a corporation pursuant to the General Corporation
Law of the State of Delaware, do make this certificate, hereby declaring and
certifying that this is our act and deed and the facts herein stated are true,
and accordingly have hereunto set our hands this 8th day of May, 1991.
/s/ J. L. Austin
---------------------------
J. L. Austin
/s/ M. C. Kinnamon
---------------------------
M. C. Kinnamon
/s/ D. L. Sipple
---------------------------
D. L. Sipple
<PAGE> 7
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATION OF
INCORPORATION OF "STANWICH, INC.", FILED IN THIS OFFICE ON THE TWENTIETH DAY OF
DECEMBER, A.D. AT 10 O'CLOCK A.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203680
DATE: 11-21-96
<PAGE> 8
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION
Stanwich, Inc., a corporation organized under the laws of Delaware, the
Certificate of Incorporation of which was filed in the office of the Secretary
of State on the 8th day of May, 1991, and thereafter voided for non-payment of
taxes, now desiring to procure a revival of its Certificate of Incorporation,
and hereby certifies as follows:
1. The name of the corporation is Stanwich, Inc.
2. Its registered office in the State of Delaware is located at
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle and the name of this registered agent at such address is The Corporation
Trust Company.
3. The date when revival of the Certificate of Incorporation of
this corporation is to commence is the 28th day of February, 1994, same being
prior to the date the Certificate of Incorporation became void. Revival of the
Certificate of Incorporation is to be perpetual.
4. This corporation was duly organized under the laws of Delaware
and carried on the business authorized by its Certificate of Incorporation
until the 1st day of March, 1994, at which time its Certificate of
Incorporation became inoperative and void for non-payment of taxes and this
Certificate for Renewal and Revival is filed by authority of the duly elected
directors of the corporation in accordance with the law of Delaware.
IN WITNESS WHEREOF, said Stanwich, Inc., in compliance with Section 312
of Title 8 of the Delaware Code has caused this certificate to be signed by
Joshua J. Vernaglia, Jr. its last and acting Secretary, this 15th day of
December, 1994.
By /s/ Joshua J. Vernaglia, Jr.
--------------------------------------
Joshua J. Vernaglia, Jr., Secretary
<PAGE> 9
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "STANWICH, INC.", CHANGING ITS NAME FROM "STANWICH, INC." TO
"FIRST NEW ENGLAND DENTAL CENTERS, INC.", FILED IN THIS OFFICE ON THE TWENTIETH
DAY OF DECEMBER, A.D. 1994, AT 10:01 O'CLOCK A.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203681
DATE: 11-21-96
<PAGE> 10
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
Stanwich, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, adopted a
resolution proposing and declaring advisable the following amendment to the
Certificate of Incorporation of said corporation, adopted a resolution
proposing and declaring advisable the following amendment to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of Stanwich, Inc.
be amended by changing the First Article thereof so that, as amended
said Article shall be and read as follows:
THE NAME OF THE CORPORATION IS: FIRST NEW ENGLAND DENTAL CENTERS, INC.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 and 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Stanwich, Inc. has cuased this certificate to
be signed by Joshua J. Vernaglis, its Secretary, this 19th day of December,
1994.
/s/ Joshua J. Vernaglia
------------------------------
Joshua J. Vernaglia, Secretary
<PAGE> 11
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", FILED IN THIS OFFICE
ON THE TWENTY-FIRST DAY OF NOVEMBER, A.D. 1995, AT 2:00 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203682
DATE: 11-21-96
<PAGE> 12
FIRST NEW ENGLAND DENTAL CENTERS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
First New England Dental Centers, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent pusuant to the applicable provisions of the General Corporation
Law of the State of Delaware, adopted a resolution setting forth a proposed
amendment to the Certificate of Incorporation of the Corporation and declared
such amendment to be advisable. The resolution setting forth the proposed
amendment is as follows:
VOTED: That the Board of Directors of the Corporation does hereby declare it
advisable that the Certificate of Incorporation of this Corporation be
amended by changing the Article thereof numbered 4 so that, as amended,
such Article 4 shall be and read in its entirety as follows:
"4. The total number of shares of stock which the
corporation shall have authority to issue is 6,000,000 and the
par value of each of such shares is One Cent ($0.01) amounting
in the aggregate to Sixty Thousand Dollars ($60,000)."
SECOND: That the holders of the requisite number of outstanding shares
of Common Stock of the Corporation have duly approved such amendment by the
required vote of such stockholders, adopted by a written action in lieu of a
meeting of such stockholders, all in accordance with Sections 242 and 228 of
the General Corporation Law of the State of Delaware, and all notices required
to be delivered pursuant to Section 228(d) of such General Corporation Law have
been delievered.
IN WITNESS WHEREOF, Penzance Partners II, Inc. has caused this
certificate to be signed, under penalties of perjury, by Jerald Robbins, its
President, and attested by Joshua J. Vernaglia, its Secretary, as of October
12, 1995.
PENZANCE PARTNERS II, INC.
By: /s/ Jerald Robbins, Pres.
------------------------------
Jerald Robbins, President
ATTEST:
/s/ Joshua J. Vernaglia
- ------------------------------
Joshua J. Vernaglia, Secretary
<PAGE> 13
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"PENZANCE PARTNERS II, INC.", A DELAWARE CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED IN THIS OFFICE THE FIFTEENTH DAY OF DECEMBER, A.D. 1995, AT 4 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203683
DATE: 11-21-96
<PAGE> 14
FIRST NEW ENGLAND DENTAL CENTERS, INC.
PENZANCE PARTNERS II, INC.
CERTIFICATE OF MERGER
Fist New England Dental Centers, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, and Penzance Partners II, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware, do
hereby certify:
FIRST: That the constituent corporations of the Merger are
1. First New England Dental Centers, Inc., a corporation
organized and existing under and by virtue of the
General Corporation Law of the State of Delaware; and
2. Penzance Partners II, Inc., a corporation organized
and existing under and by virtue of the General
Corporation Law of the State of Delaware.
SECOND: That an Agreement of Merger has been approved, adopted,
certified, executed and ackowledged by each of the constituent corporations,
all in accordance with Section 251 of the General Corporation law of the State
of Delaware.
THIRD: That the name of the surviving corporation is
First New England Dental Centers, Inc.
FOURTH: That the certificate of incorporation of First New England
Dental Centers, Inc. shall be the certificate of incorporation of the surviving
corporation.
FIFTH: That the executed Agreement of Merger is on file at the
principal place of business of First New England Dental Centers, Inc., at 170
Commonwealth Avenue, Boston, Massachusetts 02116.
SIXTH: That a copy of the Agreement of Merger will be furnished by
First New England Dental Centers, Inc., on request and without cost, to any
stockholder of any constituent corporation.
IN WITNESS WHEREOF, First New England Dental Centers, Inc. has caused
this certificate to be signed, under the penalties of perjury, by Jerald
Robbins, its President, and attested
<PAGE> 15
by Joshua J. Vernaglia, its Secretary, and Penzance Partners II, Inc. has
caused this certificate to be signed, under penalties of perjury, by John R.
Lakian, its President, and attested by Joshua J. Vernaglia, its Secretary, as
of December 12, 1995.
FIRST NEW ENGLAND DENTAL CENTERS,
INC.
By: /s/ Jerald Robbins, President
---------------------------------
Jerald Robbins, President
ATTEST:
By: /s/ Joshua J. Vernaglia
------------------------------
Joshua J. Vernaglia, Secretary
PENZANCE PARTNERS II, INC.
By: /s/ John Lakian
---------------------------------
John R. Lakian, President
ATTEST:
By: /s/ Joshua J. Vernaglia
------------------------------
Joshua J. Vernaglia, Secretary
<PAGE> 16
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"ARNOLD WATKIN, D.D.S., INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED IN THIS OFFICE THE TWENTY-NINTH DAY OF DECEMBER, A.D. 1995, AT 4 O'CLOCK
P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203684
DATE: 11-21-96
<PAGE> 17
CERTIFICATE OF MERGER
OF
ARNOLD WATKIN, D.D.S., INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Arnold Watkin, D.D.S., Inc., which is incorporated under
the laws of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
170 Commonwealth Avenue
Boston, Massachusetts 02116
6. A copy of the aforesaid Agreement of Merger will be furnished by
the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
<PAGE> 18
7. The authorized capital stock of Arnold Watkin, D.D.S., Inc.
consists of 15,000 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
December 29, 1995 insofar as the General Corporation Law of the State of
Delaware shall govern said effective date.
Dated: December 29, 1995.
*
*
*
*
*
*
*
*
*
-2-
<PAGE> 19
ARNOLD WATKIN, D.D.S., INC.
By: /s/ Arnold Watkin
----------------------------
Its: President
Attest:
/s/ Joshua J. Vernaglia
- --------------------------
Dated: December 29, 1995.
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins, Pres.
----------------------------
Its:
Attest:
/s/ Joshua J. Vernaglia
- --------------------------
- 3 -
<PAGE> 20
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"RICHARD S. HAROLD, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED IN THIS OFFICE THIS SECOND DAY OF FEBRUARY, A.D. 1995, AT 4:30 O'CLOCK
P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203685
DATE: 11-21-96
<PAGE> 21
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:30 PM 02/02/1996
960032991 - 2262494
CERTIFICATE OF MERGER
OF
RICHARD S. HAROLD, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Richard S. Harold, Inc., which is incorporated under the
laws of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation law of the State of Delaware.
3. The name of the surviving corporaton in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
170 Commonwealth Avenue
Boston, Massachusetts 02116
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and
<PAGE> 22
without cost, to any stockholder of each of the aforesaid constituent
corporations.
7. The authorized capital stock of Richard S. Harold, Inc.
consists of 1,000 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
February 2, 1996 insofar as the General Corporation Law of the State of
Delaware shall govern said effective date.
Dated: As of February 2, 1996
RICHARD S. HAROLD, INC.
By: /s/ Richard S. Harold, DMD
--------------------------
Richard S. Harold, DMD
President
Attest:
/s/ Joshua Vernaglia
- --------------------
Dated: As of February 2, 1996.
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins, Pres.
--------------------------
Jerald Robbins, President
Attest:
/s/ Joshua Vernaglia
- --------------------
- 2 -
<PAGE> 23
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"WILLIAM H. GRASS, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED IN THIS OFFICE THIS THIRTEENTH DAY OF FEBRUARY, A.D. 1995, AT 9:00
O'CLOCK A.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203686
DATE: 11-21-96
<PAGE> 24
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 02/13/1996
960042567 - 2262494
CERTIFICATE OF MERGER
OF
WILLIAM H. GRASS, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) William H. Grass, Inc., which is incorporated under the
laws of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporaton in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
170 Commonwealth Avenue
Boston, Massachusetts 02116
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and
<PAGE> 25
without cost, to any stockholder of each of the aforesaid constituent
corporations.
7. The authorized capital stock of William H. Grass, Inc.
consists of 100 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certiied shall be effective on
February 14, 1996 insofar as the General Corporation Law of the State of
Delaware shall govern said effective date.
Dated: As of January 31, 1996
WILLIAM H. GRASS, INC.
By: /s/ William H. Grass
--------------------------
William H. Grass, D.D.S.,
President
Attest:
/s/ ????????
- --------------------
Dated: As of January 31, 1996.
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins, Pres.
--------------------------
Jerald Robbins, President
Attest:
/s/ Joshua Vernaglia
- --------------------
- 2 -
<PAGE> 26
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", FILED IN THIS OFFICE
ON THE TWENTY-FIFTH DAY OF MARCH, A.D. 1996, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203687
DATE: 11-21-96
<PAGE> 27
CORRECTED CERTIFICATE OF MERGER
OF
ARNOLD WATKIN D.D.S., INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
Pursuant to [Section]103(f) of the Delaware General Corporation Laws,
the Certificate of Merger of Arnold Watkin, D.D.S., Inc. and First New England
Dental Centers, Inc. filed on December 29, 1995 ("Certificate of Merger"), is
hereby corrected so that the name of the constituent business corporation
"Arnold Watkin, D.D.S., Inc." stated in Section 1(i) thereon shall read "Arnold
Watkin, Inc." and Paragraph 7 and the signature line for said Corporation shall
be amended accordingly.
The Corrected Certificate of Merger shall read as follows:
"CERTIFICATE OF MERGER
OF
ARNOLD WATKIN, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
1. The constituent business corporations participating in the
merger herein certified are:
(i) Arnold Watkin, Inc., which is incorporated under the
laws of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
<PAGE> 28
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the
Certificate of Incorporation of said surviving corporation until amended and
changed pursuant to the provisions of the General Corporation Law of the State
of Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
170 Commonwealth Avenue
Boston, Massachusetts 02116
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Arnold Watkin, Inc. consists of
15,000 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
December 29, 1995 insofar as the General Corporation Law of the State of
Delaware shall govern said effective date.
Dated: December 29, 1995
ARNOLD WATKIN, INC.
By: /s/ Arnold Watkin
----------------------------------
Arnold Watkin, D.D.S
President
Attest:
/s/ ??????????????????
- -------------------------
Dated: December 29, 1995
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
----------------------------------
Jerald Robbins, President
Attest:
/s/ ????????????
- -------------------------
-2-
<PAGE> 29
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"ARTHUR P. WEIN, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE TWENTY-NINTH DAY OF APRIL, A.D. 1996, AT 3:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] ------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203688
DATE: 11-21-96
<PAGE> 30
CERTIFICATE OF MERGER
OF
ARTHUR P. WEIN, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Arthur P. Wein, Inc., which is incorporated under the laws
of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
262 Washington Street
Boston, Massachusetts 02108
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and
<PAGE> 31
without cost, to any stockholder of each of the aforesaid constituent
corporations.
7. The authorized capital stock of Arthur P. Wein, Inc. consists
of 12,500 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
April 29, 1996 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Dated: April 25, 1996
ARTHUR P. WEIN, INC.
By: /s/ Arthur P. Wein
------------------------------
Arthur P. Wein, D.D.S.,
President
Attest:
/s/ Arthur P. Wein
- ----------------------------
Dated: April 25, 1996
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
------------------------------
Jerald Robbins, President
Attest:
/s/ Joshua J. Vernaglia
- ----------------------------
-2-
<PAGE> 32
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"RAMIRO BLANCO, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE TWENTY-NINTH DAY OF APRIL, A.D. 1996, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203689
DATE: 11-21-96
<PAGE> 33
CERTIFICATE OF MERGER
OF
RAMIRO BLANCO, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Ramiro Blanco, Inc., which is incorporated under the laws
of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
262 Washington Street, 6th Floor
Boston, Massachusetts 02108
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and
<PAGE> 34
without cost, to any stockholder of each of the aforesaid constituent
corporations.
7. The authorized capital stock of Ramiro Blanco, Inc. consists of
200,000 shares with no par value per share.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
April 30, 1996 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Date: As of April 29, 1996
--------
RAMIRO BLANCO, INC.
By: /s/ Ramiro Blanco
--------------------------------------
Ramiro Blanco, D.D.S., M.Sc.
President
Attest:
/s/ ?????????????????
- ---------------------------
Dated: As of April 29, 1996
--------
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
--------------------------------------
Jerald Robbins, President
Attest:
/s/ ????????????
- ---------------------------
-2-
<PAGE> 35
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"BADER AND SHUMAN, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE SEVENTEENTH DAY OF JULY, A.D. 1996, AT 1:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203690
DATE: 11-21-96
<PAGE> 36
CERTIFICATE OF MERGER
OF
BADER AND SHUMAN, INC.
INTO
FIRST NEW ENGLAND DENTAL CENTERS, INC.
First New England Dental Centers, Inc. a corporation organized under
the laws of the State of Delaware, for the purpose of merging with a
Massachusetts corporation pursuant to Section 252 of the Delaware General
Corporation Law, hereby certifies that:
1. The names and states of incorporation of the constituent
corporations are:
Name Jurisdiction
---- ------------
Bader and Shuman, Inc. Massachusetts
First New England
Dental Centers, Inc. Delaware
2. An agreement of merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with Subsection 252(c) of the Delaware General Corporation Law and with Chapter
156B [Section]79 of the Massachusetts General Laws.
3. The name of the surviving corporation is "First New England
Dental Centers, Inc.," a Delaware corporation.
4. The current certificate of incorporation of First New England
Dental Centers, Inc. shall be the certificate of incorporation of the surviving
corporation.
<PAGE> 37
5. The executed agreement of merger is on file at the following
principal place of business of the surviving corporation:
First New England Dental Centers, Inc.
85 Devonshire Street, 2nd Floor
Boston, Massachusetts 02109
6. A copy of the agreement of merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
7. The authorized capital stock of Bader and Shuman, Inc., a
Massachusetts corporation, is Fifteen Thousand (15,000) shares of Common Stock,
no par value.
IN WITNESS WHEREOF, this Certificate of Merger has been duly executed
this 8th day of July, 1996.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
a Delaware corporation
By: /s/ Jerald Robbins
-----------------------------------
President
ATTEST:
BY: /s/ Joshua J. Vernaglia
---------------------------
Secretary
-2-
<PAGE> 38
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"PAUL D. SILVER, INC.", A NEW HAMPSHIRE CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE EIGHTEENTH DAY OF JULY, A.D. 1996, AT 4 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] ---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203691
DATE: 11-21-96
<PAGE> 39
CERTIFICATE OF MERGER
OF
PAUL D. SILVER, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Paul D. Silver, Inc., which is incorporated under the laws
of the State of New Hampshire; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
85 Devonshire Street
Boston, Massachusetts 02108
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request and
<PAGE> 40
without cost, to any stockholder of each of the aforesaid constituent
corporations.
7. The authorized capital stock of Paul D. Silver, Inc. consists
of 300 shares, no par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
July 18th, 1996 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Dated: July 18th, 1996.
---------
PAUL D. SILVER, INC.
By: /s/ Paul D. Silver
-------------------------------
Paul D. Silver, President
Attest:
/s/ ???????????
- ---------------------------
Dated: July 18th, 1996.
---------
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
-------------------------------
Jerald Robbins, President
Attest:
/s/ ??????????????
- ---------------------------
-2-
<PAGE> 41
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"BUCHWALTER & PAPUGA, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE SECOND DAY OF AUGUST, A.D. 1996, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203692
DATE: 11-21-96
<PAGE> 42
CERTIFICATE OF MERGER
OF
BUCHWALTER & PAPUGA, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Buchwalter & Papupa, Inc., which is incorporated under the
laws of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
85 Devonshire Street - 2nd Floor
Boston, Massachusetts 02109
<PAGE> 43
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Buchwalter & Papuga, Inc.
consists of 1,000 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
August 2, 1996 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Dated: August 2, 1996
BUCHWALTER & PAPUGA, INC.
By: /s/ Neil Buchwalter
-----------------------------
Neil Buchwalter
President
Attest:
/s/ David G. Papuga
- -----------------------------
David G. Papuga
Dated: August 2, 1996
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
-----------------------------
Jerald Robbins, President
Attest:
/s/ Joshua J. Vernaglia
- -----------------------------
Joshua J. Vernaglia
- 2 -
<PAGE> 44
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"CRAM-CHEMA, INC.", A NEW HAMPSHIRE CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE SECOND DAY OF AUGUST, A.D. 1996, AT 5:00 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203693
DATE: 11-21-96
<PAGE> 45
CERTIFICATE OF MERGER
OF
CRAM-CHEMA, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Cram-Chema, Inc., which is incorporated under the laws of
the State of New Hampshire; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
85 Devonshire Street
Boston, Massachusetts 02108
6. A copy of the aforesaid Agreement of Merger will be furnished by
the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
<PAGE> 46
7. The authorized capital stock of Cram-Chema, Inc.
consists of 300 shares, no par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
August 2, 1996 insofar as the General Corporation Law of the State of
Delaware shall govern said effective date.
Dated: August 2, 1996
--------
CRAM-CHEMA, INC.
By: /s/ Marjorie J. Cram Chema D.D.S.
---------------------------------
Marjorie J. Cram Chema, D.D.S.
President
Attest:
/s/ Michael H. Chema
- -----------------------------------
Michael H. Chema, D.D.S., Secretary
Dated: August 2, 1996
--------
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
---------------------------------
Jerald Robbins, President
Attest:
/s/ Joshua J. Vernaglia
- -----------------------------------
Joshua J. Vernaglia
-2-
<PAGE> 47
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", FILED IN THIS OFFICE ON
THE TWENTY-FOURTH DAY OF OCTOBER, A.D. 1996, AT 4 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203694
DATE: 11-21-96
<PAGE> 48
FIRST NEW ENGLAND DENTAL CENTERS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
First New England Dental Centers, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify:
FIRST: That the board of directors of the Corporation, by unanimous
written consent pursuant to the applicable provisions of the General
Corporation Law of the State of Delaware, adopted a resolution setting forth a
proposed amendment to the Certificate of Incorporation of the Corporation and
declared such amendment to be advisable. The resolution setting forth the
proposed amendment is as follows:
VOTED: That the Board of Directors of the Corporation does hereby declare it
advisable that the Certificate of Incorporation of this Corporation be
amended by changing the Article thereof numbered 4 so that, as amended,
such Article 4 shall be and read in its entirety as follows:
"4. The total number of shares of stock which the
corporation shall have authority to issue is 10,000,000 and the
par value of each of such shares is One Cent ($0.01) amounting
in the aggregate to One Hundred Thousand Dollars ($100,000)."
SECOND: That the holders of the requisite number of outstanding shares
of Common Stock of the Corporation have duly approved such amendment by the
required vote of such stockholders, adopted by a written action in lieu of
a meeting of such stockholders, all in accordance with Sections 242 and 228 of
the General Corporation Law of the State of Delaware, and all notices
required to be delivered pursuant to Section 228(d) of such General Corporation
Law have been delivered.
IN WITNESS WHEREOF, First New England Dental Centers, Inc. has caused
this certificate to be signed, under penalties of perjury, by Jerald Robbins,
its President, and attested by Joshua J. Vernaglia, its Secretary, as of
October 23, 1996.
FIRST NEW ENGLAND DENTAL CENTERS,
INC.
By: /s/ Jerald Robbins
-------------------------
Jerald Robbins, President
ATTEST:
/s/ Joshua J. Vernaglia
- ------------------------------
Joshua J. Vernaglia, Secretary
<PAGE> 49
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"FEINGOLD AND RAPPAPORT SUB, INC.", A CONNECTICUT CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE TWENTY-FIFTH DAY OF OCTOBER, A.D. 1996, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203695
DATE: 11-21-96
<PAGE> 50
CERTIFICATE OF MERGER
OF
FEINGOLD AND RAPPAPORT SUB, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Feingold and Rappaport Sub, Inc., which is incorporated
under the laws of the State of Connecticut; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
85 Devonshire Street, 2nd Floor
Boston, Massachusetts 02109
<PAGE> 51
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Feingold and Rappaport Sub,
Inc. consists of 5,000 shares of Common Stock, $100.00 par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
October 25, 1996 insofar as the General Corporation Law of the State of
Delaware shall govern said effective date.
Dated: October 25, 1996
----------
FEINGOLD AND RAPPAPORT SUB, INC.
By: /s/ Richard M. Feingold, DDS
---------------------------------
Richard M. Feingold, D.D.S.
Attest:
?????
- -----------------------------------
Dated: October 25, 1996
----------
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
---------------------------------
Jerald Robbins, President
Attest:
/s/ Joshua J. Vernaglia
- -----------------------
-2-
<PAGE> 52
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"FRANK WEISNER, INC.", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE SIXTH DAY OF NOVEMBER, A.D. 1996, AT 2:00 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203695
DATE: 11-21-96
<PAGE> 53
CERTIFICATE OF MERGER
OF
FRANK WEISNER, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Frank Weisner, Inc., which is incorporated under the laws
of the Commonwealth of Massachusetts; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
85 Devonshire Street - 2nd Floor
Boston, Massachusetts 02109
<PAGE> 54
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Frank Weisner, Inc.
consists of 12,500 shares without par value.
8. The Agreement of Merger between the aforesaid constituent
corporations provides that the merger herein certified shall be effective on
November 5, 1996 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Dated: November 5, 1996
FRANK WEISNER, INC.
By: /s/ Frank Weisner, D.M.D.
-------------------------
Frank Weisner D.M.D.
President
Attest:
/s/ Melissa Fields
- ----------------------
Melissa Fields
Dated: November 5, 1996
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
-------------------------
Jerald Robbins, President
Attest:
/s/ Harvey W. Goldstein
- ---------------------------
Harvey W. Goldstein
- 2 -
<PAGE> 55
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"BELKNAP DENTAL ASSOCIATES, INC.", A NEW HAMPSHIRE CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME
OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS
OFFICE THE EIGHTH DAY OF NOVEMBER, A.D. 1996, AT 2:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203697
DATE: 11-21-96
<PAGE> 56
CERTIFICATE OF MERGER
OF
BELKNAP DENTAL ASSOCIATES, INC.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
It is hereby certified that:
1. The constituent business corporations participating in the
merger herein certified are:
(i) Belknap Dental Associates, Inc., which is incorporated under
the laws of the State of New Hampshire; and
(ii) First New England Dental Centers, Inc., which is
incorporated under the laws of the State of Delaware.
2. An Agreement of Merger has been approved, adopted, certified,
executed, and acknowledged by each of the aforesaid constituent corporations in
accordance with the provisions of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
3. The name of the surviving corporation in the merger herein
certified is First New England Dental Centers, Inc., which will continue its
existence as said surviving corporation upon the effective date of said merger
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of First New England Dental
Centers, Inc., as now in force and effect, shall continue to be the Certificate
of Incorporation of said surviving corporation until amended and changed
pursuant to the provisions of the General Corporation Law of the State of
Delaware.
5. The executed Agreement of Merger between the aforesaid
constituent corporations is on file at the principal place of business of the
aforesaid surviving corporation, the address of which is as follows:
First New England Dental Centers, Inc.
85 Devonshire Street
Boston, Massachusetts 02108
<PAGE> 57
6. A copy of the aforesaid Agreement of Merger will be furnished
by the aforesaid surviving corporation, on request, and without cost, to any
stockholder of each of the aforesaid constituent corporations.
7. The authorized capital stock of Belknap Dental Associates, Inc.
consists of 300 shares, no par value.
8. The Agreement of Merger between the aforesaid constituent
corporation provides that the merger herein certified shall be effective on
November 8, 1996 insofar as the General Corporation Law of the State of Delaware
shall govern said effective date.
Dated: November 8, 1996
BELKNAP DENTAL ASSOCIATES, INC.
By: /s/ Robert M. Chaikin
-----------------------------
Robert M. Chaikin, D.M.D.
Attest:
????????
- ----------------------
Dated: November , 1996
--
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By: /s/ Jerald Robbins
-------------------------
Jerald Robbins, President
Attest:
Joshua J. Vernaglia
- -------------------
Joshua J. Vernaglia
- 2 -
<PAGE> 58
PAGE 1
[STATE SEAL]
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "FIRST NEW ENGLAND DENTAL CENTERS, INC.", FILED IN THIS OFFICE
ON THE FOURTEENTH DAY OF NOVEMBER, A.D. 1996, AT 4:30 O'CLOCK P.M.
/s/ Edward J. Freel
[SECRETARY SEAL] -------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8203698
DATE: 11-21-96
<PAGE> 59
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF
MERGER OF BELKNAP DENTAL ASSOCIATES, INC.
AND FIRST NEW ENGLAND DENTAL CENTERS, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON NOVEMBER 8, 1996
First New England Dental Centers, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is FIRST NEW ENGLAND DENTAL CENTERS, INC.
2. That a Certificate of Merger of Belknap Dental Associates, Inc. and
First New England Dental Centers, Inc. was filed by the Secretary of
State of Delaware on November 8, 1996, and that said Certificate
requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: Effective Date of the Merger should be November 14, 1996.
4. Article 8 of the Certificate is corrected to read as follows:
The Agreement of Merger between the aforesaid constituent corporation
provides that the merger herein certified shall be effective on
November 14, 1996 insofar as the General Corporation Law of the State
of Delaware shall govern said effective date.
<PAGE> 60
IN WITNESS WHEREOF, said First New England Dental Centers, Inc. has
caused this Certificate to be signed by Jerald Robbins, its President *, this
14th day of November, 1996.
/s/ Jerald Robbins, Pres.
-------------------------
By President
----------------------
Name:
Title:
<PAGE> 61
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"FNEDC, INC. ", A MASSACHUSETTS CORPORATION,
WITH AND INTO "FIRST NEW ENGLAND DENTAL CENTERS, INC." UNDER THE NAME OF
"FIRST NEW ENGLAND DENTAL CENTERS, INC.", A CORPORATION ORGANIZED AND EXISTING
UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE
THE FIFTEENTH DAY OF JANUARY, A.D. 1997, AT 1:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[State Seal of Delaware] /s/ Edward J. Freel
---------------------------------------
/s/ Edward J. Freel, Secretary of State
2262494 8100M AUTHENTICATION: 8286697
971014694 DATE: 01-15-97
<PAGE> 62
STATE OF DELAWARE
CERTIFICATE OF OWNERSHIP AND MERGER
OF
FNEDC, INC.
WITH AND INTO
FIRST NEW ENGLAND DENTAL CENTERS, INC.
In accordance with Section 253 of the General Corporation Law of Delaware,
First New England Dental Centers, Inc. (the "Corporation"), a duly organized
corporation validly existing under and by virtue of the General Corporation Law
of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Corporation owns all of the outstanding capital stock of
FNEDC, Inc. ("FNEDC"), which is incorporated under the laws of
the Commonwealth of Massachusetts.
SECOND: That Section 253 of the General Corporation Law of Delaware
permits the Corporation to merge FNEDC with and into the
Corporation and to thereby assume all of FNEDC rights and
obligations (the "Merger" ).
THIRD: That the Corporation shall be the surviving corporation of the
Merger.
FOURTH: That the Board of Directors of the Corporation has approved the
Merger through the adoption, on December 27, 1996, of the
following resolutions:
RESOLVED: That, pursuant to Section 253 of the General
Corporation Law of the State of Delaware ("Delaware
Statute") this Corporation's wholly-owned subsidiary,
FNEDC, Inc. ("FNEDC"), a Massachusetts corporation, be
merged with and into this Corporation; that this
Corporation shall be the surviving corporation of such
merger; and that this Corporation shall thereby assume
all rights and obligations of FNEDC.
RESOLVED: That the foregoing merger shall become effective upon
the filing of a duly executed and acknowledged
Certificate of Ownership and Merger setting forth a
copy of these Resolutions, pursuant to the provisions
of Sections 103 and 253 of the Delaware Statute; and
that the President and any Vice President of this
Corporation be and each of them
<PAGE> 63
severally hereby are authorized to execute and file
such Certificate for and on behalf of this Corporation
and that the Secretary or any Assistant Secretary of
this Corporation be and each of them severally hereby
are authorized to attest to such Certificate for and on
behalf of this Corporation, the execution,
acknowledgment, and filing thereof by any such officers
of this Corporation to be conclusive evidence that the
same have been authorized and approved by the Board of
Directors of this Corporation.
RESOLVED: That the officers of this Corporation at the time in
office are, and each of them acting singly hereby is,
authorized from time to time in the name and on behalf
of this Corporation, under its corporate seal, if
desired, attested by an appropriate officer, if
desired, to execute, make oath to, acknowledge, deliver
and file any and all of the agreements, instruments,
certificates and documents referred to in the preceding
Resolutions, with such changes therein as the officer
or officers so acting may deem necessary or desirable,
and to take or cause to be taken all other actions and
to execute and deliver all such agreements,
instruments, certificates and documents in connection
with the transactions which are referred to in, or
contemplated by, the preceding Resolutions, as may be
shown by the officer's or officers' execution or
performance to be in the officer's or officers'
judgment necessary or desirable, the taking of such
action by an officer or officers of this Corporation to
be conclusive evidence that the same is authorized by
the directors of this Corporation.
FIFTH: That this Certificate and the Merger shall be effective on the
hour and on the date that this duly executed and acknowledged
Certificate is filed with the Secretary of State of the State of
Delaware as provided in Sections 103 and 253 of the Delaware
Statute.
SIXTH: That subject to applicable law, the foregoing resolutions of the
Board of Directors of the
<PAGE> 64
Corporation approving the Merger may be amended or terminated by
the Board of Directors of the Corporation at any time prior to
the effective time of the Merger.
IN WITNESS WHEREOF, said First New England Dental Centers, Inc. has caused
this Certificate to be signed and executed by its President and attested to by
its Secretary, all as of this 27th day of December, 1996.
By: /s/ Donald E. Strange
-----------------------------
Donald E. Strange, President
ATTEST:
by: /s/ Joshua J. Vernaglia
----------------------------------
Joshua J. Vernaglia, Secretary
<PAGE> 1
Exhibit 3.2
BY-LAWS OF
FIRST NEW ENGLAND DENTAL CENTERS, INC.
A DELAWARE CORPORATION
AMENDED AND RESTATED AS OF
NOVEMBER 26, 1996
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TABLE OF CONTENTS
ARTICLE I. MEETINGS OF STOCKHOLDERS.........................................1
Section 1. PLACE OF MEETINGS..........................................1
Section 2. ANNUAL MEETING.............................................1
Section 3. SPECIAL MEETINGS...........................................1
Section 4. NOTICE OF MEETINGS.........................................1
Section 5. VOTING LIST................................................1
Section 6. QUORUM.....................................................2
Section 7. ADJOURNMENTS...............................................2
Section 8. ACTION AT MEETINGS.........................................2
Section 9. VOTING AND PROXIES.........................................2
Section 10. ACTION WITHOUT MEETING.....................................2
.
ARTICLE II. DIRECTORS.......................................................3
Section 1. NUMBER, ELECTION, TENURE AND QUALIFICATION.................3
Section 2. ENLARGEMENT................................................3
Section 3. VACANCIES..................................................3
Section 4. RESIGNATION AND REMOVAL....................................3
Section 5. GENERAL POWERS.............................................3
Section 6. CHAIRMAN OF THE BOARD......................................3
Section 7. PLACE OF MEETINGS..........................................3
Section 8. REGULAR MEETINGS...........................................3
Section 9. SPECIAL MEETINGS...........................................3
Section 10. QUORUM, ACTION AT MEETING, ADJOURNMENTS....................4
Section 11. ACTION BY CONSENT..........................................4
Section 12. TELEPHONIC MEETINGS........................................4
Section 13. COMMITTEES.................................................4
Section 14. COMPENSATION...............................................5
ARTICLE III. OFFICERS.......................................................5
Section 1. ENUMERATION................................................5
Section 2. ELECTION...................................................5
Section 3. TENURE.....................................................5
Section 4. CHAIRMAN AND CHIEF EXECUTIVE OFFICER.......................5
Section 5. PRESIDENT; VICE PRESIDENTS.................................5
Section 6. SECRETARY..................................................6
Section 7. ASSISTANT SECRETARIES......................................6
Section 8. TREASURER..................................................6
Section 9. ASSISTANT TREASURERS.......................................6
Section 10. BOND.......................................................6
ARTICLE IV. NOTICES.........................................................7
Section 1. DELIVERY...................................................7
Section 2. WAIVER OF NOTICE...........................................7
ARTICLE V. INDEMNIFICATION..................................................7
Section 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION...7
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION..............7
Section 3. SUCCESS ON THE MERITS......................................8
Section 4. SPECIFIC AUTHORIZATION.....................................8
Section 5. ADVANCE PAYMENT............................................8
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Section 6. NON-EXCLUSIVITY............................................8
Section 7. INSURANCE..................................................8
Section 8. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES ..................................................8
Section 9. SEVERABILITY...............................................8
Section 10. INTENT OF ARTICLE..........................................8
ARTICLE VI. CAPITAL STOCK...................................................9
Section 1. CERTIFICATES OF STOCK......................................9
Section 2. LOST CERTIFICATES..........................................9
Section 3. TRANSFER OF STOCK..........................................9
Section 4. RECORD DATE................................................9
Section 5. REGISTERED STOCKHOLDERS...................................10
ARTICLE VII. CERTAIN TRANSACTIONS..........................................10
Section 1. TRANSACTIONS WITH INTERESTED PARTIES......................10
Section 2. QUORUM....................................................10
ARTICLE VIII. GENERAL PROVISIONS...........................................11
Section 1. DIVIDENDS.................................................11
Section 2. RESERVES..................................................11
Section 3. CHECKS....................................................11
Section 4. FISCAL YEAR...............................................11
Section 5. SEAL......................................................11
ARTICLE IX. AMENDMENTS.....................................................11
Addendum
Register of Amendments to the By-laws
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FIRST NEW ENGLAND DENTAL CENTERS, INC.
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BY-LAWS
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ARTICLE I. MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such place within or without the State of Delaware as may be fixed from
time to time by the board of directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. ANNUAL MEETING. Annual meetings of stockholders shall be held
on the second Tuesday in February of each year if not a legal holiday, and if a
legal holiday, then on the next secular day following, at 10:00 a.m., or at such
other date and time as shall be designated from time to time by the board of
directors or the chief executive officer, at which meeting the stockholders
shall elect by a plurality vote a board of directors and shall transact such
other business as may properly be brought before the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the board of
directors shall cause the meeting to be held as soon thereafter as convenient,
which meeting shall be designated a special meeting in lieu of annual meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the board of directors or the chief
executive officer and shall be called by the chief executive officer or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning a majority in amount of the
entire capital stock of the corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at any special meeting shall be limited to matters relating
to the purpose or purposes stated in the notice of meeting.
Section 4. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or town where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to
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be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 6. QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these by-laws. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter.
Section 7. ADJOURNMENTS. Any meeting of stockholders may be adjourned from
time to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote, though less than a
quorum, or, if no stockholder is present or represented by proxy, by any officer
entitled to preside at or to act as secretary of such meeting, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted that might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 8. ACTION AT MEETINGS. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock present in person or
represented by proxy and entitled to vote on the matter (or where a separate
vote by a class or classes is required, the vote of the majority of shares of
such class or classes present in person or represented by proxy at the meeting)
shall decide any matter (other than the election of directors) brought before
such meeting, unless the matter is one upon which by express provision of law,
the certificate of incorporation or these by-laws, a different vote is required,
in which case such express provision shall govern and control the decision of
such matter. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors.
Section 9. VOTING AND PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for such shareholder by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
Section 10. ACTION WITHOUT MEETING. Any action required to be taken at
any annual or special meeting of stockholders, or any action that may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be (1) signed and dated by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and (2) delivered to
the corporation within sixty days of the earliest dated consent by delivery to
its registered office in the State of Delaware (in which case delivery shall be
by hand or by certified or registered mail, return receipt requested), its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Prompt notice of the taking of the
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corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE II. DIRECTORS
Section 1. NUMBER, ELECTION, TENURE AND QUALIFICATION. The number of
directors that shall constitute the whole board shall be not less than one.
Within such limit, the number of directors shall be determined by resolution of
the board of directors or by the stockholders at the annual meeting or at any
special meeting or stockholders. The directors shall be elected at the annual
meeting or at any special meeting of the stockholders, except as provided in
Section 3 of this Article, and each director elected shall hold office until
such director's successor is elected and qualified, unless sooner displaced.
Directors need not be stockholders.
Section 2. ENLARGEMENT. The number of the board of directors may be
increased at any time by vote of a majority of the directors then in office.
Section 3. VACANCIES. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute. In the
event of a vacancy in the board of directors, the remaining directors, except as
otherwise provided by law or these by-laws, may exercise the powers of the full
board until the vacancy is filled.
Section 4. RESIGNATION AND REMOVAL. Any director may resign at any time
upon written notice to the corporation at its principal place of business or to
the chief executive officer or secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. GENERAL POWERS. The business and affairs of the corporation
shall be managed by its board of directors, which may exercise all powers of the
corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by-laws directed or required to be
exercised or done by the stockholders.
Section 6. CHAIRMAN OF THE BOARD. If the board of directors appoints a
chairman of the board, the chairman shall, when present, preside at all meetings
of the stockholders and the board of directors. The chairman shall perform such
duties and possess such powers as are customarily vested in the office of the
chairman of the board or as may be vested in the chairman by the board of
directors.
Section 7. PLACE OF MEETINGS. The board of directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 8. REGULAR MEETINGS. Regular meetings of the board of directors
shall be held at such time and at such place as shall from time to time be
determined by the chairman or by the board; provided that any director who is
absent when such a determination is made shall be given prompt notice of such
determination. A regular meeting of the board of directors may be held without
notice immediately after and at the same place as the annual meeting of
stockholders.
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Section 9. SPECIAL MEETINGS. Special meetings of the board may be called
by the chief executive officer, secretary, or on the written request of three or
more directors, or by one director in the event that there is only one director
in office. Three days' notice to each director, either personally or by
telegram, cable, telecopy, commercial delivery service, telex or similar means
sent to such director's business or home address, or four days' notice by
written notice deposited in the mail, shall be given to each director by the
secretary or by the officer or one of the directors calling the meeting. A
notice or waiver of notice of a meeting of the board of directors need not
specify the purposes of the meeting.
Section 10. QUORUM, ACTION AT MEETING, ADJOURNMENTS. At all meetings of
the board a majority of directors then in office, but in no event less than
one-third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of directors last fixed by the stockholders or directors, as the case
may be, in accordance with law and these by-laws; provided, however, that if
less than all the number so fixed of directors were elected, the "entire board"
shall mean the greatest number of directors so elected to hold office at any one
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the board of directors, a majority of the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. ACTION BY CONSENT. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. TELEPHONIC MEETINGS. Unless otherwise restricted by the
certificate of incorporation or these by-laws, members of the board of directors
or of any committee thereof may participate in a meeting of the board of
directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. COMMITTEES. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution designating such committee or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and make such reports to the board of
directors as the board of directors may request. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its
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business shall be conducted as nearly as possible in the same manner as is
provided in these by-laws for the conduct of its business by the board of
directors.
Section 14. COMPENSATION. Unless otherwise restricted by the certificate
of incorporation or these by-laws, the board of directors shall have the
authority to fix from time to time the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the board
of directors and the performance of their responsibilities as directors and may
be paid a fixed sum for attendance at each meeting of the board of directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the corporation or its parent or subsidiary corporations in any
other capacity and receiving compensation therefor. The board of directors may
also allow compensation for members of special or standing committees for
service on such committees.
ARTICLE III. OFFICERS
Section 1. ENUMERATION. The officers of the corporation shall be chosen by
the board of directors and shall be a chairman of the board of directors and
chief executive officer, a president, a secretary and a treasurer and such other
officers with such titles, terms of office and duties as the board of directors
or the chairman of the board of directors may from time to time determine,
including one or more senior vice presidents, vice presidents and assistant vice
presidents, and one or more assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these by-laws otherwise provide.
Section 2. ELECTION. The board of directors at its first meeting after
each annual meeting of stockholders shall choose a chairman of the board of
directors and chief executive officer, a president, a secretary and a treasurer.
Other officers may be appointed by the chairman at any time, or by the board of
directors at such meeting, at any other meeting, or by written consent in lieu
of a meeting.
Section 3. TENURE. Each officer of the corporation shall hold office until
such officer's successor is chosen and qualifies, unless a different term is
specified in the vote choosing or appointing such officer, or until such
officer's earlier death, resignation or removal. Any officer elected or
appointed by the board of directors or by the chairman and chief executive
officer may be removed at any time by the affirmative vote of a majority of the
board of directors, except that any officer appointment by the chairman and
chief executive officer may also be removed at any time by the chairman and
chief executive officer. Any vacancy occurring in any office of the corporation
may be filled by the board of directors, at its discretion. Any officer may
resign by delivering a written resignation to the chief executive officer or the
secretary at the corporation's principal place of business. Such resignation
shall be effective upon receipt unless it is specified to be effective at some
other time or upon the happening of some other event.
Section 4. CHAIRMAN AND CHIEF EXECUTIVE OFFICER. The chairman of the board
shall, unless the board of directors provides otherwise in a specific instance
or generally, preside at all meetings of the stockholders and the board of
directors, have general and active management of the business of the corporation
and see that all orders and resolutions of the board of directors are carried
into effect. The chairman shall execute bonds, mortgages, and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
Section 5. PRESIDENT; VICE PRESIDENTS. In the event of the chairman's
inability or refusal to act, the officer designated by the board of directors or
the chief executive officer (or in the
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absence of any designation, then in the order determined by their tenure in
office) shall perform the duties of the chairman, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the chairman. The
president and the vice presidents shall perform such other duties and have such
other powers as the board of directors or the chief executive officer may from
time to time prescribe.
Section 6. SECRETARY. The secretary shall have such powers and perform
such duties as are incident to the office of secretary. The secretary shall
maintain a stock ledger and prepare lists of stockholders and their addresses as
required and shall be the custodian of corporate records. The secretary shall
attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors, and shall perform such other duties
as may be from time to time prescribed by the board of directors or chief
executive officer, under whose supervision the secretary shall be. The secretary
shall have custody of the corporate seal of the corporation and the secretary,
or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The board
of directors may give general authority to any other officer to affix the seal
of the corporation and to attest the affixing of such officer's signature.
Section 7. ASSISTANT SECRETARIES. The assistant secretary, or if there be
more than one, the assistant secretaries in the order determined by the board of
directors, the chief executive officer or the secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the secretary or in the event of the secretary's inability or
refusal to act perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors, the chief executive officer or the secretary may from time to time
prescribe. In the absence of the secretary or any assistant secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary or acting secretary to keep a record of the meeting.
Section 8. TREASURER. The treasurer shall perform such duties and shall
have such powers as may be assigned by the board of directors or the chief
executive officer. In addition, the treasurer shall perform such duties and have
such powers as are incident to the office of treasurer. The treasurer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the board of directors. The treasurer shall disburse the funds of the
corporation as may be ordered by the board of directors, taking proper vouchers
for such disbursements, and shall render to the chief executive officer and the
board of directors, when the chief executive officer or board of directors so
requires, an account of all the treasurer's transactions as treasurer and of the
financial condition of the corporation.
Section 9. ASSISTANT TREASURERS. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the chief executive officer or the treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the treasurer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors, the chief executive officer or the treasurer may from time
to time prescribe.
Section 10. BOND. If required by the board of directors, any officer shall
give the corporation a bond in such sum and with such surety or sureties and
upon such terms and
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conditions as shall be satisfactory to the board of directors, including without
limitation a bond for the faithful performance of the duties of such officer's
office and for the restoration to the corporation of all books, papers,
vouchers, money and other property of whatever kind in such officer's possession
or under such officer's control and belonging to the corporation.
ARTICLE IV. NOTICES
Section 1. DELIVERY. Whenever, under the provisions of law, or of the
certificate of incorporation or these by-laws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Unless written notice by mail is required
by law, written notice may also be given by telegram, cable, telecopy,
commercial delivery service, telex or similar means, addressed to such director
or stockholder at such person's address as it appears on the records of the
corporation, in which case such notice shall be deemed to be given when
delivered into the control of the persons charged with effecting such
transmission, the transmission charge to be paid by the corporation or the
person sending such notice and not by the addressee. Oral notice or other
in-hand delivery (in person or by telephone) shall be deemed given at the time
it is actually given.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of law or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V. INDEMNIFICATION
Section 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceedings, had no reasonable cause to believe such conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner that such person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such conduct
was unlawful.
Section 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise
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against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable unless and
only to the extent that the Court of Chancery of the State of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses that the Court of Chancery of the State of Delaware or such other court
shall deem proper.
Section 3. SUCCESS ON THE MERITS. To the extent that any person described
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in such
Sections, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
Section 4. SPECIFIC AUTHORIZATION. Any indemnification under Section 1 or
2 of this Article V (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of any person described in such Sections is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in such Sections. Such determination shall be made (1) by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in written opinion, or (3) by the
stockholders of the corporation.
Section 5. ADVANCE PAYMENT. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of any person described in such Section to repay
such amount if it shall ultimately be determined that such person is not
entitled to indemnification by the corporation as authorized in this Article V.
Section 6. NON-EXCLUSIVITY. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
V shall not be deemed exclusive of any other rights to which any person provided
indemnification or advancement of expenses may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 7. INSURANCE. The board of directors may authorize, by a vote of
the majority of the full board, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability under the provisions of
this Article V.
Section 8. CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
<PAGE> 12
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Section 9. SEVERABILITY. If any word, clause or provision of this Article
V or any award made hereunder shall for any reason be determined to be invalid,
the provisions hereof shall not otherwise be affected thereby but shall remain
in full force and effect.
Section 10. INTENT OF ARTICLE. The intent of this Article V is to provide
for indemnification and advancement of expenses to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware. To the extent that
such Section or any successor section may be amended or supplemented from time
to time, this Article V shall be amended automatically and construed so as to
permit indemnification and advancement of expenses to the fullest extent from
time to time permitted by law.
ARTICLE VI. CAPITAL STOCK
Section 1. CERTIFICATES OF STOCK. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors, or the
president or a vice president and the treasurer or an assistant treasurer, or
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by such holder in the corporation. Any or all of the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue. Certificates may be issued for partly paid
shares and in such case upon the face or back of the certificate issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
Section 2. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such person's legal representative, to
give reasonable evidence of such loss, theft or destruction, to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate.
Section 3. TRANSFER OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, and which shall not be more than sixty days
nor less than ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the date before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. In order that the corporation
<PAGE> 13
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may determine the stockholders entitled to consent to corporate action in
writing without a meeting, the board of directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, and which shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the board of directors. If no record date is fixed, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation as
provided in Section 10 of Article I. If no record date is fixed and prior action
by the board of directors is required, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the board of
directors adopts the resolution taking such prior action. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the board of directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted, and which shall be not more than
sixty days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the date on which the board of directors adopts the resolution relating to
such purpose.
Section 5. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII. CERTAIN TRANSACTIONS
Section 1. TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of its directors of
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof that
authorizes the contract or transaction or solely because such person's or their
votes are counted for such purpose, if:
(a) The material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
board of directors or the committee, and the board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to such person's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(c) The contract is fair as to the corporation as of the time it is
authorized, approved or ratified, by the board of directors, a committee
thereof, or the stockholders.
<PAGE> 14
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Section 2. QUORUM. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee that authorizes the contract or transaction.
ARTICLE VIII. GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the corporation,
if any, may be declared by the board of directors at any regular or special
meeting or by written consent, pursuant to law. Dividends may be paid in cash,
in property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 2. RESERVES. The directors may set apart out of any funds or the
corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 5. SEAL. The board of directors may, by resolution, adopt a
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
ARTICLE IX. AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such meeting.
<PAGE> 15
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Register of Amendments to the By-Laws
Date Section Affected Change
- ---- ---------------- ------
<PAGE> 1
EXHIBIT 5.1
[LYNE, WOODWORTH & EVARTS LLP LETTERHEAD]
_____________, 1997
First New England Dental Centers, Inc.
85 Devonshire Street
Boston, Massachusetts 02109
Dear Sirs:
We have served as special counsel to First New England Dental Centers,
Inc. (the "Company") in connection with certain matters involved in the
preparation and filing with the Securities and Exchange Commission of a
Registration Statement on Form S-1 (the "Registration Statement") relating to
the sale by the Company of up to ___________ shares of its Common Stock, $.01
par value per share (the "Shares").
We have examined (i) the Certificate of Incorporation and By-laws of
the Company, and all amendments thereto, and (ii) originals, or copies
certified to our satisfaction, of such records of meetings of directors and
stockholders of the Company, documents and other instruments as in our judgment
are necessary or appropriate to enable us to render the opinions expressed
below.
We assume that appropriate action will be taken, prior to the offer
and sale of the Shares, to permit the Shares to be offered and sold under all
applicable state securities or "blue sky" laws.
In our examination of the foregoing documents, we have assumed (except
as to documents the execution of which we have witnessed) the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
We express no opinion as to the laws of any State or jurisdiction
other than the laws of the Commonwealth of Massachusetts, the General
Corporation Law of the State of Delaware and the Federal laws of the United
States of America.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized for issuance and, after payment therefor in accordance
with the terms and conditions of the proposed underwriting agreement described
in the Registration Statement, will be legally issued, fully paid and
nonassessable.
<PAGE> 2
First New England Dental Centers, Inc.
____________, 1997
Page 2
We hereby consent to the use of our name in the Registration Statement
and under the caption "Legal Matters" in the related Prospectus and consent to
the filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/s/ LYNE, WOODWORTH & EVARTS LLP
LYNE, WOODWORTH & EVARTS LLP
<PAGE> 1
Exhibit 10.1
REVOLVING LINE OF CREDIT NOTE - FLUCTUATING INTEREST
----------------------------------------------------
$5,000,000.00 June 14, 1996
Boston, Massachusetts
For value received, Osorio and Watkin, D.M.D., P.C. and First New England
Dental Centers, Inc. of 85 Devonshire Street, Boston, MA 02109 (the "Borrower")
promises to pay to the order of Fleet National Bank ("Bank") at the office of
Bank located at One Federal Street, Boston, MA 02211, or such other place as the
holder hereof shall designate, on June 14, 1997, FIVE MILLION 00/100
($5,000,000,000) DOLLARS or, if less, the aggregate unpaid principal amount of
all loans made by the Bank to the Borrower pursuant to this Note. The Borrower
further promises to pay to the order of the Bank monthly in arrears on the first
day of each calendar month at a fluctuating interest rate per annum equal to two
and one-half (2.5%) percent above the Bank's Prime Rate in effect from time to
time. Each change in such interest rate shall effect simultaneously with the
corresponding change in such Prime Rate. "Prime Rate" shall mean the rate of
interest announced by Bank at its principal office in Boston from time to time
as its "Prime Rate." Interest shall be calculated on the basis of actual days
elapsed and a 360-day year. The rate of interest payable hereunder shall be
changed effective as of the day on which a change in the Prime Rate becomes
effective.
Borrower shall pay to Lender a late charge in the amount of five (5%)
percent of each periodic payment due hereunder which is more than ten (10) days
in arrears to offset the additional expenses involved in processing delinquent
payments. In addition, from and after the date on which this Note becomes due
and payable, at maturity, upon default or otherwise, interest shall accrue and
shall be immediately due and payable at a rate (the "Default Rate") which is two
(2%) percent per annum higher than the Interest Rate hereinabove specified but
in no event higher than the maximum interest rate permitted by law.
Subject to the terms of this Note (and the Loan Agreement as defined
below), Borrower shall have the right to make prepayments of principal at any
time or from time to time.
If at any time the aggregate outstanding balance hereunder shall exceed the
lesser of Five Million 00/100 Dollars ($5,000,000,000) or the Borrowing Base (as
defined in a certain Commercial Term Loan, Revolving Loan and Security Agreement
of even date (the "Loan Agreement"), the Borrower shall immediately repay this
Note in an amount equal to such excess.
Any deposits or other sums at any time credited by or due from the holder
to the Borrower or any guarantor and any securities or other property of the
Borrower or any such guarantor at any time in the possession of the holder may
at all times be held and treated as collateral for the payment of this Note and
any and all other
<PAGE> 2
liabilities (direct or indirect, absolute or contingent, sole, joint or several,
secured or unsecured, due or to become due, now existing or hereafter arising)
of the Borrower to the holder. Regardless of the adequacy of collateral, the
holder may apply or set off such deposits or other sums against such liabilities
upon an event of default continuing beyond any applicable notice and cure
provisions in the case of the Borrower, but only with respect to matured
liabilities in the case of endorser.
The Borrower and every guarantor hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance, default or enforcement hereof and consent that no
indulgence, and no substitution, release or surrender of collateral, and no
discharge or release of any other party primarily or secondarily liable hereon,
shall discharge or otherwise affect the liability of the Borrower or any such
guarantor. Borrower and every Guarantor hereby waive the right to a jury trial.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right hereunder, and a
waiver of any such right on any one occasion shall not be construed as a bar to
or waiver of any such right on any future occasion.
This Note is secured by any collateral at any time granted to Bank to
secure any obligations of any maker hereof.
This Note shall, at the option of the Bank, be immediately due and payable
without notice or demand upon the occurrence of any of the following events of
default, which in the case of a default in payment to the Bank has not been
cured by Borrower within ten (10) days of its receipt of written notice from
Bank and which in the case of any other default has not been cured by Borrower
within thirty (30) days of its receipt of written notice from Bank:
(a) default of any liability, obligation or undertaking of the Borrower,
hereunder or otherwise, including failure to pay in full and when due
any sum due under either this Note or any other loan from the Bank to
the Borrower, whether now existing or hereinafter arising;
(b) default of any liability, obligation or undertaking of the Borrower
under the provisions of any other agreement, including without
limitation under the Loan Agreement between the Borrower and the Bank
which by its terms relates to the obligations of the Borrower to the
Bank;
(c) if any statement, representation or warranty made in or in connection
with the application for the loan evidenced by either this Note or any
loan from the Bank to the
2
<PAGE> 3
Borrower, or in any supporting financial statement of the Borrower
shall be found to have been false in any material respect;
(d) if the Borrower is a corporation, trust or partnership, the
liquidation, termination or dissolution of any such organization or
its ceasing to carry on actively its present business or the
appointment of a receiver of its property;
(e) the institution by or against the Borrower of any proceedings under
the Bankruptcy Act or any other law in which the Borrower is alleged
to be insolvent or unable to pay their respective debts as they mature
or the making by the Borrower of an assignment for the benefit of
creditors provided the institution of such proceedings against the
Borrower shall not be a default hereunder if such proceedings are
stayed, terminated or dismissed within sixty (60) days of being
instituted.
(f) a material adverse change occurs in the financial condition of the
Borrower.
The Borrower agrees to pay on demand all reasonable costs and expenses
(including legal costs and reasonable attorney's fees) incurred or paid by the
holder in enforcing this note on default.
The proceeds of the loan represented by this Note may be paid to any one or
more of the undersigned.
The Note incorporates the terms and conditions set forth in the Loan
Agreement, which terms and conditions are incorporated by reference herein,
including without limitation, Borrower's warranties, covenants and negative
covenants contained therein.
This Note shall take effect as a sealed instrument and shall be governed by
the laws of the Commonwealth of Massachusetts.
Witness BORROWER:
Osorio and Watkin, D.M.D. P.C.
/s/ Illegible By: /s/ Jerald Robbins
- ------------------------------- -------------------------------
Its Treasurer
First New England Dental Centers,
Inc.
By: /s/ Jerald Robbins
- ------------------------------- -------------------------------
Its President and Treasurer
3
<PAGE> 1
Exhibit 10.2
LOAN AGREEMENT
--------------
$5,000,000 Revolving Line of Credit
Agreement dated as of June 14, 1996 between Osorio and Watkin, D.M.D.,
P.C., a Massachusetts Professional Corporation and First New England Dental
Centers, Inc., a Delaware Corporation both having a principal place of business
at 85 Devonshire Street, Boston, Massachusetts 02109 (collectively, the
"Borrower") and Fleet National Bank with a principal place of business at One
Federal Street, Boston, Massachusetts (the "Bank").
WHEREAS, the Bank has agreed to extend to Borrower a revolving line of
credit in the amount of Five Million and 00/100 ($5,000,000) Dollars (the
"$5,000,000 Revolving Line of Credit") and Borrower has executed a Revolving
Credit Note of even date herewith, (the "$5,000,000 Note");
WHEREAS, Borrower has executed a Security Agreement (All Assets) also of
even date herewith (the "Security Agreement") in order to secure the loans
referenced above;
WHEREAS, Borrower and the Bank desire to set forth the manner and
circumstances in which Borrower may utilize the $5,000,000.00 Revolving Line of
Credit;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, Borrower and the Bank agree as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:
(a) ACCOUNT DEBTOR. The term "Account Debtor" shall mean the person
obligated on an Account Receivable.
(b) ACCOUNTS RECEIVABLE. Except as set forth below the term "Accounts
Receivable" shall mean and include Borrower's accounts receivable and notes,
drafts, acceptances and other instruments representing or evidencing a right to
payment for goods sold or leased or for services rendered whether or not earned
by performance.
(c) BORROWER'S MAIN OPERATING ACCOUNT. The term "Borrower's Main Operating
Account" shall mean the regular deposit account of the Borrower which it will
maintain with the Bank.
(d) BORROWING BASE. The term "Borrowing Base" as of any time shall mean the
amount of $3,000,000 plus the Security Value of Accounts Receivable as of such
time, as determined by the Bank in
1
<PAGE> 2
its sole discretion which determination shall be final and binding upon the
Borrower.
(e) CERTIFICATE. The term "Certificate" shall refer to the certificate as
to collateral described in Section 2 hereof, and shall include any accompanying
certificates or documents.
(f) CERTIFIED ACCOUNTS. The term "Certified Account" shall mean an Account
Receivable which has been listed in a Certificate delivered by the Borrower to
the Bank pursuant to the provisions of Section 2 hereof.
(g) COLLATERAL. The term "Collateral" shall mean and include any and all
assets of the Borrower hereinbefore or hereinafter described which at the time
in question is subject to a security interest in favor of the Bank.
(h) DISQUALIFIED ACCOUNT. The term "Disqualified Account" shall mean a
Certified Account in respect of which any of the following events have occurred:
(i) such Certified Account shall have remained unpaid on the ninety-first (91st)
day from the billing invoice date, in the case of all Account Debtors; (ii) any
dispute with respect to such Certified Account or to such goods shall have
arisen between the Borrower and the Account Debtor thereon; (iii) any Account
Debtor thereon shall have become Insolvent (as hereinafter defined); (iv) any
Account Debtor thereon shall be located outside the United States or Canada; (v)
such Certified Account is to be paid by a third party payor and the Bank has not
received documentation satisfactory to the Bank that the right to payment from
said third party payor has been effectively assigned to the Bank; (vi) any
Account Debtor is a federal governmental entity, agency or is otherwise
administered by the federal government; or (vii) the Bank shall have otherwise
excluded such Certified Account in its reasonable discretion.
(i) INSOLVENT. The Borrower or any other person shall be considered to be
"Insolvent" when any of the following events shall have occurred in respect of
the Borrower or any other person: admission in writing of its inability, or be
generally unable, to pay its debts as they become due, dissolution, termination
of existence, cessation of normal business operations, appointment of a receiver
of any part of the property of, legal or equitable assignment, conveyance or
transfer of property for the benefit of creditors by, or the commencement of any
proceedings under any bankruptcy or insolvency laws by or against such person,
provided that if such proceedings are commenced against such person such
commencement shall not be deemed to render such person insolvent, if such
proceedings are dismissed, stayed or discharged within ninety (90) days of their
commencement.
2
<PAGE> 3
(j) LOANS. The term "Loan or Loans" shall mean all extensions of credit or
advances made by the Bank to the Borrower referenced above.
(k) OBLIGATIONS. The terms "Obligation" and "Obligations" shall mean any
and all liabilities and obligations of the Borrower to the Bank of every kind
and description, direct or indirect, absolute or contingent, primary or
secondary, due or to become due, now existing or hereafter arising, regardless
of how they arise or by what agreement or instrument they may be evidenced or
whether evidenced by any agreement or instrument, and includes obligations to
perform acts and refrain from taking action as well as obligations to pay money.
(l) PRIME RATE. The term "Prime Rate" shall mean the rate of interest
announced by the Bank in Boston from time to time as its "Prime Rate."
(m) SECURITY VALUE OF ACCOUNTS RECEIVABLE. The term "Security Value of
Accounts Receivable" as of any time shall mean an amount equal to sixty (60%)
percent of the amounts owing as of that time on all Certified Accounts
(exclusive of Disqualified Accounts). For such purpose, the amount so owing on
Certified Accounts shall mean the face amount of all Certified Accounts in U.S.
Dollars (exclusive of Disqualified Accounts), less all payments thereon, all
allowances, adjustments, discounts and other credits applicable thereto and all
amounts owing by the Borrower to any Account Debtor thereon, all as determined
by the Bank in its sole discretion, which determination shall be final and
binding upon the Borrower.
2. CERTIFICATION OF COLLATERAL. Prior to the making of any Loans beyond an
aggregate total of $3,000,000, the Borrower will deliver to the Bank a
Certificate, in form attached hereto as Exhibit A, or such other form as
approved by the Bank: (a) listing the Borrower's then existing Accounts
Receivable as to which rights have been earned by performance; (b) containing
such information in respect of such Accounts Receivable and any other Collateral
as the Bank may reasonably request; and (c) containing a calculation of the
Borrowing Base as of the date of the Certificate, including information to
support the computation of the Security Value of Accounts Receivable.
Thereafter, at the time the Borrower shall request any Loan and at such times as
the Bank may reasonably request, the Borrower will deliver to the Bank similar
Certificates in respect of all Accounts Receivable of the Borrower as to which
rights have been earned by performance not previously certified to the Bank, and
other information requested by Bank. With each such Certificate, the Borrower
will if requested by the Bank furnish to the Bank a confirmatory assignment of
all or any part of the Collateral described on the Certificate, and such
information as to each Account Receivable identified on the Certificate as the
Bank
3
<PAGE> 4
may request, together with a duplicate of the invoice, if any, and all
contracts, guaranties, orders and other documents in respect thereof, or, if the
Bank at any time shall relieve the Borrower of the obligation to furnish such
documents with such Certificates,the Borrower will keep all such documents
segregated and available for inspection by the Bank and will furnish the same to
the Bank upon request.
3. LOANS UNDER THE $5,OOO,OOO.OO REVOLVING LINE OF CREDIT:
(a) Subject to the terms hereof, from time to time the Bank shall, upon
request of Borrower, make Loans to the Borrower under the $5,000,000.00
Revolving Line of Credit in such amounts as the Borrower may request, provided,
however, that the aggregate principal amount of all Loans under the $5,000,000
Revolving Line of Credit at any time outstanding shall not exceed the amount of
$3,000,000.00 until such time as the Bank has received and approved: (i) audited
financial statements for fiscal year 1995; (ii) quarterly financials for the
first quarter of 1996; (iii) revenue/expense breakdowns for all
locations/practices for fiscal year 1995 and the first quarter of fiscal 1996;
(iv) current accounts receivable aging report; (v) fiscal 1996 pro formal income
statement, balance sheet and cash flow statements; and (vi) the Bank and the
Borrower have negotiated mutually satisfactory negotiation of financial
covenants. At such time that the foregoing have been satisfied, the aggregate
principal amount of all Loans under the $5,000,000 Revolving Line of Credit
shall not exceed the amount of the Borrowing Base or $5,000,000, whichever is
less.
(b) Requests for a Loan must be submitted to the Bank and Loan proceeds
shall be deposited by the Bank in Borrower's Main Operating Account.
(c) The outstanding amount of Loans, absent manifest error, shall be
conclusively evidenced by the Bank's records of disbursements and repayments.
4. INTEREST, SERVICE CHARGES, EXPENSES, PAYMENTS UNDER THE $5,000,000.00
REVOLVING LINE OF CREDIT. (a) The Borrower shall pay to the Bank:
(i) Monthly, on the first day of each month, commencing on the first day
of the month next succeeding the month in which this Agreement shall
be entered into, interest at a per annum rate equal to the Prime Rate
in effect from time to time plus two and one-half percent, computed on
a daily basis for the period on the outstanding principal balance
under the $5,000,000.00 Note. Each change in such interest rate shall
take effect simultaneously with the corresponding change in such Prime
Rate. Outstanding principal amounts with interest
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then accrued shall be repaid in full in one (1)year from the date
hereof.
(ii) On demand, all reasonable costs and expenses in connection with the
preparation, execution, delivery, administration and modification of
this Agreement, including the reasonable fees and out-of-pocket
expenses of counsel for the Bank with respect thereto and with respect
to advising the Bank as to its rights and responsibilities under this
Agreement, and all costs and expenses, if any, in connection with the
enforcement of this Agreement or the collection or attempted
collection of any Obligations, any Accounts Receivable or any other
Collateral.
(b) The Borrower shall make each payment required pursuant to this
Agreement on the day when due in lawful money of the United States of America to
the Bank at its address referred to at the beginning of this Agreement in
immediately available funds.
(c) The Borrower hereby authorizes the Bank to charge such payments as they
become due (as well as any and all other amounts at any time owing from the
Borrower to the Bank), if not otherwise paid by the Borrower, to the Borrower's
Main Operating Account or any other account of the Borrower with the Bank as the
Bank may elect.
(d) Interest and other charges shall be paid on the basis of actual days
elapsed and a 360-day year.
(e) An annual facility fee equal to Fifty (50) Basis Points per annum shall
be charged on the Revolving Line of Credit. As of the date hereof $15,000 has
been paid against this fee.
(f) In the event (i) this Revolving Line of Credit is terminated or
cancelled by either Borrower or the Bank; (ii) Borrower refinances with another
lender; or (iii) an initial public offering of stock in either or both Borrowers
is consummated, then Borrower shall pay to the Bank a fee equal to two and
one-half (2.5%) percent of the aggregate amount available to Borrower hereunder
(either $3,000,000 or $5,000,000) with a minimum payment of $75,000 and a
maximum payment of $125,000.
7. AMOUNTS IN EXCESS OF BORROWING BASE. If any time the aggregate amount
owed under the $5,000,000 Revolving Line of Credit exceeds the Borrowing Base,
Borrower shall immediately pay an amount equal to said excess to the Bank, to be
applied against principal amounts due under the $5,000,000 Revolving Line of
Credit in Bank's discretion.
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8. COLLECTIONS OF ACCOUNTS RECEIVABLE, PROCEEDS OF COLLATERAL:
(a) Except as hereinafter provided and as provided in the Security
Agreement of even date entered into in connection herewith, the Borrower is
authorized to collect all Accounts Receivable of the Borrower. Borrower shall
promptly remit all such collections, on the day of receipt thereof, to the Bank
for deposit in Borrower's Main Operating Account.
(b) At such time as there is no availability of funds hereunder, in case of
any return to or repossession by the Borrower of any goods which have given rise
to a Certified Account Receivable, whether or not such goods are damaged, the
Borrower will, with its next report of credits and charge-offs or next Aging
Report delivered to the Bank, also deliver to the Bank either additional
Collateral or Borrower's check in the full face amount of such Account
Receivable.
(c) Without the prior consent of the Bank, the Borrower will not grant any
allowances, adjustments or discounts (other than normal cash discounts on its
invoices not in excess of 15% thereof) or other credits in respect of any
Account Receivable or enter into any agreement or take any other action in
respect thereof except as directed or approved by the Bank, and if any such
allowance, adjustment, discount or other credit is made or granted for any
reasons with respect to any Certified Account, the amount thereof will be
immediately reflected in the Security Value of Accounts Receivable.
9. AGING REPORTS AND OFF-SET REPORTS. At the time the first Certificate is
delivered to the Bank pursuant to the provisions of Section 2 hereof, the
Borrower will also deliver to the Bank an aging report, in form reasonably
approved by the Bank (an "Aging Report"), giving an analysis by months (or such
other periods as may be requested by the Bank) of the age of the Accounts
Receivable listed in such Certificate. Thereafter the Borrower shall furnish
monthly similar Aging Reports covering all Accounts Receivable outstanding as of
the date of such Aging Report. At such times as the Bank shall request, the
Borrower will also furnish to the Bank an off-set report, in form approved by
the Bank, setting forth all amounts owing by the Borrower to any Account Debtor
listed in any Aging Report. Such reports for a calendar month shall be delivered
to the Bank not later than the fifteenth (15th) business day of the succeeding
calendar month.
10. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The Borrower
covenants with the Bank that:
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(a) Osorio and Watkin, D.M.D., P.C. is and shall be duly organized and
validly existing under the laws of the State of Massachusetts.
(b) First New England Dental Centers, Inc. is and shall be duly organized
and validly existing under the laws of the State of Delaware.
(c) The Borrower is duly qualified and in good standing in every state in
which it is doing business.
(d) The execution, delivery and performance of this Agreement and all other
notes, agreements and documents contemplated by this Agreement are valid, legal
and binding obligations of the Borrower, if the Borrower is a corporation are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action, and are not and will not be in contravention of law,
or will not result in any event of default under the terms of the Borrower's
charter, by-laws, or other corporate powers, or of any indenture, agreement, or
undertaking to which the Borrower is or may be a party or by which it is or may
be bound.
(e) The consent or approval of any governmental body, agency, or authority
is not required in order for the Borrower to execute, deliver and perform this
Agreement and all other notes, agreements and documents contemplated by this
Agreement.
(f) All issued and outstanding capital stock has been properly issued, and
all books and records, particularly minute books, by-laws and books of account
are accurate, and up to date and will be so maintained.
(g) All the representations, warranties and covenants made by Borrower in
the Security Agreement are incorporated herein by reference.
(h) Borrower shall maintain its primary operating deposit account at the
Bank.
(i) The Borrower will maintain and provide the Bank with records and
information as follows:
(i) The Borrower shall permit the Bank and the Bank's
representatives from time to time as the Bank and its
representatives may reasonably request, at the Borrower's
reasonable expense, to examine, inspect, copy and make extracts
from any and all of the Borrower's books, records,
electronically stored data, papers and files in the custody or
control of the Bank or of others, relating to any
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Collateral or relating to the Borrower's financial or business
condition.
(ii) The Borrower will furnish the Bank within ninety (90) days after
the close of each fiscal year: audited fiscal year end
statements for the Borrower including a balance sheet, an income
statement and statement of cash flows (including reasonably
detailed schedules of Cost of Goods Sold and Sales, and General
and Administrative Expenses and sales), and a reconciliation of
surplus and capital accounts by independent certified public
accountants reasonably approved by the Bank, (the current
certified public accountant of the Borrower has been approved by
the Bank) and Personal Property Insurance Binder(s) evidencing
policy renewal (as more fully set forth in the Security
Agreement of even date).
(iii) The Borrower will furnish the Bank, within forty-five (45) days
after the close of each calendar quarter, updated accountant
prepared compilation quality financial statements for the
Borrower similar to those referred to in Subsection (ii) above,
unaudited but certified by the principal financial officer of
the Borrower.
(iv) The Borrower will furnish the Bank on the fifteenth (15th) of
each month an updated Certificate relating to Collateral.
(v) The Borrower will furnish all other information, financial or
otherwise, that a duly authorized lending officer of the Bank
reasonably deems necessary to inform the Bank properly with
respect to Collateral or the condition of the Borrower. The
Borrower will inform the Bank promptly in the event of any
adverse material change in the Borrower's financial condition or
in the event of any breach of this Agreement or in the event
that any of the representations and warranties herein contained
do not continue to be true and correct as though continuously
made to the Bank or in the event of a change in the terms of
sale granted to Borrower's customers.
(j) The Borrower has filed all federal and state tax returns or extensions
therefor required by law to be filed by it as of the date hereof and has paid
all taxes shown to be due thereon which are required to have been paid and has
paid all other taxes known to be due and payable, and all additional assessments
except for
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such as are being contested in good faith by appropriate legal or administrative
proceedings, and there shall be set aside on the books of the Borrower such
reserves as may be deemed adequate by independent certified public accountants
with respect thereto.
(k) The Borrower is not in default in the performance, observance or
fulfillment of any of the material obligations, covenants or conditions
contained in any agreement, instrument, judgment, order, decree, writ, rule or
regulation to which it is a party or by which it or any of its property is
subject which would have a material adverse impact on the business of the
Borrower.
(l) Except as otherwise disclosed to Bank, there are no actions, suits, or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting the Borrower, at law or in equity, or before or by a federal, state,
municipal, or other governmental department, commission, board, bureau, agency,
instrumentality any of which is reasonably likely to result in material adverse
change in the business, properties, or assets, in the condition, financial or
otherwise, of the Borrower, Borrower agrees to notify the Bank of any actions,
suits or proceedings brought against the Borrower involving a claim in excess of
$100,000.
(m) Other than as provided for herein or in the Security Agreement, the
Borrower will not, without the prior written consent of the Bank, incur, create,
assume, or permit to exist other indebtedness for borrowed money ("Other
Indebtedness"), or sell any accounts receivable; or lend money, including loans
to officers, directors, shareholders or partners, or mortgage, assign, or
encumber any of its assets except to the Bank; or guaranty, endorse, or
otherwise become surety for or upon the obligations of others, except endorsing
instruments for deposit or collection in the ordinary course of business and
except for purchase money security interests.
(n) Neither this Agreement nor any financial statements, reports,
schedules, certificates or other documents which have been or will be delivered
to the Bank contain any misrepresentation or untrue statement of fact or omit to
state any material facts necessary to make this Agreement or such financial
statements, reports, schedules, certificates or other documents not misleading.
All such financial statements have been prepared in accordance with generally
accepted accounting principles.
(o) Except as approved by the Bank in writing, the Borrower will not, other
than in the ordinary course of business or in connection with normal replacement
of equipment, sell, lease, transfer or otherwise dispose of (whether in one or a
series of transactions) all or any substantial part of its assets, whether
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<PAGE> 10
now owned or hereafter acquired. It will not without the prior written consent
of the Bank, pay any dividends (except stock dividends) on any outstanding
shares, or make any other distribution on or in respect to any of its shares, or
redeem, purchase or otherwise acquire, directly or indirectly, any of its shares
now or hereafter outstanding, or alter or amend its capital structure, or become
a party to any merger or consolidation (in which the Borrower is not the
surviving corporation AND which is not undertaken as an acquisition or merger in
the ordinary course of Borrower's business, which shall include by definition
the acquisition of dental practices) or make any change in its senior
management.
(p) The Borrower has not incurred nor will it incur any material
accumulated funding deficiency within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA") or any liability to the Pension Benefit
Guaranty Corporation ("PBGC") established under ERISA, or to any successor to
PBGC under ERISA, in connection with any employee benefit plan established or
maintained by the Borrower. No Reportable Event (as defined in ERISA) has
occurred. The Borrower will comply with all requirements of ERISA applicable to
it and will furnish to the Bank as soon as possible and in any event within
thirty days after the Borrower or any plan administrator know or has any reason
to know that any Reportable Event has occurred, a statement describing the
Reportable Event and any action the Borrower proposes to take with respect
thereto.
(q) The terms and conditions of this Loan Agreement shall apply to all
loans from the Bank to the Borrower, including without limitation, all of the
loans referenced on Page 1 of this Loan Agreement and any loans hereinafter
entered into.
11. DEFAULT. The following shall constitute events of default hereunder
(subject to any cure or grace periods provided in the $5,000,000 Note, which
cure or grace periods shall apply hereto):
(a) default of any liability, obligation or undertaking of the Borrower,
hereunder or otherwise, including failure to pay in full and when due
any sum due under either the $5,000,000.00 Note, of any endorser or
guarantor of any liability, obligation or undertaking of the Borrower,
hereunder or otherwise, to the Bank;
(b) default of any liability, obligation or undertaking of the Borrower or
any endorser or guarantor hereof under the provisions of any other
agreement, including any security agreement between the Borrower or
any endorser hereof and the Bank which by its terms relates to the
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obligations of the Borrower or any endorser hereof to the Bank;
(c) if any statement, representation or warranty made in or in connection
with the application for the loans evidenced hereby or in any
supporting financial statement of the Borrower or any endorser hereof
shall be found to have been false in any material respect when made;
(d) if the Borrower or any endorser or guarantor hereof is a corporation,
trust or partnership, the liquidation, termination or dissolution of
any such organization or its ceasing to carry on actively its present
business or the appointment of a receiver of its property;
(e) the institution by or against the Borrower or any guarantor or any
endorser hereof of any proceedings under the Bankruptcy Act or any
other law in which the Borrower, any guarantor or any endorser hereof
is alleged to be insolvent or unable to pay their respective debts as
they mature or the making by the Borrower any guarantor or any
endorser hereof of an assignment for the benefit of creditors provided
the institution of such proceedings against the Borrower shall not be
a default hereunder if such proceedings are stayed, terminated or
dismissed within ninety (90) days of being instituted.
12. REMEDIES. Upon the occurrence of any default hereunder, all
Obligations of Borrower hereunder shall become immediately due and payable and
the Bank shall be entitled to all other rights and remedies, at law or in
equity, available to it pursuant to any document executed in connection
herewith, or under federal or state law.
13. MISCELLANEOUS.
(a) Headings preceding the text of the several sections hereof are for the
convenience of reference only and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction, or effect.
(b) It is intended that this Agreement take effect as a sealed instrument.
(c) This Agreement, including modifications or additions thereto, will be
governed, interpreted, and construed in accordance with the laws of the
Commonwealth of Massachusetts.
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(d) This Agreement shall be binding upon Borrower and its successors,
assigns, executors and administrators, and shall inure to the benefit of the
Bank and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals, all
as of the day and year first written above.
BORROWER:
Osorio and Watkin, D.M.D., P.C.
By: /s/ Jerald Robbins
----------------------------------
Its: Treasurer
First New England Dental Centers, Inc.
By: /s/ Jerald Robbins
----------------------------------
Its: President and Treasurer
FLEET NATIONAL BANK
By: /s/ Illegible
----------------------------------
Its: Vice President
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<PAGE> 1
Exhibit 10.3
SECURITY AGREEMENT
(All Assets)
Fleet National Bank
with a mailing address of:
One Federal Street Boston, MA 02211
Osorio and Watkin, D.M.D., P.C.
First New England Dental Centers, Inc.
on behalf of themselves and any successors or assigns (collectively, the
"Borrower") and Fleet National Bank its successors and assigns (the "Bank") are
the parties to this Agreement. In consideration of the Bank extending or having
extended loans and/or other financial considerations to the Borrower on this
date or on one or more occasions, the Borrower agrees with the Bank as follows:
SECTION 1. SECURITY INTEREST: As security for the payment and performance of all
Obligations, as hereinafter defined, now existing or hereafter arising of the
Borrower to the Bank, including a $5,000,000 Revolving Line of Credit, and a
$5,000,000 Revolving Credit Note, both of even date herewith, whether arising by
future advances or otherwise, Borrower hereby grants a security interest to the
Bank in all Borrower's assets of every sort whatsoever, including without
limitation the following property, wherever located, and in all proceeds and
products of such property:
1.01 ALL INVENTORY of Borrower now existing or hereafter arising,
meaning all goods, merchandise, raw materials, supplies, goods in
process, finished goods, and other tangible personal property held
by the Borrower for processing, sale, or other business purpose, or
to be used or consumed in Borrower's business.
1.02 ALL ACCOUNTS AND ACCOUNTS RECEIVABLE of Borrower now existing or
hereafter arising; meaning all accounts receivable, papers, notes,
drafts, acceptances, and all other debts, obligations, and
liabilities in whatever form owing to Borrower from any person,
firm, corporation, or any other legal entity ("Account Debtors")
and all proceeds thereof, including returned or repossessed goods.
1.03 ALL DOCUMENTS of Borrower now existing or hereafter arising;
meaning all documents of title, including bills of lading, dock
warrants, dock receipts, warehouse receipts, and orders for the
delivery of goods, and also any other document which in the regular
course of business or financing is treated as adequately evidencing
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that the person in possession of it is entitled to receive, hold,
and dispose of the document and goods it covers.
1.04 ALL INSTRUMENTS of Borrower now existing or hereafter arising;
meaning all negotiable instruments, securities, and any other
writings which evidence a right to payment of money and are not
themselves security agreements or leases and are of a type which
are in the ordinary course of business transferred by delivery with
any necessary endorsement or assignment.
1.05 ALL OTHER RIGHTS of Borrower to the payment of money, including
without limitation amounts due from affiliated parties, tax refunds
of every sort including loss carryback refunds, insurance proceeds
and all rights to deposits or advance payments.
1.06 ALL CHATTEL PAPER of Borrower now existing or hereafter arising,
including all additions thereto and substitutions therefor; meaning
a writing or writings which evidence both a monetary obligation and
a security interest in or a lease of specific goods.
1.07 ALL GENERAL INTANGIBLES, including, but not limited to, choses in
action of Borrower now existing or hereafter arising, meaning any
personal property other than goods, accounts, chattel papers,
documents, and instruments and general intangibles of the following
description or type: goodwill, trade secrets and other proprietary
rights, literary rights, contract rights and rights to performance,
copyrights, trade names, trade-marks, patents, mask works,
applications for any of the foregoing, software licenses (including
Borrower's interest as either licensor or licensee and including
all enhancements, upgrades and improvements) and related
documentation and materials (e.g., source codes, flow charts, file
layouts, program documentation, output descriptions, user manuals,
operations manuals, screen layouts and detailed implementation
schedules).
1.08 ALL FILES, RECORDS (including without limitation computer programs,
disks, tapes and related electronic data processing media) and
writings in anyway related to the foregoing property and all rights
of Borrower to retrieval from third parties of information
pertaining to any such property.
1.09 ALL OTHER GOODS of Borrower, wherever located, now existing or
hereafter acquired; meaning all motor vehicles, equipment,
machinery, and other tangible
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personal property, whether fixtures or not, any and all records
relating to any of the Collateral, together with all additions,
substitutions, repairs, replacements, accessions, attachments and
accessories thereto.
It is Borrower's express intention that the continuing grant of this security
interest remain as security for payment and performance of all of Borrower's
Obligations, whether now existing, or which may hereinafter be incurred by
future advances, or otherwise, and whether or not such Obligations are related
to any transactions described in this Agreement, by class or kind, or whether or
not contemplated by the parties at the time of the granting of this security
interest. The notice of the continuing grant of this security interest therefore
shall not be required to be stated on the face of any document representing any
of the Borrower's Obligations nor otherwise identify it as being secured hereby.
To the extent any Accounts due from any federal agency or entity or otherwise
administered by the federal government or its agencies may not be legally
assigned then said Accounts shall not be deemed a part of the Collateral.
SECTION 2. DEFINITIONS: All types of Collateral mentioned in Section 1 shall
have the meanings given to them under Chapter 106 of the Massachusetts General
Laws unless specifically defined otherwise in that section or elsewhere in this
Agreement. In addition, as used herein, the following terms shall have the
following respective meanings:
2.01 OBLIGATIONS means all liabilities of the Borrower to the Bank of
every kind and description, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
arising, regardless of how they arise or by what agreement or
instrument they may be evidenced, including those arising under
this Agreement, or whether evidenced by any agreement or
instrument, including obligations to perform acts and refrain from
taking action as well as obligations to pay money, including
without limitation, under a certain $5,000,000 Revolving Line of
Credit and a $5,000,000 Revolving Line of Credit Note entered into
in connection therewith, all of even date herewith.
2.02 COLLATERAL means any and all property of the Borrower in which the
Bank now has, by this Agreement, or hereafter acquires a security
interest.
SECTION 3. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS:
To induce the Bank to enter into this Agreement the Borrower represents,
warrants, agrees, and covenants that:
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3.01 CORPORATE EXISTENCE AND AUTHORITY:
(a) Osorio and Watkin, D.M.D., P.C. is a corporation duly organized and
validly existing under the laws of the Commonwealth of
Massachusetts.
(b) First New England Dental Centers, Inc. is a corporation duly
organized validly existing under the laws of the State of Delaware.
(c) Borrower is duly qualified and in good standing in every state in
which it is doing business.
(d) The execution, delivery and performance of this Agreement and all
other notes, agreements and documents contemplated by this
Agreement are valid, legal and binding obligations of the Borrower,
are within Borrower's corporate powers, have been duly authorized
by all necessary corporate action, and are not and will not be in
contravention of law, or will not result in any event of default
under the terms of Borrower's charter, by-laws, or other corporate
powers, or of any indenture, agreement, or undertaking to which the
Borrower is or may be a party or by which it is or may be bound.
(e) The consent or approval of any governmental body, agency, or
authority is not required in order for the Borrower to execute,
deliver and perform this Agreement and all other notes, agreements
and documents contemplated by this Agreement.
(f) All issued and outstanding capital stock of Borrower has been
properly issued, and all books and records, particularly minute
books, by-laws and books of account are accurate, and up to date
and will be so maintained.
3.02 BORROWER OWNS ASSETS: Borrower owns all its assets, as represented
on any papers furnished to the Bank and has and will have the
exclusive right and authority to grant security interests in the
Collateral.
3.03 ASSETS FREE OF ENCUMBRANCES: All the Collateral, is and will be
kept in good condition and clear of all security interests,
mortgages, liens, and encumbrances, except those granted or allowed
under this Agreement, and the Borrower has marketable title to all
Collateral and shall defend the same against the claims and demands
of all persons. The Bank has the right but not the duty to
discharge any Liability giving rise to a lien on Collateral,
including liens of any taxing authority, and the Borrower shall
repay the Bank immediately for all
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amounts paid by the Bank to discharge such Liabilities.
3.04 LOCATION OF COLLATERAL:
(a) Tangible Collateral, including, but not limited to, equipment,
inventory, and fixtures, and if the Bank permits the Borrower to
retain possession thereof, instruments, documents, and chattel
paper, will be kept in possession of the Borrower at its place of
business named above or at such other locations as set forth on
Schedule A attached hereto.
(b) The location or locations of such Collateral shall not be changed
without the prior written consent of the Bank. In no event shall
such Collateral be located outside the United States.
(c) Immediately upon the Bank's request, whether or not the Borrower is
in default with respect to any Obligation to the Bank, the Borrower
will turn over to the Bank all instruments, documents and chattel
paper which are Collateral under this Agreement.
(d) The Bank may in its discretion charge to the Borrower the amount
represented to be owing on any liability in whatever form owing to
the Borrower from whatever source, if said liability serves as
collateral under this Agreement and if any merchandise giving rise
to any such liability is returned, rejected, lost or damaged, or if
any dispute arises between Borrower and an Account Debtor in
respect of any collateral. Until such debit is made, Borrower shall
hold any such returned merchandise segregated in trust for the Bank
subject to its exclusive disposition. Borrower shall promptly
notify the Bank of any such return, rejection, loss or damage.
3.05 RECORDS AND INFORMATION WITH RESPECT TO BORROWER AND COLLATERAL:
(a) The Borrower will make written records with respect to all
Collateral, containing all information which the Bank may desire.
All such records will be kept by the Borrower at its place of
business named above. The Bank shall have access to the place where
such records are kept and the right to inspect all such records at
any time the Bank deems necessary during normal business hours upon
prior notice.
(b) The Borrower will furnish all other information, financial or
otherwise, that a duly authorized lending
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<PAGE> 6
officer of the Bank deems necessary to inform the Bank properly
with respect to Collateral or the condition of the Borrower. The
Borrower will inform the Bank immediately in the event of any
material change in the Borrower's financial condition or in the
event of any breach of this Agreement or in the event that any of
the representations and warranties herein contained do not continue
to be true and correct in any material respect as though
continuously made to the Bank.
(c) Neither this Agreement nor any financial statements, reports,
schedules, certificates or other documents which have been or will
be delivered to the Bank contain any misrepresentation or untrue
statement of fact or omit to state any material facts necessary to
make this Agreement or such financial statements, reports,
schedules, certificates or other documents not misleading. All such
statements have been prepared in accordance with generally accepted
accounting principles.
(d) The Borrower will execute upon the request of the Bank such
financing statements and like papers as the Bank deems necessary to
protect properly Collateral and its security interest therein and
will pay the cost of filing them in such offices as the Bank
requests. Such papers include, without limitation, those required
under the Federal Assignment of Claims Act, for recordation of a
security interest in patents or trademarks with the United States
Patent and Trademark Office and for recordation of a security
interest in copyrights with the Library of Congress.
(e) The Bank may from time to time audit the Collateral and Borrower's
records and operations during normal business hours upon written
notice. The Bank may require the Borrower to pay for said audit in
an amount to be agreed upon prior to said audit. So long as
Borrower is not in default hereunder, the Bank shall conduct such
an audit no more than once a year.
3.06 FIXTURES: If any machinery, equipment, or other property serving as
Collateral under this Agreement is or will be attached to any real
estate, the Borrower will furnish the Bank with a description of
such real estate with a disclaimer, signed by all persons having an
interest in said real estate, of any interest in the Collateral
which has or may have priority over the Bank's interest, and will
notify the Bank in writing of any intended sale, mortgage, or
conveyance of such real estate, and will give written notice of the
terms and conditions of this Agreement to any prospective
purchaser, mortgagee, or grantee of such realty.
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3.07 LIABILITIES OWING TO BORROWER:
(a) Any liabilities in whatever form owing to the Borrower from any
person, firm, or other legal entity serving as Collateral are and
will be good and valid indebtedness not subject to any defenses,
set-offs, claims, counter-claims or agreements under which any
deduction or discount may be made thereon, except as specified to
the Bank on a statement or invoice made available to the Bank on or
prior to the date hereof.
(b) Upon default under the Obligations, full payment of all such
liabilities in whatever form owing to the Borrower shall, upon
demand by the Bank any time after the due date thereof, be paid in
full to the Bank or, in the alternative, if the Bank so decides the
full amount of said liabilities may be deemed to be fully due and
payable to the Bank by the Borrower pursuant to the terms of this
Agreement at any time after the due date of said liabilities.
3.08 TAXES:
(a) The Borrower will pay any sales or other taxes owed by Borrower
which may become due and payable with respect to a sale or other
transaction giving rise to any Collateral.
(b) The Borrower has filed all federal and state tax returns required
by law to be filed by it and has paid all taxes shown to be due
thereon which are required to have been paid and has paid all other
taxes known to be due and payable, and all additional assessments
except for such as are being contested in good faith by appropriate
legal or administrative proceedings, and there shall be set aside
on the books of the Borrower such reserves as may be deemed
adequate by independent certified public accountants with respect
thereto.
3.09 CHATTEL PAPER: The Borrower agrees to label all chattel paper
serving as Collateral under this agreement with the words, "Subject
to the security interest of Fleet National Bank".
3.10 INSURANCE:
(a) The Borrower agrees at its or his own expense to keep all
Collateral insured to the full value thereof against such risks and
by policies of insurance issued by such companies as the Bank may
designate or approve, and the policies evidencing such insurance
shall be duly endorsed
7
<PAGE> 8
in favor of the Bank with such loss payable rider as the Bank may
designate, and said policies shall be delivered to the Bank.
(b) All policies of insurance shall provide for ten (10) days minimum
written cancellation notice to the Bank.
(c) Should the Borrower fail for any reason to furnish the Bank with
such insurance, the Bank shall have the right but is under no
obligation to obtain the same and charge any costs in connection
therewith to the Borrower.
(d) The Bank may require any proceeds of such insurance policies to be
paid to it and apply the same to any liabilities of the Borrower
then owing to it and hold any excess amounts as further security
for any Obligations then outstanding or which may arise under this
Agreement.
(e) The Bank shall have no risk, liability, or responsibility in
connection with payment or non-payment of any loss, the sole
obligation of the Bank being to credit the Borrower with the net
proceeds of any insurance payments received on account of any loss.
3.11 SALE OF COLLATERAL: Unless otherwise allowed by this Agreement, the
Borrower will not sell any Collateral without the prior written
consent of the Bank. So long as the Borrower has not received
notice of a default hereunder the Borrower shall have the right to
sell inventory, which may be Collateral, in the ordinary course of
its business. A sale in the ordinary course of business shall not
include a transfer in total or partial satisfaction of a debt,
other than a debt which has arisen solely as a result of prepayment
or deposit by customers of the Borrower for items of inventory
subsequently to be purchased or delivered.
3.12 BANK'S RIGHT TO POSSESSION:
(a) Unless otherwise Provided by law, the Bank shall have the right at
all times upon an event of default to the immediate possession of
all Collateral and its products and proceeds, and in its sole
discretion may operate and use said Collateral, complete work in
process, and sell Collateral without being liable to the Borrower
on account of any losses, damage, or depreciation that may occur as
a result thereof so long as the Bank shall act in good faith.
(b) Unless otherwise provided by law, upon an event of default the Bank
may, at the expense of the Borrower,
8
<PAGE> 9
maintain possession of the Borrower's premises by the use of a
custodian or custodians, or in such other manner as the Bank may
determine.
(c) Unless otherwise provided by law, upon an event of default the Bank
may at all times, at the expense of the Borrower, enter upon any
premises on which Collateral may be situated and remove any such
Collateral to such other places as the Bank determines.
(d) Unless otherwise provided by law, upon an event of default the Bank
may at any time transfer any Collateral into its own name or that
of its nominee and receive the income thereon and hold the same as
security for Obligations or apply it to principal or interest due
on the Obligations.
3.13 BORROWER'S DUTY TO COMPLY WITH LAWS: The Borrower has complied and
will comply with the material terms and conditions of any leases
covering premises wherein any Collateral is located, and any
orders, ordinances, laws, or statutes of any city, state, or other
governmental department having jurisdiction with respect to such
premises or the conduct of business thereon.
3.14 POSSESSES ALL PATENTS: The Borrower possesses and will continue to
maintain all patents, patent rights, or licenses, trademarks,
trademark rights, trade names, trade name rights, mask works and
copyrights which are required to conduct its business as now
conducted without known conflict with the rights of others.
Borrower agrees to notify the Bank upon submission of an
application for any patent, copyright or trademark or similar
protection for intellectual property and shall further notify the
Bank upon the granting of any such protection.
3.15 NO DEFAULT: The Borrower is not in default in the performance,
observance or fulfillment of any of the material obligations,
covenants or conditions contained in any agreement, instrument,
judgment, order, decree, writ, rule or regulation to which it is a
party or by which it or any of its property is subject.
3.16 NO KNOWN OR THREATENED LITIGATION: Except as otherwise previously
disclosed to the Bank, there are no known actions, suits, or
proceedings pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower, at law or in equity,
or before or by any federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or
9
<PAGE> 10
instrumentality which may result in any material adverse change in
the business, properties, or assets, or in the condition, financial
or otherwise, of the Borrower.
3.17 OTHER OBLIGATIONS: The Borrower will not, without the prior written
consent of the Bank, incur, create, assume, or permit to exist
other indebtedness for borrowed money, or sell any accounts
receivable; or lend money, including loans to the Borrower's
officers, directors, shareholders or partners, or mortgage, assign,
or encumber any of the Borrower's assets except to the Bank; or
guaranty, endorse, or otherwise become surety for or upon the
obligations of others, except endorsing instruments for deposit or
collection in the ordinary course of business.
3.18 MERGERS, SALES OF ASSETS, CHANGES IN CORPORATE STRUCTURE: Except as
approved by the Bank in writing, the Borrower will not sell, lease,
transfer or otherwise dispose of (whether in one or a series of
transactions) all or any substantial part of its assets, whether
now owned or hereafter acquired. If the Borrower is a corporation,
it will not without the prior written consent of the Bank, pay any
dividends (except stock dividends) on any outstanding shares, or
make any other distribution on or in respect to any of its shares,
or redeem, purchase or otherwise acquire, directly or indirectly,
any of its shares now or hereafter outstanding, or alter or amend
its capital structure, or become a party to any merger or
consolidation (in which the Borrower is not the surviving
corporation and which is not undertaken as an acquisition or merger
in the ordinary course of Borrower's business, which shall include
by definition of the acquisition of dental practices).
3.19 ERISA: The Borrower has not incurred nor will it incur any material
accumulated funding deficiency within the meaning of the Employee
Retirement Income Security Act of 1974 ("ERISA") or any liability
to the Pension Benefit Guaranty Corporation ("PBGC") established
under ERISA, or to any successor to PBGC under ERISA, in connection
with any employee benefit plan established or maintained by the
Borrower. No Reportable Event (as defined in ERISA) has occurred.
The Borrower will comply with all requirements of ERISA applicable
to it and will furnish to the Bank as soon as possible and in any
event within thirty days after the Borrower or any plan
administrator know or has any reason to know that any Reportable
Event has occurred, a statement describing the Reportable Event and
any action the Borrower proposes to take with respect thereto.
10
<PAGE> 11
SECTION 4. COLLECTION:
4.01 (a) The Bank may at any time upon an event of default notify
Account Debtors on any Collateral, or require the Borrower to
notify such Account Debtors, that they shall make all payments on
their account or accounts with the Borrower directly to the Bank;
or require the Borrower to hold all proceeds received from
collection in trust for the Bank without commingling the same with
other funds of the Borrower, and to turn the same over to the Bank
immediately upon receipt in the identical form received, at which
time the Bank may at its option either apply such proceeds to the
Obligations of the Borrower, in accordance with Section 4.03, or
release such proceeds to the Borrower for use in its or his
business.
(b) The Bank has the right at any time upon an event of default,
directly or through its agent, to collect proceeds directly from
Account Debtors on any Collateral and for that purpose to do all
acts and things necessary or incident thereto, including the right
to sue on such accounts, and to sell, transfer, set over,
compromise, discharge, or extend the whole or any part of the
accounts.
4.02 Until the Bank exercises the rights contained in Section 4.01, the
Borrower may continue to collect proceeds from Account Debtors on any
Collateral and use the proceeds in the ordinary course of its or his
business.
4.03 The Bank shall credit to the Borrower the proceeds obtained from Account
Debtors of the Borrower, such credits to be entered within three (3)
business days after receipt of the proceeds. Such credits, however, are
conditional upon final payment to the Bank at its office in cash or
solvent credits of the items giving rise to them, and, if any item is not
so paid, the amount of a credit given with respect to any of the
Borrower's Obligations shall be reversed or, in the discretion of the
Bank, it shall be charged to any deposit accounts of the Borrower with
the Bank, whether or not the item is returned.
SECTION 5. DEFAULT AND ACCELERATION: Any or all of the Obligations of the
Borrower to the Bank shall, at the option of the Bank and notwithstanding any
time or credit allowed by any instrument evidencing an Obligation, be
immediately due and payable without notice or demand upon the occurrence of any
of the following events of default, which in the case of a default in payment to
the Bank has not been cured by Borrower within ten (10) days of its receipt of
written notice from Bank and which in the
11
<PAGE> 12
case of any other default has not been cured by Borrower within thirty (30) days
of its receipt of written notice from Bank:
5.01 Default in the payment or performance, when due or payable, of any
Obligation of the Borrower, or of any endorser, guarantor or surety for
any Obligation of the Borrower to the Bank;
5.02 Failure of the Borrower to pay when due any tax unless Borrower has filed
an extension or otherwise contested the same in good faith;
5.03 The service upon the Bank of a writ in which the Bank is named as Trustee
for Borrower or any guarantor or surety for Borrower.
5.04 An injunction or attachment against property of the Borrower remaining
undischarged for a period of thirty (30) days;
5.05 Calling of a meeting of creditors, appointment of a committee of
creditors or liquidating agents, or offering a composition or extension
to creditors by, for, or of the Borrower, or application by the Borrower
for or consent to the appointment of a receiver or trustee of the
Borrower;
5.06 The Borrower or any guarantor admitting in writing its inability to pay
its debts as they mature; the filing or institution by or against the
Borrower or by an endorser, guarantor, or surety for any Liability of the
Borrower to the Bank, of a petition in bankruptcy, or of any other
proceedings under federal or state law relating to bankruptcy,
insolvency, the relief of debtors, or the readjustment, reorganization,
or extension of any indebtedness of the Borrower.
5.07 Such a change in the condition or affairs (financial or otherwise) of the
Borrower or of any endorser, guarantor, or surety for any Obligation of
the Borrower to the Bank as, in the reasonable opinion of a duly
authorized lending officer of the Bank, materially impairs the Bank's
security or materially increases its risk, including the liquidation,
termination, dissolution or death of any Borrower or Guarantor; or
5.08 The material breach by the Borrower of any warranty, representation, or
agreement contained in this Agreement, or any other agreement relative to
the loans secured hereby; or if any warranty, representation, agreement,
report, certificate, financial statement, or other
12
<PAGE> 13
instrument furnished in connection with this Agreement or the borrowings
secured hereby shall prove to be false or misleading in any material
respect.
SECTION 6. BANK'S REMEDIES:
In addition to acceleration as hereinbefore provided, upon the occurrence of any
of the events of default the Bank shall have the following remedies:
6.01 The Bank shall have all the rights and remedies of a secured party under
Chapter 106, of the Massachusetts General Laws (Article Nine of the
Uniform Commercial Code), in addition to all other rights and remedies
mentioned in this Agreement. Borrower agrees that where reasonable notice
is required, such requirement shall be satisfied by mailing notice seven
(7) days prior to the sale or other disposition, postage prepaid, to the
address last known to the Bank of each party entitled to notice.
6.02 Unless otherwise provided by law, the Bank may require the Borrower to
assemble any tangible personal property constituting Collateral and make
it available to the Bank at a place to be designated by the Bank which is
reasonably convenient to both parties.
6.03 In the event of a default, Borrower agrees that a real estate attachment
will be necessary and reasonable to the Bank's protection and that the
Bank may complete any contracts entered into by the Borrower and assume
all rights earned by such completion.
6.04 The Borrower hereby grants to the Bank a nonexclusive irrevocable license
in connection with the Bank's exercise of its rights hereunder, to use,
apply and affix any trademark, tradename, logo or the like in which the
Borrower now or hereafter has rights, which license may be used upon the
occurrence of any of the events of default.
6.05 The Bank may buy at any public sale, and if the Collateral is of a type
customarily sold on a recognized market or the subject of widely
distributed standard price quotations the Bank may buy at private sale.
Proceeds of any sale shall be applied first to all costs and expenses of
sale, including attorney's fees, and then to payment of the Liabilities
secured hereby.
SECTION 7. BANK'S RIGHT OF SET-OFF: The Borrower agrees that any deposits or
other sums at any time credited by or due from the Bank
13
<PAGE> 14
to the Borrower, or to any obligor or guarantor of any Obligations of the
Borrower in the possession of the Bank, may at all times be held and treated as
Collateral for any Obligations of the Borrower or any such obligor or guarantor
to the Bank. The Bank may apply or set-off such deposits or other sums against
said Obligations at any time after an event of default.
SECTION 8. POWER OF ATTORNEY: The Borrower hereby irrevocably appoints the Bank
and each of its duly authorized officers the true and lawful attorney of the
Borrower with full power of substitution, in the name of the Bank or in the name
of the Borrower or otherwise, for the sole benefit of the Bank but at the sole
expense of the Borrower, without notice to or demand upon the Borrower, upon an
event of default hereunder: (a) to demand, collect, receive payment of, receipt
for, settle, compromise or adjust, and give discharges and releases in respect
of the Accounts Receivable or any of them; (b) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Accounts Receivable or any of them and to enforce
any other rights in respect thereof or in respect of the goods which have given
rise thereto; (c) to defend any suit, action or proceeding brought against the
Borrower in respect of any Account Receivable or the goods which have given rise
thereto; (d) to settle, compromise or adjust any suit, action or proceeding
described in clause (b) or (c) above and, in connection therewith, to give such
discharges or releases as the Bank may deem appropriate; (e) to endorse checks,
notes, drafts, acceptances, money orders, bills of lading, warehouse receipts or
other instruments or documents evidencing or securing the Accounts Receivable or
any of them; (f) to receive, open and dispose of all mail addressed to the
Borrower and to notify the post office authorities to change the address of
delivery of mail addressed to the Borrower to such address, care of the Bank, as
the Bank may designate; and (g) generally to sell, assign, transfer, pledge,
make any agreement in respect of or otherwise deal with any Account Receivable
or the goods or service which have given rise thereto, as fully and completely
as though the Bank were the absolute owner thereof for all purposes, including
contacting Account Debtors directly for verification or other purposes. The
powers conferred on the Bank by this Agreement are solely to protect the
interest of the Bank and shall not impose any duty upon the Bank to exercise any
such power, and if the Bank shall exercise any such power, it shall be
accountable only for amounts that it actually receives as a result thereof and
shall not be responsible to the Borrower except for gross negligence and willful
misconduct. The Bank shall be under no obligation to take steps necessary to
preserve rights in any other Collateral against prior parties but may do so at
its option. The Bank may at its option transfer at any time to itself or to its
nominee any securities held as Collateral hereunder and receive the income
thereon and hold the same as Collateral hereunder and may at any time notify the
Account Debtors on any
14
<PAGE> 15
Accounts Receivable or the obligor on any other Collateral of the Bank's
security interest therein and instruct such Account Debtors and obligors to make
all future payments thereon to the Bank. As its option the Bank may discharge
any taxes, liens, security interests or other encumbrances to which any
Collateral is at any time subject, and may, upon the failure of the Borrower so
to do, purchase insurance on any Collateral and pay for the repair, maintenance
or preservation thereof, and the Borrower agrees to reimburse the Bank on demand
for any payments made or expenses incurred by the Bank pursuant to the foregoing
authorization, and authorizes the Bank to charge the Loan Account as set forth
in the Revolving Loan Agreement for the amount of such payments or expenses. The
Bank may at any time take control of any proceeds of Collateral to which the
Bank is entitled hereunder or under applicable law.
SECTION 9. EXPENSES: The Borrower shall pay or reimburse the Bank on demand for
all reasonable out-of-pocket expenses of every nature which the Bank may incur
in connection with this Agreement and the preparation thereof, the making of any
loan in connection herewith, or the collection of the Borrower's indebtedness
secured under this Agreement, including but not limited to reasonable attorney's
fees, and fees and expenses related to the perfection and protection of any
security interest granted by the Borrower; or the Bank, if it chooses, may
charge any of the Borrower's funds on deposit with the Bank.
SECTION 10. MODIFICATION AND WAIVERS:
10.01 The rights, remedies, powers, privileges and discretions of the
Bank hereunder shall be cumulative and not exclusive of any rights
or remedies which it would otherwise have.
10.02 Any determination that any provision of this Agreement or any
application thereof is invalid, illegal or unenforceable in any
respect in any instance shall not affect the validity, legality and
enforceability of such provision in any other instance, nor the
validity, legality or enforceability of any other provision of this
Agreement.
10.03 No modification of this Agreement will be binding unless in writing
and signed by a duly authorized lending officer of the Bank.
10.04 Any default by the Borrower may be waived by the Bank in writing
signed by a duly authorized lending officer of the Bank, but no
such waiver shall extend to any subsequent default.
15
<PAGE> 16
10.05 No delay on the part of the Bank in exercising any of the rights
granted or referred to in this Agreement shall be held to
constitute a waiver.
SECTION 11. NOTICE, ASSIGNMENT, TERMINATION:
11.01 Unless otherwise provided for by law, any demand, notice, or other
communication to the Borrower that the Bank may elect to give shall
be effective if sent by registered mail or delivered to a telegraph
company, addressed to the Borrower at the address shown at the
beginning of this Agreement, or, if the Borrower has notified the
Bank in writing of a change of address, to the Borrower's last
address as so notified. The Borrower shall promptly notify the Bank
in the event that any change is made in the name of the Borrower.
Demands, notices, or other communications addressed to the
Borrower's address at which the Bank customarily communicates with
the Borrower shall also be effective.
11.02 If at any time or times by assignment or otherwise the Bank assigns
this Agreement, which in its sole discretion the Bank may do, such
assignment shall carry with it the Bank's powers and rights under
this Agreement and the transferee shall become vested with said
powers and rights whether or not they are specifically referred to
in the transfer. If and to the extent the Bank retains any other
Obligation or Collateral, the Bank will continue to have the rights
and powers herein set forth with respect thereto.
11.03 This Agreement shall continue until written notice to terminate is
given to the other party and all Obligations of the Borrower to the
Bank and any obligations of the Bank to the Borrower have been
satisfied, whether existing at the time of termination or arising
thereafter. Until such time, all rights and powers of the Bank
shall remain in full force and effect.
11.04 Any obligations the Bank may have to the Borrower, whether now
existing or hereafter arising, run only to the Borrower and may not
be assigned or transferred by said Borrower without the written
consent of a duly authorized officer of the Bank.
SECTION 12. MISCELLANEOUS:
12.01 Headings preceding the text of the several sections hereof are for
the convenience of reference only and shall not constitute a part
of this Agreement nor shall they affect its meaning, construction,
or effect.
16
<PAGE> 17
12.02 It is intended that this Agreement take effect as a sealed
instrument.
12.03 This Agreement, including modifications or additions thereto, will
be governed, interpreted, and construed in accordance with the laws
of the Commonwealth of Massachusetts.
12.04 This Agreement shall be binding upon Borrower and its successors,
assigns, executors and administrators, and shall inure to the
benefit of the Bank and its successors and assigns.
EXECUTED AND SEALED on June 14, 1996.
Osorio and Watkin, D.M.D., P.C
By: /s/ Jerald Robbins
------------------------------
Its: Treasurer
First New England Dental Centers,
Inc.
By: /s/ Jerald Robbins
------------------------------
Its: President and Treasurer
Fleet National Bank
By: /s/ Illegible
------------------------------
Its: Vice President
17
<PAGE> 18
SCHEDULE A
Other Locations
18
<PAGE> 19
FIRST NEW ENGLAND DENTAL CENTERS, INC.
<TABLE>
FACILITY LOCATIONS/OPERATIONAL CONTACTS
<CAPTION>
- -------------------------------------------------------------------------------------------------------
LOCATION OPERATIONAL CONTACT TELEPHONE # FACSIMILE #
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BILLERICA Morella Blanco (508) 667-0025 (508) 667-1294
Associated Dental Health Center
315 Boston Road
North Billerica, MA 01862
DANVERS Mary O'Quinn (508) 762-0555 (508) 762-6461
First New England Dental Centers
156 Andover Street
Danvers, MA 01923
FEDERAL STREET Jessica Woodley (617) 423-6165 x229 (617) 426-3290
Watkin Dental Associates
60 Federal Street
Boston, MA 02110
FITCHBURG Barbara King (508) 345-6919 (508) 345-5278
Arthur P. Wein, D.D.S.
104 Whalon Street
Fitchburg, MA 01420
FRAMINGHAM Jason Turley (508) 872-0777 (508) 875-5367
First New England Dental Centers
2 Irving Street
Framingham, MA 01701
HADLEY Nora LaFortune (413) 586-9480 (413) 586-5319
Hampshire Mall Dental Center
Hampshire Mall
Hadley, MA 01035
LEOMINSTER Debbie Stuart (508) 534-9216 (508) 537-6931
Leominster Family Dentists Joyce Moretto
81 West Street
Leominster, MA 01453
MALDEN Rhonda Barbato (617) 321-5656 (617) 321-5646
Dr. Richard Harold
51 Commercial Street
Malden, MA 02148
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
FIRST NEW ENGLAND DENTAL CENTERS, INC.
<TABLE>
FACILITY LOCATIONS/OPERATIONAL CONTACTS(CONT.)
<CAPTION>
- -------------------------------------------------------------------------------------------------------
LOCATION OPERATIONAL CONTACT TELEPHONE # FACSIMILE #
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MARSHFIELD Joanne Mattivello (617) 834-6635 (617) 837-4381
Family Dentistry
One Snow Road
Marshfield, MA 02050
NEWBURY STREET Dennis Martell (617) 262-5080 (617) 262-5079
Watkin Dental Associates
186 Newbury Street
Boston, MA 02116
WATERTOWN Brenda Murphy (617) 926-9655 (617) 926-2258
First New England Dental Centers
Watertown Mall
550 Arsenal Street
Watertown, MA 02172
WELLESLEY (617) 431-7295 (617) 431-7296
Watkin Dental Associates
148 Linden Street
Wellesley, MA 02191
WEYMOUTH Tracy Wilde (617) 337-2222 (617) 340-7173
First New England Dental Centers
330 Washington Street
Weymouth, MA 02188
WORCESTER Rick Roushia (508) 757-9300 (508) 799-5613
First New England Dental Centers
44 Front Street
Worcester, MA 01608
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.4
GUARANTY
--------
FLEET NATIONAL BANK Loan No. ___ Date: June 14, 1996
One Federal Street
Boston, Massachusetts 02211 BORROWER: Osorio and Watkin, D.M.D., P.C.
and First New England Dental
Centers, Inc.
ORIGINAL PRINCIPAL
AMOUNT: $5,000,000 Line of Credit
LOAN ARRANGEMENT Dated: June 14, 1996
To induce Fleet National Bank (hereinafter "Lender" which term shall
include its successors and assigns) to enter into the foregoing Loan Arrangement
(which term shall include a certain $5,000,000 Revolving Line of Credit Loan
Agreement and a $5,000,000 Revolving Line of Credit Note, both of even date
herewith) with the above-named Borrower (hereinafter called the "Borrower") and
in consideration thereof and of any loans, advances or financial accommodations
heretofore or hereafter granted by Lender to or for the account of Borrower
thereunder, the undersigned Guarantor guarantees the payment to Lender of the
amount of $3,000,000 which is, or in the future may be, due under the Loan
Arrangement. Notwithstanding the foregoing, at such time as availability under
the $5,000,000 Revolving Line of Credit Loan Agreement has been increased
pursuant to section 3(a) of said Agreement, the amount guaranteed hereunder
shall float and shall be equal to the lesser of $3,000,000 or the amount by
which the amount outstanding under the Loan Arrangement exceeds the Security
Value of Accounts Receivable (as defined in Section 4(m) of the $5,000,000
Revolving Line of Credit Agreement.
Guarantor will further covenant to maintain unpledged Liquid Assets
(Cash and Marketable Securities) with a minimum market value of $7,000,000 as
determined by the quarterly submission of a personal financial statement and/or
other documentation acceptable to the Guarantor and Lender.
The Guarantor also agrees: to indemnify and hold Lender harmless against
all obligations, demands and liabilities, by whomsoever asserted, and against
all losses in any way suffered, incurred or paid by Lender as a result of or in
any way arising out of, or following, or consequential to transactions with the
Borrower under said Loan Arrangement; that this Guaranty shall not be impaired
by any modification, supplement, extension or amendment of any contract or
agreement to which the parties thereto may hereafter agree, nor by any
modification, release or other alteration of any of the obligations hereby
guaranteed or of any security therefor, nor by any agreements or arrangements
whatever with Borrower or anyone else; that the liability of each Guarantor
hereunder is direct and unconditional and may be enforced without
<PAGE> 2
requiring Lender first to resort to any other right, remedy or security; that no
Guarantor shall have any right of subrogation, reimbursement or indemnity
whatsoever, nor any right of recourse to security for the debts and obligations
of Borrower to Lender, unless and until all of said debts and obligations have
been paid in full; that if there is more than one Guarantor, the liability of
the Guarantor hereunder shall be joint and several; that if Borrower or any
Guarantor shall at any time become insolvent or make a general assignment, or if
a petition in bankruptcy or any insolvency or reorganization proceedings shall
be filed or commenced by, against or in respect of Borrower or any Guarantor,
any and all obligations of each Guarantor shall, at Lender's option, forthwith
become due and payable without notice; that the books and records of Lender
showing the account between Lender and Borrower shall be admissible in any
action or proceeding, shall be binding upon the Guarantor for the purpose of
establishing the items therein set forth and shall constitute prima facie proof
thereof; that this Guaranty is, as to each Guarantor, a continuing Guaranty
which shall remain effective during the initial term and each renewal term of
the foregoing Loan Arrangement; and that the death of any Guarantor shall not
affect the termination of this Guaranty as to such deceased or as to any other
Guarantor; that nothing shall discharge or satisfy the liability of any
Guarantor hereunder except the full payment and performance of all of Borrower's
debts and obligations to Lender with interest including without limitation any
ongoing obligations which survive the payment or other termination of the
primary debt and the discharge or other disposition of any mortgage or security
interest or of the Collateral thereunder; that any and all present and future
debts and obligations of Borrower to each Guarantor are hereby waived and
postponed in favor of and subordinated to the full payment and performance of
all present and future debts and obligations of Borrower to Lender; that all
sums at any time to the credit of the Guarantor and any of the property of the
Guarantor at any time in Lender's possession may be held by Lender as security
for any and all obligations of such Guarantor to Lender hereunder; and that the
Guarantor shall be liable to Lender for all expenses which Lender may incur in
enforcement of Lender's rights hereunder, including, without limitation,
reasonable attorneys' fees and expenses.
The Guarantor waives notice of acceptance hereof; the right to a jury
trial in any action hereunder; presentment and protest of any instrument, and
notice thereof; notice of default; and all other notices to which such Guarantor
might otherwise be entitled.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed, construed and interpreted
according to the laws of the Commonwealth of Massachusetts, shall be binding
upon the heirs, executors,
- 2 -
<PAGE> 3
administrators, successors and assigns of each Guarantor and shall enure to the
benefit of Lender, its successors and assigns.
WITNESS: GUARANTOR:
/s/ Illegible By: /s/ John R. Lakian
- ------------------------------- ----------------------------
John R. Lakian
STATE OF MA )
) ss.
COUNTY OF Suffolk )
The foregoing instrument was acknowledged before me this 14 day of June,
1996, by John R. Lakian as his free act and deed.
/s/ Joshua J. Vernaglia
---------------------------------
Notary Public
My Commission Expires: June 1, 2001
- 3 -
<PAGE> 1
Exhibit 10.5
GUARANTY
--------
FLEET NATIONAL BANK Loan No.___ Date: June 14, 1996
One Federal Street
Boston, Massachusetts 02211 BORROWER: Osorio and Watkin, D.M.D., P.C.
and First New England Dental
Centers, Inc.
ORIGINAL PRINCIPAL
AMOUNT: $5,000,000 Line of Credit
LOAN ARRANGEMENT Dated: June 14, 1996
To induce Fleet National Bank (hereinafter "Lender" which term shall
include its successors and assigns) to enter into the foregoing Loan Arrangement
(which term shall include a certain $5,000,000 Revolving Line of Credit Loan
Agreement and a $5,000,000 Revolving Line of credit Note, both of even date
herewith) with the above-named Borrower (hereinafter called the "Borrower") and
in consideration thereof and of any loans, advances or financial accommodations
heretofore or hereafter granted by Lender to or for the account of Borrower
thereunder, the undersigned Guarantor guarantees the payment to Lender of the
amount of $3,000,000 which is, or in the future may be, due under the Loan
Arrangement. Notwithstanding the foregoing, at such time as availability under
the $5,000,000 Revolving Line of Credit Loan Agreement has been increased
pursuant to section 3(a) of said Agreement, the amount guaranteed hereunder
shall float and shall be equal to the lesser of $3,000,000 or the amount by
which the amount outstanding under the Loan Arrangement exceeds the Security
Value of Accounts Receivable (as defined in Section 4(m) of the $5,000,000
Revolving Line of Credit Agreement.
The Guarantor will further covenant to maintain unpledged Liquid Assets
(Cash and Marketable Securities) with a minimum market value of $400,000 as
determined by the quarterly submission of a personal financial statement and/or
other documentation acceptable to the Guarantor and Lender.
The Guarantor also agrees: to indemnify and hold Lender harmless against
all obligations, demands and liabilities, by whomsoever asserted, and against
all losses in any way suffered, incurred or paid by Lender as a result of or in
any way arising out of, or following, or consequential to transactions with the
Borrower under said Loan Arrangement; that this Guaranty shall not be impaired
by any modification, supplement, extension or amendment of any contract or
agreement to which the parties thereto may hereafter agree, nor by any
modification, release or other
- 1 -
<PAGE> 2
alteration of any of the obligations hereby guaranteed or of any security
therefor, nor by any agreements or arrangements whatever with Borrower or anyone
else; that the liability of each Guarantor hereunder is direct and unconditional
and may be enforced without requiring Lender first to resort to any other right,
remedy or security; that no Guarantor shall have any right of subrogation,
reimbursement or indemnity whatsoever, nor any right of recourse to security for
the debts and obligations of Borrower to Lender, unless and until all of said
debts and obligations have been paid in full; that if there is more than one
Guarantor, the liability of the Guarantor hereunder shall be joint and several;
that if Borrower or any Guarantor shall at any time become insolvent or make a
general assignment, or if a petition in bankruptcy or any insolvency or
reorganization proceedings shall be filed or commenced by, against or in respect
of Borrower or any Guarantor, any and all obligations of each Guarantor shall,
at Lender's option, forthwith become due and payable without notice; that the
books and records of Lender showing the account between Lender and Borrower
shall be admissible in any action or proceeding, shall be binding upon the
Guarantor for the purpose of establishing the items therein set forth and shall
constitute prima facie proof thereof; that this Guaranty is, as to each
Guarantor, a continuing Guaranty which shall remain effective during the initial
term and each renewal term of the foregoing Loan Arrangement; and that the death
of any Guarantor shall not affect the termination of this Guaranty as to such
deceased or as to any other Guarantor; that nothing shall discharge or satisfy
the liability of any Guarantor hereunder except the full payment and performance
of all of Borrower's debts and obligations to Lender with interest including
without limitation any ongoing obligations which survive the payment or other
termination of the primary debt and the discharge or other disposition of any
mortgage or security interest or of the Collateral thereunder; that any and all
present and future debts and obligations of Borrower to each Guarantor are
hereby waived and postponed in favor of and subordinated to the full payment and
performance of all present and future debts and obligations of Borrower to
Lender; that all sums at any time to the credit of the Guarantor and any of the
property of the Guarantor at any time in Lender's possession may be held by
Lender as security for any and all obligations of such Guarantor to Lender
hereunder; and that the Guarantor shall be liable to Lender for all expenses
which Lender may incur in enforcement of Lender's rights hereunder, including,
without limitation, reasonable attorneys' fees and expenses.
The Guarantor waives notice of acceptance hereof; the right to a jury
trial in any action hereunder; presentment and protest of any instrument, and
notice thereof; notice of default; and all other notices to which such Guarantor
might otherwise be entitled.
This Guaranty, all acts and transactions hereunder, and the rights and
obligations of the parties hereto shall be governed,
- 2 -
<PAGE> 3
construed and interpreted according to the laws of the Commonwealth of
Massachusetts, shall be binding upon the heirs, executors, administrators,
successors and assigns of each Guarantor and shall enure to the benefit of
Lender, its successors and assigns.
WITNESS: GUARANTOR:
/s/ Illegible By: /s/ George R. Begley
- ------------------------------- ----------------------------
George R. Begley
STATE OF MA )
) ss.
COUNTY OF Suffolk )
The foregoing instrument was acknowledged before me this 14 day of June,
1996, by George R. Begley as his free act and deed.
/s/ Joshua J. Vernaglia
---------------------------------
Notary Public
My Commission Expires: June 1, 2001
- 3 -
<PAGE> 1
Exhibit 10.6
MANAGEMENT AGREEMENT
--------------------
THIS AGREEMENT is made effective the 4th day of August, 1995 by and between
FIRST NEW ENGLAND DENTAL CENTERS, INC. , a Delaware corporation, having its
place of business at 85 Devonshire Street, 2nd Floor, Boston, Massachusetts
02109 ("First Dental"), and OSORIO AND WATKIN, D.M.D., P.C., a Massachusetts
professional corporation, having its place of business at c/o First New England
Dental Centers, Inc., 85 Devonshire Street, 2nd Floor, Boston, Massachusetts
02109 ("Dental Group").
WHEREAS, Dental Group has been incorporated under the laws of the
Commonwealth of Massachusetts to render dental and related services to patients
of Dental Group;
WHEREAS, Dental Group desires to establish and operate a practice of
dentistry and related services in the northeast United States region (the
"Practice") at the locations specified in EXHIBIT A from time to time (the
"Premises"); and
WHEREAS, Dental Group will use and occupy the Premises for the conduct of
the Practice pursuant to lease, sublease, license, sublicense, or use
agreement(s) with First Dental (the "Sublease Agreement(s)"), which Sublease
Agreement(s) shall be attached hereto and incorporated in EXHIBIT B from time to
time as executed by the parties;
WHEREAS, Dental Group desires to license from First Dental the use of the
equipment specified in EXHIBIT C attached hereto and incorporated herein by
reference (the "Equipment"), and the use of the office furnishings and leasehold
improvements specified in EXHIBIT D attached hereto and incorporated herein by
reference (the "Furnishings"), and to obtain purchasing, administrative and
management services for the Practice from First Dental; and
WHEREAS, First Dental desires to provide Dental Group with the use of the
Premises and the Equipment and Furnishings for the Practice, and to provide
certain purchasing administrative and management services to Dental Group.
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE> 2
1. Representations and Warranties.
------------------------------
1.1. REPRESENTATIONS AND WARRANTIES OF FIRST DENTAL. First Dental
hereby represents and warrants to Dental Group that at all times during the term
of this Agreement:
(a) First Dental is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
1.2. REPRESENTATIONS AND WARRANTIES OF DENTAL GROUP. Dental Group
hereby represents and warrants to First Dental that at all times during the term
of this Agreement:
(a) Dental Group is a professional corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts.
(b) Each of the dentists or specialists (the "Dental Group Personnel")
employed or engaged by Dental Group to render services in the Practice is duly
licensed, certified, or registered, as applicable, to render the services for
which he or she has been employed or engaged by Dental Group.
(c) Dental Group will establish and enforce procedures to ensure that
proper and complete dental records are maintained regarding all patients of the
Practice as required by applicable law and by the rules and regulations of any
third party payors with which Dental Group may contract or affiliate. To the
extent permitted by law, Dental Group shall provide access to First Dental to
such books and records of Dental Group as may be necessary to carry out the
terms, conditions, and purposes of this Agreement.
2. License of the Furnishings and Equipment.
----------------------------------------
2.1. TITLE AND MAINTENANCE. During the term of this Agreement, First
Dental grants to Dental Group the exclusive right to use the Premises, Equipment
and Furnishings specified in, respectively, Exhibits B, C and D hereto on the
terms and conditions hereinafter set forth. Dental Group shall use, and shall
cause Dental Group Personnel to use, the Premises, Equipment and Furnishings
only in connection with the Practice. Leasehold rights to the Premises, as well
as title to the Equipment and Furnishings, including any improvements thereto,
shall be and remain in First Dental at all times. Dental Group agrees to take no
action that would adversely affect First Dental's title to or interest in the
Premises, Equipment and Furnishings. During the term of this Agreement, Dental
Group shall be responsible for maintaining the Premises, Equipment and
Furnishings in good condition and repair, reasonable wear and tear from normal
use excepted, including, where necessary, the replacement or substitution of
parts. All maintenance, repair
- 2 -
<PAGE> 3
and replacement, if necessary, of the Premises, Equipment and Furnishings shall
be performed by First Dental, on behalf of Dental Group, in accordance with
paragraph 3.1 of this Agreement. Dental Group agrees to assume the cost and
expense of all supplies used in connection with the Premises, Equipment, and
Furnishings, and Dental Group agrees to make the Premises, Equipment and
Furnishings available for inspection by First Dental at any reasonable time.
2.2. LIENS, ENCUMBRANCES, ETC. Dental Group shall not directly or
indirectly create, permit or suffer to exist any mortgage, security interest,
attachment, writ or other lien or encumbrance on the Premises, Furnishings or
Equipment, and will promptly and at its own expense, discharge any such lien or
encumbrance which shall arise, unless the same shall have been created or
approved by First Dental.
2.3. RETURN OF FURNISHINGS AND EQUIPMENT. Upon the termination or
expiration, as applicable, of this Agreement, First Dental shall retain all
Furnishings and Equipment, and Dental Group will relinquish control thereof and
of the Premises free and clear of all liens, encumbrances, and right of others
(save those created or approved by First Dental).
2.4. ASSIGNMENT. Dental Group shall not assign any of its rights
hereunder to the use of the Premises, Furnishings or Equipment to any third
party, without the prior written consent of First Dental.
2.5. REPORTING. Dental Group shall advise First Dental with respect to
the selection of additional and replacement equipment or furnishings for the
Practice, and with respect to any proposed additions or improvements to the
Premises Equipment or Furnishings. Dental Group will ensure that all Premises,
Equipment and Furnishings are used in a safe and appropriate manner. Dental
Group shall promptly notify First Dental of any defective Equipment or
Furnishings.
3. GENERAL RESPONSIBILITIES OF FIRST DENTAL. First Dental shall have
responsibility for general management and administration of the day-to-day
business operations of Dental Group, exclusive of the dental, professional and
ethical aspects of its dental practice.
3.1. PREMISES, FURNISHINGS AND EQUIPMENT. During the term of this
Agreement, Dental Group engages First Dental and First Dental agrees to perform,
or subcontract for the performance of, all maintenance, repair, and servicing as
may be necessary for the Premises, Equipment and Furnishings to be maintained in
good working condition, reasonable wear and tear excepted.
- 3 -
<PAGE> 4
3.2. PREMISES. During the term of this Agreement, First Dental agrees
to provide Dental Group with the use of the Premises on the terms and conditions
specified from time to time in EXHIBIT B.
3.3. ADMINISTRATIVE AND MANAGEMENT SERVICES. First Dental shall provide
management and administrative services for the Practice, including but not
limited to the following:
(i) secretarial, reception and clerical functions, including
coordination of patient visits and scheduling of patients;
(ii) business planning, including the recommendation of capital,
operating and cash flow budgets;
(iii) financial management, including selecting independent
auditors to audit the financial operations of Dental Group, causing annual
audited financial statements to be prepared for Dental Group, and providing
to Dental Group the data necessary for Dental Group to prepare and file its
tax returns and make any other necessary governmental filings;
(iv) bookkeeping, accounting, and data processing services;
(v) maintenance of dental records;
(vi) materials management, including the purchase and stocking
of office and dental supplies and pharmaceuticals, and maintenance of
Equipment and Premises;
(vii) administering or causing to be administered any welfare,
benefit or insurance plan or arrangement of Dental Group;
(viii) human resources management, including recruitment of all
personnel, training and management of all non-clinical staff;
(ix) billing and collection, accounts receivable and accounts
payable processing;
(x) utilization and cost management systems;
(xi) evaluating, negotiating and administering, on behalf of
Dental Group, agreements with employers, multi-employer welfare trusts,
third party administrators and other third parties, including third party
payors, managed care entities, institutional health care providers and
vendors;
- 4 -
<PAGE> 5
(xii) using best efforts to obtain and maintain malpractice and
other agreed upon insurance coverages;
(xiii) advertising, marketing and promotional activities;
(xiv) arranging for necessary legal services except with respect
to any legal dispute between Dental Group and First Dental; and
(xv) performing credentialing support services such as
application processing and information verification.
3.4. STAFF. Subject to the requirements of applicable federal and state
law, First Dental shall, on the terms and conditions specified in this
Agreement, employ or engage and make available to the Practice, on a
non-exclusive basis, sufficient non-dentist professional and administrative
staff (hereinafter referred to collectively as "Staff") as may be reasonably
necessary to operate the Practice in an efficient manner and meet the patient
care needs of the Practice in a timely manner, during the hours of operation of
the Practice by Dental Group. All Staff assigned by First Dental to the Practice
shall be subject to Dental Group's clinical supervision and approval, which
approval shall not be unreasonably withheld. The hiring, firing, disciplining,
and determination of compensation and benefits of such Staff in connection with
services provided to or on behalf of the Practice shall be within the sole
discretion of First Dental; provided, however, that First Dental shall, at
Dental Group's written request, remove from the Practice any Staff member who
does not perform to the reasonable satisfaction of Dental Group.
4. Responsibilities of Dental Group.
--------------------------------
4.1. PROFESSIONAL SERVICES. During the term of this Agreement, Dental
Group shall be solely responsible for, and First Dental shall not exercise any
control over, all aspects of the dental, diagnostic, therapeutic and related
professional services delivered by the Practice and for the selection, training,
professional direction, supervision and employment or engagement of all Dental
Group Personnel. The hiring, firing, credentialing, disciplining, and
determination of compensation and benefits of such Dental Group Personnel shall
be within the sole discretion of Dental Group. First Dental may terminate this
Agreement if Dental Group fails, within thirty (30) days after receiving written
notice from First Dental, to remove from the Practice any Dental Group Personnel
who First Dental determines has materially disrupted or interfered with the
performance of its obligations hereunder.
4.2. TIME COMMITMENT. Dental Group shall conduct the Practice fifty-two
(52) weeks per year, according to a schedule
- 5 -
<PAGE> 6
mutually determined by First Dental and Dental Group. Dental Group shall provide
Dental Group Personnel in adequate numbers to meet all of the needs, including
emergency needs, of patients of the Practice in a timely and responsive manner.
4.3. QUALITY OF SERVICE. Dental Group shall establish and enforce
procedures to assure the appropriateness, necessity, consistency, quality, cost
effectiveness and efficacy of all professional services provided to patients of
the Practice. Dental Group shall require each of its Dental Group Personnel, and
First Dental shall require each member of its Staff, to participate in and
cooperate with any utilization management, quality assurance, risk management,
patient care assessment, continuous quality improvement, accreditation or other
similar program or study to review the performance of Dental Group Personnel as
may be required by Dental Group, governmental agencies, professional review
organizations, accrediting bodies, or third party payors or health care entities
with which Dental Group may contract or affiliate.
4.4. Billing and Collection.
----------------------
(a) Dental Group, or Dental Group's authorized billing agent,
shall bill to and collect from patients, third party payors and others for all
services rendered by Dental Group or any Dental Group Personnel in connection
with the Practice. Dental Group hereby appoints First Dental as its agent and
attorney-in-fact for purposes of billing and collecting, in Dental Group's name
and on Dental Group's behalf, for all such professional services rendered in
connection with the Practice. First Dental shall issue bills for all such
services within thirty (30) days after such services are rendered, and First
Dental shall use its best, good faith and diligent efforts to collect for all
such services as promptly as may be reasonably practicable.
(b) All of the payments with respect to Dental Group services
shall be made by cash, credit card, check (or electronic funds transfer) payable
to Dental Group and shall be deposited into a lock box account in the name of
Dental Group (the "Practice Account") with a bank mutually agreed upon by the
parties and whose deposits are insured by the FDIC (the "Account Bank").
Withdrawals from such Practice Account shall require the joint signatures of an
authorized agent of Dental Group and an authorized agent of First Dental. Dental
Group shall direct Account Bank in writing to transfer all amounts in the
Practice Account at the end of each business day of the Account Bank, or with
such other frequency as First Dental may direct, to an account designated by
First Dental ("Manager's Account"). Dental Group agrees that it will not take
any action that interferes with the transfer of funds from the Dental Account to
the Manager's Account as provided in this Section nor will Dental Group or its
agents remove, withdraw or authorize the removal or
- 6 -
<PAGE> 7
withdrawal of any funds from the Practice Account for any purpose except to
accomplish the transfer of funds provided in this Section.
(c) Dental Group shall promptly endorse and deliver to First
Dental all payments, notes, checks, money orders, insurance proceeds,
remittances and other evidences of indebtedness or payment received by Dental
Group with respect to all accounts, contract rights, instruments, documents, or
other rights to payment from time to time arising from the rendering of medical
services by Dental Group and Dental Group Personnel or otherwise relating to the
business of Dental Group after the Effective Date, together with any guarantees
thereof or securities therefor which are generated during the term of this
Agreement. Such collections shall be deposited in the Practice Account by First
Dental.
(d) Dental Group and Dental Group Personnel hereby authorize First
Dental to initiate legal proceedings in the name of Dental Group to collect any
accounts and monies owed to Dental Group or any of Dental Group Personnel or to
enforce the rights of Dental Group and Dental Group Personnel as creditors under
any contract or in connection with the rendering of any service hereunder, and
to contest adjustments and denials by governmental agencies (or their fiscal
intermediaries) or third-party payors. All adjustments made for uncollectible or
doubtful accounts, charity care, professional courtesies and other activities
that do not generate a collectible fee shall be determined by First Dental in
its reasonable judgment for purposes of financial reporting.
(e) Dental Group shall provide written notice to First Dental at
least thirty (30) days in advance of any proposed change in its charges. If
First Dental objects in writing to any such proposed revised charge, Dental
Group shall consult with First Dental regarding the appropriate level of such
charge before said charge shall go into effect.
[Confidential Treatment has been requested for Section 5. It has been
omitted and filed separately with the Securities and Exchange Commission.]
- 7 -
<PAGE> 8
6. Regulatory Matters.
------------------
(a) Dental Group Personnel shall at all times be free, in their sole
discretion, to exercise their professional/dental judgment on behalf of patients
of Dental Group. No provision of this Agreement is intended, nor shall it be
construed, to permit First Dental to affect or influence the professional/dental
judgment of any Dental Group Personnel. To the extent that any act or service
required or permitted of First Dental by any provision of this Agreement may be
construed or deemed to constitute the practice of dentistry, the ownership or
control of a dental practice, or the operation of a dental or health care
facility, said provision of this Agreement shall be void AB INITIO and the
performance of said act or service by First Dental shall be deemed waived by
Dental Group.
(b) The parties agree to cooperate with one another in the fulfillment
of their respective obligations under this Agreement, and to comply with the
requirements of law and with all ordinances, statutes, regulations, directives,
orders, or other lawful enactments or pronouncements of any federal, state,
municipal, local or other lawful authority applicable to the Practice, and of
any insurance company insuring the Premises or
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<PAGE> 9
the parties against liability for accident or injury in or upon the Premises.
7. Insurance.
---------
7.1. GENERAL COMPREHENSIVE LIABILITY INSURANCE. During the term of this
Agreement, First Dental shall obtain and maintain, at Dental Group's PRO RATA
expense, a comprehensive general liability insurance policy and such other
insurance as may be required, in such amounts, with such coverages and with such
companies as First Dental may reasonably determine.
7.2. EQUIPMENT INSURANCE. First Dental shall cause to be carried and
maintained insurance against all risks of physical loss or damage to the
Equipment in an amount not less than the original purchase price or the
replacement cost with like kind and quality at the time of loss, with such
companies and as First Dental shall reasonably determine.
7.3. MALPRACTICE INSURANCE. During the term of this Agreement, First
Dental shall use its best efforts to obtain and maintain, at Dental Group's
expense, professional liability insurance covering Dental Group, and each Dental
Group Personnel, with limits of $1 million per occurrence and $3 million in the
annual aggregate. In the event Dental Group has a "claims made" form of
insurance in effect at any time during the term of this Agreement, First Dental
shall obtain, at Dental Group's expense, full "tail" coverage to cover any event
that may have occurred during the term of this Agreement. Dental Group shall
provide to First Dental any information with respect to Dental Group or Dental
Group Personnel necessary for First Dental to secure such professional liability
insurance.
8. INDEMNIFICATION. Except to the extent paid from the proceeds of
available insurance, each party (and its affiliates) agrees to indemnify and
hold the other party (and its affiliates) harmless against any loss, cost, suit,
claim, action, cause of action, damage, obligation, contract, demand, liability,
judgment, verdict, settlement or expense (including reasonable attorney's and
other consultancy fees and court costs) arising out of any act or omission of
the indemnifying party, its employees, agents or affiliates that occurs in
connection with this Agreement.
9. NON-SOLICITATION. Dental Group agrees not to solicit the employment of,
or to employ, any employee of First Dental or its affiliates, including but not
limited to any member of the Staff provided by First Dental to Dental Group
hereunder, during the term of this Agreement, and for a period of one (1) year
from the date of termination or expiration of this Agreement. Dental Group
agrees not to solicit contractual arrangements with, or business of any kind
from, any subscribers or health insurance clients of First Dental (or First
Dental affiliates) who reside,
- 10 -
<PAGE> 10
work or are located within a ten (10) mile radius of the Practice, for a period
of one (1) year from the date of termination or expiration of this Agreement.
10. NON-COMPETE. During the term of this Agreement, Dental Group and each
of Dental Group Personnel shall not, without the express written consent of
First Dental directly or indirectly, in whole or in part, own, manage, operate,
join, control, participate in the ownership, management, operation or control
of, contract with, be employed by, or be connected with in any manner, any
business engaged in the same or similar activities engaged in by First Dental or
Dental Group, or which directly or indirectly competes with First Dental or
Dental Group.
If any part of paragraph 9 or 10 of this Agreement should be
determined by a court of competent jurisdiction to be unreasonable in nature,
duration, geographic area, or scope, then this Agreement is intended to and
shall extend only for such period of time, in such area and with respect to such
activity, as is determined by said court to be reasonable.
11. DISCLOSURE OF INFORMATION. Dental Group recognizes and acknowledges
that all records, files, reports, protocols, policies, manuals, data bases,
processes, procedures, computer systems, materials and other documents used by
First Dental (or its affiliates) in rendering services hereunder, or relating to
the operations of First Dental (or its affiliates), belong to and shall remain
the property of First Dental and constitute proprietary information and trade
secrets that are valuable, special, and unique assets of First Dental business.
Dental Group shall not, and shall assure that each Dental Group Personnel shall
not, during or after the term of this Agreement, disclose any proprietary
information or trade secrets of First Dental (or its affiliates) to any other
firm, person, corporation, association, or other entity for any reason or
purpose whatsoever, without the written consent of First Dental or its
respective affiliate.
12. DENTAL GROUP COVENANTS. Dental Group agrees, at all times during the
term of this Agreement, not to amend its Articles of Organization or By-laws.
13. Term and Termination.
--------------------
(a) The term of this Agreement shall be for thirty (30) years
commencing on the date first written above, unless sooner terminated as set
forth herein, and shall automatically renew for successive five (5) year terms
unless either party gives the other at least ninety (90) days' prior written
notice of its intention not to renew prior to the expiration of the then current
term.
- 11 -
<PAGE> 11
(b) Either party may terminate this Agreement immediately upon the
occurrence of any of the following events with regard to the other party: (i)
the making of a general assignment for the benefit of creditors; (ii) the filing
of a voluntary petition or the commencement of any proceeding by either party
for any relief under any bankruptcy or insolvency laws, or any laws relating to
the relief of debtors, readjustment of indebtedness, reorganization, composition
or extension; (iii) the filing of any involuntary petition or the commencement
of any proceeding by or against either party for any relief under any bankruptcy
or insolvency laws, or any laws relating to the relief of debtors, readjustment
of indebtedness, reorganization, composition or extension, which such petition
or proceeding is not dismissed within ninety (90) days of the date on which it
is filed or commenced; or (iv) suspension of the transaction of the usual
business of either party for a period in excess of thirty (30) days.
(c) This Agreement may be terminated by First Dental by written notice
to Dental Group, at any time at or after issuance to First Dental or its
affiliates by the Massachusetts Department of Health Services of a license to
operate a dental or health care facility, or a diagnostic and treatment center,
at the Practice.
(d) First Dental shall terminate this Agreement immediately upon
written notice to Dental Group in the event of termination for any reason of (i)
that certain Revolving Credit Agreement between First Dental and Dental Group of
even date herewith, (ii) any Sublease Agreement between First Dental and Dental
Group, or (iii) any other written agreement between the parties of even date
herewith.
(e) First Dental may terminate this Agreement immediately upon written
notice to Dental Group of any breach of the Stock Transfer Restriction Agreement
of even date herewith between First Dental and the stockholder of Dental Group.
(f) First Dental may terminate this Agreement immediately upon written
notice to Dental Group of any breach of paragraph 12 of this Agreement.
(g) First Dental may terminate this Agreement at any time, with or
without cause, by giving Dental Group ninety (90) days' prior written notice.
(h) Dental Group may terminate this Agreement upon ninety (90) days'
prior written notice to First Dental in the event of a material breach by First
Dental of any material term or condition hereof, if such breach is not cured to
the reasonable satisfaction of Dental Group within ninety (90) days after Dental
Group has given notice thereof to First Dental.
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<PAGE> 12
(i) Upon termination or expiration of this Agreement, Dental Group
shall return to First Dental any and all property of First Dental which may be
in Dental Group's possession or under Dental Group's control.
14. ARBITRATION. Any disputes arising under this Agreement or any breach of
this Agreement, shall be determined by arbitration in the Commonwealth of
Massachusetts in accordance with the commercial rules of the American
Arbitration Association ("Association"), then in effect, by a single arbitrator
selected by mutual agreement of the parties or, if the parties are unable to
agree on an arbitrator, by the Association; provided that this paragraph shall
not restrict the right of either party to institute a legal proceeding to enable
such party to obtain temporary injunctive relief during the pendency of any such
arbitration. A determination of the dispute by the arbitrator shall be final and
binding on the parties to the extent permitted by law, and judgment on any award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The prevailing party, if any, in any arbitration under this Agreement
and in any court proceedings to enforce such arbitration or the arbitrator's
award shall be entitled to recover its reasonable attorney's fees and court
costs. The cost of the arbitration, other than attorney's fees and consultancy
fees, shall be borne equally by the parties.
15. STATUS OF PARTIES. In the performance of the work, duties and
obligations under this Agreement, it is mutually understood and agreed that each
party is at all times acting and performing as an independent contractor with
respect to the other and that no relationship of partnership, joint venture or
employment is created by this Agreement.
16. FORCE MAJEURE. Neither party shall be deemed to be in default of this
Agreement if prevented from performing any obligation hereunder for any reason
beyond its control, including but not limited to, Acts of God, war, civil
commotion, fire, flood or casualty, labor difficulties, shortages of or
inability to obtain labor, materials or equipment, governmental regulations or
restrictions, or unusually severe weather. In any such case, the parties agree
to negotiate in good faith with the goal of preserving this Agreement and the
respective rights and obligations of the parties hereunder, to the extent
reasonably practicable. It is agreed that financial inability shall not be a
matter beyond a party's reasonable control.
17. NOTICES. Any notices to be given hereunder by either party to the other
shall be deemed to be received by the intended recipient (a) when delivered
personally, (b) the day following delivery to a nationally recognized overnight
courier service with proof of delivery, or (c) three (3) days after mailing by
certified mail, postage prepaid with return receipt requested, in each case
addressed to the parties at the addresses set forth
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<PAGE> 13
above or at any other address designated by the parties in writing.
18. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter of this Agreement. This Agreement may not be changed
orally, and may only be amended by an agreement in writing signed by both
parties.
19. NO RIGHTS IN THIRD PARTIES. This Agreement is not intended to, nor
shall it be construed to, create any rights in any third parties, including,
without limitation, in any Dental Group Personnel.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
21. SEVERABILITY. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be contrary to law, that provision will be
enforced to the maximum extent permissible, and the remaining provisions of this
Agreement will remain in full force and effect, unless to do so would result in
either party not receiving the benefit of its bargain.
22. WAIVER. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to that term or any other term of
this Agreement.
23. RIGHTS UNAFFECTED. No amendment, supplement or termination of this
Agreement shall affect or impair any rights or obligations which shall have
theretofore matured hereunder.
24. INTERPRETATION OF SYNTAX. All references made and pronouns used herein
shall be construed in the singular or plural, and in such gender, as the sense
and circumstances require.
25. SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of the parties, their respective heirs, executors, administrators and
assigns.
26. FURTHER ACTIONS. Each of the parties agrees that it shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
27. NON-ASSIGNMENT. Dental Group may not assign this Agreement except with
the prior written approval of First Dental may assign this Agreement after
written notice to Dental Group.
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<PAGE> 14
28. SURVIVAL. Provisions of this Agreement which, by their terms or by
reasonable implication, are to performed after termination or expiration of this
Agreement (including Sections 2.3, 4.4, 5, 7.3, 8, 9, 10, 11 and 14-28) shall
survive termination or expiration of this Agreement.
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<PAGE> 15
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto
affix their signatures below and execute this Agreement under seal.
OSORIO AND WATKIN, D.M.D., P.C.
By: /s/Arnold Watkin
------------------------------------
President
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: /s/Jerald Robbins
------------------------------------
President
<PAGE> 16
EXHIBIT A
DESCRIPTION OF PREMISES
<PAGE> 17
EXHIBIT B
SUBLEASE AGREEMENTS
<PAGE> 18
EXHIBIT C
EQUIPMENT
<PAGE> 19
EXHIBIT D
FURNISHINGS
<PAGE> 1
Exhibit 10.7
REVOLVING CREDIT AGREEMENT
--------------------------
This Agreement is made effective the 4th day of August, 1995 by and
between FIRST NEW ENGLAND DENTAL CENTERS, INC., a Delaware corporation having
its place of business at 2 Irving Street, Framingham, Massachusetts 01701 (the
"Lender"), and OSORIO AND WATKIN, D.M.D., P.C., a Massachusetts professional
corporation operating a dental practice (the "Practice") at 2 Irving Street,
Framingham, Massachusetts 01701 (the "Borrower").
WHEREAS, Borrower has entered into a Management Agreement with Lender of
even date herewith (the "Management Agreement") pursuant to which Lender will
provide Borrower with certain management services in connection with Borrower's
Practice; and
WHEREAS, Borrower has requested Lender to provide loans herein described
principally for the purpose of meeting cash flow needs of the Practice;
NOW, THEREFORE, in consideration of the mutual promises and conditions set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrower agree as follows:
1. Amounts and Terms of Loans.
--------------------------
1.1 During the period commencing on the date first written above and
ending on the first anniversary hereof, Lender agrees to lend up to $1,000,000
to Borrower (the "Revolving Loan"), subject to and upon the terms and conditions
herein set forth and in reliance upon the representations, warranties and
covenants of Borrower contained herein. To effect borrowing hereunder, Borrower
shall give Lender written notice specifying the amount and date of each proposed
borrowing under the Revolving Loan, which notice shall be given at least ten
(10) business days prior to each such borrowing; provided that Borrower shall be
entitled hereunder to only one such request per week.
1.2 Lender agrees, on the terms and conditions hereinafter set forth,
to make advances (referred to hereinafter individually as an "Advance" and
collectively as the "Advances") to Borrower to the extent that the Gross Income
received by the Borrower is less than the budgeted business expenses actually
paid by Borrower (on a cash basis) in the usual and ordinary course of the
Practice ("Reasonable and Necessary Business Expenses"); provided that in no
event shall the outstanding principal amount advanced to Borrower by Lender
hereunder at any time exceed $1,000,000. For purposes of this Agreement, "Gross
Income" means the amount collected by or on behalf of Borrower (on a cash basis)
for professional services of any nature
<PAGE> 2
rendered to any person in connection with the Practice, whether by Borrower or
any other licensed or certified professional or technical staff employed or
engaged by Borrower to render services in connection with the Practice
(collectively, the "professional staff"). The foregoing obligation of Lender
shall be referred to hereafter as the "Revolving Loan Commitment".
1.3 Borrower's budgeted expenses for the first year of this Agreement
are set forth in the budget attached hereto as EXHIBIT A and incorporated herein
by reference ("Budget"). Only expenses reflected in the Budget, and such other
expenses of the Borrower as Lender may approve from time to time, shall qualify,
for purposes of this Agreement, as Reasonable and Necessary Business Expenses.
Reasonable and Necessary Business Expenses shall include, but not be limited to
Budgeted: base salary, bonus, compensation, and fringe benefits of Borrower's
professional staff, premium payments for professional liability insurance
policies Borrower is required to obtain and maintain under the Management
Agreement, and the Management Fee to be paid by Borrower to Lender under the
Management Agreement.
1.4 Interest shall accrue on each Advance from the date of disbursement
at an interest rate per annum equal to the prime rate plus two (2%) percent, as
published in the WALL STREET JOURNAL from time to time. Interest shall be
compounded monthly.
1.5 In the event that the Gross Income of the Borrower exceeds the
Reasonable and Necessary Business Expenses of the Borrower in any quarter during
the term of this Agreement, Borrower agrees to pay to Lender one hundred percent
(100%) of such excess within thirty (30) days of the end of any such quarter, up
to the aggregate amount of any unpaid Advances, together with interest accrued
thereon, made to Borrower by Lender hereunder.
1.6 The sum of the aggregate Advances made by Lender to Borrower which
has not previously been repaid to Lender under Section 1.5 hereof, plus any
accrued interest on aggregate Advances which has not previously been repaid to
Lender under Section 1.5 hereof ("Outstanding Balance"), shall be repaid to
Lender by Borrower, together with any interest accrued thereon, as provided in
Section 1.7 below. Interest shall accrue on the Outstanding Balance from the
date of termination or expiration of this Agreement at the interest rate
specified in Section 1.4 hereof.
1.7 The Outstanding Balance, plus accrued interest shall be and become
immediately due and payable to the Lender, on demand: (i) in one lump sum, on
the date of the termination or expiration of this Agreement, as applicable; or
(ii) thereafter, on such other terms and conditions as the Lender may specify in
writing. The parties specifically acknowledge that any amounts
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<PAGE> 3
which are subject to repayment by the Borrower under this Agreement are
repayable solely from the assets of the Borrower, and Lender shall have no
recourse against any officer, director or shareholder of Borrower for any such
amounts.
1.8 The total of each Advance made by Lender to Borrower under the
Revolving Loan and all payments made by Borrower to Lender shall be recorded by
Lender on the schedule attached as EXHIBIT B hereto and incorporated herein by
reference. Payments made by Borrower hereunder shall be applied first to accrued
interest and then to the outstanding principal balance of Advances hereunder or
the Outstanding Balance, as applicable.
1.9 On or before the thirtieth day of each month during the term of
this Agreement, Borrower shall render, or shall arrange to render, to Lender a
written report of monthly Gross Income, accounts receivable, unbilled services,
accounts payable and all Reasonable and Necessary Business Expenses incurred and
paid in connection with the Practice for the immediately preceding month.
Borrower shall maintain its financial books and records so as to record Gross
Income, accounts receivable, Advances, unbilled services, accounts payable and
all Reasonable and Necessary Business Expenses. During the term of this
Agreement and any period thereafter during which Borrower has any Outstanding
Balance due to Lender, Borrower shall provide to Lender reasonable access to
such books and records of Borrower as may be reasonably necessary to carry out
the provisions of this Agreement.
1.10 Borrower, at Lender's request, shall execute a promissory note
evidencing the amount of outstanding Advances hereunder. Borrower shall also, at
Lender's request, execute security agreements, financing statements, and other
documents reasonably necessary to secure Borrower's repayment obligations
hereunder by granting to Lender a security interest in Borrower's accounts and
accounts receivable, equipment, fixtures, tangible and intangible property (the
"Collateral") and cooperating with Lender to perfect such security interest.
Borrower shall not grant any other security interest in the Collateral without
the prior written consent of Lender.
2. REGULATORY. No amount advanced hereunder is intended to be nor shall it
be construed to be, an inducement or payment for, or recommendation of, referral
of patients by Borrower or any member of the professional staff of Borrower to
Lender or any of Lender's affiliates, or by Lender or any of Lender's affiliates
to Borrower or any member of the professional staff of Borrower. In addition,
nothing herein is intended to or shall be construed to authorize or require
Lender or any of Lender's affiliates to practice dentistry, invest in or own the
Borrower, or to exercise any control or direction over any aspect of the
Borrower or the Practice. Borrower and its professional staff
- 3 -
<PAGE> 4
remain free to exercise their professional judgment, in their sole discretion,
in the diagnosis and treatment of patients of the Practice.
3. NOTICE OF DEFAULTS; DISPUTES AND OTHER MATTERS. Borrower shall give
written notice to Lender of the following matters forthwith upon any officer of
Borrower obtaining knowledge thereof:
3.1 Any default or notice of default with respect to any indebtedness
of Borrower.
3.2 Any actions, proceedings or claims which may be commenced or
asserted against Borrower in which the amount involved is not fully covered by
insurance or which, if not solely a claim for monetary damages, could, if
adversely determined, have a material adverse effect on the business or assets
of Borrower.
3.3 The occurrence of any Event of Default as defined in Section 4 of
this Agreement.
3.4 The occurrence of any event which constitutes, or with notice or
lapse of time or both, would constitute, a default under any contractual
obligation of Borrower which, if adversely determined, could have a material
adverse effect on the business or assets of Borrower.
4. Events of Default.
-----------------
4.1 "Events of Default" wherever used herein means any one of the
following events (whatever the reason for such Event of Default, whether it
shall relate to one or more of the parties hereto and whether it shall be
voluntary or involuntary or occur by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental instrumentality):
4.1.1 If any indebtedness of Borrower for money borrowed shall not
be paid as and when the same becomes due and payable, or there shall occur any
event which constitutes, or which with the giving of notice or lapse of time, or
both, would constitute an event of default under any instrument, agreement or
evidence of indebtedness relating to any such obligation of Borrower; or
4.1.2 If Borrower should default in a payment or performance of
any material obligation or indebtedness to others (other than as set forth in
Section 4.1.1 hereof), whether now or hereafter incurred; or
- 4 -
<PAGE> 5
4.1.3 If there shall occur a default in the due performance or
observance of any term, covenant or agreement to be performed or observed
pursuant to Section 3 hereof; or
4.1.4 If there shall occur any default in the due performance or
observance of any other term, covenant or agreement to be performed or observed
pursuant to the provisions of this Agreement and such default shall continue
unremedied for a period of thirty (30) days;
4.1.5 If the stockholder of Borrower breaches that certain Stock
Transfer Restriction Agreement of even date herewith between the Lender and the
stockholder of the Borrower, or if that Stock Transfer Restriction Agreement is
terminated for any reason;
4.1.6 Upon (a) the termination or expiration of the Management
Agreement or any other agreement of even date herewith between the parties; (b)
the making of a general assignment by Borrower for the benefit of creditors; (c)
the filing of a voluntary petition or the commencement of any proceeding by
Borrower for any relief under any bankruptcy or insolvency laws, or any laws
relating to the relief of debtors, readjustment of indebtedness, reorganization,
composition or extension; (d) the filing of any involuntary petition or the
commencement of any proceeding by or against Borrower for any relief under any
bankruptcy or insolvency laws, or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, composition or extension, which
petition or proceeding is not dismissed within ninety (90) days of the date on
which it is filed or commenced; (e) suspension of the transaction of the usual
business of the Borrower for a period in excess of thirty (30) days; or (f)
dissolution, liquidation or winding up of the affairs of Borrower; or
4.1.7 If there shall occur or be threatened any of the events
described in Section 3 hereof and, in Lender's judgment, such event jeopardizes
or could reasonably be expected to jeopardize repayment of any sums borrowed
under this Agreement; or
4.1.8 If any judgment(s) for the payment of money shall be
rendered against Borrower, and such judgment shall remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of thirty (30) days
or more.
4.2 Acceleration; Remedies.
----------------------
4.2.1 Upon the occurrence of any Event of Default, or at any time
thereafter, if any Event of Default shall then be continuing, Lender may, by
written notice to Borrower, declare the entire unpaid principal balance or any
portion of the principal balance of all or any of the Advances or Outstanding
- 5 -
<PAGE> 6
Balance, as applicable, and interest accrued thereon, to be immediately due and
payable by Borrower. Such principal and interest shall thereupon become and be
immediately due and payable, without presentation, demand, protest, notice of
protest or other notice of dishonor of any kind, all of which are hereby
expressly waived by Borrower; and Lender may proceed to protect and enforce its
rights hereunder in any manner or order it deems expedient without regard to any
equitable principles of marshaling or otherwise. It is agreed that, in addition
to all other rights hereunder or under law, Lender shall have the right to
institute proceedings in equity or other appropriate proceedings for the
specific performance of any covenant or agreement made herein or in any document
executed in connection herewith or for an injunction against the violation of
any of the terms hereof or thereof or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise. All rights and remedies given
by the Management Agreement are cumulative and not exclusive of any other rights
or remedies available to Lender and its affiliates, and no course of dealing
between Borrower and Lender or Lender's affiliates or any delay or omission in
exercising any right or remedy shall operate as a waiver of any right or remedy,
and every right and remedy may be exercised from time to time and as often as
shall be deemed appropriate by Lender.
4.2.2 Lender may, by notice to Borrower at any time and from time
to time waive in whole or in part, and absolutely or conditionally, any Event of
Default. Any such waiver shall be for such period and subject to such conditions
or limitations as may be specified in any such notice. In the case of any such
waiver, the rights of Lender shall be otherwise unaffected and any Event of
Default so waived shall be deemed to be cured and not continuing only to the
extent and on the conditions or limitations set forth in such waiver (unless
such waiver shall state to the contrary), but no such waiver shall extend to any
subsequent or other Event of Default, or impair any right thereupon.
5. Miscellaneous.
-------------
5.1 NOTICES. Any notices to be given hereunder by either party to the
other shall be deemed to be received by the intended recipient (a) when
delivered personally, (b) the day following delivery to a nationally recognized
overnight courier service with proof of delivery, or (c) three (3) days after
mailing by certified mail, postage prepaid with return receipt requested, in
each case addressed to the parties at the addresses set forth above or at any
other address designated by the parties in writing.
5.2 PAYMENT OF EXPENSES. Borrower agrees to pay, and to hold Lender
harmless against liability for the payment of, all out-of-pocket expenses
arising in connection with the execution,
- 6 -
<PAGE> 7
delivery or administration (including, without limitation, any insurance
premiums paid by Lender on behalf of Borrower, any modification of, or any
consent or waiver under, this Agreement, and any enforcement of, or the
preservation of any rights under this Agreement) of the transactions
contemplated by this Agreement. The obligations of Borrower under this Section
5.2 shall survive the termination of this Agreement.
5.3 WAIVER OR SET-OFF. Borrower hereby waives the right to interpose
any set-off or counter-claim or cross-claim in connection with any litigation or
dispute under this Agreement, or any instrument or document delivered pursuant
to this Agreement, irrespective of the nature of such set-off, counterclaim or
cross-claim.
5.4 NO WAIVER. No failure or delay on the part of Lender in exercising
any right, power or privilege hereunder and no course of dealing between
Borrower and Lender shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
further exercise thereof or the exercise of any right, power or privilege. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which Lender would otherwise have. No notice to or
demand on Borrower in any case shall entitle Borrower to any other or further
notice or demand in similar or other circumstances or shall constitute a waiver
of the right of Lender to any other or further action in any circumstances
without notice or demand.
5.5 ENTIRE AGREEMENT AND AMENDMENTS. This Agreement represents the
entire Agreement between the parties hereto with respect to the Advances and the
transactions contemplated hereunder and, except as expressly provided herein,
shall not be affected by reference to any other documents. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but such may be accomplished only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
5.6 BENEFIT OF AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors and
assigns. Borrower expressly acknowledges that Lender is not prohibited or
restricted from assigning rights or participation hereunder to another party or
parties selected by Lender without notice to or consent of Borrower. Without the
prior written consent of Lender, Borrower may not assign any of its rights or
delegate any of its duties or obligations hereunder.
5.7 DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Agreement are inserted for
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<PAGE> 8
convenience only and shall not affect the meaning or construction of any of the
provisions hereof.
5.8 GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and shall be
governed by the laws of the Commonwealth of Massachusetts.
5.9 HOLIDAYS. Whenever any payment to be made hereunder shall become
due and payable on a day which is not a business day, such payment may be made
on the next succeeding business day and such extension of time shall in such
case be included in computing interest on such payment.
5.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original Agreement, but all of
which together shall constitute one and the same instrument.
5.11 MAXIMUM LAWFUL INTEREST RATE. Notwithstanding any provision
contained herein, the total liability of Borrower for payment of interest
pursuant hereto, shall not exceed the maximum amount of such interest permitted
by law to be charged, collected, or received from Borrower, and if any payment
by Borrower includes interest in excess of such a maximum amount, Lender shall
apply such excess to the reduction of the unpaid principal amount due pursuant
hereto, or if none is due, such excess shall be refunded to Borrower.
5.12 REGULATORY MATTERS. To the extent that any act or service required
or permitted of the Lender or the Borrower by any provision of this Agreement
may be construed or deemed to constitute the practice of dentistry or the
operation of a health care facility or service requiring licensure under
applicable law, said provision of this Agreement shall be void AB INITIO and the
performance of said act or service by the Lender or the Borrower shall be deemed
waived by the other party.
5.13 CONFIDENTIALITY. The existence, and the terms and conditions of
this Agreement, are confidential and shall not be disclosed to any third party
by any party to this Agreement except with the prior written consent of all
other parties to this Agreement.
5.14 SEVERABILITY. Every provision of this Agreement is intended to be
severable, and if any term or provision hereof shall be invalid, illegal or
unenforceable for any reason, the validity, legality and enforceability of the
remaining provisions hereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
duly executed as of the date first above written.
Lender: FIRST NEW ENGLAND DENTAL CENTERS, INC.
By:/s/Jerald Robbins
------------------------------------
Its President
Borrower: OSORIO AND WATKIN, D.M.D., P.C.
By:/s/Arnold Watkin
------------------------------------
Its President
- 9 -
<PAGE> 10
EXHIBIT A
Budget
------
<PAGE> 11
EXHIBIT B
Schedule of Loans
-----------------
Amount Date Borrowed
<PAGE> 1
Exhibit 10.8
SECURITY AGREEMENT
SECURITY AGREEMENT made as of August 4, 1995 by and between OSORIO AND
WATKIN, D.M.D., P.C., a Massachusetts professional corporation with a mailing
address at 2 Irving Street, Framingham, Massachusetts 01701 ("Debtor"), and
FIRST NEW ENGLAND DENTAL CENTERS, INC. a Delaware corporation with its office at
2 Irving Street, Framingham, Massachusetts 01701 ("Secured Party").
WITNESSETH:
Debtor, for valuable consideration, hereby grants to and creates in
Secured Party a security interest in the Collateral, as hereinafter defined, now
owned and hereafter acquired by Debtor, and all proceeds thereof whether cash or
non-cash, to secure the Obligations of Debtor to Secured Party, as hereinafter
defined.
If Debtor shall well and truly perform the Obligations as hereinafter
defined, and shall pay in full when due the principal of and interest on any
Advances made to the Debtor by the Secured Party under that certain Revolving
Credit Agreement by and between Debtor and Secured Party of even date herewith
in accordance with the terms and conditions thereof, which Revolving Credit
Agreement is attached hereto and incorporated herein by reference as though
fully set forth (the "Revolving Credit Agreement"), or any renewal or extension
thereof, then this Agreement shall terminate; otherwise this Agreement shall
remain in full force and effect.
Debtor hereby represents, warrants, covenants and agrees to and with
Secured Party as follows:
1. SECURITY INTEREST. Debtor grants to Secured Party a security interest
("Security Interest") in: (1) all accounts and general intangibles (as such
terms are defined in the Uniform Commercial Code in effect in Massachusetts from
time to time [the "Uniform Commercial Code"]) in which Debtor now has or
hereafter acquires any right, and the proceeds therefrom whether cash or
non-cash, including any equipment or inventory purchased with cash proceeds; and
(2) all equipment and fixtures of Debtor, whether now owned or hereafter
acquired for use in Debtor's practice of dentistry, and all substitutions
therefor, accessions thereto and proceeds thereof, including any personal
property or fixtures purchased with cash proceeds (collectively, the
"Collateral"). The Security Interest shall secure the payment and performance of
Debtor's obligations under the Revolving Credit Agreement and all other
obligations of Debtor to Secured Party, including its obligation to pay or
reimburse Secured Party
<PAGE> 2
for expenses of collection as provided herein (the "Obligations").
2. TITLE TO COLLATERAL. Except for the Security Interest created hereunder,
Debtor is (or, as to Collateral to be acquired after the date hereof, will be)
the owner of the Collateral free from any lien, security interest, claim, or
encumbrance and Debtor will defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein. During the
term of this Agreement, Debtor shall not grant any security interest in the
Collateral without the prior express written consent of Secured Party.
Notwithstanding anything in this paragraph 2 to the contrary, Debtor may grant a
purchase money security interest in connection with the purchase of any
equipment specified in a budget for Debtor's practice approved by Secured Party
under paragraph 1.3 of the Revolving Credit Agreement.
3. FINANCING STATEMENTS AND OTHER ACTIONS. Debtor agrees to do all acts as
may be reasonably necessary to perfect or protect the Security Interest or to
otherwise carry out the provisions of this Agreement, including but not limited
to the execution of financing statements, amendments and similar instruments and
the procurement of waivers and disclaimers of interest in the Collateral by
others. Secured Party may file as a financing statement a carbon, photographic
or other reproduction of this Agreement or a financing statement.
4. DEBTOR'S PLACE(S) OF BUSINESS. Debtor represents that Debtor's place(s)
of business is located at the address(es) set forth in Exhibit A and the records
concerning Debtor's accounts are located at the address(es) set forth in Exhibit
B. Debtor covenants to notify Secured Party of any change in the information
contained in this Paragraph 4.
5. LOCATION OF COLLATERAL. Debtor warrants and covenants that all of the
Collateral shall be located at Debtor's place of business specified in this
Agreement.
6. MAINTENANCE OF COLLATERAL. Debtor shall preserve the Collateral for the
benefit of Secured Party. Without limiting the generality of the foregoing,
Debtor shall preserve all beneficial contract rights and take all commercially
reasonable steps to collect all accounts promptly. Debtor shall not encumber,
sell or otherwise dispose of any item of the Collateral. Debtor shall have and
maintain insurance at all times with respect to the Collateral against all risks
of physical loss or damage to the Collateral in accordance with paragraph 5 of
the Agreement.
7. MAINTENANCE OF RECORDS. Debtor covenants to keep accurate and complete
books of record and account, in which proper entries shall be made of all its
dealings in accordance
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<PAGE> 3
with sound accounting practices. Secured Party shall have the right to audit and
make copies of any records or other writings which relate to the Collateral.
8. TAXES AND ASSESSMENTS. Debtor will pay when due all tax assessments and
all taxes imposed upon the Secured Party by reason of this Security Interest, or
the Obligations hereby secured, as well as any specific tax now or hereafter
created by law upon said Obligations or such Security Interest while the Secured
Party is holder hereof. If such taxes or other assessments remain unpaid after
the date fixed for payment of same, without penalty or interest, or if any lien
be claimed which, in the opinion of the Secured Party, or its counsel, would
create a valid obligation having priority over this Security Interest, Secured
Party may pay such tax, assessments and claims and the amount paid shall be
added to the Obligations, but there shall be no obligation on the part of
Secured Party to make any such payment.
9. POWERS OF SECURED PARTY. Until discharge of the Obligations, in the
event of Default by Debtor, Secured Party is authorized and shall be entitled to
do, either in its own name or in the name of Debtor, all reasonable things with
reference to the Collateral that the Debtor might reasonably have done to
protect the Collateral and the proceeds thereof, were it not for the creation of
the Security Interest granted herein, including, but not limited to, the
following rights:
A. To collect, sue for and receive payment of the proceeds of the
Collateral;
B. To endorse, in the name of Debtor, any instruments payable to
Debtor which shall be received or collected in partial or full
payment of the Collateral;
C. To settle, adjust and compromise all present and future claims
arising out of any of the Collateral; and
D. To notify account debtors on the Collateral to make payment
directly to Secured Party.
The Secured Party shall give the Debtor ten (10) days advance written
notice, during which time the Debtor may take curative action, before the
Secured Party exercises any of the powers referred to in this Paragraph.
10. COLLATERAL HEREAFTER ACQUIRED. The warranties, representations,
covenants and agreements made by Debtor with respect to Collateral now owned by
Debtor shall be presumed to be made by Debtor with respect to all Collateral
hereafter acquired and owned by Debtor as of the time Debtor first acquires
rights in such Collateral.
- 3 -
<PAGE> 4
11. EVENTS OF DEFAULT. Until the Obligations are paid in full, the
occurrence of any one or more of the following shall be an event of default
hereunder ("Events of Default"):
A. Debtor fails to pay or perform any of the Obligations when due;
or
B. Debtor fails to perform its covenants under this Agreement,
subject to any grace period included herein, and in the absence
of such grace period, if Debtor's failure to perform continues
for thirty (30) days after the date of notice of default; or
C. the occurrence of any event which permits the Secured Party to
terminate the Agreement, or any event which constitutes a default
under the Revolving Credit Agreement or any other obligation of
Debtor to Secured Party.
12. RIGHTS UPON DEFAULT. Upon the occurrence of an Event of Default,
Secured Party may (a) upon notice to Debtor declare the Obligations to be
immediately due and payable without presentment, demand, or protest of any kind,
all of which are hereby expressly waived, and (b) exercise the rights and
remedies accorded a secured party by the Uniform Commercial Code.
No course of dealing or delay in accelerating the Obligations or in taking
or failing to take any other action with respect to any Event of Default shall
affect Secured Party's right to take such action at a later time. No waiver as
to any one default shall affect Secured Party's rights upon any other default.
13. EXPENSES. Any payment made or expense incurred by Secured Party
(including reasonable attorneys' fees and disbursements) in connection with the
exercise of any right on default shall be added to the indebtedness of Debtor to
Secured Party, shall be payable upon demand and shall be secured by the Security
Interest.
14. NOTICES. Any notice under this Agreement shall be in writing and shall
be deemed delivered if mailed, postage prepaid to a party at the principal place
of business specified in this Agreement or such other address as may be
specified by notice given after the date hereof.
15. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and shall bind the heirs, executors, administrators, legal representatives,
successors and assigns of the parties.
16. GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the Commonwealth of Massachusetts.
- 4 -
<PAGE> 5
This Agreement shall have the effect of an instrument under seal.
OSORIO AND WATKIN, D.M.D., P.C.
By: /s/Arnold Watkin
------------------------------------
President
<PAGE> 6
EXHIBIT A
---------
Place(s) of Business
<PAGE> 7
EXHIBIT B
---------
Location of Records
<PAGE> 1
Exhibit 10.9
AMENDED AND RESTATED
STOCK TRANSFER RESTRICTION AGREEMENT
AMONG
FIRST NEW ENGLAND DENTAL CENTERS, INC.
OSORIO AND WATKIN, D.M.D., P.C.
AND
ARNOLD WATKIN, D.D.S.
AND
JULIAN OSORIO, D.M.D.
NOVEMBER 15, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Restrictions On Shares............................................... 1
2. Automatic Transfer of Shares in Certain Events....................... 1
3. Other Matters........................................................ 3
4. Restrictions on Certificates; Pledge................................. 4
5. Notices.............................................................. 4
6. Successors........................................................... 5
7. Additional Stockholders.............................................. 5
8. Covenants............................................................ 5
9. Third Party Beneficiary.............................................. 6
10. Governing Law........................................................ 6
11. Complete Agreement................................................... 6
12. Captions............................................................. 6
13. Modification......................................................... 7
14. Arbitration.......................................................... 7
15. Confidentiality...................................................... 7
16. Counterparts......................................................... 7
<PAGE> 3
AMENDED AND RESTATED
STOCK TRANSFER RESTRICTION AGREEMENT
------------------------------------
THIS AGREEMENT made as of the 15 day of November, 1996, by and among
OSORIO AND WATKIN, D.M.D., P.C., a Massachusetts professional corporation (the
"Corporation"), FIRST NEW ENGLAND DENTAL CENTERS, INC., a Delaware corporation
("First Dental"), and Arnold Watkin, D.D.S. and Julian Osorio, D.M.D. (the
"Stockholders") amends and restates that certain Stock Transfer Restriction
Agreement made as of August 4, 1995 by and among the parties hereto.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, each Stockholder is the holder of 100 shares of issued and
outstanding $.01 par value common stock of the Corporation representing all the
issued and outstanding shares of the Corporation;
WHEREAS, the Corporation and the Stockholders believe that it is in the
best interest of the Corporation to restrict the transferability of the stock in
the Corporation and certain other rights of the Stockholders;
WHEREAS, the parties desire that the Corporation and First Dental be
treated as members of the same affiliated group for financial reporting and
federal income tax purposes;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties covenant and agree as follows:
1. RESTRICTIONS ON SHARES. Except as otherwise provided herein, the
Stockholders shall not sell, assign, transfer, gift, bequeath, devise, pledge,
hypothecate, encumber or otherwise dispose of, whether voluntarily,
involuntarily, by operation of law or otherwise, any shares of the stock of the
Corporation which the Stockholders now own or may hereafter acquire (the
"Stock").
2. Automatic Transfer of Shares in Certain Events.
----------------------------------------------
(a) By execution of this Agreement, the Stockholders hereby agree
that all of the shares of Stock of the Corporation held by each Stockholder (or
any heir, executor, administrator, personal representative, estate, testamentary
beneficiary, donee, trustee in bankruptcy, successor or assignee of such
Stockholder) shall be transferred, or deemed transferred, to the Designated
Transferee (defined below) without further action by the
<PAGE> 4
Stockholder upon the occurrence any of the following events (each a "Transfer
Event"):
(i) the date of death of the Stockholder;
(ii) the date the Stockholder is determined by a court of
competent jurisdiction or a dentist selected by the Corporation to
be incompetent or permanently disabled;
(iii) the date the Stockholder becomes disqualified under
applicable law to be a shareholder of the corporation;
(iv) the date upon which any of the shares of Stock held by
the Stockholder are transferred or attempted to be transferred
voluntarily, involuntarily by operation of law or otherwise to any
person;
(v) the date of filing any petition for or other document
causing or intended to cause a judicial, administrative, voluntary
or involuntary dissolution of the Corporation; or
(vi) the date of receipt by the Corporation of written
transfer instructions from First Dental.
(b) TRANSFER OF STOCK. Upon the occurrence of a Transfer Event with
respect to a Stockholder, subject to the terms set forth below, all of the Stock
of the Corporation held by that Stockholder or his successors and assigns shall
be immediately transferred, or deemed transferred, to the Designated Transferee
without further action by the Stockholder:
(i) The purchase price for any Stock transferred to the
Designated Transferee pursuant to this Section 2 shall be the amount
paid by the transferor Stockholder for such Stock.
(ii) Payment of the purchase price for the Stock shall be
made to the Stockholder in cash or by certified or cashiers check. The
time for payment of the purchase price for the Stock hereunder shall
be at 10:00 a.m. on the first business day following receipt by the
Designated Transferee of notice of such Transfer Event (provided,
however, that in the absence of such notice, the Designated
Transferee shall upon becoming aware of any such Transfer Event
promptly notify the Stockholder, the Corporation and First Dental of
such Transfer Event and tender to the Stockholder the purchase price
for the Stock). The Designated
- 2 -
<PAGE> 5
Transferee shall tender the purchase price at the principal office
of the Corporation.
(iii) Notwithstanding anything to the contrary herein, upon
the occurrence of a Transfer Event, the Stock will be immediately
transferred, or deemed transferred, to the Designated Transferee
effective upon the date of such Transfer Event irrespective of the
date of payment for such Stock.
(c) DEFINITION. For purposes of this Agreement, "Designated
Transferee" shall mean that individual who is designated by First Dental.
(d) DEPOSIT AND CUSTODY OF STOCK. First Dental hereby acknowledges
receipt of stock certificates no. 1 and no. 2 (the "Certificates") of the
Corporation, the Certificates, each of which evidence 100 shares of the Stock of
the Corporation, have been deposited by the Stockholder with First Dental upon
execution hereof duly endorsed in blank. First Dental agrees to hold the
Certificates for the benefit of the Designated Transferee. Upon the occurrence
of a Transfer Event, First Dental shall endorse a Certificate in the name of the
Designated Transferee and release the Certificate to the Clerk of the
Corporation for cancellation by the Clerk, registration of the shares
represented thereby in the name of the Designated Transferee on the books of the
Corporation, and issuance of a new certificate in the name of the Designated
Transferee.
(e) DELIVERIES BY DESIGNATED TRANSFEREE. Notwithstanding anything
herein to the contrary, release by First Dental of the Certificate to the Clerk
of the Corporation shall be contingent on First Dental's prior or concurrent
receipt of:
(i) a stock transfer power executed by the Stockholder
covering the Stock transferred to the Designated Transferee; and
(ii) a copy of this Agreement duly executed by the Designated
Transferee substituting the Designated Transferee for the
Stockholder hereunder.
3. Other Matters.
-------------
(a) Upon the occurrence of a Transfer Event, the affected
Stockholder shall be disqualified as a stockholder of the Corporation, and shall
immediately resign as a director and officer of the Corporation.
- 3 -
<PAGE> 6
(b) After occurrence of a Transfer Event, the Stockholder, and any
person who acquires the Stock, other than the Designated Transferee, shall
neither have nor exercise any right or privilege as a stockholder of the
Corporation, including any right to receive any unallocated or undistributed
dividend.
4. Restrictions on Certificates; Pledge.
------------------------------------
(a) Upon the execution of this Agreement, the Stockholders shall
surrender their certificates representing shares of the Stock subject to this
Agreement to the Corporation for the purpose of placing notice of the
restrictions on transfer occasioned by this Agreement substantially as follows:
EACH OUTSTANDING STOCK CERTIFICATE OF THE CORPORATION SHALL BEAR THE
FOLLOWING ENDORSEMENT IN BOLD PRINT: "THE SHARES OF STOCK REPRESENTED BY
THIS CERTIFICATE AND THE TRANSFER THEREOF ARE SUBJECT TO CERTAIN
RESTRICTIONS IMPOSED BY M.G.L. C.156A, THE BOARD OF REGISTRATION IN
DENTISTRY, THE ARTICLES OF ORGANIZATION, THE BY-LAWS OF THE CORPORATION
AND A CERTAIN AMENDED AND RESTATED STOCK TRANSFER RESTRICTION AGREEMENT
AMONG THE STOCKHOLDERS, THE CORPORATION AND FIRST NEW ENGLAND DENTAL
CENTERS, INC."
After such notice has been placed on such certificate, it shall be
returned to the Stockholder. All Stock which is subject to this Agreement and
which is issued to the Stockholder after the date of this Agreement shall bear
the same notice.
(b) As security for their obligations hereunder, the Stockholders
hereby pledge and assign to First Dental all their right, title and interest to
any and all dividends, including liquidating distributions, and other
distributions declared or made by the Corporation during the term of this
Agreement and, so long as this Agreement shall remain in effect, the
Stockholders agree to pay over to First Dental any such distributions.
5. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) telexed,
telecopied or made by facsimile transmission, (iii) sent by overnight courier,
or (iv) sent by certified or registered mail, return receipt requested, postage
prepaid.
If to the Corporation:
Osorio and Watkin, D.M.D., P.C.
85 Devonshire Street - 2nd Floor
Boston, MA 02109
Attn: Treasurer
- 4 -
<PAGE> 7
If to the Stockholders:
Arnold Watkin, D.D.S.
120 Rachel Road
Newton, MA 02159
Julian Osorio, D.M.D.
210 Beacon Street, Apt. 1
Boston, MA 02116
If to First Dental:
First New England Dental Centers, Inc.
85 Devonshire Street - 2nd Floor
Boston, MA 02109
Attn: President
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if telexed, telecopied or made by facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next day following the day such
mailing is made (or in the case that such mailing is made on Saturday, on the
immediately following Monday), or (iv) if sent by certified or registered mail,
on the 3rd day following the time of such mailing thereof to such address (or in
the case that such 3rd day is a Sunday, on the immediately following Monday).
6. SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto, and their authorized successors or assigns.
The rights of any party hereunder may not be assigned without the consent of the
remaining parties hereto.
7. ADDITIONAL STOCKHOLDERS. Each holder of any of the capital stock of
the Corporation or any rights to acquire capital stock of the Corporation,
including any holder of any warrant, option or other security convertible into
or exchangeable for capital stock of the Corporation, shall execute a
counterpart of this Agreement acknowledging that the restrictions contained
herein shall apply to such stock or rights to acquire stock in the Corporation.
8. COVENANTS. The Corporation and the Stockholders agree, at all times
during the time of this Agreement, that the Corporation and its Stockholders
shall not take any of the following actions without the prior written consent of
First Dental:
- 5 -
<PAGE> 8
(a) Amend, revise, restate, alter, change or adopt the Articles of
Organization or the Bylaws of the Corporation or any Stockholders, voting trust,
partnership or other similar agreement among the Stockholders of the
Corporation;
(b) Authorize or approve any sale, assignment, transfer,
conveyance, redemption, repurchase, pledge or hypothecation of any stock,
security or debt instrument of the Corporation;
(c) Authorize or approve any merger, consolidation,
reorganization, liquidation, dissolution of all or substantially all of the
assets of the Corporation;
(d) Authorize, approve or establish any subsidiary or other entity
owned or controlled by, or under common ownership or control of, the Corporation
or any Stockholder;
(e) Authorize or issue any stock, treasury stock, note, bond,
debenture, convertible security, warrant, stock option, stock purchase
agreement, stock repurchase agreement or other security or debt instrument of
the Corporation;
(f) Declare or pay any dividend or make any other distribution to
any Stockholder with respect to his stock; or
(g) Take any other action requiring the approval of the directors
of the Corporation or the Stockholders without having consulted with First
Dental and given First Dental at least five days advance notice of such action.
9. THIRD PARTY BENEFICIARY. The parties hereto acknowledge that the
Designated Transferee, if and when he or she becomes a Designated Transferee,
shall have standing to enforce the provisions of this Agreement.
10. GOVERNING LAW. This Agreement, the rights and obligations
hereunder, and any claims or disputes relating thereto, shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
11. COMPLETE AGREEMENT. All understandings and agreements heretofore had
between the parties hereto with respect to the transactions contemplated hereby
are merged into this Agreement, and this Agreement reflects all the
understandings of the parties with respect to such transactions.
12. CAPTIONS. The section titles or captions in this Agreement are for
convenience of reference only. They shall not be considered to be a part of this
Agreement, and they in no way
- 6 -
<PAGE> 9
define, limit, extend or describe the scope or intent of any provision hereof.
13. MODIFICATION. This Agreement cannot be modified, extended or amended
except by written agreement signed by all of the parties hereto.
14. ARBITRATION. Any dispute regarding the meaning and interpretation of
this Agreement shall be submitted to arbitration. The parties hereto agree that
all disputes arising under this Agreement shall be settled by arbitration in
accordance with the rules of the American Arbitration Association in
Massachusetts (the "Association"), then in effect, before a single arbitrator
chosen by mutual agreement of the parties or, if the parties are unable to agree
on an arbitrator, by the Association. A determination of the dispute by the
arbitrator shall be final and binding on the parties to the extent provided by
law. The cost of the arbitration, other than attorney's and consultancy fees,
shall be borne equally by the parties.
15. CONFIDENTIALITY. The existence and the terms and conditions of this
Agreement are confidential and shall not be disclosed to any third party by any
party to this Agreement without the prior written consent of all other parties
to this Agreement.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts and each counterpart, when so executed and delivered shall
constitute a complete and original instrument, and it shall not be necessary
when making proof of this Agreement or any counterpart thereto to produce or
account for any other counterparts.
- 7 -
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument on the date first written above.
OSORIO AND WATKIN, D.M.D., P.C.
By: /s/ Arnold Watkin
---------------------------------------
Arnold Watkin, D.D.S., President
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: /s/ Donald E. Strange
---------------------------------------
Its Chief Executive Officer
By: /s/ Arnold Watkin
---------------------------------------
Arnold Watkin, D.D.S.,
Individually
By: /s/ Julian Osorio
---------------------------------------
Julian Osorio, D.M.D.,
Individually
-8-
<PAGE> 1
Exhibit 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of the 30th day of September, 1996, between FIRST
NEW ENGLAND DENTAL CENTERS, INC., a Delaware corporation (the "Company"), and
Donald E. Strange of Dallas, Texas (the "Executive").
WHEREAS, the Company desires to employ Executive for the period and upon
and subject to the terms herein provided; and
WHEREAS, Executive is willing to agree to be employed by the Company upon
and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
[Section]1. TERM OF EMPLOYMENT. The Company agrees to employ Executive as
its Chairman and Chief Executive Officer from October 1, 1996 through September
30, 1999 (the "Termination Date"), or until the earlier termination of this
Agreement pursuant to the terms hereof. This Agreement, and the Termination
Date, will be renewed automatically for successive one-year terms, unless the
Company or the Executive gives written notice to the other of its or his
election not to renew, at least six months prior to the end of the then-current
term.
[Section]2. COMPENSATION. The Company will pay Executive base pay for his
services rendered hereunder at an annual rate of $190,000, subject to upward
adjustment based on reviews by the Company's Board of Directors (the "Board") to
occur not less frequently than annually. Executive's salary shall be paid in
accordance with the Company's regular payroll practices for all senior
executives as determined by the Company, subject only to such payroll and
withholding deductions as are required by law and such other payroll deductions
as are determined by the Company policy or as Executive may approve.
[Section]3. STOCK OPTIONS. Executive shall be entitled to purchase up to
15,385 shares of the Common Stock, par value $0.01 per share, of the Company
("Stock"), at a purchase price of $6.50 per share, at any time prior to April 1,
1997. In addition, the Company shall award Executive options to purchase 300,000
shares of the Stock at the exercise price of $6.50 per share. Such options shall
vest ratably on a quarterly basis over the original term of this Agreement. Such
options shall be issued pursuant to a Stock Option Agreement in substantially
the form of Exhibit A attached hereto.
[Section]4. BONUS. The Board shall establish an annual budget each year,
setting forth projected expenses, revenues and net profits. In the event that
the Company achieves at least 90% of its projected net profit for any fiscal
year during the term of this Agreement, commencing with the fiscal year ending
December 31, 1997, the Company shall pay to Executive a bonus in an amount
determined as follows:
<PAGE> 2
- 2 -
<TABLE>
<CAPTION>
% of Projected Net Profit Bonus (% of Base Annual Salary)
------------------------- -------------------------------
<S> <C>
90 - 91% 5%
91 - 92% 10%
92 - 93% 15%
93- 94% 20%
94 - 95% 25%
95 - 96% 30%
96 - 97% 35%
97 - 98% 40%
98 - 99% 45%
99% + 50%
</TABLE>
In the event that the Company exceeds 100% of its projected net profit in such
year, the Company may pay Executive an additional discretionary performance
bonus, at such times and in such amounts as the Company, in its sole discretion,
may determine. The Board, in reviewing Executive's salary at his first salary
review following the date hereof, shall take into consideration the Company's
financial performance for the period from October 1, 1996 through December 31,
1996.
[Section]5. OFFICE AND DUTIES. During the term of this Agreement, the
Company shall employ Executive to serve as the Company's Chairman and Chief
Executive Officer. The Executive shall perform such executive, administrative
and operational duties customary for executives in such capacity or as may be
assigned to the Executive from time to time by the Board, provided such duties
are customary for the position of chairman and chief executive officer.
Executive agrees to serve the Company faithfully and to the best of
Executive's ability and to devote substantially all of Executive's business
time, attention and efforts to the interests and business of the Company.
Nothing contained herein shall preclude Executive from serving on the boards of
up to three business corporations (other than the Company, and provided that
none of such coporations engages in a business that competes with the business
of the Company) and on boards of not-for-profit organizations and trade groups,
nor from participating in community affairs, provided that such activities do
not materially interfere with the Executive's performance of his duties and
responsibilities as Chairman and Chief Executive Officer of the Company.
Executive agrees at all times to perform all his duties in accordance with
applicable laws, rules and regulations and the policies and procedures of the
Company applicable to senior executives in effect from time to time.
[Section]6. EXPENSES. Executive shall be entitled to reimbursement for
reasonable and necessary business expenses incurred, consistent with Company
policy, in connection with the performance of his duties hereunder upon receipt
of vouchers therefor in accordance with such procedures as the Company has
heretofore or may hereafter establish.
<PAGE> 3
- 3 -
[Section]7. VACATION DURING EMPLOYMENT. Executive shall be entitled to 20
days' paid vacation during each year of his employment hereunder.
[Section]8. ADDITIONAL BENEFITS. Executive shall be entitled to all paid
holiday, medical and other fringe benefit plans that the Company may now or
hereafter in its discretion make available generally to its senior management.
[Section]9. APARTMENT; RELOCATION EXPENSES. Pending Executive's relocation
from Dallas, Texas to the Boston, Massachusetts area, the Company shall provide
Executive, for a period of time not to exceed one year, with the use of a
Company-leased apartment. The Company shall reimburse Executive for all
reasonable out-of-pocket relocation expenses incurred in connection with his
relocation from Dallas to the Boston area, up to a maximum of $100,000.
[Section]10. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, Executive's employment shall terminate on the death of the
Executive and may be terminated by the Board, as follows:
(a) either (i) the Executive is determined to be "permanently
disabled" as defined under the disability insurance policy covering the
Executive, or (ii) if Executive is not covered by any such disability
policy, the Executive is determined to be "totally disabled" by vote of a
majority of the Board (excluding Executive) based upon the advice of a
board-certified physician reasonably satisfactory to Executive, which may
include a determination that the Executive is unable, because of physical
or mental illness or incapacity or otherwise, to fulfill his duties under
this Agreement for 180 consecutive days or appears unable to perform such
duties for an indefinite period of time in excess of 180 days;
(b) termination of Executive by the Company for "Cause" (as
hereinafter defined), provided, however, a termination for Cause shall not
take effect unless the following has occurred:
(i) The Board has given Executive written notice of its intention
to terminate Executive for Cause, specifying with particularity the
grounds on which the proposed termination for Cause is contemplated,
which shall be acts or failures to act on the part of Executive that
occurred no more than six months prior to the Board's having knowledge
of such acts or failures to act;
(ii) the Executive shall have 30 days after such written notice
to cure such conduct;
(iii) if Executive fails to cure such conduct Executive shall
have the right to request by a notice to the Secretary of the Company
given within 10 days after Executive receives notice from the Board
that he has not cured the conduct within the period described in
subsection (ii) above, a hearing before the full Board, with his
counsel;
<PAGE> 4
-4-
(iv) if, within 5 days after Executive's hearing by the Board, he
receives a certified copy of a resolution duly adopted by a majority
of the full Board (exclusive of Executive) confirming that in its
judgment the grounds for termination for "Cause" described in the
initial notice given under subsection (i) above have not been cured,
the Executive's employment shall be terminated.
"Cause" shall mean (x) the willful and continued failure by the Executive
to substantially perform his duties with the Company in accordance with this
Agreement (other than any such failure after the issuance of a notice from the
Executive to the Company because of Constructive Termination Without Cause (as
hereinafter defined)), or (y) the Executive's conviction of fraud, embezzlement,
theft or other criminal conduct involving a felony and such conviction is final
and non-appealable.
[Section]11. TERMINATION WITHOUT CAUSE. In the event that, during the term
of this Agreement, Executive's employment hereunder is terminated by the Company
other than pursuant to [Section]10 hereof or by Executive because of
Constructive Termination Without Cause (as hereinafter defined), the Company
shall pay Executive an amount equal to one year's base annual salary, plus
benefits and bonus compensation, at the rate in effect immediately prior to his
termination, payable in 12 equal montly installments, commencing 30 days from
the effective date of termination, and all stock options granted to Executive
pursuant to [Section]3 hereof shall immediately become vested on the effective
date of termination of employment. Notwithstanding the foregoing, in the event
that such termination of employment occurs within one year following a Change of
Control (as hereinafter defined), the Company shall pay to Executive an amount
equal to the base annual salary, benefits and bonus compensation that would have
been payable hereunder had such termination not occurred for the period from the
date of termination of employment through the later to occur of the Termination
Date and the second anniversary of the effective date of termination, payable in
equal monthly installments commencing 30 days from the effective date of
termination through the Termination Date or, if later, the second anniversary of
the effective date of termination, and all stock options granted to Executive
pursuant to [Section]3 hereof shall immediately become vested on the effective
date of termination of employment.
"Constructive Termination without Cause" shall mean:
(a) a change in reporting structure such that Executive does not
report directly to the Board, or the assignment to Executive of any duties
significantly different than those contemplated by this Agreement or any
limitation on the powers of the Executive not consistent with his position
as Chairman and Chief Executive Officer, whether resulting from a
transaction after the date hereof (including, without limitation, any
merger, reorganization, consolidation or other similar transaction) or
otherwise;
(b) the failure to elect Executive or his removal as a director of the
Company without the Executive's prior written consent;
(c) a reduction in Executive's then current base pay or bonus award
opportunity or other long-term performance incentive or the termination or
failure by the Company to
<PAGE> 5
-5-
continue to provide any employee benefit or perquisite enjoyed by
Executive, or the failure to include Executive in any incentive
compensation plan of Company unless a plan providing substantially the same
opportunity is substituted, or the failure of the Board to review and act
upon Executive's base pay amount prior to October 1 during the term of this
Agreement;
(d) fraudulent conduct by the Company in which Executive is not a
participant;
(e) a material breach of this Agreement by the Company that is not
promptly cured after written notice of such breach is given by Executive to
the Board, including, without limitation, the failure to obtain the
assumption of the Company's obligations under this Agreement by any
successor to the Company's assets or business prior to the transfer of such
assets or business;
(f) any requirement by Company that Executive relocate to a principal
place of business outside of the Boston metropolitan area.
"Change of Control" shall mean, prior to the consummation of an initial public
offering of the Company's common stock, the occurrence of any one of the
following events:
(a) any "person" which is not the "beneficial owner" of more than 35%
of the voting securities of the Company on a fully diluted basis on the
date hereof or an "affiliate" of such party on the date hereof becomes a
"beneficial owner" of more than 35% of the voting securities of the Company
(as such terms are defined in Section 13(d) of the Securities Exchange Act
of 1934 and the regulations promulgated thereunder);
(b) the Board approves a plan to sell or dispose of by merger,
consolidation or other transaction all or substantially all of the
Company's operating assets (on a consolidated basis) or approves a plan of
liquidation; or
(c) the Company combines with another company and is the surviving
corporation but immediately after the combination, the persons who were the
stockholders of the Company immediately prior to the combination own 50% or
less of the voting securities of the combined entity.
"Change of Control" shall mean, after the consummation of an initial public
offering of the Company's common stock, the occurrence of any one of the
following events:
(a) any "person" which is not the "beneficial owner" of more than 20%
of the voting securities of the Company on a fully diluted basis
immediately after the consummation of such public offering or an
"affiliate" of such party on such date hereof becomes a "beneficial owner"
of more than 20% of the voting securities of the Company (as such terms are
defined in Section 13(d) of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder);
<PAGE> 6
- 6 -
(b) the majority of the Board consists of individuals other than
members of the Board of Directors immediately after the consummation of
such public offering or persons whose nomination or election was approved
by at least two-thirds of the members of the Board immediately preceding
the election of such individuals;
(c) the Board of Directors of the Company approves a plan to sell or
dispose of by merger, consolidation or other transaction all or
substantially all of the Company's operating assets (on a consolidated
basis) or approves a plan of liquidation; or
(d) the Company combines with another company and is the surviving
corporation but immediately after the combination, the persons who were the
stockholders of the Company immediately prior to the combination own 50% or
less of the voting securities of the combined entity.
[Section]12. CONFIDENTIALITY. Executive shall not, either during the period
of his employment with the Company or thereafter, reveal or disclose to any
person outside the Company or use to his own benefit, any proprietary and
confidential marketing technique or cost method, or any patient list of the
Company or any proprietary and confidential mailing or supplier list, whether or
not made, developed and/or conceived by Executive or by others in the employ of
the Company. Upon the termination of Executive's employment in any manner or for
any reason, Executive shall promptly surrender to the Company all copies of any
of the foregoing, together with any other documents, materials, data,
information and equipment belonging to or relating to the Company's business and
in his possession, custody or control, and Executive shall not thereafter retain
or deliver to any other person, any of the foregoing or any summary or
memorandum thereof.
[Section]13. RESTRICTION. Executive agrees that for 12 months from the
termination of employment at the Termination Date, for cause by the Company, or
voluntarily by Executive (other than because of a Constructive Termination
Without Cause):
The Executive will not, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management, operation or control of, any business or enterprise (a
"Restricted Business") that is in the business of operating dental clinics (or
any aspect thereof) within a 10-mile radius of any dental clinic operated by the
Company at the time of termination of Executive's employment. The restrictions
contained in this paragraph will not prevent the Executive, during the 12-month
period following the termination of his employment hereunder, from being
employed by, acting as a consultant to, or serving on the Board of Directors of,
any entity with a large national or regional business that directly or
indirectly engages in the Restricted Business in the territories restricted
hereunder or from owning up to a 1% equity interest in such an entity, but only
if such entity is publicly traded; provided that the Executive does not actively
engage in the direct management of that portion of such entity's business which
is located in the restricted territory.
[Section]14. NO SOLICITATION. Executive will not, for a period of 12 months
after termination of employment for any reason solicit or attempt to induce,
directly or indirectly, any employee of the
<PAGE> 7
-7-
Company to accept employment with a competitor of the Company or with any
business or enterprise intending to compete with the Company.
[Section]15. SEVERABILITY. Executive and the Company are of the belief that
the period of time and the area herein specified in [Sections] 13 and 14 above
are reasonable in view of the nature of the business in which the Company is
engaged, the state of its development and Executive's knowledge of the business.
However, if such period or such area should be adjudged unreasonable in any
judicial proceeding, then the period of time shall be reduced by such number of
months or such area shall be reduced by elimination of such portion of such
area, or both, as are deemed unreasonable, so that this covenant may be enforced
in such area and during such period of time as is adjudged to be reasonable.
[Section]16. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered or mailed by
first-class, registered or certified mail, postage prepaid, addressed (a) if to
Executive, at 5605 Netherland Court, Dallas, Texas 75229-5567; and (b) if to the
Company, attention of the President at its principal place of business, 85
Devonshire Street, Boston, Massachusetts 02108.
[Section]17. DISPUTE RESOLUTION. Any disputes arising under or in
connection with this Agreement shall, at the option of Executive, be subject to
mediation in accordance with the Center for Public Resources ("CPR") Model
Procedure for Mediation of Business Disputes with such changes as the parties
may agree. If the parties have not agreed, within 10 days of a request for
mediation, on the selection of a mediator willing to serve, either party may
request the CPR to appoint a member of the CPR Panel of Neutrals as a mediator
and such appointment shall be binding on the parties. Efforts to reach a
settlement will continue until the conclusion of the proceeding which will occur
upon the earlier of (a) a written settlement is entered into between the
parties, (b) the mediator informs the parties in writing that further efforts
would not be useful, or (c) the parties agree in writing that an impasse has
been reached. Neither party may withdraw or commence any action or proceeding
under this Agreement, other than to enforce this provision, until the mediation
proceeding is concluded. Costs of mediation or litigation, including, without
limitation, costs of investigations, fees and expenses of the mediator and
attorneys, shall be borne by the Company, provided that if any court of
competent jurisdiction determines that the claims or defenses of Executive were
without any reasonable basis, each party shall bear his or its own costs, other
than the fees and expenses of the mediator which shall be borne by the Company.
[Section]18. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Company and the Executive with respect to the subject matter hereof
and there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this Agreement or otherwise
concerning this Agreement or the subject matter hereof.
[Section]19. AMENDMENTS. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
<PAGE> 8
-8-
[Section]20. ASSIGNABILITY; BINDING NATURE. This Agreement has been duly
authorized by the Board of Directors of the Company and shall be binding upon
and inure to the benefit of the parties and their respective successors, heirs
(in the case of the Executive) and permitted assigns. No rights or obligations
of the Company under this Agreement may be assigned or transferred by the
Company, except that such rights or obligations may be assigned or transferred
pursuant to a merger or consolidation in which the Company is not the continuing
entity, or the sale or liquidation of all or substantially all of the assets of
the Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale of assets or liquidation as described in the
preceding sentence, it shall cause such assignee or transferee to expressly
assume the liabilities, obligations and duties of the Company hereunder.
[Section]21. General Provisions.
------------------
(a) Executive further agrees that his obligations hereunder shall be
binding upon him irrespective of the duration of his employment by the
Company, the reasons for any cessation of his employment by the Company, or
the amount of his compensation and shall survive the termination of this
Agreement (whether such termination is by the Company, by the Executive,
upon expiration of this Agreement or otherwise).
(b) Executive represents and warrants to the Company that he is not
now under any obligations to any person, firm or corporation, and has no
other interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the performance by him of
any of the covenants or his duties in his employment hereunder.
(c) The Company shall reimburse Executive for the reasonable fees and
disbursments of his legal counsel in connection with the negotiation and
preparation of this Agreement, in an amount not to exceed $4,000 in the
aggregate.
[Section]22. The Company shall, to the full extent legally permissible,
indemnify the Executive in the event that he was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, including
a grand jury proceeding, and all appeals (but excluding any such action, suit or
proceeding by or in the right of the Company), by reason of the fact that the
Executive is or was a member of the Board or an executive officer of the
Company, or is or was serving at the request of the Company as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Executive in connection with
such action, suit or proceeding if the Executive acted in good faith and in a
manner that the Executive reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct in question was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Executive did not act in
good faith and in a manner that the Executive
<PAGE> 9
-9-
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that the
Executive had reasonable cause to believe that the conduct in question was
unlawful.
The Company shall, to the full extent legally permissible, indemnify the
Executive in the event that he was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit, including appeals,
by or in the right of the Company to procure a judgment in its favor, by reason
of the fact that the Executive is or was a member of the Board or an executive
officer of the Company, or is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including reasonable attorneys' fees) actually and reasonably incurred by the
Executive in connection with the defense or settlement of such action or suit if
the Executive acted in good faith and in a manner that the Executive reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which the Executive shall have been adjudged to be liable to the
Company unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, the Executive is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
To the extent that the Executive has been successful in whole or in part on
the merits or otherwise, including the dismissal of an action without prejudice,
in defense of any action, suit or proceeding or in defense of any claim, issue
or matter therein, the Executive shall be indemnified against all expenses
incurred in connection therewith.
Expenses incurred by the Executive in any action, suit or proceeding shall
be paid by the Company in advance of the final disposition of thereof, if the
Executive shall undertake to repay such amount in the event that it is
ultimately determined, as provided herein, that the Executive is not entitled to
indemnification.
The indemnification and advancement of expenses provided by this Section
shall not be deemed exclusive of any other rights to which the Executive may be
entitled under any By-law, agreement, vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware or otherwise,
both as to action in the Executive's official capacity and as to action in
another capacity while serving as a member of the Board of Directors or as an
executive officer of the Company. All rights to indemnification under this
Section or advancement of expenses shall continue after the Executive has ceased
to be a director or executive officer, and shall inure to the benefit of his
heirs, executors and administrators. The Company shall also indemnify the
Executive for attorneys' fees, costs, and expenses in connection with the
successful enforcement of the Executive's rights under this Section.
[Section]23. GOVERNING LAW. This Agreement shall be governed by, construed
and enforced in accordance with the law (other than the law governing conflict
of law questions) of the Commonwealth of Massachusetts.
<PAGE> 10
- 10 -
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: Illegible
------------------------------------
Title:
/s/ Donald E. Strange
---------------------------------------
Donald E. Strange
<PAGE> 11
EXHIBIT A
FIRST NEW ENGLAND DENTAL CENTERS, INC.
STOCK OPTION AGREEMENT
First New England Dental Centers, Inc., a Delaware corporation (the
"Company"), by execution of Schedule I annexed hereto grants, as of the grant
date set forth in Schedule I, to the optionee named in Schedule I (the
"Optionee"), an option to purchase up to the number of shares of its Common
Stock, $0.01 par value ("Stock"), set forth in Schedule I at the exercise price
per share set forth in Schedule I, on the following terms and conditions:
1. GRANT AS NON-QUALIFIED STOCK OPTION; OTHER OPTIONS. This option is not
intended to qualify as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). This option is in
addition to any other options heretofore or hereafter granted to the Optionee by
the Company, but a duplicate original of this instrument shall not effect the
grant of another option.
2. EXTENT OF OPTION IF EMPLOYMENT CONTINUES. If the Optionee has continued
to be employed by the Company or by any affiliated corporation in a position in
which the optionee renders services to or for the benefit of the Company (an
"Affiliate"), the Optionee may exercise this option for the number of shares set
forth on Schedule I at any time from the dates such options become exercisable
(each such date being hereinafter referred to as an "Exercise Date") as set
forth on Schedule I up to and including the date that is five years from the
date this option first becomes exercisable with respect to such shares. All of
the foregoing rights are subject to Paragraph 3 if the Optionee ceases to be
employed by the Company.
3. TERMINATION OF EMPLOYMENT; ACCELERATION OF EXERCISE DATES. If the
Optionee ceases to be employed by the Company or an Affiliate, this option shall
terminate after the passage of six months from the date employment ceases, but
in no event later than the scheduled expiration date (subject to waiver by the
Company in its sole discretion). In such a case, the Optionee's only rights
hereunder shall be those that are properly exercised before the termination of
this option. In the event that (a) the Optionee's employment is terminated other
than for cause as set forth in ss.9 of the Executive Employment Agreement, dated
as of the date hereof, between the Company and the Optionee (as amended and in
effect from time to time, the "Employment Agreement"), or (b) there is a "Change
of Control" as defined in the Employment Agreement, all options to purchase
shares hereunder shall become immediately exercisable on the effective date of
termination of employment or the effective date of the Change of Control, as the
case may be.
4. PARTIAL EXERCISE. Exercise of this option may be made in part at any
time and from time to time, except that this option may not be exercised for a
fraction of a share unless such exercise is with respect to the final
installment of stock subject to this option and a fractional share (or cash in
lieu thereof) must be issued to permit the Optionee to exercise completely such
final installment. Any fractional share with respect to which an installment of
this option cannot be exercised because
<PAGE> 12
of the limitation contained in the preceding sentence shall remain subject to
this option and shall be available for later purchase by the Optionee in
accordance with the terms hereof.
5. PAYMENT OF PRICE. The option price is payable in United States dollars
and may be paid in cash or by check or by cancellation as of the date of
exercise of a portion of this option (calculated at the fair market value of
such cancelled portion at the time of exercise). "Fair market value" of a share
of the Stock shall mean, if shares of the Stock are not publicly traded, the
fair market value of such shares as determined in good faith by the Board and,
if shares of the Stock are publicly traded, the average closing price for a
share of the Stock for the 20 trading days preceding the date of exercise, or if
no closing price is reported for such period, the average of the mean between
the low bid and the high ask prices for a share of the Stock for such 20 trading
days.
6. AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this option, the
Optionee agrees that a purchase of shares under this option will not be made
with a view to their distribution, as that term is used in the Securities Act of
1933, as amended, unless in the opinion of counsel to the Company such
distribution is in compliance with or exempt from the registration and
prospectus requirements of that Act, and the Optionee agrees to sign a
certificate to such effect at the time of exercising this option and agrees that
the certificate for the shares so purchased may be inscribed with a legend to
ensure compliance with the Securities Act of 1933.
7. Registration Rights.
-------------------
(a) For purposes of this Section 7, "Registrable Securities" shall mean all
issued and outstanding Stock, including any such common stock issued upon any
stock split, stock dividend, recapitalization or similar event; provided that
any such share shall cease to be a "Registrable Security" when sold pursuant to
a registration statement declared effective under the Securities Act of 1933, as
amended, or sold pursuant to Rule 144 promulgated thereunder.
(b) If the Company shall determine to register any of its securities (other
than a registration relating solely to employee benefit plans or a registration
on any registration form that does not permit secondary sales or does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of Registrable Securities), the
Company will include that portion of the Optionee's Registrable Securities as he
shall elect to sell, provided, that if the managing underwriter(s) shall impose
a limitation on the number of shares of common stock included in any such
registration statement because such limitation is necessary in its judgment to
effect an orderly public distribution, then the Optionee's portion of the shares
available for registration, if any, after application of such limitation shall
be determined pro rata in accordance with his percentage ownership interest in
the Registrable Securities to be included in such offering, and the Company will
pay for the registration expenses (but not the underwriting discounts, selling
commissions and transfer taxes) in connection with the registration of such
shares.
(c) If the Optionee disapproves of the terms of any Company underwriting in
which his shares are to be included under this Section 7, he may elect to
withdraw therefrom by written notice to the Company and to the underwriter,
delivered at least seven days prior to the effective date of the registration
statement therefor.
<PAGE> 13
-3-
8. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of this
Agreement, this option may be exercised by written notice to the Company, at the
principal executive office of the Company, or to such transfer agent as the
Company shall designate. Such notice shall state the election to exercise this
option and the number of shares in respect of which it is being exercised and
shall be signed by the person or persons so exercising this option. Such notice
shall be accompanied by payment of the full purchase price of such shares, and
the Company shall deliver a certificate or certificates representing such shares
as soon as practicable after the notice shall be received. The certificate or
certificates for the shares as to which this option shall have been so exercised
shall be registered in the name of the person or persons so exercising this
option (or, if this option shall be exercised by the Optionee and if the
Optionee shall so request in the notice exercising this option, shall be
registered in the name of the Optionee and another person jointly, with right of
survivorship) and shall be delivered as provided above to or upon the written
order of the person or persons exercising this option. In the event this option
shall be exercised by any person or persons other than the Optionee, such notice
shall be accompanied by appropriate proof of the right of such person or persons
to exercise this option. All shares that shall be purchased upon the exercise of
this option as provided herein shall be fully paid and nonassessable.
9. OPTION NOT TRANSFERABLE. This option is not transferable or assignable
except by will or by the laws of descent and distribution, except that the
Optionee shall be entitled to transfer this option, in whole or in part, to his
spouse, his lineal descendants, or to a trust for the benefit of himself, his
spouse, his lineal descendants, or any combination thereof.
10. NO OBLIGATION TO EXERCISE OPTION. The grant and acceptance of this
option imposes no obligation on the Optionee to exercise it.
11. NO OBLIGATION OF EMPLOYMENT. The Company and any Related Corporations
and Affiliates are not by this option obligated to employ the Optionee or to
continue the Optionee in employment.
12. NO RIGHTS AS STOCKHOLDER UNTIL EXERCISE. The Optionee shall have no
rights as a stockholder with respect to shares subject to this Agreement until a
stock certificate therefor has been issued to the Optionee and is fully paid
for. Except as is expressly provided herein, no adjustment shall be made for
dividends or similar rights for which the record date is prior to the date such
stock certificate is issued.
13. CAPITAL CHANGES AND BUSINESS SUCCESSIONS. It is the purpose of this
option to encourage the Optionee to work for the best interests of the Company
and its stockholders. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment will be made in (x) the number and kind
of shares or other securities subject to this Stock Option Agreement, and (y)
the price for each share subject to this Stock Option
<PAGE> 14
-4-
Agreement, without changing the aggregate purchase price as to which the options
granted hereunder remain exercisable.
14. WITHHOLDING TAXES. If the Company in its discretion determines that it
is obligated to withhold tax with respect to the exercise of this option, the
Optionee hereby agrees that the Company may withhold from any amounts payable by
the Company to the Optionee (including, without limitation, wages) the
appropriate amount of federal, state and local withholding taxes attributable to
such exercise. At the Company's discretion, the amount required to be withheld
may be withheld in cash, or (with respect to compensation income attributable to
the exercise of this option) in kind from the Common Stock otherwise deliverable
to the Optionee on exercise of this Option. The Optionee further agrees that, if
the Company does not withhold an amount from the Optionee's wages sufficient to
satisfy the Company's withholding obligation, the Optionee will reimburse the
Company on demand, in cash, for the amount underwithheld.
15. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the internal laws of Delaware.
<PAGE> 15
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Schedule I
----------
Optionee's Name: Donald E. Strange
Option Grant Date: October 1, 1996
Number of Shares Subject to Options: 300,000
Exercise Price per Share: $6.50
Vesting: Options for 25,000 shares each shall vest on the 1st day of each
October, January, April and July, commencing October 1, 1996, through July 1,
1999.
**********
The parties, by execution of this Schedule I, accept and agree to the terms
of the Stock Option Agreement to which this Schedule I is attached.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: Illegible
------------------------------------
Title: Director
/s/ Donald E. Strange
---------------------------------------
Donald E. Strange, Optionee
<PAGE> 1
Exhibit 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is made as of the 7th day of November, 1996, between FIRST
NEW ENGLAND DENTAL CENTERS, INC., a Delaware corporation (the "Company"), and
Jerald Robbins of Danvers, Massachusetts (the "Executive").
WHEREAS, the Company desires to employ Executive for the period and upon
and subject to the terms herein provided; and
WHEREAS, Executive is willing to agree to be employed by the Company upon
and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements hereinafter set forth and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
[Section]1. TERM OF EMPLOYMENT. The Company agrees to employ Executive
as its President from November 7, 1996 through November 6, 1998 (the
"Termination Date"), or until the earlier termination of this Agreement
pursuant to the terms hereof. This Agreement, and the Termination Date, will be
renewed automatically for successive one-year terms, unless the Company or the
Executive gives written notice to the other of its or his election not to
renew, at least three months prior to the end of the then-current term.
[Section]2. COMPENSATION. The Company will pay Executive base pay for his
services rendered hereunder at an annual rate of $130,000, subject to upward
adjustment based on reviews by the Company's Chairman and Chief Executive
Officer (the "CEO") to occur not less frequently than annually. Executive's
salary shall be paid in accordance with the Company's regular payroll practices
for all senior executives as determined by the Company, subject only to such
payroll and withholding deductions as are required by law and such other payroll
deductions as are determined by the Company policy or as Executive may approve.
<TABLE>
[Section]3. BONUS. The Company's Board of Directors (the "Board") shall
establish an annual budget each year, setting forth projected expenses, revenues
and net profits. In the event that the Company achieves at least 90% of its
projected net profit for any fiscal year during the term of this Agreement,
commencing with the fiscal year ending December 31, 1997, the Company shall pay
to Executive a bonus in an amount determined as follows:
<CAPTION>
% of Projected Net Profit Bonus (% of Base Annual Salary)
------------------------- -------------------------------
<S> <C>
90 - 91% 2.5%
91 - 92% 5.0%
92 - 93% 7.5%
93 - 94% 10.0%
94 - 95% 12.5%
95 - 96% 15.0%
</TABLE>
<PAGE> 2
-2-
<TABLE>
<S> <C>
96 - 97% 17.5%
97 - 98% 20.0%
98 - 99% 22.5%
99% + 25.0%
</TABLE>
In the event that the Company exceeds 100% of its projected net profit in such
year, the Company may pay Executive an additional discretionary performance
bonus, at such times and in such amounts as the Company, in its sole discretion,
may determine.
[Section]4. OFFICE AND DUTIES. During the term of this Agreement, the
Company shall employ Executive to serve as the Company's President. The
Executive shall perform such executive, administrative and acquisition duties as
may be assigned to the Executive from time to time by the CEO. Executive agrees
to serve the Company faithfully and to the best of Executive's ability and to
devote all of Executive's business time, attention and efforts to the interests
and business of the Company. Executive agrees at all times to perform all his
duties in accordance with applicable laws, rules and regulations and the
policies and procedures of the Company applicable to senior executives in effect
from time to time.
[Section]5. EXPENSES. Executive shall be entitled to reimbursement for
reasonable and necessary business expenses incurred, consistent with Company
policy, in connection with the performance of his duties hereunder upon receipt
of vouchers therefor in accordance with such procedures as the Company has
heretofore or may hereafter establish.
[Section]6. VACATION DURING EMPLOYMENT. Executive shall be entitled to 20
days' paid vacation during each year of his employment hereunder.
[Section]7. ADDITIONAL BENEFITS. Executive shall be entitled to all paid
holiday, medical and other fringe benefit plans that the Company may now or
hereafter in its discretion make available generally to its senior management.
[Section]8. TERMINATION OF EMPLOYMENT. Notwithstanding any other provision
of this Agreement, Executive's employment shall terminate on the death of the
Executive and may be terminated by the CEO or the Board, as follows:
(a) either (i) the Executive is determined to be "permanently
disabled" as defined under the disability insurance policy covering the
Executive, or (ii) if Executive is not covered by any such disability
policy, the Executive is determined to be "totally disabled" by vote of a
majority of the Board based upon the advice of a board-certified physician
reasonably satisfactory to Executive and the Company, which may include a
determination that the Executive is unable, because of physical or mental
illness or incapacity or otherwise, to fulfill his duties under this
Agreement for 180 consecutive days or appears unable to perform such duties
for an indefinite period of time in excess of 180 days;
<PAGE> 3
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(b) termination of Executive by the Company for "Cause" (as
hereinafter defined), provided, however, a termination for Cause shall not
take effect unless the following has occurred:
(i) The CEO or the Board has given Executive written notice of
its intention to terminate Executive for Cause, specifying with
particularity the grounds on which the proposed termination for Cause
is contemplated, which shall be acts or failures to act on the part of
Executive that occurred no more than six months prior to the CEO's or
the Board's having knowledge of such acts or failures to act;
(ii) the Executive shall have 30 days after such written notice
to cure such conduct;
(iii) if Executive fails to cure such conduct within such 30-day
period, the Executive's employment shall be terminated.
"Cause" shall mean (x) the willful and continued failure by the Executive
to substantially perform his duties with the Company in accordance with this
Agreement, or (y) the Executive's conviction of fraud, embezzlement, theft or
other criminal conduct involving a felony.
[Section]9. TERMINATION WITHOUT CAUSE. In the event that, during the term
of this Agreement, Executive's employment hereunder is terminated by the Company
other than pursuant to [Section]8 hereof, the Company shall pay Executive an
amount equal to one year's base annual salary, and insurance benefits, at the
rate in effect immediately prior to his termination, payable in 12 equal monthly
installments, commencing 30 days from the effective date of termination.
Notwithstanding the foregoing, in the event that such termination of employment
occurs within three months following a Change of Control (as hereinafter
defined), the Company shall pay to Executive an amount equal to the base annual
salary that would have been payable hereunder had such termination not occurred
for the period from the date of termination of employment through the later to
occur of the Termination Date and the first anniversary of the effective date of
termination, payable in equal monthly installments commencing 30 days from the
effective date of termination through the Termination Date or, if later, the
first anniversary of the effective date of termination.
"Change of Control" shall mean, prior to the consummation of an initial public
offering of the Company's common stock, the occurrence of any one of the
following events:
(a) any "person" which is not the "beneficial owner" of more than 35%
of the voting securities of the Company on a fully diluted basis on the
date hereof or an "affiliate" of such party on the date hereof becomes a
"beneficial owner" of more than 35% of the voting securities of the Company
(as such terms are defined in Section 13(d) of the Securities Exchange Act
of 1934 and the regulations promulgated thereunder);
(b) the Board approves a plan to sell or dispose of by merger,
consolidation or other transaction all or substantially all of the
Company's operating assets (on a consolidated basis) or approves a plan of
liquidation; or
<PAGE> 4
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(c) the Company combines with another company and is the surviving
corporation but immediately after the combination, the persons who were the
stockholders of the Company immediately prior to the combination own 50% or
less of the voting securities of the combined entity.
"Change of Control" shall mean, after the consummation of an initial public
offering of the Company's common stock, the occurrence of any one of the
following events:
(a) any "person" which is not the "beneficial owner" of more than 20%
of the voting securities of the Company on a fully diluted basis
immediately after the consummation of such public offering or an
"affiliate" of such party on such date hereof becomes a "beneficial owner"
of more than 20% of the voting securities of the Company (as such terms are
defined in Section 13(d) of the Securities Exchange Act of 1934 and the
regulations promulgated thereunder);
(b) the majority of the Board consists of individuals other than
members of the Board of Directors immediately after the consummation of
such public offering or persons whose nomination or election was approved
by at least two-thirds of the members of the Board immediately preceding
the election of such individuals;
(c) the Board approves a plan to sell or dispose of by merger,
consolidation or other transaction all or substantially all of the
Company's operating assets (on a consolidated basis) or approves a plan of
liquidation; or
(d) the Company combines with another company and is the surviving
corporation but immediately after the combination, the persons who were the
stockholders of the Company immediately prior to the combination own 50% or
less of the voting securities of the combined entity.
[Section]10. CONFIDENTIALITY. Executive shall not, either during the period
of his employment with the Company or thereafter, reveal or disclose to any
person outside the Company or use to his own benefit, any proprietary and
confidential marketing technique or cost method, or any patient list of the
Company or any proprietary and confidential mailing or supplier list, whether or
not made, developed and/or conceived by Executive or by others in the employ of
the Company. Upon the termination of Executive's employment in any manner or for
any reason, Executive shall promptly surrender to the Company all copies of any
of the foregoing, together with any other documents, materials, data,
information and equipment belonging to or relating to the Company's business and
in his possession, custody or control, and Executive shall not thereafter retain
or deliver to any other person, any of the foregoing or any summary or
memorandum thereof.
[Section]11. RESTRICTION. Executive agrees that for 12 months from the
termination of employment at the Termination Date, for cause by the Company, or
voluntarily by Executive:
The Executive will not, directly or indirectly, own, manage, operate,
control, be employed by, participate in, or be connected in any manner with the
ownership, management,
<PAGE> 5
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operation or control of, any business or enterprise (a "Restricted Business")
that is in the business of operating dental clinics (or any aspect thereof)
within a 10-mile radius of any dental clinic operated by the Company at the time
of termination of Executive's employment. The restrictions contained in this
paragraph will not prevent the Executive, during the 12-month period following
the termination of his employment hereunder, from being employed by, acting as a
consultant to, or serving on the Board of Directors of, any entity with a large
national or regional business that directly or indirectly engages in the
Restricted Business in the territories restricted hereunder or from owning up to
a 1% equity interest in such an entity, but only if such entity is publicly
traded; provided that the Executive does not actively engage in the management
of that portion of such entity's business which is located in the restricted
territory.
[Section]12. NO SOLICITATION. Executive will not, for a period of 12 months
after termination of employment for any reason solicit or attempt to induce,
directly or indirectly, any employee of the Company to accept employment with a
competitor of the Company or with any business or enterprise intending to
compete with the Company.
[Section]13. SEVERABILITY. Executive and the Company are of the belief that
the period of time and the area herein specified in [Sections]11 and 12 above
are reasonable in view of the nature of the business in which the Company is
engaged, the state of its development and Executive's knowledge of the business.
However, if such period or such area should be adjudged unreasonable in any
judicial proceeding, then the period of time shall be reduced by such number of
months or such area shall be reduced by elimination of such portion of such
area, or both, as are deemed unreasonable, so that this covenant may be enforced
in such area and during such period of time as is adjudged to be reasonable.
[Section]14. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been given when delivered or mailed by
first-class, registered or certified mail, postage prepaid, addressed (a) if to
Executive, at 289 Andover Street, Danvers, Massachusetts 01923; and (b) if to
the Company, attention of the CEO at its principal place of business, 85
Devonshire Street, Boston, Massachusetts 02109.
[Section]15. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Company and the Executive with respect to the subject matter hereof
and there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this Agreement or otherwise
concerning this Agreement or the subject matter hereof.
[Section]16. AMENDMENTS. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
[Section]17. ASSIGNABILITY; BINDING NATURE. This Agreement has been duly
authorized by the Board and shall be binding upon and inure to the benefit of
the parties and their respective successors, heirs (in the case of the
Executive) and permitted assigns. No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company, except that such
rights or
<PAGE> 6
-6-
obligations may be assigned or transferred pursuant to a merger or consolidation
in which the Company is not the continuing entity, or the sale or liquidation of
all or substantially all of the assets of the Company, provided that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder.
[Section]18. General Provisions.
------------------
(a) Executive further agrees that his obligations hereunder shall be
binding upon him irrespective of the duration of his employment by the
Company, the reasons for any cessation of his employment by the Company, or
the amount of his compensation and shall survive the termination of this
Agreement (whether such termination is by the Company, by the Executive,
upon expiration of this Agreement or otherwise).
(b) Executive represents and warrants to the Company that he is not
now under any obligations to any person, firm or corporation, and has no
other interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the performance by him of
any of the covenants or his duties in his employment hereunder.
[Section]19. INDEMNIFICATION. The Company shall, to the full extent legally
permissible, indemnify the Executive in the event that he was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
including a grand jury proceeding, and all appeals (but excluding any such
action, suit or proceeding by or in the right of the Company), by reason of the
fact that the Executive is or was a member of the Board or an executive officer
of the Company, or is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Executive in connection with
such action, suit or proceeding if the Executive acted in good faith and in a
manner that the Executive reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the conduct in question was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Executive did not act in
good faith and in a manner that the Executive reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, that the Executive had reasonable cause to
believe that the conduct in question was unlawful.
The Company shall, to the full extent legally permissible, indemnify the
Executive in the event that he was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit, including appeals,
by or in the right of the Company to procure a judgment in its favor, by reason
of the fact that the Executive is or was a member of the Board or an executive
<PAGE> 7
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officer of the Company, or is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including reasonable attorneys' fees) actually and reasonably incurred by the
Executive in connection with the defense or settlement of such action or suit if
the Executive acted in good faith and in a manner that the Executive reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which the Executive shall have been adjudged to be liable to the
Company unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, the Executive is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
To the extent that the Executive has been successful in whole or in part on
the merits or otherwise, including the dismissal of an action without prejudice,
in defense of any action, suit or proceeding or in defense of any claim, issue
or matter therein, the Executive shall be indemnified against all expenses
incurred in connection therewith.
Expenses incurred by the Executive in any action, suit or proceeding shall
be paid by the Company in advance of the final disposition of thereof, if the
Executive shall undertake to repay such amount in the event that it is
ultimately determined, as provided herein, that the Executive is not entitled to
indemnification.
The indemnification and advancement of expenses provided by this Section
shall not be deemed exclusive of any other rights to which the Executive may be
entitled under any By-law, agreement, vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware or otherwise,
both as to action in the Executive's official capacity and as to action in
another capacity while serving as a member of the Board or as an executive
officer of the Company. All rights to indemnification under this Section or
advancement of expenses shall continue after the Executive has ceased to be a
director or executive officer, and shall inure to the benefit of his heirs,
executors and administrators. The Company shall also indemnify the Executive for
attorneys' fees, costs, and expenses in connection with the successful
enforcement of the Executive's rights under this Section.
[Section]20. GOVERNING LAW. This Agreement shall be governed by, construed
and enforced in accordance with the law (other than the law governing conflict
of law questions) of the Commonwealth of Massachusetts.
<PAGE> 8
-8-
IN WITNESS WHEREOF, the parties have executed or caused to be executed this
Agreement as of the date first above written.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: Donald E. Strange
-------------------------------------
Donald E. Strange
Chairman and Chief Executive Officer
Jerald Robbins 11-07-96
-------------------------------------
Jerald Robbins
<PAGE> 1
Exhibit 10.12
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT, made and entered into and effective as of the date shown on
the signature page hereof ("Effective Date"), by and between First New England
Dental Centers, Inc. ("First Dental"), a Delaware corporation and the dentist
named on the signature page hereof (the "Dentist").
RECITALS
--------
WHEREAS, First Dental provides management and related services to Osorio
and Watkin, D.M.D., P.C. (the "P.C.") at various locations;
WHEREAS, First Dental desires to engage Dentist to serve as Consultant
("Consultant") for First Dental; and
WHEREAS, Dentist desires to be engaged by First Dental to render such
Consultant services on the terms and conditions specified herein and on the
signature page hereof.
NOW THEREFORE, in consideration of the foregoing recitals and the mutual
promises and conditions set forth herein, and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, First Dental and
Dentist agree as follows:
1. ENGAGEMENT. First Dental hereby engages Dentist and Dentist hereby
accepts engagement by First Dental upon the terms and conditions set forth
herein and on the signature page hereof.
2. DENTIST'S REPRESENTATIONS AND WARRANTIES. Dentist represents and
warrants at all times during the term of this Agreement that:
(a) Dentist is duly licensed and in good standing under the laws of
the Commonwealth of Massachusetts to practice dentistry and said
license has not been suspended, revoked or restricted in any
manner.
(b) Dentist has current controlled substances registrations issued by
the United States Drug Enforcement Administration and applicable
state agencies, which registrations have not been surrendered,
suspended, revoked or restricted in any manner.
<PAGE> 2
(c) Dentist has disclosed and will disclose to First Dental the
following matters, whether occurring at any time prior to or
during the term of this Agreement: (i) any malpractice suit,
claim (whether or not filed in court), settlement, settlement
allocation, judgment, verdict or decree against him; (ii) any
disciplinary, peer review or professional review investigation,
proceeding or action instituted against him by any licensure
board, hospital, dental school, health care facility or entity,
professional society or association, third party payor, peer
review or professional review committee or body, or governmental
agency; (iii) any criminal complaint, indictment or criminal
proceeding in which Dentist is named as a defendant; (iv) any
investigation or proceeding, whether administrative, civil or
criminal, relating to an allegation against him of filing false
health care claims, violating anti-kickback laws, or engaging in
other billing improprieties; (v) any organic or mental illness or
condition that impairs or may impair Dentist's ability to
practice dentistry; (vi) any dependency Dentist may have on,
habitual use or episodic abuse Dentist may make of, alcohol or
controlled substances, or any participation Dentist may have in
any alcohol or controlled substance detoxification, treatment,
recovery, rehabilitation, counseling, screening or monitoring
program; (vii) any allegation, or any investigation or proceeding
based on any allegation, against him, of violating professional
ethics or standards, or engaging in illegal, immoral or other
misconduct (of any nature or degree), relating to Dentist's
practice of dentistry; and (viii) any denial or withdrawal of an
application Dentist filed in any state for licensure, for
professional staff privileges at any hospital or other health
care entity, for certification or recertification, for
participation in any third party payment program, for state or
federal controlled substances registration or for malpractice
insurance.
(d) Dentist shall abide by the By-laws, rules, regulations, policies
and directives of First Dental.
(e) In connection with the provision of professional services to
patients of the P.C., Dentist shall
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<PAGE> 3
(i) at all times render services to patients in a competent,
professional and ethical manner, in accordance with prevailing
standards of medical practice, and all applicable statutes,
regulations, rules, orders and directives of any and all
applicable governmental and regulatory bodies having competent
jurisdiction; (ii) use the equipment, instruments,
pharmaceuticals and supplies made available by or through First
Dental for the purposes for which they are intended and in a
manner consistent with sound medical practice; (iii) complete and
maintain, in a timely manner, adequate, legible and proper
medical records with respect to all services rendered to First
Dental patients; and (iv) participate in Medicare, Medicaid,
Workers Compensation, other federal and state reimbursement
programs, Blue Cross/Blue Shield, and other commercial insurance
programs and under the plan of any HMO, PPO, health plan or other
health benefit program with which First Dental may contract or
affiliate in accordance with the rules, regulations and
procedures of such program.
3. Dentist's Services and Responsibilities.
---------------------------------------
3.1 OBLIGATIONS OF DENTIST AS CONSULTANT. Dentist shall serve on the
time basis shown on the signature page hereof as the Consultant and in such
capacity shall perform the services described on Exhibit A attached hereto (and
incorporated herein by this reference).
3.2 COMPLIANCE WITH APPLICABLE POLICIES. The performance by Dentist of
the services described in this Section 3 will be subject to such policies,
procedures, rules and regulations as First Dental may establish from time to
time.
3.3 CONFLICTS. Dentist shall devote Dentist's efforts to fulfill the
Dentist's obligations hereunder, and Dentist shall not, during the term of this
Agreement, without the prior written consent of First Dental which consent shall
not be unreasonably withheld, engage in any other professional activity, whether
or not such activity is pursued for gain, profit or other pecuniary advantage,
which interferes with the performance of Dentist's duties hereunder, PROVIDED
THAT Dentist may carry on the Dentist's dental practice. Notwithstanding the
foregoing, Dentist is permitted to continue lecturing, consultation and
testimony as an expert, any activity with respect to U.S. Trading Group, Inc.
and biomedical device design and fabrication.
-3-
<PAGE> 4
3.4 TIME RECORDS. Dentist shall submit to First Dental such time
records as First Dental may require from time to time showing the nature of the
services performed by Dentist and the time Dentist actually spent performing
those services.
4. Financial Terms.
---------------
4.1 ADMINISTRATIVE COMPENSATION. First Dental shall pay Dentist at the
rate per annum shown of the signature page hereof for the administrative and
supervisory services rendered to First Dental by Dentist as Consultant. Such
annual compensation shall be payable by First Dental to Dentist in installments
in accordance with First Dental's standard payroll practices.
4.2 INFORMATION. Dentist will cooperate with First Dental as requested
in the completion of any forms and submission of any information necessary for
First Dental to receive third party reimbursement for technical clinical
services rendered in connection with any professional services rendered by
Dentist, if applicable.
4.3 FRINGE BENEFITS. Dentist shall not be entitled to, and shall have
no claim under this Agreement or otherwise against First Dental for, any
so-called fringe benefits, including but not limited to: paid vacation; health
insurance; continuing medical education reimbursement; paid continuing medical
education leave; life insurance; long-term disability insurance; reimbursement
of professional society dues; participation in a profit sharing or pension plan;
paid sick leave; family leave; or professional liability insurance.
5. PROFESSIONAL LIABILITY INSURANCE. Dentist agrees at all times during the
term of this Agreement to maintain in full force and effect, at Dentist's sole
expense, professional liability insurance in such amounts as First Dental shall
reasonably request. In the event Dentist discontinues a "claims made" form of
insurance in effect at any time during the term of this Agreement, Dentist shall
obtain "tail" coverage for events that may have occurred during the term of this
Agreement. Dentist shall cooperate with any reasonable risk prevention or risk
management activities of Dentist's insurer. Dentist shall furnish First Dental
with a certificate of insurance evidencing that the aforesaid insurance is in
full force and effect at all times during the term of this Agreement. Dentist
shall notify First Dental in writing prior to any cancellation, modification or
nonrenewal of such insurance policy. Dentist shall be solely responsible for any
deferred or retroactive premium that may hereafter be billed by Dentist's
insurer, and for any recoupment assessed against Dentist with respect to any
operating deficit of
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<PAGE> 5
Dentist's insurer during any period prior to, during, or after the term of this
Agreement.
6. Term and Termination.
--------------------
6.1 TERM. Unless sooner terminated as provided herein, this Agreement
shall remain in full force and effect for the term stated on the signature page
hereof, commencing on the Effective Date and shall be automatically extended at
the end of the then-existing term for successive one (1) year periods unless
either of the parties notifies the other party in writing at least sixty (60)
days prior to the expiration of the then-existing term of Dentist's/its desire
to terminate this Agreement.
6.2 Termination.
-----------
a. First Dental may terminate this Agreement immediately upon
the occurrence of any of the following: (i) Dentist's death;
(ii) Dentist's license to practice dentistry is suspended or
revoked; (iii) First Dental determines that Dentist has
furnished deceptive or fraudulent information to First
Dental; (iv) Dentist engages in criminal, unprofessional,
unethical, or fraudulent conduct and Dentist is found guilty
of such conduct by any entity or governmental agency of
competent jurisdiction; or (v) lapse or termination of
Dentist's malpractice insurance other than due to the fault
of First Dental.
b. Either party may terminate this Agreement upon breach by the
other of any material term in the Agreement, which breach
has not been cured to the reasonable satisfaction of the
non-breaching party within thirty (30) days after notice of
such breach.
c. Upon termination of this Agreement, Dentist shall be
entitled to receive such compensation, if any, accrued under
the terms of this Agreement, but unpaid, as of the date of
said termination.
7. DISCLOSURE OF INFORMATION. All records, files, reports and documents
pertaining to services rendered by Dentist to First Dental hereunder or to
patients by First Dental, or to the operations of First Dental, belong to and
shall remain the
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<PAGE> 6
property of First Dental (subject to Dentist's right to retain photocopies of
patient records for patient care purposes). Dentist agrees that First Dental's
trade secrets, as they may exist from time to time, are valuable, special, and
unique assets of First Dental. Dentist also agrees that the systems, protocols,
policies, procedures, manuals, reports, data bases, documents, instruments and
other materials used by First Dental are proprietary to First Dental, and are
valuable, special and unique assets of First Dental's business. Director shall
not, during or after the term of this Agreement, disclose First Dental's
proprietary information or trade secrets to any other firm, person, corporation,
association, or other entity for any reason or purpose whatsoever, without the
written consent of First Dental.
8. STATUS OF THE PARTIES. It is expressly understood and agreed that, in
the performance of services under this Agreement, Dentist shall at all times be
and act as an independent contractor with respect to First Dental, and not as an
employee of First Dental. Accordingly, except as otherwise set forth in this
Agreement, First Dental shall neither have nor exercise any specific control or
direction over the particular methods by which Dentist shall perform the
services required by this Agreement. Dentist understands and agrees that (i)
Dentist will not be treated as an employee of First Dental for federal or state
tax purposes; (ii) First Dental will not withhold on behalf of Dentist any sums
for income tax, unemployment insurance, social security, or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to employees of First Dental; (iii) First
Dental is obligated to report all payments to Dentist hereunder or otherwise in
excess of $600 per year to the Internal Revenue Service; and (iv) all of such
payments, withholdings, and benefits, if any, are the sole responsibility of
Dentist.
9. Miscellaneous.
-------------
9.1 ACCESS OF THE GOVERNMENT TO RECORDS. To the extent that the
provisions of Section 1861(c)(1)(I) of the Social Security Act [42 U.S.C.
[Section] 1395x(v)(I)] are applicable to this Agreement, the parties agree to
comply therewith.
9.2 GOVERNING LAW. This Agreement shall be governed and interpreted in
accordance with, and the rights of the parties shall be determined by, the laws
of the Commonwealth of Massachusetts.
9.3 SEVERABILITY. If any provision of this Agreement shall be declared
invalid or illegal for any reason whatsoever, then notwithstanding such
invalidity or illegality, the remaining
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<PAGE> 7
terms and provisions of this Agreement shall remain in full force and effect in
the same manner as if the invalid or illegal provision had not been contained
herein.
9.4 AMENDMENT; ENTIRE AGREEMENT. No alteration or modification of this
Agreement shall be valid unless made in writing and executed by each of the
parties hereto. This Agreement contains the entire agreement among the parties
regarding the subject matter hereof and supersedes all other written or oral
understandings thereon.
9.5 COUNTERPARTS. This Agreement may be executed in more than one
counterpart, and each executed counterpart shall be considered as the original.
9.6 VESTED RIGHTS. No amendment, supplement or termination of this
Agreement shall affect or impair any rights or obligations which shall have
theretofore matured hereunder.
9.7 SUCCESSORS. This Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective successors and
representatives.
9.8 NOTICES. Any notice or other communication by one party to the
other shall be in writing and shall be given, and be deemed to have been given,
if either hand delivered or mailed, postage prepaid, certified mail (return
receipt requested), addressed as follows:
First Dental: First New England Dental Centers, Inc.
170 Commonwealth Avenue
Boston, MA 02116
Attention: President
Dentist: The address shown on the
signature page hereof.
Any party may change the address for notice by notifying the other party, in
writing, of the new address.
9.9 FURTHER ACTIONS. Each of the parties agrees that it shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be required or useful to carry out the intent and purpose of this
Agreement and as are consistent with the terms hereof.
9.10 ASSIGNMENT. No party may assign this Agreement without written
consent of the other.
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<PAGE> 8
9.11 SURVIVAL. The covenants contained in paragraphs 3.4, 5, 7, 8, 9.1,
and 9.9 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the Effective Date.
FIRST NEW ENGLAND DENTIST
DENTAL CENTERS, INC.
/s/ Jerald Robbins, President /s/ Arnold Watkin
- ----------------------------- -----------------
Name of Dentist: Arnold Watkin, D.D.S
----------------------
Address: 120 Rachel Rd.
----------------------
Newton, MA 02159
----------------------
----------------------
Effective Date: 12-29-95
----------------------
Term of Agreement: Ten Years
Annual Compensation: $60,000
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<PAGE> 9
EXHIBIT A
Consultant Services
-------------------
1. Oversee all aspects of the clinical services provided by the P.C.;
2. Manage and administer the delivery of dental services by the P.C. in a
manner which complies with the rules and regulations of First Dental, all
applicable federal, state and local laws the Massachusetts Department of
Public Health and other applicable regulatory agencies;
3. Supervise ancillary clinical personnel;
4. Review and appraise the professional performance of dental personnel,
including making recommendations to First Dental regarding dentists'
credentials;
5. Developing, implement, and periodically update clinical and operational
protocols, procedures, manuals, rules and regulations and quality control
policies and procedures for the P.C. as may be necessary (i) to ensure the
therapeutic efficacy, appropriateness, medical necessity, consistency,
safety and quality of such services, and (ii) to ensure that such services
are rendered at all times in a competent, ethical and professional manner,
in accordance with acceptable medical practice, and in compliance with all
applicable statutes, regulations, rules, orders and directives of federal,
state, local and other governmental and regulatory bodies having competent
jurisdiction;
6. Consult with First Dental to ensure that there is a dentist-in-charge of
the P.C.'s practice seven (7) days a week;
7. Consult with First Dental on the establishment of ethical and moral
standards for use in the business of First Dental and the P.C.;
8. Consult with First Dental to ensure that First Dental and the P.C. meet all
necessary standards relating to dental services - local, state, federal,
and professional;
9. Fill in as clinicians on an emergency basis as necessary when a dentist is
needed at any location;
10. Represent First Dental in all professional activities;
<PAGE> 10
11. Monitor the practice patterns of each dentist and do a review every six
months;
12. Maintain training of all dentists;
13. Supervise case presentations on a monthly basis;
14. Work with the other consultant(s), if any, and hire and fire all general
dentists, specialists, hygienists, assistants and other healthcare
professionals;
15. Work with other consultant(s), if any, to ensure a site visit to each
facility on a monthly basis;
16. Meet with management on a weekly basis to plan overall strategy;
17. Assist in acquisition process as needed and review all potential
acquisitions;
18. Work with managed care groups as necessary to integrate their plans into
First Dental;
19. Represent First Dental professionally before potential investors;
20. Report to the board of directors on a timely basis as to status of the
company
21. Such other administrative duties as may reasonably be assigned from time to
time by First Dental.
-ii-
<PAGE> 1
EXHIBIT 10.13
CONSULTING AGREEMENT
--------------------
THIS AGREEMENT, made and entered into and effective as of the date
shown on the signature page hereof ("Effective Date"), by and between First New
England Dental Centers, Inc. ("First Dental"), a Delaware corporation and the
dentist named on the signature page hereof (the "Dentist").
RECITALS
--------
WHEREAS, First Dental provides management and related services to
Osorio and Watkin, D.M.D., P.C. (the "P.C.") at various locations;
WHEREAS, First Dental desires to engage Dentist to serve as Consultant
("Consultant") for First Dental; and
WHEREAS, Dentist desires to be engaged by First Dental to render such
Consultant services on the terms and conditions specified herein and on the
signature page hereof.
NOW THEREFORE, in consideration of the foregoing recitals and the
mutual promises and conditions set forth herein, and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
First Dental and Dentist agree as follows:
1. ENGAGEMENT. First Dental hereby engages Dentist and Dentist
hereby accepts engagement by First Dental upon the terms and conditions set
forth herein and on the signature page hereof.
2. DENTIST'S REPRESENTATIONS AND WARRANTIES. Dentist represents
and warrants at all times during the term of this Agreement that:
(a) Dentist is duly licensed and in good standing under
the laws of the Commonwealth of Massachusetts to
practice dentistry and said license has not been
suspended, revoked or restricted in any manner.
(b) Dentist has current controlled substances
registrations issued by the United States Drug
Enforcement Administration and applicable state
agencies, which registrations have not been
surrendered, suspended, revoked or restricted in any
manner.
<PAGE> 2
(c) Dentist has disclosed and will disclose to First
Dental the following matters, whether occurring at
any time prior to or during the term of this
Agreement: (i) any malpractice suit, claim (whether
or not filed in court), settlement, settlement
allocation, judgment, verdict or decree against him;
(ii) any disciplinary, peer review or professional
review investigation, proceeding or action instituted
against him by any licensure board, hospital, dental
school, health care facility or entity, professional
society or association, third party payor, peer
review or professional review committee or body, or
governmental agency; (iii) any criminal complaint,
indictment or criminal proceeding in which Dentist is
named as a defendant; (iv) any investigation or
proceeding, whether administrative, civil or
criminal, relating to an allegation against him of
filing false health care claims, violating
anti-kickback laws, or engaging in other billing
improprieties; (v) any organic or mental illness or
condition that impairs or may impair Dentist's
ability to practice dentistry; (vi) any dependency
Dentist may have on, habitual use or episodic abuse
Dentist may make of, alcohol or controlled
substances, or any participation Dentist may have in
any alcohol or controlled substance detoxification,
treatment, recovery, rehabilitation, counseling,
screening or monitoring program; (vii) any
allegation, or any investigation or proceeding based
on any allegation, against him, of violating
professional ethics or standards, or engaging in
illegal, immoral or other misconduct (of any nature
or degree), relating to Dentist's practice of
dentistry; and (viii) any denial or withdrawal of an
application Dentist filed in any state for licensure,
for professional staff privileges at any hospital or
other health care entity, for certification or
recertification, for participation in any third party
payment program, for state or federal controlled
substances registration or for malpractice insurance.
(d) Dentist shall abide by the By-laws, rules,
regulations, policies and directives of First Dental.
(e) In connection with the provision of professional
services to patients of the P.C., Dentist shall
- 2 -
<PAGE> 3
(i) at all times render services to patients in a
competent, professional and ethical manner, in
accordance with prevailing standards of medical
practice, and all applicable statutes, regulations,
rules, orders and directives of any and all
applicable governmental and regulatory bodies having
competent jurisdiction; (ii) use the equipment,
instruments, pharmaceuticals and supplies made
available by or through First Dental for the purposes
for which they are intended and in a manner
consistent with sound medical practice; (iii)
complete and maintain, in a timely manner, adequate,
legible and proper medical records with respect to
all services rendered to First Dental patients; and
(iv) participate in Medicare, Medicaid, Workers
Compensation, other federal and state reimbursement
programs, Blue Cross/Blue Shield, and other
commercial insurance programs and under the plan of
any HMO, PPO, health plan or other health benefit
program with which First Dental may contract or
affiliate in accordance with the rules, regulations
and procedures of such program.
3. Dentist's Services and Responsibilities.
---------------------------------------
3.1 OBLIGATIONS OF DENTIST AS CONSULTANT. Dentist shall
serve on the time basis shown on the signature page hereof as the Consultant and
in such capacity shall perform the services described on Exhibit A attached
hereto (and incorporated herein by this reference).
3.2 COMPLIANCE WITH APPLICABLE POLICIES. The performance
by Dentist of the services described in this Section 3 will be subject to such
policies, procedures, rules and regulations as First Dental may establish from
time to time.
3.3 CONFLICTS. Dentist shall devote Dentist's efforts to
fulfill the Dentist's obligations hereunder, and Dentist shall not, during the
term of this Agreement, without the prior written consent of First Dental which
consent shall not be unreasonably withheld, engage in any other professional
activity, whether or not such activity is pursued for gain, profit or other
pecuniary advantage, which interferes with the performance of Dentist's duties
hereunder, PROVIDED THAT Dentist may carry on the Dentist's dental practice.
Notwithstanding the foregoing, Dentist is permitted to continue lecturing,
consultation and testimony as an expert, any activity with respect to U.S.
Trading Group, Inc. and biomedical device design and fabrication.
- 3 -
<PAGE> 4
3.4 TIME RECORDS. Dentist shall submit to First Dental
such time records as First Dental may require from time to time showing the
nature of the services performed by Dentist and the time Dentist actually spent
performing those services.
4. Financial Terms.
---------------
4.1 ADMINISTRATIVE COMPENSATION. First Dental shall pay
Dentist at the rate per annum shown of the signature page hereof for the
administrative and supervisory services rendered to First Dental by Dentist as
Consultant. Such annual compensation shall be payable by First Dental to Dentist
in installments in accordance with First Dental's standard payroll practices.
4.2 INFORMATION. Dentist will cooperate with First Dental
as requested in the completion of any forms and submission of any information
necessary for First Dental to receive third party reimbursement for technical
clinical services rendered in connection with any professional services rendered
by Dentist, if applicable.
4.3 FRINGE BENEFITS. Dentist shall not be entitled to,
and shall have no claim under this Agreement or otherwise against First Dental
for, any so-called fringe benefits, including but not limited to: paid vacation;
health insurance; continuing medical education reimbursement; paid continuing
medical education leave; life insurance; long-term disability insurance;
reimbursement of professional society dues; participation in a profit sharing or
pension plan; paid sick leave; family leave; or professional liability
insurance.
5. PROFESSIONAL LIABILITY INSURANCE. Dentist agrees at
all times during the term of this Agreement to maintain in full force and
effect, at Dentist's sole expense, professional liability insurance in such
amounts as First Dental shall reasonably request. In the event Dentist
discontinues a "claims made" form of insurance in effect at any time during the
term of this Agreement, Dentist shall obtain "tail" coverage for events that may
have occurred during the term of this Agreement. Dentist shall cooperate with
any reasonable risk prevention or risk management activities of Dentist's
insurer. Dentist shall furnish First Dental with a certificate of insurance
evidencing that the aforesaid insurance is in full force and effect at all times
during the term of this Agreement. Dentist shall notify First Dental in writing
prior to any cancellation, modification or nonrenewal of such insurance policy.
Dentist shall be solely responsible for any deferred or retroactive premium that
may hereafter be billed by Dentist's insurer, and for any recoupment assessed
against Dentist with respect to any operating deficit of
- 4 -
<PAGE> 5
Dentist's insurer during any period prior to, during, or after the term of this
Agreement.
6. Term and Termination.
--------------------
6.1 TERM. Unless sooner terminated as provided herein,
this Agreement shall remain in full force and effect for the term stated on the
signature page hereof, commencing on the Effective Date and shall be
automatically extended at the end of the then-existing term for successive one
(1) year periods unless either of the parties notifies the other party in
writing at least sixty (60) days prior to the expiration of the then-existing
term of Dentist's/its desire to terminate this Agreement.
6.2 Termination.
-----------
a. First Dental may terminate this Agreement
immediately upon the occurrence of any of
the following: (i) Dentist's death; (ii)
Dentist's license to practice dentistry is
suspended or revoked; (iii) First Dental
determines that Dentist has furnished
deceptive or fraudulent information to First
Dental; (iv) Dentist engages in criminal,
unprofessional, unethical, or fraudulent
conduct and Dentist is found guilty of such
conduct by any entity or governmental agency
of competent jurisdiction; or (v) lapse or
termination of Dentist's malpractice
insurance other than due to the fault of
First Dental.
b. Either party may terminate this Agreement
upon breach by the other of any material
term in the Agreement, which breach has not
been cured to the reasonable satisfaction of
the non-breaching party within thirty (30)
days after notice of such breach.
c. Upon termination of this Agreement, Dentist
shall be entitled to receive such
compensation, if any, accrued under the
terms of this Agreement, but unpaid, as of
the date of said termination.
7. DISCLOSURE OF INFORMATION. All records, files, reports and
documents pertaining to services rendered by Dentist to First Dental hereunder
or to patients by First Dental, or to the operations of First Dental, belong to
and shall remain the
- 5 -
<PAGE> 6
property of First Dental (subject to Dentist's right to retain photocopies of
patient records for patient care purposes). Dentist agrees that First Dental's
trade secrets, as they may exist from time to time, are valuable, special, and
unique assets of First Dental. Dentist also agrees that the systems, protocols,
policies, procedures, manuals, reports, data bases, documents, instruments and
other materials used by First Dental are proprietary to First Dental, and are
valuable, special and unique assets of First Dental's business. Director shall
not, during or after the term of this Agreement, disclose First Dental's
proprietary information or trade secrets to any other firm, person, corporation,
association, or other entity for any reason or purpose whatsoever, without the
written consent of First Dental.
8. STATUS OF THE PARTIES. It is expressly understood and agreed
that, in the performance of services under this Agreement, Dentist shall at all
times be and act as an independent contractor with respect to First Dental, and
not as an employee of First Dental. Accordingly, except as otherwise set forth
in this Agreement, First Dental shall neither have nor exercise any specific
control or direction over the particular methods by which Dentist shall perform
the services required by this Agreement. Dentist understands and agrees that (i)
Dentist will not be treated as an employee of First Dental for federal or state
tax purposes; (ii) First Dental will not withhold on behalf of Dentist any sums
for income tax, unemployment insurance, social security, or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to employees of First Dental; (iii) First
Dental is obligated to report all payments to Dentist hereunder or otherwise in
excess of $600 per year to the Internal Revenue Service; and (iv) all of such
payments, withholdings, and benefits, if any, are the sole responsibility of
Dentist.
9. Miscellaneous.
-------------
9.1 ACCESS OF THE GOVERNMENT TO RECORDS. To the extent
that the provisions of Section 1861(c)(1)(I) of the Social Security Act [42
U.S.C. [Section]1395x(v)(I)] are applicable to this Agreement, the parties
agree to comply therewith.
9.2 GOVERNING LAW. This Agreement shall be governed and
interpreted in accordance with, and the rights of the parties shall be
determined by, the laws of the Commonwealth of Massachusetts.
9.3 SEVERABILITY. If any provision of this Agreement
shall be declared invalid or illegal for any reason whatsoever, then
notwithstanding such invalidity or illegality, the remaining
- 6 -
<PAGE> 7
terms and provisions of this Agreement shall remain in full force and effect in
the same manner as if the invalid or illegal provision had not been contained
herein.
9.4 AMENDMENT; ENTIRE AGREEMENT. No alteration or
modification of this Agreement shall be valid unless made in writing and
executed by each of the parties hereto. This Agreement contains the entire
agreement among the parties regarding the subject matter hereof and supersedes
all other written or oral understandings thereon.
9.5 COUNTERPARTS. This Agreement may be executed in more
than one counterpart, and each executed counterpart shall be considered as the
original.
9.6 VESTED RIGHTS. No amendment, supplement or
termination of this Agreement shall affect or impair any rights or obligations
which shall have theretofore matured hereunder.
9.7 SUCCESSORS. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
representatives.
9.8 NOTICES. Any notice or other communication by one
party to the other shall be in writing and shall be given, and be deemed to have
been given, if either hand delivered or mailed, postage prepaid, certified mail
(return receipt requested), addressed as follows:
First Dental: First New England Dental Centers, Inc.
170 Commonwealth Avenue
Boston, MA 02116
Attention: President
Dentist: The address shown on the
signature page hereof.
Any party may change the address for notice by notifying the other party, in
writing, of the new address.
9.9 FURTHER ACTIONS. Each of the parties agrees that it
shall hereafter execute and deliver such further instruments and do such further
acts and things as may be required or useful to carry out the intent and purpose
of this Agreement and as are consistent with the terms hereof.
9.10 ASSIGNMENT. No party may assign this Agreement
without written consent of the other.
- 7 -
<PAGE> 8
9.11 SURVIVAL. The covenants contained in paragraphs 3.4,
5, 7, 8, 9.1, and 9.9 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the Effective Date.
FIRST NEW ENGLAND DENTIST
DENTAL CENTERS, INC.
/s/ Jerald Robbins /s/ Julian Osorio
- ------------------------- ------------------------
Name of Dentist: Julian Osorio
Address: 210 Beacon St. #1
Boston, MA 02116
Effective Date: 12-29-95
Term of Agreement: Ten Years
Annual Compensation: $60,000
- 8 -
<PAGE> 9
EXHIBIT A
Consultant Services
-------------------
1. Oversee all aspects of the clinical services provided by the P.C.;
2. Manage and administer the delivery of dental services by the P.C. in a
manner which complies with the rules and regulations of First Dental,
all applicable federal, state and local laws the Massachusetts
Department of Public Health and other applicable regulatory agencies;
3. Supervise ancillary clinical personnel;
4. Review and appraise the professional performance of dental personnel,
including making recommendations to First Dental regarding dentists'
credentials;
5. Developing, implement, and periodically update clinical and operational
protocols, procedures, manuals, rules and regulations and quality
control policies and procedures for the P.C. as may be necessary (i) to
ensure the therapeutic efficacy, appropriateness, medical necessity,
consistency, safety and quality of such services, and (ii) to ensure
that such services are rendered at all times in a competent, ethical
and professional manner, in accordance with acceptable medical
practice, and in compliance with all applicable statutes, regulations,
rules, orders and directives of federal, state, local and other
governmental and regulatory bodies having competent jurisdiction;
6. Consult with First Dental to ensure that there is a dentist-in-charge
of the P.C.'s practice seven (7) days a week;
7. Consult with First Dental on the establishment of ethical and moral
standards for use in the business of First Dental and the P.C.;
8. Consult with First Dental to ensure that First Dental and the P.C. meet
all necessary standards relating to dental services - local, state,
federal, and professional;
9. Fill in as clinicians on an emergency basis as necessary when a dentist
is needed at any location;
10. Represent First Dental in all professional activities;
<PAGE> 10
11. Monitor the practice patterns of each dentist and do a review every six
months;
12. Maintain training of all dentists;
13. Supervise case presentations on a monthly basis;
14. Work with the other consultant(s), if any, and hire and fire all
general dentists, specialists, hygienists, assistants and other
healthcare professionals;
15. Work with other consultant(s), if any, to ensure a site visit to each
facility on a monthly basis;
16. Meet with management on a weekly basis to plan overall strategy;
17. Assist in acquisition process as needed and review all potential
acquisitions;
18. Work with managed care groups as necessary to integrate their plans
into First Dental;
19. Represent First Dental professionally before potential investors;
20. Report to the board of directors on a timely basis as to status of the
company
21. Such other administrative duties as may reasonably be assigned from
time to time by First Dental.
- ii -
<PAGE> 1
EXHIBIT 10.14
CONSULTING AGREEMENT
This Agreement is made as of the 1st day of November, 1996, between
FIRST NEW ENGLAND DENTAL CENTERS, INC., a Delaware corporation (the "Company"),
and THE FORT HILL GROUP, INC., a Delaware corporation (the "Consultant").
WHEREAS, the Company desires to retain Consultant for the period and
upon and subject to the terms herein provided; and
WHEREAS, Consultant is willing to agree to be retained by the Company
upon and subject to the terms herein provided;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements hereinafter set forth and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
[Section]1. TERM OF CONSULTANCY. The Company agrees to retain
Consultant to provide financial consulting services from November 1, 1996
through October 31, 1998.
[Section]2. COMPENSATION. The Company will pay Consultant for its
services rendered hereunder at the rate of $13,000 per month, payable in arrears
on the last day of each calendar month during the term of this Agreement.
[Section]3. DUTIES. During the term of this Agreement, the Company
shall retain Consultant to perform such financial consulting and other services
as the parties may mutually agree.
[Section]4. EXPENSES. Consultant shall be entitled to reimbursement for
reasonable and necessary business expenses incurred, consistent with Company
policy, in connection with the performance of its duties hereunder upon receipt
of vouchers therefor in accordance with such procedures as the Company has
heretofore or may hereafter establish.
[Section]5. CONFIDENTIALITY. Consultant shall not, either during the
period of its consultancy with the Company or thereafter, reveal or disclose to
any person outside the Company or use to its own benefit, any proprietary and
confidential marketing technique or cost method, or any patient list of the
Company or any proprietary and confidential mailing or supplier list, whether or
not made, developed and/or conceived by Consultant or by others in the employ of
the Company. Upon the termination of Consultant's consultancy in any manner or
for any reason, Consultant shall promptly surrender to the Company all copies of
any of the foregoing, together with any other documents, materials, data,
information and equipment belonging to or relating to the Company's business and
in his possession, custody or control, and Consultant shall not thereafter
retain or deliver to any other person, any of the foregoing or any summary or
memorandum thereof.
[Section]6. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given when delivered or
mailed by first-class, registered or certified mail, postage prepaid, addressed
(a) if to Consultant, attention of the Chairman and Chief Executive Officer at
767 Third Avenue, 20th Floor, New York, New York 10017; and (b) if to the
Company, attention
<PAGE> 2
- 2 -
of the Chairman and Chief Executive Officer at its principal place of business,
85 Devonshire Street, Boston, Massachusetts 02109.
[Section]7. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the Company and the Consultant with respect to the subject
matter hereof and there have been no oral or other agreements of any kind
whatsoever as a condition precedent or inducement to the signing of this
Agreement or otherwise concerning this Agreement or the subject matter hereof.
[Section]8. AMENDMENTS. This Agreement may not be amended, nor shall
any waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
[Section]9. ASSIGNABILITY; BINDING NATURE. This Agreement has been duly
authorized by the Company's Board of Directors and shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. No rights or obligations of the Company under this Agreement
may be assigned or transferred by the Company, except that such rights or
obligations may be assigned or transferred pursuant to a merger or consolidation
in which the Company is not the continuing entity, or the sale or liquidation of
all or substantially all of the assets of the Company, provided that the
assignee or transferee is the successor to all or substantially all of the
assets of the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law. The Company further agrees that, in the
event of a sale of assets or liquidation as described in the preceding sentence,
it shall cause such assignee or transferee to expressly assume the liabilities,
obligations and duties of the Company hereunder.
[Section]10. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which when executed and delivered shall be an
original, and all of which together shall constitute one instrument. In proving
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is sought.
[Section]11. GOVERNING LAW. This Agreement shall be governed by,
construed and enforced in accordance with the law (other than the law governing
conflict of law questions) of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement as of the date first above written.
FIRST NEW ENGLAND DENTAL CENTERS, INC. THE FORT HILL GROUP, INC.
By: Donald E. Strange By: John R. Lakian
------------------------------- ----------------------------
Donald E. Strange, Chairman and John R. Lakian, Chairman and
Chief Executive Officer Chief Executive Officer
<PAGE> 1
Exhibit 10.15
FIRST NEW ENGLAND DENTAL CENTERS, INC.
1996 STOCK PLAN
1. Purpose
-------
The purpose of this plan (the "Plan") is to secure for First New
England Dental Centers, Inc. (the "Company") and its shareholders the benefits
arising from capital stock ownership by employees, officers and directors of,
and consultants or advisors to, the Company and its affiliates who are expected
to contribute to the Company's future growth and success. Except where the
context otherwise requires, the term "Company" shall include all present and
future affiliates of the Company. Those provisions of the Plan that make express
reference to Section 422 of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code") shall apply only to Incentive Stock
Options (as that term is defined in the Plan).
2. Type of Options and Grants; Administration
------------------------------------------
(a) TYPES OF OPTIONS. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options that are not intended to meet the requirements of
Section 422 of the Code.
(b) PURCHASE RIGHTS. Pursuant to the Plan, eligible persons may be
provided with opportunities to make direct purchases of the Company's common
stock ("Purchase Rights"). Purchase Rights shall be authorized by action of the
Board of Directors of the Company (or a Committee designated by the Board of
Directors).
(c) AWARDS. Pursuant to the Plan, eligible persons may be provided with
awards of the Company's common stock ("Awards"). Awards shall be authorized by
action of the Board of Directors of the Company (or a Committee designated by
the Board of Directors).
(d) ADMINISTRATION. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms and
provisions of the Plan shall be final and conclusive. The Board of Directors may
in its sole discretion (i) grant options to purchase shares of the Company's
common stock ("Common Stock") and issue shares upon exercise of such options as
provided in the Plan, (ii) grant Purchase Rights and issue shares upon the
exercise of such Purchase Rights, and (iii) make Awards and issue shares
pursuant to such Awards. The Board shall have authority, subject to the express
provisions of the Plan, to construe the respective option agreements and the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms and provisions of the respective option agreements,
which need not be identical, and to make all other determinations in the
judgment of the Board of Directors necessary or desirable for the administration
of the Plan. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any option agreement,
purchase agreement or other
<PAGE> 2
- 2 -
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency. No
director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination under the Plan made in
good faith. The Board of Directors may, to the full extent permitted by or
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")),
delegate any or all of its powers under the Plan to a committee (the
"Committee") appointed by the Board of Directors, and if the Committee is so
appointed all references to the Board of Directors in the Plan shall mean and
relate to such Committee.
(e) APPLICABILITY OF RULE 16b-3. Those provisions of the Plan that make
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility
-----------
Options or Purchase Rights may be granted, and Awards may be made, to
persons who are, at the time of grant or award, employees, officers or directors
of, or consultants or advisors to, the Company; provided, that the class of
employees to whom Incentive Stock Options may be granted shall be limited to
employees of the Company eligible to receive Incentive Stock Options under the
Code. A person who has been granted an option, Purchase Right or Award may, if
he or she is otherwise eligible, be granted additional options, Purchase Rights
or Awards if the Board of Directors shall so determine.
4. Stock Subject to Plan
---------------------
Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock of the Company that may be issued and sold
under the Plan is 300,000 shares. If an option, Purchase Right or Award granted
under the Plan shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares subject to such option, Purchase Right
or Award shall again be available for subsequent grants under the Plan. If
shares issued upon exercise of an option, Purchase Right or Award under the Plan
are tendered to the Company in payment of the exercise price of an option,
Purchase Right or Award granted under the Plan, such tendered shares shall again
be available for subsequent grants under the Plan; provided, that in no event
shall (i) the total number of shares issued pursuant to the exercise of
Incentive Stock Options under the Plan, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence or (ii) the total
number of shares issued pursuant to the exercise of options, Purchase Rights or
Awards by Reporting Persons, on a cumulative basis, exceed the maximum number of
shares authorized for issuance under the Plan exclusive of shares made available
for issuance pursuant to this sentence.
5. Forms of Agreements
-------------------
As a condition to the grant of an option, Purchase Right or Award under
the Plan, each recipient of an option, Purchase Right or Award shall execute an
option agreement, purchase
<PAGE> 3
- 3 -
agreement, stock restriction agreement or other agreement in such form not
inconsistent with the Plan as may be approved by the Board of Directors. Such
agreements may differ among recipients.
6. Purchase Price
--------------
(a) GENERAL. The purchase price per share of stock deliverable upon the
exercise of an option, Purchase Right or Award shall be determined by the Board
of Directors; provided, that in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the fair market value of such
stock, as determined by the Board of Directors, at the time of grant of such
option, or less than 110% of such fair market value in the case of options
described in Section 11(b).
(b) PAYMENT OF PURCHASE PRICE. Options, Purchase Rights or Awards
granted under the Plan may provide for the payment of the exercise price by
delivery of cash or a check to the order of the Company in an amount equal to
the exercise price of such options, Purchase Rights or Awards, or, to the extent
provided in the applicable option agreement, (i) by delivery to the Company of
shares of Common Stock of the Company already owned by the recipient having a
fair market value equal in amount to the exercise price of the options, Purchase
Rights or Awards being exercised, (ii) by any other means (including, without
limitation, by delivery of a promissory note of the recipient payable on such
terms as are specified by the Board of Directors) that the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration that may be delivered
upon exercise of an option, Purchase Right or Award shall be determined by the
Board of Directors.
7. Exercise Period
---------------
Each option, Purchase Right or Award and all rights thereunder shall
expire on such date as shall be set forth in the applicable agreement, except
that, in the case of an Incentive Stock Option, such date shall not be later
than ten years after the date on which the option is granted and, in all cases,
options shall be subject to earlier termination as provided in the Plan.
8. Exercise of Options, Purchase Rights or Awards
----------------------------------------------
Each option, Purchase Right or Award granted under the Plan shall be
exercisable either in full or in installments at such time or times and during
such period as shall be set forth in the agreement evidencing such option,
Purchase Right or Award, subject to the provisions of the Plan.
9. Nontransferability of Options
-----------------------------
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable by the person to whom they are granted,
either voluntarily or by operation of law, except by will or the laws of descent
and distribution, and, during the life of the optionee, shall be exercisable
only by the optionee; provided, that non-statutory options may be transferred
pursuant to a qualified domestic relations order (as defined in Rule 16b-3).
<PAGE> 4
- 4 -
10. Effect of Termination of Employment or Other Relationship
---------------------------------------------------------
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which a recipient may exercise an option,
Purchase Right or Award following (i) the termination of the recipient's
employment or other relationship with the Company or (ii) the death or
disability of the recipient. Such periods shall be set forth in the agreement
evidencing such option, Purchase Right or Award.
11. Incentive Stock Options
-----------------------
Options granted under the Plan that are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) EXPRESS DESIGNATION. All Incentive Stock Options granted
under the Plan shall, at the time of grant, be specifically designated as such
in the option agreement covering such Incentive Stock Options.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of
the fair market value of one share of Common Stock at the time of
grant; and
(ii) the option exercise period shall not exceed five
years from the date of grant.
(c) DOLLAR LIMITATION. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) that are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement); provided that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after
<PAGE> 5
- 5 -
such three-month period shall be treated as the exercise of a
non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the
Company, or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and
(iii) if the optionee becomes disabled (within the meaning
of Section 22(e)(3) of the Code or any successor provision thereto)
while in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions
---------------------
(a) ADDITIONAL PROVISIONS. The Board of Directors may, in its sole
discretion, include additional provisions in agreements covering options,
Purchase Rights or Awards granted under the Plan, including without limitation
restrictions on transfer, repurchase rights, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to recipients
upon exercise of options, Purchase Rights or Awards, or such other provisions as
shall be determined by the Board of Directors; provided that such additional
provisions shall not be inconsistent with any other term or condition of the
Plan and such additional provisions shall not cause any Incentive Stock Option
granted under the Plan to fail to qualify as an Incentive Stock Option within
the meaning of Section 422 of the Code.
(b) ACCELERATION, EXTENSION, ETC. The Board of Directors may, in
its sole discretion, (i) accelerate the date or dates on which all or any
particular option, Purchase Right or Award granted under the Plan may be
exercised or (ii) extend the dates during which all, or any particular, option,
Purchase Right or Award granted under the Plan may be exercised; provided that
no such extension shall be permitted if it would cause the Plan to fail to
comply with Section 422 of the Code or with Rule 16b-3.
13. General Restrictions
--------------------
(a) INVESTMENT REPRESENTATIONS. The Company may require any person
to whom an option, Purchase Right or Award is granted, as a condition of
exercising such option, Purchase Right or Award, to give written assurances in
substance and form satisfactory to the Company to the effect that such person is
acquiring the Common Stock subject to the option, Purchase Right or Award for
his or her own account for investment and not with any present intention of
selling or otherwise
<PAGE> 6
- 6 -
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with federal and applicable state securities
laws, or with covenants or representations made by the Company in connection
with any public offering of its Common Stock.
(b) COMPLIANCE WITH SECURITIES LAWS. Each option, Purchase Right or
Award shall be subject to the requirement that if, at any time, counsel to the
Company shall determine that the listing, registration or qualification of the
shares subject to such option, Purchase Right or Award upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with, the issuance or purchase of shares
thereunder, such option, Purchase Right or Award may not be exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval, or satisfaction of such condition shall have been effected or obtained
on conditions acceptable to the Board of Directors. Nothing herein shall be
deemed to require the Company to apply for or to obtain such listing,
registration or qualification, or to satisfy such condition.
14. Rights as a Shareholder
-----------------------
The holder of an option, Purchase Right or Award shall have no rights
as a shareholder with respect to any shares covered by the option, Purchase
Right or Award (including, without limitation, any rights to receive dividends
or non-cash distributions with respect to such shares) until the date of issue
of a stock certificate to him or her for such shares. No adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions
--------------------------------------------------------------------
(a) GENERAL. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares reserved for issuance under the Plan, (y) the number and kind
of shares or other securities subject to any then outstanding options, Purchase
Rights or Awards under the Plan, and (z) the price for each share subject to any
then outstanding options, Purchase Rights or Awards under the Plan, without
changing the aggregate purchase price as to which such options, Purchase Rights
or Awards remain exercisable. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 15 if such adjustment would cause the Plan to
fail to comply with Section 422 of the Code or with Rule 16b-3.
(b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
<PAGE> 7
- 7 -
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
----------------------------------------------------
(a) GENERAL. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding shares of
Common Stock are exchanged for securities, cash or other property of any other
corporation or business entity or in the event of a liquidation of the Company,
the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company may in its discretion, take
any one or more of the following actions, as to outstanding options, Purchase
Rights or Awards: (i) provide that such options, Purchase Rights or Awards shall
be assumed, or equivalent options, Purchase Rights or Awards shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the recipient provide that all unexercised options, Purchase Rights or
Awards will terminate immediately prior to the consummation of such transaction
unless exercised by the recipient within a specified period following the date
of such notice, (iii) in the event of a merger under the terms of which holders
of the Common Stock of the Company will receive upon consummation thereof a cash
payment for each share surrendered in the merger (the "Merger Price"), make or
provide for a cash payment to the recipient equal to the difference between (A)
the Merger Price times the number of shares of Common Stock subject to such
outstanding options, Purchase Rights or Awards (to the extent then exercisable
at prices not in excess of the Merger Price) and (B) the aggregate exercise
price of all such outstanding options, Purchase Rights or Awards in exchange for
the termination of such options, Purchase Rights or Awards, and (iv) provide
that all or any outstanding options, Purchase Rights or Awards shall become
exercisable in full immediately prior to such event.
(b) SUBSTITUTE OPTIONS, PURCHASE RIGHTS OR AWARDS. The Company may
grant options, Purchase Rights or Awards under the Plan in substitution for
options, Purchase Rights or Awards held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options, Purchase Rights or Awards be granted
on such terms and conditions as the Board of Directors considers appropriate in
the circumstances.
17. No Special Employment Rights
----------------------------
Nothing contained in the Plan or in any options, Purchase Rights or
Award shall confer upon any recipient any right with respect to the continuation
of his or her employment by the Company or interfere in any way with the right
of the Company at any time to terminate such employment or to increase or
decrease the compensation of the recipient.
18. Other Employee Benefits
-----------------------
Except as to plans that by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an options, Purchase Rights or Award or
the sale of shares received upon such exercise will not constitute compensation
with respect to which any other employee benefits of such employee are
determined,
<PAGE> 8
- 8 -
including, without limitation, benefits under any bonus, pension,
profit-sharing, life insurance or salary continuation plan, except as otherwise
specifically determined by the Board of Directors.
19. Amendment of the Plan
---------------------
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the shareholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Option, or under Rule
New York Stock Exchange listing requirements with respect to original issue
shares to be issued to officers or directors, the Board of Directors may not
effect such modification or amendment without such approval. Otherwise, approval
of shareholders is not required for the Board of Directors to amend or modify
the Plan.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of a recipient, affect his or her rights under an
option, Purchase Right or Award previously granted to him or her. With the
consent of the recipient affected, the Board of Directors may amend outstanding
agreement governing an option, Purchase Right or Award in a manner not
inconsistent with the Plan. The Board of Directors shall have the right to amend
or modify (i) the terms and provisions of the Plan and of any outstanding
Incentive Stock Options granted under the Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded incentive
stock option, Purchase Right or Awards under Section 422 of the Code.
20. Withholding
-----------
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the recipient any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options, Purchase Rights or Awards under the Plan. Subject to the
prior approval of the Company, which may be withheld by the Company in its sole
discretion, the recipient may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company to withhold shares of Common Stock otherwise
issuable pursuant to the exercise of an option, Purchase Right or Award or (ii)
by delivering to the Company shares of Common Stock already owned by the
recipient. The shares so delivered or withheld shall have a fair market value
equal to such withholding obligation. The fair market value of the shares used
to satisfy such withholding obligation shall be determined by the Company as of
the date that the amount of tax to be withheld is to be determined. A recipient
who has made an election pursuant to this Section 20(a) may only satisfy his or
her withholding obligation with shares of Common Stock that are not subject to
any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Purchase Rights or Awards, Etc.
----------------------------------------------------------------------
<PAGE> 9
- 9 -
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected recipients, (i) the
cancellation of any or all outstanding options, Purchase Rights or Awards under
the Plan and the grant in substitution therefor of new options, Purchase Rights
or Awards under the Plan covering the same or different numbers of shares of
Common Stock and having an exercise price per share that may be lower or higher
than the exercise price per share of the cancelled options, Purchase Rights or
Awards or (ii) the amendment of the terms of any and all outstanding options,
Purchase Rights or Awards under the Plan to provide an exercise price per share
that is higher or lower than the then-current exercise price per share of such
outstanding options, Purchase Rights or Awards.
22. Effective Date and Duration of the Plan
---------------------------------------
(a) EFFECTIVE DATE. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular option. Subject to this limitation, options,
Purchase Rights or Awards may be granted under the Plan at any time after the
effective date and before the date fixed for termination of the Plan.
(b) TERMINATION. Unless sooner terminated in accordance with Section
16, the Plan shall terminate, with respect to Incentive Stocks, upon the earlier
of (i) the close of business on the day next preceding the tenth anniversary of
the date of its adoption, Purchase Right or Award by the Board of Directors, or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise or cancellation of options granted
under the Plan. Unless sooner terminated in accordance with Section 16, the Plan
shall terminate with respect to options, Purchase Rights or Awards that are not
Incentive Stock Options on the date specified in (ii) above. If the date of
termination is determined under (i) above, then options, Purchase Rights or
Awards outstanding on such date shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such options,
Purchase Rights or Awards.
23. Provision for Foreign Participants
----------------------------------
The Board of Directors may, without amending the Plan, modify options,
Purchase Rights or Awards granted to participants who are foreign nationals or
employed outside the United States to
<PAGE> 10
- 10 -
recognize differences in laws, rules, regulations or customs of such foreign
jurisdictions with respect to tax, securities, currency, employee benefit or
other matters.
Adopted by the Board of Directors on
November 26, 1996
<PAGE> 1
EXHIBIT 10.16
November 26, 1996
First New England Dental Centers, Inc.
Osorio and Watkin, D.M.D., P.C.
Edward S. Kollar, D.D.S. P.C.
85 Devonshire Street
Boston, MA 02109
Gentlemen:
We are pleased to submit the following commitment letter (the "Commitment
Letter") setting forth the terms and conditions under which Fleet National Bank
would extend to First New England Dental Centers, Inc. ("First NE"), Osorio and
Watkin, D.M.D. P.C. ("Osorio"), and Edward S. Kollar, D.D.S., P.C. ("Kollar") a
revolving line of credit facility.
1. Co-Borrower
-----------
First New England Dental Centers, Inc., a Delaware corporation and Osorio
and Watkin, D.M.D., P.C., a Massachusetts corporation, Edward S. Kollar,
D.D.S., P.C., a Vermont corporation (collectively hereinafter referred to
as the "Borrower") .
2. Lender
------
Fleet National Bank.
3. Purpose of Credit Facility
--------------------------
Advances made under the line of credit facility shall be used for
Borrower's working capital support and acquisitions.
4. Revolving Line of Credit Facility
---------------------------------
Lender will make advances under the line of credit facility from time to
time. Principal amounts repaid shall be available to be redrawn pursuant to
the terms and conditions set forth herein and in the loan documents entered
into in connection herewith. The aggregate principal amount outstanding at
any one time under the line of credit facility shall not exceed the lesser
of (i) $20,000,000; (ii) fifty (50%) percent of the amount raised by First
NE pursuant to an initial placement offering (the "IPO"); and (iii) the
Borrowing Base. The Borrowing Base shall mean the greater of $5,000,000 or
<PAGE> 2
First New England Dental Centers, Inc.
November 26, 1996
Page 2
First NE's annualized EBITDA (earnings before interest, taxes, depreciation
and amortization) level multiplied times four (4). Annualized EBITDA shall
mean First NE's EBITDA over the trailing quarter times four (4). The
trailing quarterly EBITDA will be based on the Borrower's 10-Q for the last
completed fiscal quarter.
5. Payment.
-------
Borrower shall make monthly payments of interest only in arrears on the
first day of each month and the entire unpaid principal amount with
interest then accrued shall be due and payable in three (3) years from the
date of closing.
6. Interest; Default Rate
----------------------
Amounts outstanding under the line of credit facility shall bear interest
at a variable rate per annum (computed on the basis of a 360-day year and
actual days elapsed) equal to Lender's publicly announced prime rate (the
"Prime Rate"), as in effect from time to time, plus one (1.0) percentage
point. After and during the continuance of any default under the Loan
Documents, amounts outstanding under the line of credit facility shall at
the option of Lender bear interest at a rate computed by taking the
interest rate that would otherwise be in effect and increasing it by four
(4%) percentage points per annum.
7. Term.
----
The term of the line of credit facility shall expire three (3) years from
the Closing Date.
8. Prepayment
----------
Amounts outstanding under the line of credit facility may be prepaid in
whole or in part at any time, without a prepayment penalty or premium.
9. Depository Accounts
-------------------
Borrower shall maintain its primary operating account(s) with Lender during
such term.
<PAGE> 3
First New England Dental Centers, Inc.
November 26, 1996
Page 3
10. Unused Line Fee
---------------
Borrower shall pay Lender an unused line fee equal to three-eights of one
percent (.375%) per annum of the average unused portion of the line of
credit facility. The unused line fee shall be due and payable quarterly in
arrears on the first day of each calendar quarter.
11. Commitment Fee
--------------
Borrower shall pay to Lender a commitment fee of $200,000.00, payable
one-half upon Borrower's acceptance of this commitment and one-half upon
the closing if and when the closing occurs. The first one-half of the
Commitment Fee shall be deemed earned regardless of whether the closing of
the transaction contemplated by this Commitment Letter actually occurs.
12. Partial Use of IPO Proceeds.
---------------------------
The proceeds of the IPO shall be utilized in part to pay off existing
indebtedness to Lender.
13. Security
--------
The indebtedness of Borrower to Lender under the line of credit facility
shall be secured by the following (the "Collateral"): (i) a perfected,
blanket first lien on and security interest in all now-owned and
hereafter-acquired tangible and intangible property of Borrower, including,
without limitation, all accounts, inventory, machinery and equipment and
other goods, fixtures, trademarks, servicemarks, patents, general
intangibles, documents, instruments, and chattel paper, and all proceeds
and products thereof (except for existing security interests in equipment
and fixtures in which event a junior lien shall be granted to Lender); and
(ii) unless prohibited by applicable statutory law, a first priority pledge
of all stock, partnership or other equity interests in Osorio, Kollar and
all stock, partnership or other equity interests held by Borrower in any
subsidiaries or joint ventures, whether foreign or domestic and all
professional corporations or other dental entities with which First NE has
entered into management agreements.
<PAGE> 4
First New England Dental Centers, Inc.
November 26, 1996
Page 4
14. Covenants
---------
The Loan Documents shall contain covenants with respect to the following
matters (where not defined terms shall be defined pursuant to GAAP:
a. Borrower shall not permit the ratio of its of Total Funded
Indebtedness to Annualized EBITDA to exceed 4.5 to 1.0 to be tested on
a quarterly basis. Total Funded Indebtedness shall mean the aggregate
of debt owed to Lender and amounts owed under Seller Notes as
hereinafter defined.
b. Borrower shall not permit the ratio of Total Funded Indebtedness to
Net Worth to exceed 1.0 to 1.0 to be tested on a quarterly basis.
c. Borrower shall maintain a minimum Current Ratio of 1.5 to 1.0, to be
tested on a quarterly basis. "Current Ratio" is defined as total
current assets divided by total current liabilities.
d. Borrower shall not declare or pay any cash dividends in respect of any
of its capital stock or redeem said capital stock so long as the line
of credit facility shall be outstanding.
e. Any acquisition or merger whose purchase price totals in excess of
twenty-five (25%) percent of the Borrower's net worth must be
consented to by Lender.
f. Loans or advances to affiliates or shareholders other than those
between the co-borrowers will be restricted. The Lender will allow
individual advances to employees to cover relocation expenses up to
$[to be negotiated] for a single instance and up to $[to be
negotiated] in the aggregate.
g. The Borrower may not pledge or encumber any of its assets to any
entity other than the Lender, excepting that purchase money security
interests and capital leases will be permitted up to a negotiated
amount.
<PAGE> 5
First New England Dental Centers, Inc.
November 26, 1996
Page 5
h. The Borrower may not sell fixed assets except for those assets sold in
the ordinary course of business in an amount not to exceed $500,000 on
an aggregate annual basis without the consent of the Lender.
i. The Borrower may not make any material change to its current
management team without the consent of the Lender. A material
management change is defined as the absence, departure or removal of
the chief executive officer and chief financial officer within any six
(6) month period.
j. The First NE may merge with another company provided that First NE is
the surviving entity and provided the merger will not result in an
event of default.
k. The Borrower may not incur any further indebtedness without the
consent of the Lender, excepting that seller notes to the former
owners of acquired dental practices ("Seller Notes") will be permitted
provided there has not been an event of default and provided the
incurrence of such debt will not result in an event of default.
l. The Borrower shall cause future subsidiaries and/or professional
corporations or other dental entities with which First NE has entered
into management agreements to become a co-borrower under the line of
credit facility and to execute such documents as the Lender shall
require to convey a security interest in all of its other assets to
the Lender. These documents will contain terms and conditions
substantially equivalent to those in the original documents.
15. Reporting Requirements
----------------------
a. Not later than ninety (90) days after the end of each fiscal year of
Borrower, Borrower shall deliver to Lender fiscal year-end audited
financial statements. Such financial statements shall be prepared in
accordance with generally accepted accounting principles consistently
applied and shall be accompanied by the unqualified audit report
thereon, including a management letter, of a nationally recognized
independent public accounting firm acceptable to Lender.
<PAGE> 6
First New England Dental Centers, Inc.
November 26, 1996
Page 6
b. Not later than forty-five (45) days after the end of each fiscal
quarter of Borrower, other than the fourth fiscal quarter, Borrower
shall deliver to Lender financial statements for the then-ended
quarter or 10-Q for said period. Such financial statements shall be
prepared in accordance with generally accepted accounting principles
consistently applied, shall be subject to year end adjustments and
shall be accompanied by a certificate of Borrower's treasurer or chief
financial officer.
c. Borrower shall deliver to Lender on a monthly basis (within fifteen
(15) days of month end):
i. a month end Borrowing Base Certificate together with a Compliance
Certificate.
ii. an acquisition Schedule with closed and pending acquisitions
listed.
d. Borrower shall deliver to Lender as soon as they become available to
Borrower's management (but not later than forty-five (45) days beyond
Borrower's fiscal year end) Borrower's internally prepared budget for
each fiscal year during the term of the line of credit facility.
e. Borrower shall deliver to Lender as soon as they become publicly
available copies of all of Borrower's reports on forms 10-K, 10-Q and
8-K submitted to the United States Securities and Exchange Commission
and copies of all other filings and correspondence to or from any
Federal or state securities regulator.
f. Such other reports and financial information that Lender may
reasonably request.
16. Representations and Warranties
------------------------------
The Loan Agreement shall contain such representations and warranties as are
usual in secured financings, including, without limitation, representations and
warranties with respect to: corporate organization, existence, and good
standing; qualification to do business as a foreign corporation; corporate power
and authority; capitalization; due authorization of the transaction;
enforceability of loan documents; financial statements and condition; solvency;
licenses, permits, and compliance with laws; title to properties; priority and
perfection of Lender's liens; indebtedness; defaults; full disclosure; use of
proceeds; taxes;
<PAGE> 7
First New England Dental Centers, Inc.
November 26, 1996
Page 7
litigation; consents and approvals; and ERISA and environmental matters.
17. Conditions Precedent
--------------------
In addition to such other conditions as are usual in secured financings,
each of the following shall be a condition precedent to Lender's obligation to
establish the line of credit facility and the term loan facility and to make any
loan thereunder:
a. First NE's IPO shall have been consummated and the net proceeds raised
pursuant thereto shall be not less than $20,000,000.
b. No material adverse change shall have occurred in the condition
(financial or otherwise), results of operation, business, or prospects
of Borrower, except as previously disclosed to Lender.
c. Borrower's insurance coverage shall be satisfactory in form, scope,
and substance to Lender in its sole discretion and shall name Lender
as a loss payee on all property coverages and as an additional insured
on all liability coverages.
d. The closing shall occur not later than March 30, 1997.
e. Borrower shall have executed and delivered, or caused to be executed
and delivered, to Lender such agreements, instruments, certificates,
opinions, and other documents and assurances as Lender may request in
connection with the transactions contemplated by this Commitment
Letter (the "Loan Documents") and shall have taken such other actions
in connection with such transactions as Lender may request. Each of
the Loan Documents and each of such actions shall be subject to the
approval of Lender and its counsel as to substance and form. In
addition to the conditions precedent, representations, warranties, and
affirmative and negative covenants described above, the Loan Documents
shall include without limitation: (1) such events of default as are
usual for secured financings; (2) such mortgages, assignments of
leases, leasehold mortgages, and landlord and mortgagee consents and
waivers (on a best effort basis) as Lender may deem necessary or
appropriate; (3) the legal opinion of Warner & Stackpole as counsel to
Borrower; (4) the legal opinion
<PAGE> 8
First New England Dental Centers, Inc.
November 26, 1996
Page 8
of such local or special counsel to Borrower as Lender may reasonably
deem necessary; and (5) such other affirmative and negative covenants
and such other representations and warranties as Lender may require.
f. Receipt by Borrower of such consents from third parties as may be
required to permit consummation of the transactions contemplated by
this Commitment Letter.
g. Receipt by Lender of financial pro formas and projections in form and
substance satisfactory to Lender for Borrower for fiscal year 1997 and
audited financial statements as prepared by KPMG for fiscal year ended
December 31, 1995 and for the nine (9) months ended September 30, 1996
in form and substance satisfactory to Lender.
18. Audits
------
Lender shall have full access to Borrower's books and records and may audit
such records at such times as Lender may reasonably require. Borrower will
reimburse Lender for the reasonable costs and expenses of Lender incurred in
such audits.
19. Fees and Expenses
-----------------
Borrower will pay the costs and expenses of Lender, including without
limitation the fees and expenses of Lender's counsel, incurred in connection
with review, structuring and closing of the transactions contemplated by this
Commitment Letter and the interim financing, whether or not such transactions
are ever consummated.
This letter sets forth the terms and conditions of Fleet National Bank's
commitment and supersedes any and all previous oral and written communications
and understandings between us. This commitment shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
This Commitment Letter supersedes any and all prior agreements, whether oral or
written, between the parties with respect to the subject matter hereof and
contains the entire agreement between Borrower and Lender with respect to the
subject matter hereof.
To accept this commitment, please have one copy of this letter executed on
behalf of the Borrower in the space provided below and return it to the
undersigned not later than 5:00 P.M. Boston,
<PAGE> 9
First New England Dental Centers, Inc.
November 26, 1996
Page 9
Massachusetts local time on December 4, 1996 together with one-half of the total
commitment fee. If your acceptance is not received by such time, this commitment
shall terminate.
Very truly yours,
FLEET NATIONAL BANK
By: Luke G. Tsokanis
----------------------------
Luke G. Tsokanis
Its: Vice President
ACCEPTED AND AGREED TO:
First New England Dental Centers, Inc.
and
Osorio and Watkin, D.M.D., P.C.
and
Edward S. Kollar, D.D.S., P.C.
By: Donald E. Strange
-----------------------------
Date: 12-3-96
---------------------
By: Arnold Watkin
-----------------------------
Date: 12-3-96
---------------------
By: Edward S. Kollar, D.D.S., P.C.
-------------------------------
Date: 12-7-96
---------------------
<PAGE> 1
Exhibit 10.17
LEASE
-----
This Lease made between Landman Omnibus VII Limited Partnership, a
Massachusetts limited partnership having an address c/o Berkeley Investments,
Inc., 101 Federal Street, Boston, Massachusetts 02110, hereinafter called the
Lessor ("Lessor") and First New England Dental Centers, Inc., a New Jersey
corporation with a principal place of business at 170 Commonwealth Avenue,
Boston, MA ("Lessee").
ARTICLE I - LEASED PREMISES. The Lessor leases to the Lessee the premises
(the "Premises") consisting of approximately 3,500 square feet of rentable space
having an address of 85 Devonshire Street, Boston, Massachusetts 02109 located
on the second (2nd) floor of the building (the "Building") situated at and
numbered 85 Devonshire and 262-268 Washington Streets in Boston, Massachusetts,
excluding as part of the Premises perimeter, demising and common walls (except
the interior faces thereof) and all spaces, runs, chases, etc. containing or
used for the installation of pipes, wires, conduits, ducts and Lessor's
fixtures.
ARTICLE II - TERM. The term of this lease shall be a period of five (5)
years from the Commencement Date; plus the Partial Month (as hereinafter
defined), if any; and the term shall terminate on the "Expiration Date", which
shall be the date which is sixty (60) months (plus the Partial Month, if any)
after the Commencement Date, unless sooner terminated as may be provided herein.
The first lease year shall consist of any partial calendar month following the
Commencement Date (the "Partial Month") and the next twelve (12) calendar
months. Each succeeding lease year shall commence upon the expiration of the
prior lease year and shall consist of twelve (12) calendar months.
The term "Commencement Date" as used herein shall mean the date that Lessor
delivers possession of the Premises to Lessee with the work to be performed by
Lessor pursuant to Addendum #3 substantially completed. Lessor shall deliver the
Premises to Lessee "as is". The Commencement Date is estimated to be April 1,
1996; provided however, if Lessor fails to deliver possession of the Premises at
the estimated date, the Lessor shall not be liable for any damages caused
thereby, nor shall this lease be void or voidable, but the Commencement Date
shall be delayed by the period of delay in the delivery of possession of the
Premises. If this lease is extended or renewed, all references to "term" herein
shall refer to the extension or renewal terms unless specifically designated
otherwise.
ARTICLE III.1 - MINIMUM RENT.
-----------------------------
(A) Rent is payable in twelve (12) equal monthly installments in advance on
the first day of each month during each lease year of the term at the office of
The Hamilton Company, 39 Brighton Avenue, Boston, Massachusetts 02134 (and also
for a Partial Month or at the early termination of this lease, a proportionate
part of rent for any part of a month then unexpired). All rent checks shall be
payable to LANDMAN - 85 DEVONSHIRE STREET. If Lessor elects to accept rent after
the seventh (7th) day of the month, interest will accrue on such sum at the
annual rate of five percent over the prime rate of interest announced from time
to time by the First National Bank of Boston, until such time as it is paid.
<PAGE> 2
<TABLE>
(B) The minimum rent for each year of the term (the "Minimum Rent") shall
be as follows:
<CAPTION>
LEASE YEAR PER YEAR PER MONTH
---------- -------- ---------
<S> <C> <C>
Year One* $63,000.00 $5,250.00
Year Two $63,000.00 $5,250.00
Year Three $63,000.00 $5,250.00
Year Four $63,000.00 $5,250.00
Year Five $63,000.00 $5,250.00
* Minimum Rent is also due for any Partial Month in Lease Year One,
pro-rata based on the length of said Partial Month.
</TABLE>
Minimum Rent for any Partial Month shall be equal to the product of the
number of calendar days remaining in said Partial Month (commencing on the
Commencement Date and ending on the last calendar day of said Partial Month)
multiplied by the Pro Rata Amount (as hereinafter defined).
As used herein, the "Pro Rata Amount" shall be equal to the product of the
Minimum Rent per month for Lease Year One divided by the number of calendar
days in said Partial Month.
The provisions of this Article III.1 notwithstanding, Lessee shall pay to
Lessor upon Lessee's possession the Premises, the sum of $31,500.00, which sum
represents the installments of Minimum Rent due under the lease for the first
six (6) months of Lease Year One of the Original Lease Term.
Article III.2 - ADJUSTED RENT.
------------------------------
(1) For purposes of this Article, "Adjustment Date" means the first day of each
lease year after the first lease year of the original term; "CPI" means the
Consumer Price Index of the United States Bureau of Labor Statistics (Urban Wage
Earners and Clerical Workers, U.S. City Average, all items) (on the 1982-84
equals 100 Standard); "Base-Month CPI" means the CPI published in
February, 1996.
(2) Beginning on the first Adjustment Date and on each Adjustment Date
thereafter within the original and extension or renewal terms, in addition to
any increases in Minimum Rent specified in Article III. 1 (B), the Minimum Rent
for the forthcoming lease year, as recited in the schedule above, shall be
increased by fifty (50%) percent of the same percentage that the CPI published
for the February prior to the respective Adjustment Date in question has
increased from the Base-Month CPI. Provided, however, in no event shall the
Minimum Rent for any lease year be (i) less than the Minimum Rent (as it may
have been previously adjusted) for the preceding year, or (ii) increased by more
than $0.50 per rentable square foot over the Minimum Rent for the preceding year
as adjusted by the terms of this Article III.2.
(3) If the publication of the CPI is transferred to any other governmental
department or is discontinued, the Lessor and Lessee shall by agreement fix an
alternate index or method to compute such rent adjustment, but if they cannot
agree the matter shall be settled by arbitration in accordance with the rules of
the American Arbitration Association.
2
<PAGE> 3
ARTICLE IV - ADDITIONAL RENT DUE TO TAXES. For purposes of this Article
"fiscal year" means the twelve calendar (12) month period commencing on July l
ending on June 30; "fiscal base year" means the fiscal year ending June 30,
1996; "taxes" means all taxes and assessments levied by governmental authority
against the Building and its associated land and personalty or taxes in lieu
thereof, "Lessee's Share" means four and five tenths (4.5%) percent. If the
taxes for any fiscal year (or portion of any fiscal year) occurring within the
term after the fiscal base year exceed taxes for the fiscal base year (or exceed
a pro rata portion of fiscal base year taxes in the event of a portion of a
fiscal year being included within the term), then Lessee shall pay to Lessor the
Lessee's Share of the excess as Additional Rent. Lessor will notify Lessee after
receipt of tax bills of the amount of taxes and the Lessee's Share of excess
taxes for the current fiscal year; Lessee shall pay Lessee's Share of the excess
within 15 days of such notification. If Lessor later receives a reduction or
refund on taxes resulting from abatement of such taxes by final determination of
legal proceedings, settlement or otherwise, Lessee is entitled to Lessee's Share
of the reduction or refund up to the amount of Additional Rent paid for such
fiscal year less Lessee's Share of expenses incurred by Lessor in obtaining said
reduction or refund, which amount shall, in the sole discretion of Lessor, be
(i) applied in reduction of any Minimum Rent or Additional Rent due or owing by
Lessee to Lessor or (ii) paid to Lessee within sixty (60) days of receipt of
Lessor of said reduction or refund. If Lessor receives a refund or reduction in
taxes for the fiscal base year, then taxes for the fiscal base year shall be
measured by the abated amount. Lessee shall have no right to contest the amount
of any valuation of the Building or any assessment of taxes without the written
consent of Lessor, which may be withheld in Lessor's sole and absolute
discretion.
On the date this lease expires or is otherwise terminated, a proportionate
share of the additional rent on account of taxes for the fiscal year during
which such expiration or termination occurs shall immediately become due and
payable by Lessee to Lessor. Such proportionate share shall be equal to the
product of (i) Lessee's Share of the estimated amount of any excess taxes for
said fiscal year (the estimated amount being based upon the most recent
applicable data reasonably available to Lessor) divided by twelve (12);
multiplied by (ii) the number of calendar months in the period commencing on
July 1 of the fiscal year in which the lease expires or otherwise terminates
and ending on the date of expiration or termination. Lessee shall be liable
to Lessor for any amount by which Lessee's Share of the estimated amount of any
excess taxes for said fiscal year are less than Lessee's Share of actual taxes
for said fiscal year, and shall pay the same to Lessor within fifteen (15) days
of notice from Lessor of said amount of additional excess taxes. Lessor shall
be liable to Lessee for any amount by which Lessee's Share of the estimate
amount of any excess taxes for said fiscal year are more than Lessee's Share of
actual taxes for said fiscal year, and shall, in the sole discretion of Lessor,
either (i) apply said additional amount in reduction of any Minimum Rent or
Additional Rent due or owing by Lessee to Lessor or (ii) pay said additional
amount to Lessee within sixty (60) days of Lessor's receipt of notice of the
amount of actual tax liability for said fiscal year. Adjustments shall be made
if the terms of this lease begins and/or ends on other than the first or last
day of a fiscal year. In the event of Lessee's default, Lessee's obligation to
pay any and all additional rent under this lease shall continue and shall cover
all periods up to the Expiration Date.
ARTICLE V - DEPOSIT. Upon the execution of this Lease by Lessee, the Lessee
shall deposit with the Lessor the amount of Ten Thousand Five Hundred
($10,500.00) Dollars. This deposit shall be held by Lessor as security for
payment of all rent and other sums of money payable for the term and for the
faithful performance by Lessee of all other covenants and agreements; provided,
however, that the Lessee shall have no right to require Lessor to indemnify
itself from this deposit for any particular violation or default of Lessee, the
use of this deposit to indemnify Lessor being within Lessor's sole discretion
and Lessor hereby reserves the right to proceed against the Lessee directly for
any amounts owed by Lessee for any violation or default of Lessee pursuant to
the
3
<PAGE> 4
terms of this Lease. If all or any part of the deposit is applied to an
obligation of Lessee hereunder, Lessee shall immediately upon request by Lessor
restore said deposit to its original amount. No interest shall be payable to
Lessee on account of this deposit and Lessor may commingle the funds from this
deposit with other of its funds. Upon any conveyance by Lessor of its interest
under this lease, the deposit may be delivered by Lessor to Lessor's grantee or
transferee (or accounted for by means of an adjustment between seller and
buyer). Upon any such delivery or accounting, Lessee hereby releases Lessor of
any and all liability with respect to the deposit, its application and return,
and Lessee agrees to look solely to such grantee or transferee.
This deposit, or any part thereof, not previously applied by Lessor, shall
be returned to Lessee only after the Expiration Date or the date on which any
renewal term expires, and only after Lessee has fully vacated the Premises,
notwithstanding that this lease has been terminated by Lessor, it being the'
intention of the parties that this deposit shall secure Lessor not only as to
default by Lessee before such termination, but also to secure Lessor from any
deficiency of rent or other charges payable to Lessor by Lessee.
ARTICLE VI - USE. The Premises shall be used and occupied by Lessee solely
for the purpose of administrative offices for a consortium of dental practices
and such other lawful use incidental and related thereto, but for no other
purpose. Provided however, Lessee shall not conduct at the Premises any
hazardous or dangerous activities or any activities posing uncommon, unusual or
out of the ordinary level of risk to property or to persons. Moreover, Lessee
shall not utilize at or bring on to the Premises any hazardous, dangerous or
volatile substances. Lessee shall not use the Premises in such a way as to
interfere with the use of or by, or to constitute a nuisance to Lessor or to
any other tenant or licensee of the Building or to passersby or do or fail to
do other acts which, in Lessor's judgement, may unreasonably affect the
reputation or appearance of the Building, or which, in Lessor's judgement, may
tend to degrade the economic status of the Building or interfere with its most
effective operation.
LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS THAT THE PREMISES ARE FIT FOR
A PARTICULAR USE OR PURPOSE, INCLUDING WITHOUT LIMITATION THE USE AS SPECIFIED
HEREIN, EXCEPT AS OTHERWISE REQUIRED BY LAW.
ARTICLE VII - INSTALLATION OF EQUIPMENT AND FLOOR CAPACITY. Lessee shall
not place any load upon any floor of the Premises which exceeds the floor load
capacity (calculated on a square foot basis) or which is prohibited by
governmental law, regulation or code. Lessee will not move any safe, heavy
machinery, heavy equipment, freight, bulky matter or fixtures into or out of the
Building without Lessor's prior written consent. The moving and installation of
such machines and equipment shall be at the sole risk and hazard of the Lessee.
ARTICLE VIII - CONDITION OF PREMISES, REMODELING. Lessee accepts the
Premises in its "as is" condition. The Lessee shall not make alterations or
additions, structural or otherwise, to the Premises, without the prior written
consent of Lessor. All such allowed alterations shall be at Lessee's expense and
shall be in quality at least equal to the present construction. Lessee shall not
permit any mechanic's liens, or similar liens, to remain upon the leased
Premises for labor and material furnished to Lessee or claimed to have been
furnished to Lessee in connection with work of any character performed of
claimed to have been performed at the direction of Lessee and shall cause any
such lien to be released of record forthwith without cost to Lessor. Any
alterations or improvements made by the Lessee shall become the property of the
Lessor at the termination of occupancy as provided herein.
4
<PAGE> 5
All work, construction activity, modifications, changes, remodeling to the
Premises or the Building by the Lessee pursuant to any rights specifically
granted to it in this Lease or otherwise by Lessor (the "Work") shall be
performed subject to and in compliance with the following conditions:
a. Except as is specifically approved in writing by Lessor, the Work shall not
change, alter, remove or interfere with the structural components of the
Building, and shall not, except to an immaterial degree, restrict access to the
utility systems of the Building.
b. The Work, except to an insignificant degree, shall not interfere with other
tenants or their business operation and shall not affect or limit the storage
and other use of the basement, if any, or other areas of the Building by those
entitled thereto.
c. The Work shall be performed in a workmanlike manner with all governmental
permits in place, pursuant to stamped and professionally prepared plans which
have been approved in writing and in advance by Lessor, said approval not to be
unreasonably withheld.
d. All Work shall be performed by licensed adequately insured contractor who,
prior to the commencement of Work, have deposited a certificate of insurance
with Lessor naming Lessor as an additional insured under said certificates and
evidencing workman's compensation and comprehensive general liability insurance
in the amount of at least $1,000,000. -
e. All damage to the Building (including other tenant spaces) or to the
Premises as a result of said Work shall be the responsibility of the
Lessee, and Lessee hereby indemnifies and holds Lessor harmless for any costs,
causes of: actions or damages resulting from said Work, including costs of
repair.
f. Prior to the commencement of the Work, Lessee shall deliver to Lessor in a
form reasonably satisfactory to Lessor the general contractor's license and
copies of all building permits and applications for permits.
ARTICLE IX - LESSOR'S COVENANTS. Lessor shall be responsible for
maintaining the structure, foundation, exterior and roof of the Building in the
same condition as at the Commencement Date or as it may be put during the term
of this lease, reasonable wear and tear and damage by fire and other casualty
only excepted. Additionally, Lessor shall be responsible for the maintenance,
repair and replacement of the electrical, plumbing, heating, air conditioning,
ventilation and other mechanical installations located entirely on or serving
only the Premises and for maintaining the Building systems which serve more than
one unit and all the common areas in good order and repair, except that Lessor
shall have no responsibility with respect to any obligation hereinabove stated
if caused by the negligence or misuse of Lessee or its employees or agents.
Except as specifically stated herein, Lessor is not responsible for any repairs
or replacements to or maintenance of the Premises or of the equipment, fixtures
or mechanical installations solely serving the same. Lessor is responsible for
maintenance and replacement of only such equipment, fixtures or mechanical
installations servicing the Premises or Building which serve more than one unit
or the common areas of the Building.
Lessor shall furnish to the Premises such cleaning service as is customary
in similar office buildings in Boston, subject to interruption due to any cause
beyond the Lessor's control.
5
<PAGE> 6
The Lessor agrees to provide and to furnish reasonably cold water to the
Premises and reasonable heat (except to the extent that the same are furnished
through separately metered utilities or separate fuel tanks) to the Premises
during normal business hours on regular business days of the heating season of
each Lease Year, those being Monday through Friday 8:00 A.M. - 6:00 P.M. and
Saturdays 9:00 A.M. - 5:00 P.M. excluding holidays. Lessor is under no
responsibility or liability for failure or interruption in such service caused
by breakage, accident, strikes, repairs, failure of fuel supply, inability by
exercise of reasonable diligence to obtain fuel, electricity, supplies or other
services or for any other cause or causes beyond the reasonable control of
Lessor, nor in any event for any indirect or consequential damages; and failure
or omission on the part of Lessor for the foregoing reasons to furnish such
service shall not be construed as an eviction of Lessee, nor work an abatement
of rent, nor render Lessor liable in damages, nor release Lessee from prompt
fulfillment of any of the covenants
ARTICLE X - LESSEE'S COVENANTS.
-------------------------------
ARTICLE X.I - UTILITIES. Lessee shall provide and pay for the cost and its
use of all utilities and fuel serving the Premises and separately metered,
including those used to provide heat and air conditioning, as they become due
and payable.
Article X.2 - LESSEE'S INSURANCE.
---------------------------------
1. PERSONAL PROPERTY. All risks (including that of casualty, theft, and any
other harm, damage or loss) to Lessee's personal property and to the personal
property of others held by Lessee, and the loss of use of the same, shall be
borne solely by Lessee. Lessee hereby releases Lessor and its managing agent
(and indemnifies and holds them harmless) from and against any claims or
liability for any casualty, theft, harm, damages or other loss to Lessee's
personal property and to the personal property of others held by Lessee. As
used herein, personal property includes, but is not limited to, all tangible
and intangible goods and accounts, inventory, merchandise, fixtures, equipment
and systems. Lessee shall purchase and maintain insurance in an amount adequate
to repair or replace or otherwise cover its personal property (and the personal
property of others held or leased by it or otherwise on the Premises) and the
tenant improvements and interior finish and build-out to the Premises.
Lessee is responsible for the replacement of any broken plate glass that is
pan of the Building covered by this lease.
2. COMPREHENSIVE COMMERCIAL LIABILITY INSURANCE. Lessee agrees to maintain
throughout the term of the lease, Comprehensive Commercial Liability Insurance
written on an occurrence basis. Such insurance shall include coverage for
products/completed operations, personal injury, broad form property damage,
extended bodily injury and broad form contractual liability. As of the
Commencement Date, the minimum limit of liability carried on such insurance
shall be $1,000,000 combined single limit for each occurrence with any aggregate
limit applying only to each of the following: products/completed operations,
personal injury and contractual liability. However, if the policy contains a
general policy aggregate or an aggregate which applies to coverages other than
the aforementioned coverages, the Lessee shall purchase minimum limits of
$1,000,000 per occurrence/$2,000,000 aggregate per location.
6
<PAGE> 7
3. WORKERS COMPENSATION Lessee agrees to maintain workers' compensation
insurance (including employer's liability insurance) at statutory limits.
4. UMBRELLA LIABILITY In addition to the foregoing insurance, Lessee agrees
to maintain umbrella liability coverage with minimum limits, as of the
Commencement Date, of $1,000,000.00 per occurrence. Umbrella coverage is to
apply in excess of the casualty, comprehensive commercial liability and
employers liability coverages mentioned in sections 1, 2 and 3 above.
All policy limits, as of the Commencement Date, shall be at least equal to
those stated above, and from time to time during the term shall be for such
higher limits, if any, as are customarily carried in Boston with respect to
similar properties.
All insurance policies required in paragraphs 1, 2 and 4 above shall
designate the Lessor and The Hamilton Company, as additional insureds. Lessee
agrees that the insurance coverages required under sections number 1 through
number 4 above shall be written by a company or companies authorized to do
business in the Commonwealth of Massachusetts with an A.M. Best's rating of
"A-", VIII or better. The liability coverage of the policies specified above in
Paragraphs 2 and 4 shall cover all business activities conducted by Lessee at
the Premises.
Lessee agrees to furnish the Lessor with Certificates of Insurance prior to
the beginning of the term of the lease. Renewal Certificates of Insurance shall
be delivered to the Lessor at least fifteen (15) days in advance of each renewal
date. Such certificates shall state that in the event of cancellation or
material change written notification shall be given to the Lessor at least
thirty (30) days in advance of such cancellation or material change.
ARTICLE X.3 - SIGNS. Lessee shall not erect any signs or lettering visible
from the exterior of the Premises or attach any awnings or canopies to the
exterior of the Premises without obtaining Lessor's prior written consent.
ARTICLE X.4 - MAINTENANCE, REPAIR, YIELD-UP. Unless otherwise specifically
provided herein, Lessee shall keep and maintain the Premises and shall be
responsible for the maintenance, repair and replacement of all utility
installations exclusively serving the Premises. Lessor shall be responsible for
the maintenance, repair and replacement of all electrical, plumbing, heating,
air conditioning, ventilation and other mechanical installations exclusively
serving the Premises unless such work is required because of the negligence or
misuse of Lessee or its employees or agents in which event only the maintenance,
repair or replacement of such installations shall be performed by Lessee. Lessee
shall also keep all windows and doors of the Premises in good order and repair,
and shall maintain at its own expense so called plate glass insurance coverage
at all times. At the end of the Term or sooner termination, Lessee shall
peaceably surrender the Premises and all erections, alterations and additions
thereon made to or upon the same, to Lessor, broom clean and in the same repair
and condition as the Premises were in on the Commencement Date and as such
erections, alterations, and additions were when completed, reasonable wear and
tear, fire and other casualty only excepted; and will remove all personal
property, goods and effects, including, without limitation, all of its trade
fixtures, awnings, canopies and signs, and all lettering, if any, painted on any
doors with or without Lessor's consent. Lessee shall be responsible for all
damage or injury to the Premises and the Building caused by Lessee's
installation or removal of furniture, fixtures or equipment. Except as
Lessor, in its sole discretion, may otherwise specifically advise, Lessee shall
remove any erections, additions,
7
<PAGE> 8
alterations or fixtures Lessee has installed and restore the Premises to the
condition they were in on the Commencement Date.
ARTICLE X.5, - ASSIGNMENT - SUBLEASING. Lessee shall not assign, sublet,
underlet, mortgage, pledge or encumber (collectively referred to as "Transfer")
this lease without Lessor's prior written consent; which consent may be withheld
in Landlord's sole discretion. Any Transfer made without such consent shall be
void. Moreover, as additional rent, Lessee shall reimburse Lessor promptly for
reasonable legal and other expenses incurred by Lessor in connection with any
request by Lessee for consent to a Transfer. The preceding notwithstanding,
solely in the event Lessee desires to Transfer the Premises to a proposed
transferee which (i) has a good reputation and has previous business experience,
(ii) shall have a net worth sufficient in the discretion of the Lessor to
satisfy all of the obligations of the lessee under this lease, and (iii) shall
continue to use the Premises as stated in Article VI of the lease and in
character with the Building, Lessor agrees that it may either (1) grant its
consent to such Transfer of this lease to such proposed transferee, or (2)
terminate this lease and relieve Lessee of all its future obligations
hereunder. In the event of such termination, Lessee shall be relieved of all
future obligations hereunder as of the date of termination. In the event the
lease is terminated, as hereinafter provided, Lessor shall be free to enter
into a new lease with the proposed new tenant or anyone else on whatever
terms and conditions it chooses.
In the event that Lessor gives its consent pursuant to the foregoing
paragraph, Lessee shall remain primarily liable upon all the terms, conditions
and covenants hereof will deliver to Lessor an instrument executed by the
Transferee binding the same to the terms and provisions of this lease and will
pay to Lessor the amount by which the sum of rent, additional rent due to taxes
and all other money or consideration it receives from a Transferee exceeds the
sum of all monetary obligations which Lessee owes to Lessor for the period of
such Transfer.
Consent by Lessor, whether express or implied, to any Transfer shall not
constitute a waiver of Lessor's right to prohibit any subsequent Transfer; nor
shall such consent be deemed a waiver of Lessor's right to terminate this lease
upon any subsequent Transfer. Moreover, Lessor's acceptance of any name for
listing on any Building directory will not be deemed, nor will it substitute for
Lessor's consent, as required herein, to any sublease, assignment or other
occupancy of the Premises.
As used herein, the term "assign" or "assignment" shall be deemed to
include, without limitation: (a) any transfer of the Lessee's interest in the
lease by operation of law, the merger or consolidation of the Lessee with or
into any other firm or corporation; or (b) the transfer or sale of a controlling
interest in the Lessee or any parent of Lessee whether by sale of its capital
stock or otherwise.
ARTICLE X.6 - LISTINGS. The listing of any name other than that of Lessee
or a trade name of Lessee, whether on the doors of the Premises or in the
Building Directory, or otherwise, shall not vest any right in this lease to such
named person or be deemed to be the consent of Lessor, it being expressly
understood that any such listing is a privilege extended by Lessor revocable at
will by written notice to Lessee.
ARTICLE X.7 - COMPLIANCE WITH LAW AND INSURANCE POLICIES. Lessee, at its
sole expense, shall comply with all laws, orders and regulations of Federal,
State, County and City Authorities relating to the Premises or its operations
therein, Lessee acknowledging that Lessor has made no warranties or
representations about (i) the permissibility of Lessee's proposed use under
applicable zoning, environmental, licensing or other Federal, State, County and
City laws, or (ii) concerning compliance of the Premises or the Building with
any federal, state or
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municipal law, rule, regulation or ordinance, including, without limitation,
compliance of the same with applicable provisions of the Americans with
Disabilities Act, so-called. Lessee shall not do or permit to be done anything
upon the Premises, which will invalidate, or be in conflict with, fire insurance
policies covering the Building and fixtures and property therein and shall not
do, or permit to be done, anything upon the Premises which might subject Lessor
to any liability or responsibility for injury to any person or to property; and
Lessee, at its sole expense, shall comply with all rules, orders, regulations or
requirements of the Board of Fire Underwriters, or any other similar body, and
shall not do or permit anything to be done or kept on the Premises, except as
permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance
Rating Organization, or other authority having jurisdiction. Except for those
items necessary for the cleaning and maintenance of Lessee's business, which
shall be properly stored to minimize the risk of fire and explosion, there shall
not be brought or kept in or on the Premises any inflammable, combustible or
explosive fluid, material, chemical or substance, nor shall any unusual or other
objectionable odors permeate or emanate from the Premises. If the insurance
premiums for the building increase because of anything Lessee does or permits to
be done on the Premises, Lessee shall pay the full amount of such increase. That
the Premises are being used for the purpose set forth in Article VI hereof shall
not relieve Lessee from the foregoing duties.
ARTICLE X.8 - LESSEE'S RISK. Except as modifed by statute, all merchandise,
furniture, fixtures; inventory and property which may be on or about the
Premises and the loss of the use of same shall be at the sole risk and hazard of
Lessee, and if the whole or any part of the Premises is destroyed or damaged by
fire, water or by the leaking or bursting of water pipes, or in any other
manner, no part of such loss or damage or loss of use will be charged to Lessor.
ARTICLE X.9 - INDEMNIFICATION. The Lessee will save Lessor harmless, defend
and will exonerate and indemnify Lessor, from and against any and all claims,
liabilities or penalties:
(i) on account of or based upon any injury to person, or loss of or damage
to property sustained or occurring or emanating from the Premises on
account of or based upon the act, omission, fault, negligence or misconduct
of any person except Lessor, its employees, agents or independent
contractors.
(ii) on account of or based upon any injury to person, or loss of or damage
to property, sustained on or occurring elsewhere in or about the Building
arising out of the use or occupancy of the Building or Premises by the
Lessee or by any person claiming by, through or under Lessee, except where
caused by the negligence, fault or misconduct of Lessor, its employees,
agents or independent contractors.
and in addition to and not in limitation of either of the foregoing subdivisions
(i) and (ii);
(iii) on account of or based upon any work or thing whatsoever done on the
Premises; except where caused by the negligence, fault or misconduct of
Lessor, its employees, agents or independent contractors.
and, in respect of any of the foregoing from and against all costs, expenses
(including reasonable attorneys' fees) and liabilities incurred in or in
connection with any such claim, or any action or proceedings; and in case any
action or proceeding is brought against Lessor by reason of any such claim,
Lessee upon notice from Lessor shall at Lessee's expense resist or defend such
action or proceeding and employ counsel reasonably satisfactory to Lessor.
Notwithstanding anything herein to the contrary, for purposes of this Article
X.9, the term "Lessor" shall include the Lessor's managing agent.
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ARTICLE X.10 - LESSOR'S ACCESS TO PREMISES. Lessor shall have the right
without charge to it and without reduction in rent, at reasonable times and upon
reasonable prior notice (except in the event of an emergency) and in such manner
as not unreasonably to interfere with Lessee's business, to enter to view the
Premises for any business purpose. In case of an emergency on the Premises or in
the Building, Lessor or its representative may enter the Premises (forcibly, if
necessary) at any time to take such measures as may be needed to cope with such
emergency. Without limiting the generality of the foregoing, during the six (6)
months next preceding the Expiration Date, Lessor may show the Premises to
persons wishing to lease or purchase same and may affix to any suitable part of
the Premises a notice for letting or selling the Premises or property of which
the Premises are a part and keep the same so affixed without hindrance. In
addition to the foregoing, the holder of any Mortgage shall have access to the
Premises during normal business hours for the purposes of conducting appraisals,
environmental assessments, structural and other types of inspections of the
Premises that the Mortgagee deems advisable.
ARTICLE X. 11 - MATERIALMEN'S, MECHANIC'S LIEN. Lessee shall not do or
suffer anything to be done whereby the land and Building may be encumbered by
any materialman's or mechanic's lien and shall, whenever and as often as any
such lien is filed purporting to be for labor or material furnished to the
Lessee, discharge the same of record or bond the same within thirty (30) days
alter the date of filing.
ARTICLE X. 12 - WASTE. Lessee shall not overload, damage or deface the
Premises nor suffer or permit same to be done, nor commit waste, nor without
Lessor's prior written consent, permit any hole to be made in the stone or
brickwork of the Building, nor use any equipment (except for window electric air
conditioning if otherwise permitted) that requires outdoor venting.
ARTICLE X.13 - LESSOR'S RULES AND REGULATIONS. Lessee shall abide by any
reasonable rules and regulations as the Lessor may make from time to time,
applicable to all lessees of the Building and uniformly enforced. The Lessor,
however, may change said rules or waive any or all of said rules in the case of
any one or more Lessees. Nor shall the Lessor be responsible to the Lessee, or
to the Lessee's agents, employees, servants, licensees, invitees, or visitors,
for failure to enforce any of the rules and regulations or for the
non-observance or violation of any of said rules and regulations by any other
lessee or by any other person, or for the non-observance or violation of or
failure to enforce or to perform the provisions of any other lease of any part
of the Building. Notwithstanding the foregoing, however, Lessor shall use its
reasonable efforts to apply the rules and regulations to all Lessees with
reasonable uniformity in conformity with their tenancies.
ARTICLE X.14 - CLEANING, SNOW REMOVAL. Lessor is responsible for the
keeping the Building's entrances serving the Premises clear of snow and ice.
EXCEPT AS SPECIFICALLY PROVIDED IN ARTICLE IX HEREOF. Lessee shall not be
entitled to any maintenance services from Lessor, and agrees to furnish
maintenance services at its own expense with respect to the Premises. Lessor
shall provide cleaning service to the Premises as specifically stated in Article
IX of this lease. Lessee shall keep the Premises infestation free. The preceding
notwithstanding, Lessee shall be responsible for the prompt clean-up and removal
from any common area of the Building or the grounds of any trash, debris or
litter (including accumulation of cigarette butts) deposited by its employees,
agents or contractors, customers or invitees.
ARTICLE X. 15 - LESSEE'S ESTOPPEL CERTIFICATE. Lessee agrees from time to
time, upon not less than fifteen (15) days prior written request by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect and that Lessee has
no defenses,
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offsets or counterclaims against its obligations to pay the fixed rent and
additional rent and to perform its other covenants under this Lease and that
there are no uncured defaults of Landlord or Lessee under this Lease (or, if
there have been any modifications that the same is in full force and effect as
modified and stating the modifications and, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail), and the
dates to which the fixed rent, additional rent and other charges have been paid,
and such other matters as a mortgagee or purchaser of the Premises may request.
Any such statement delivered pursuant to this Section 8.8 may be relied upon by
any current or prospective purchaser or mortgagee or any current or prospective
assignee of any such mortgagee
ARTICLE X.16 - TENANT RELOCATION. Lessee acknowledges that from time to
time Lessor may desire to relocate Lessee to other portions of the Building in
order to incorporate all or a portion of the Premises in portions of the
Building to be leased to tenants other than Lessee. Lessee further acknowledges
that restriction of the right of Lessor to effect such a relocation would cause
substantial damage to Lessor in the leasing of the Building. Accordingly, Lessee
specifically acknowledges that Lessor shall have the right to substitute for the
Premises other space of approximately the same size in the Building provided
that Lessor, at Lessor's sole cost and expense, shall make improvements to the
substitute premises comparable to the improvements made to the Premises as of
the Commencement Date of the Lease and shall pay all moving costs and further
provided that the Minimum Rent and additional rent payable shall be the same as
are payable in respect of the Premises. In the event Lessor desires Lessee to
make such relocation, Lessor shall give written notice thereof to Lessee at
least thirty (30) days prior to the date on which such relocation takes effect.
Lessee agrees that upon notice from the Lessor that the substitute premises have
been substantially completed, Lessee shall relocate to the substitute premises
furnished by Lessor and yield up and deliver occupancy of the Premises to Lessor
within fifteen (15) days thereof and shall, if requested by Lessor, enter into a
suitable confirmatory amendment of this Lease to reflect Lessee's occupancy of
the substitute premises.
Article X.17 - Building Rehabilitation and Repair
-------------------------------------------------
During the term, Lessor may, at its sole discretion, choose to undertake
rehabilitation, renovation, and/or repair of the Premises and Building,
including, without limitation, remodeling the storefronts, installation of new
windows, HVAC systems, stairwells, bathrooms, sprinkler systems, detection
systems, etc.(collectively or singly referred to as "Rehabilitation"). Such
Rehabilitation, which may be minor or major in nature, shall be undertaken
solely at the Lessor's option and expense, and does not in any way constitute
part of the Lessee's consideration under this lease and does not in any way
obligate Lessor to perform the same.
Moreover, Lessor reserves the right from time to time, without unreasonable
interference with Lessee's use: (a) to install, use, maintain, repair, replace
and relocate for service to the Premises and/or other parts of the Building,
pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the
Premises or Building, and (b) to alter or relocate any other common facility,
provided that substitutions are substantially equivalent or better.
Installations, replacements and relocations referred to in clause (a) above
shall be located, so far as practicable, in the central core area of the
Building, above ceiling surfaces, below floor surfaces or within perimeter walls
of the Premises. The work detailed in this paragraph shall be deemed to be
Rehabilitation for purposes of this Addendum
Lessee recognizes and agrees that during the time that any Rehabilitation
is made to the Premises, and during the time that Rehabilitation work is being
done to the Building including the Premises, the Lessee may
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experience interruptions (including interruptions to services) due to such
construction and rehabilitation work and workmen entering the Premises in
connection with such work, and agrees to cooperate fully with the Lessor's
efforts to make such repairs and rehabilitation and further agrees that Lessee
shall have no liability for said interruptions.
Lessee agrees to provide Lessor, his employees and independent contractors
with access to the Premises at all reasonable times during Lessee's regular
business hours or otherwise in order to enable Lessor to complete the
aforementioned improvements to the Premises and rehabilitation work to the
Building. Lessor agrees that it will use its reasonable efforts to have its
employees and independent contractors work so as not substantially to interfere
with Lessee's business. Lessor shall not be responsible for any damages, whether
direct, indirect or consequential, to the Lessee, his business or the Premises
arising out of the aforementioned improvements or rehabilitations.
Article XI Mortgagee Rights
---------------------------
11.1 LEASE SUBORDINATE-SUPERIOR. This Lease shall be subject and
subordinate to any mortgage ("Mortgage") now or hereinafter placed on the
Building or its grounds, or both, or any portion or portions thereof or
interest therein, which are separately and together hereinafter in this
Article XI referred to as "the mortgaged premises", and to each advance made or
hereafter to be made under any Mortgage, and to all renewals, modifications,
consolidations, replacements and extensions thereof and all substitutions
therefor, provided, however, that conditioned upon Lessee not being in default
under any of the terms of this Lease, subsequent to the Commencement Date,
Lessor shall use reasonable efforts to obtain from any such mortgagee on
Lessee's behalf an agreement on the part of such mortgagee to recognize this
Lease and all of Lessee's rights hereunder as though this Lease were prior to
any such mortgage, such agreement to be in form and substance substantially
similar to the Subordination, Non-Disturbance and Attornment Agreement attached
hereto as Exhibit 1 and incorporated herein by reference (the "Non-Disturbance
Agreement"), subject to the execution and delivery by Lessee, at the time of
execution of this lease, of the Non-Disturbance Agreement (and Lessee
acknowledges that the execution of such Non-Disturbance Agreement by Lessor's
mortgagee, shall be at the sole discretion of such mortgagee), provided
further, however, that the mortgagee, or any purchaser at a foreclosure sale or
otherwise shall not be:
(a) liable for any act or omission of a prior Lessor (including the
mortgagor); or
(b) subject to any offset or defenses which the Lessee might have against
any prior Lessor (including the mortgagor); or
(c) bound by any rent or additional rent which the Lessee might have paid
in advance to any prior Lessor (including the mortgagor) for any period
beyond the month in which foreclosure ,or sale occurs; or
(d) bound by any security deposit which Lessee may have paid to any prior
Lessor (including the mortgagor), unless such deposit is in an escrow fund
available to the mortgagee; or
(e) bound by any agreement or modification of the Lease made without the
consent of the
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mortgagee; or
(f) bound by any notice of termination given by any prior Lessor (including
the mortgagor) without the mortgagee's written consent thereto; or
(g) personally liable under this Lease and the mortgagee's liability under
the Lease shall be limited to the ownership interest of the mortgagee in
the Premises; or
(h) liable for any fact or circumstance or condition to the extent existing
or arising prior to the mortgagee's (or such purchaser's) succession to the
interest of the Lessor under the Lease and such mortgagee or such purchaser
further shall not be liable except during that period of time, if any, in
which such mortgagee or purchaser and Lessee are in privity of estate.
In the event that any mortgagee or its successor in title shall succeed to
the interest of Lessor, then, Lessee shall and does hereby agree to attorn to
such mortgagee or successor and to recognize such mortgagee or successor as its
Lessor. Any claim by Lessee under the Lease against the mortgagee or such
successor shall be satisfied solely out of the mortgagee's or such successor's
interest in the Premises and Lessee shall not seek recovery against or out of
any other assets of mortgagee or such successor.
Notwithstanding the foregoing, any mortgagee may at its election
subordinate its Mortgage to this Lease without the consent or approval of
Lessee.
This Section 11.1 shall be self-operative. Lessee agrees to execute and
deliver promptly any appropriate certificates or instruments requested by Lessor
or any mortgagee to carry out the subordination and attornment agreements
contained in this Section 11.1.
11.2 MODIFICATION, TERMINATION OR CANCELLATION. No assignment of the Lease
and no agreement to make or accept any surrender, termination or cancellation of
this Lease and no agreement to modify so as to reduce the rent, change the Term,
or otherwise materially change the rights of Lessor under this Lease, or to
relieve Lessee of any obligations or liability under this Lease, shall be valid
unless consented to by Lessor's mortgagees of record, if any. No fixed rent,
additional rent, or any other charge shall be paid more than ten (10) days prior
to the due date thereof and payments made in violation of this provision shall
(except to the extent that such payments are actually received by a mortgagee)
be a nullity as against any mortgagee and Lessee shall be liable for the amount
of such payments to such mortgagee.
11.3 RIGHTS OF HOLDER OF MORTGAGE. No act or failure to act on the part of
Lessor which would entitle Lessee under the terms of this Lease, or by law, to
be relieved of Lessee's obligations hereunder or to terminate this Lease, shall
result in a release or termination of such obligations or a termination of this
Lease unless (i) Lessee shall have first given written notice of Lessor's act or
failure to act to Lessor's mortgagees of record, if any, specifying the act or
failure to act on the part of Lessor which could or would give basis to Lessee's
rights; and (ii) such mortgagees, after receipt of such notice, have failed or
refused to correct or cure the condition complained of within a reasonable time
thereafter, but nothing contained in this Section 11.3 shall be deemed to impose
any obligation on any such mortgagees to correct or cure any condition.
"Reasonable time" as used
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above means and includes a reasonable time to obtain possession of the mortgaged
premises if the mortgagee elects to do so and a reasonable time to correct or
cure the condition if such condition is determined to exist.
11.4 ASSIGNMENT OF RENTS. With reference to any assignment by Lessor of
Lessor's interest in this Lease, or the rents payable hereunder, conditional in
nature or otherwise, which assignment is made to the holder of a mortgage on
property which includes the Premises, Lessee agrees:
(a) that the execution thereof by Lessor, and the acceptance thereof by the
holder of such mortgage, shall never be treated as an assumption by such holder
of any of the obligations of Lessor hereunder, unless such holder shall, by
notice sent to Lessee, specifically otherwise elect; and
(b) that, except as aforesaid, such holder shall be treated as having
assumed Lessor's obligations hereunder only upon foreclosure of such holder's
mortgage (or the acceptance of a deed in lieu of foreclosure) and the taking of
possession of the Premises.
11.5 IMPLEMENTATION OF ARTICLE XI. Lessee agrees on request of Lessor to
execute and deliver from time to time any agreement which may reasonably be
deemed necessary to implement the provisions of this Article XI.
ARTICLE XII - TRADE FIXTURES AND EQUIPMENT. Any trade fixtures or equipment
installed in or attached to the Premises and all other property of Lessee which
was personal property prior to its installation shall remain the property of
Lessee, and Lessee shall, except as otherwise provided herein or by agreement of
the parties have the right, to remove its trade fixtures, equipment and property
which it may have installed in or attached to the Premises, during the term, or
within five days thereafter or within a reasonable time after any accelerated
termination thereof; Lessee must promptly repair in a workmanlike manner any
damage resulting from such removal, must plug or close in an approved manner any
connection to sources of gas, air, water, electricity or heat or to cooling
ducts and will do whatever is necessary to leave the Premises undefaced.
ARTICLE XIII - EMINENT DOMAIN AND DEMOLITION. If the Premises or any part
thereof or the whole or any part of the Building are taken for any street or
other public use, by action of the City or other authorities, or if the Lessor
or the Lessee are entitled to or receive any direct or consequential damages by
reason of anything lawfully done in pursuance of any public authority, or if
Lessor voluntarily elects to demolish the Building or any part of the Building,
except as a consequence of fire or other casualty damage, then this lease and
the term shall terminate at the election of the Lessor. Lessor may elect so to
terminate this lease even if the entire interest of the Lessor is divested by
such a taking. If, as a result of a taking or damage to or destruction of the
Premises, the Premises or any part thereof are rendered unfit for use and
occupation, the rent shall be abated proportionately according to the nature and
extent of the injury sustained by the Premises until the Premises or, in the
case of a taking, what may remain thereof, shall have been put in proper
condition.
Except for the Lessor's election voluntarily to demolish the Premises or
Building, any election to terminate shall be made by Lessor not later than
thirty (30) days after Lessor receives notice of such taking or action or the
occurrence of such damage. The Lessor reserves and excepts from this lease all
rights to damages resulting from the taking for public use of the Premises or
any portion thereof, or right appurtenant thereto, or privilege or easement in,
through, or over the same, and by way of confirmation of the foregoing the
Lessee hereby grants all rights to such damages previously accrued or
accruing during the term to the Lessor, to have and to hold for the
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Lessor forever. Solely, in the case of Lessor's election voluntarily to demolish
the Premises or Building as stated above in this Article, Lessor must give
Lessee at least one (1) year prior termination notice, after which this lease
shall terminate and be of no further recourse to either party except as to
rights and obligations incurred prior to the termination date.
No award for any partial or entire taking of the Premises shall be
apportioned. Lessor shall receive (subject to the rights of mortgagees of
Lessor) and Lessee hereby assigns to Lessor any award which may be made and any
other proceeds in connection with such taking, together with all rights of
Lessee to such award or proceeds, including, without limitation, any award or
compensation for the value of all or any part of the leasehold estate of Lessee;
provided that nothing contained in this Section shall be deemed to give Lessor
any interest in or to require Lessee to assign to Lessor any separate award made
to Lessee for (i) the taking of Lessee's personal property, or (ii) interruption
of or damage to Lessee's business, or (iii) Lessee's moving and relocation
costs.
Article XIV - Fire and Other Damage Subrogation.
------------------------------------------------
A. Fire and Other Damage - If the Building or any part thereof is partially
damaged by fire or other casualty such that the Premises and the Building are
not rendered substantially untenantable and Lessee is able to remain open for
business, the damage thereto (except for damage to the Premise's interior finish
and build-out and to Lessee's fixtures, property and equipment, for which Lessee
shall be responsible) shall be restored by and at the expense of Lessor, and
until such restoration shall be made, if the Premises are rendered substantially
unfit for its use and purpose, the rent and other charges shall be subject to an
abatement to the extent fair and equitable, except if such casualty was a result
of the willful fault or negligence of Lessee, in which event there shall be no
abatement of rent. Such restoration shall be made promptly by Lessor subject to
delay which may arise by reason of adjustment of insurance, and for reasonable
delay on account of "labor troubles" or any other cause beyond Lessor's control
(excluding financial inability). Lessor shall not be liable for any
inconvenience or annoyance to Lessee or for injury to the business of Lessee
resulting from such excused delays.
If the Building or the Premises is substantially damaged so as to be
substantially untenantable by fire or other casualty, the rent and other charges
shall be subject to an abatement to the extent fair and equitable as of the date
of the fire or casualty, and continuing until Lessor completes its restoration
obligations hereunder or until the term expires hereunder, except if such
casualty was a result of the willful fault or negligence of Lessee, in which
event there shall be no abatement of rent, and the Lessor shall promptly restore
the same (excluding Lessee's interior finish and build-out and Lessee's
fixtures, property, and equipment), unless Lessor decides not to restore, in
which event the Lessor may, within sixty (60) days, after such fire or other
cause, give Lessee a notice in writing of such decision and thereupon the term
shall expire upon the thirtieth (30th) days after such notice is given, and the
Lessee shall vacate the Premises and surrender the same to the Lessor. If the
Building (excluding Lessee Improvements and Lessee's fixtures, property and
equipment) is not in fact restored by Lessor within six (6) months after the
fire or other casualty, the Lessee may terminate this Lease by written notice to
Lessor within thirty (30) days after the end of the said six (6) month period.
The provisions of this Article XIV shall govern in the case of damage or
destruction of the Building or any part thereof and restoration thereof due to a
fire or casualty notwithstanding any inconsistent provisions of this Lease.
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Notwithstanding anything to the contrary contained in this Article XIV, the
provisions hereof shall be subject and subordinate to the rights of institutions
holding mortgages on the Building including the rights contained in any of
Lessor's mortgage financing documents affecting the Building.
B. Waiver of Subrogation - Lessor and Lessee hereby release each other from
any and all liability or responsibility to the other or anyone claiming through
or under them by way of subrogation or otherwise for any loss or damage to
property caused by fire or any of the extended coverage or supplementary
contract casualties, even if such fire or other casualty shall have been caused
by the fault or negligence of the other party, or anyone for whom such party may
be responsible, and irrespective of whether the releasor carries property
insurance. Lessor and Lessee each agree that it will require its insurance
carriers to include in its policies, whether or not such policies are required
hereunder, a clause or endorsement to the effect that any such release shall not
adversely affect said policies or prejudice the right of releasor to recover
thereunder. If extra cost shall be charged, each party will bear the amount of
its extra cost.
ARTICLE XV - DEFAULT AND BANKRUPTCY. The following shall constitute a
default by Lessee under this Lease:
(a) The Lessee shall fail to make any payment or any installment of rent or
other sum herein specified and such failure shall continue for seven (7) days
after written notice thereof; or
(b) The Lessee shall fail to observe or perform any other of the Lessee's
covenants, agreements or obligations hereunder and such default shall not be
corrected within thirty (30) days after written notice thereof or, if such
default shall reasonably require longer than thirty (30) days to cure, shall not
within said period commence and diligently proceed to cure such default within
sixty (60) days or sooner if practicable; or
(c) Lessee becomes insolvent or fails to pay its debts as they fall due; or
if Lessee makes any trust mortgage or assignment for the benefit of creditors;
or if Lessee proposes any composition, arrangement, reorganization or
recapitalization with creditors; or if Lessee's leasehold hereunder or any
substantial part of the property of Lessee is taken on execution or other
process of law or is attached or subjected to any other involuntary
encumbrance; or if a receiver, trustee, custodian, guardian, liquidator or
similar agent is appointed with respect to Lessee, or if any such person or a
mortgagee, secured party or other creditor takes possession of the Premises or
of any substantial part of the property of Lessee, and, in any case, if such
appointment or taking of possession is not terminated within thirty (30) days
after it first occurs; or if a petition is filed by or with the consent of
Lessee under any federal or state law concerning bankruptcy, insolvency,
reorganization, arrangement, or relief from creditors; or if a petition is
filed against Lessee under any federal or state law concerning bankruptcy,
insolvency, reorganization, arrangement, or relief from creditors, and such
petition is not dismissed within thirty (30) days thereafter, or if Lessee
dissolves or is dissolved or liquidated or adopts any plan or commences any
proceeding, the result of which is intended to include dissolution or
liquidation.
In the event of a default, whether or not the Term shall have begun, Lessor
may immediately, or at any time while such default exists and without further
notice, terminate this Lease by notice to Lessee and this Lease shall come to
an end on the date specified in such notice as fully and completely as if such
date were the date herein originally fixed for the expiration of the Term, and
Lessee will then quit and surrender the Premises to Lessor, but Lessee shall
remain liable as hereinafter provided.
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<PAGE> 17
The preceding notwithstanding, any notice required to be given by Lessor
for any failure of Lessee to pay rent or other sums (prior to said failure being
deemed an actionable default) shall be deemed satisfied by the serving by Lessor
on Lessee at the Premises of a "notice to quit" so long as the same provides
Lessee with the right to cure within at least seven (7) days of service.
ARTICLE XVI - LESSOR'S DEFAULT. Lessor shall not be deemed to be in default
unless such default remains uncured for more than thirty (30) days following
written notice from Lessee specifying the nature of such default, or such
longer period as may be reasonably required to correct such default. Lessee
hereby agrees that any judgement, decree or award obtained against the Lessor
which is related to this lease, the Premises or the Lessee's use or occupancy
of the Premises or the building, whether at law or in equity, shall be
satisfied out of the Lessor's equity in the land and building, and further
agrees to look only to such assets and to no other assets of the Lessor for
satisfaction. Lessor's liability for maintenance and repair shall always be
limited to the cost of making such repair or accomplishing such maintenance or
repair. In no event shall Lessor be liable for consequential or any indirect
damages. The provisions of this Section are subject to the provisions of
Articles XIII and XIV dealing with eminent domain and fire and other casualty.
ARTICLE XVII - LESSOR'S REMEDIES. If this lease is terminated as provided
in Article XV, Lessee shall forthwith pay to Lessor all sums which were due
prior to the date of such termination and Lessee shall pay on the days
originally fixed herein for the payment thereof amounts equal to the several
installments of rent, adjusted rent, additional rent and any and all other
charges as they would have become due if this lease had not been terminated.
As a second alternative, at the election of Lessor, Lessee will, at the
time of such termination, pay to Lessor, as liquidated damages, the amount of
the excess, if any, of the present value at the time of termination of the total
rent and other benefits which would have accrued to Lessor under this lease over
and above the fair market rental value (in advance) of the Premises for the
balance of the term. For the purpose of this paragraph, the total rent shall be
computed by assuming that Lessee's Share of real estate taxes and other charges
would be the amount thereof (if any) for the immediately preceding year of the
term.
As a third alternative, upon any such termination, at Lessor's election,
Lessor shall have the right to declare all installments of rent, additional rent
and other charges payable hereunder for the next one (1) full year to be
immediately due and payable as liquidated damages and not as a penalty.
In addition to the foregoing (and whether or not the Lease is terminated
upon a default), Lessee agrees (i) to indemnify and save Lessor harmless from
and against all expenses together with interest at the rate of 1.5% per month
which Lessor may incur in collecting such amount or in obtaining possession of,
or in re-letting the Premises, or in defending any action arising as a result of
or in connection with a default, including, without limitation, legal expenses,
attorneys' fees, brokerage fees, and the cost of putting the Premises in good
order or preparing the same for rental; (ii) that Lessor may re-let the Premises
or any part or parts thereof, either in the name of Lessor or otherwise for a
term or terms which may, at Lessor's option, be less than or exceed the period
which would otherwise have constituted the balance of the term and may grant
concessions or free rent for a reasonable time. The failure of Lessor to re-let
the Premises or any part thereof shall not release or affect Lessee's liability
for damage. Any suit brought to collect the amount of deficiency for any month
shall not prejudice the right of Lessor to collect the deficiency for any
subsequent month by a similar proceeding. Lessor may make such alterations,
repairs, replacements and decorations on the Premises which in Lessor's sole
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<PAGE> 18
judgement are advisable or necessary for the purpose of re-letting the Premises,
and the making of such alterations or decorations shall not release Lessee from
any liability. In the event the Premises are re-let by Lessor, Lessee shall be
entitled to a credit in the net amount of rent received by Lessor, after
deduction of all expenses incurred in connection with Lessee's default,
re-letting the Premises and in collecting the rent, except in the event Lessor
has chosen the second or third alternative as a remedy in which event Lessee
shall not be entitled to any credit.
Lessee further agrees that, if on the Expiration Date or other termination
date, Lessee does not surrender the Premises or fails to remove any of its
property from the Premises and Lessor obtains an order of eviction then Lessor
may enter the Premises for the purpose of removing Lessee's goods and effects,
without prejudice to any other remedies, and Lessor may remove and store such
goods and effects at Lessee's expense, Lessee hereby granting Lessor an
irrevocable power of attorney to accomplish same.
ARTICLE XVIII - LESSOR'S RIGHT TO PERFORM LESSEE'S COVENANTS. Lessee agrees
that, if it fails to make any payment or perform any other act as required in
this lease, Lessor, in its sole discretion, may make any payment or perform any
other act on the part of the Lessee in such manner and to such extent as Lessor
may reasonably deem desirable including paying necessary and incidental costs
and reasonable attorneys' fees. The making of any such payment or the performing
of any other act by the Lessor shall not waive, or release the Lessee from its
obligations. All amounts so paid by Lessor shall be payable to Lessor on demand,
with interest thereon at a rate of one and one-half percent (1-1/2%) per month,
and Lessee covenants to pay such amount promptly. In addition, Lessor shall
have all the rights and remedies provided for in Article XVII or elsewhere in
this lease.
ARTICLE XIX - BROKER. Lessor and Lessee each warrant and represent that it
has not negotiated with any broker (other than Kevin Brown of Peter Elliot
Company) in connection with this lease and each party agrees to indemnify and
hold the other party harmless if such warranty or representation is untrue.
ARTICLE XX - QUIET ENJOYMENT. Upon Lessee's observing and performing all of
the terms, covenants and conditions in this lease, Lessee shall peaceably and
quietly have and hold, the Premises, without hindrance or molestation by any
person or persons lawfully claiming by, through or under Lessor, subject to the
terms of this lease.
ARTICLE XXI - NOTICES. Any notice from the Lessor to the Lessee relating to
the Premises or to the occupancy thereof, shall be in writing (except as
otherwise may be permitted in this lease) and shall be deemed duly served if
delivered to the Premises by a recognized delivery service or constable
utilizing a return receipt or return of service addressed to the Lessee; or if
mailed to the Premises, or to such other address as the Lessee may from time to
time advise in writing, by registered or certified mail, return receipt
requested, postage prepaid, addressed to the Lessee. Prior to the Commencement
Date, all notices to Lessee shall be delivered or sent to Lessee at its address
stated in the first paragraph of this lease. Any notice from the Lessee to the
Lessor relating to the Premises or to the occupancy thereof, shall be in writing
and shall be deemed duly served, if delivered to Lessor by a recognized delivery
service utilizing a return receipt or mailed to the Lessor by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Lessor at such address as the Lessor may from
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<PAGE> 19
time to time advise in writing. All notices to Lessor, unless otherwise directed
in writing by Lessor, shall be delivered or sent to the Lessor at:
c/o Berkeley Investments, Inc.
101 Federal Street
Boston, Massachusetts 02110
Attention: Mr. Peter Merrigan.
With a copy to:
Harold Brown, President and CEO
The Hamilton Company
39 Brighton Ave
ARTICLE XXII - ENTIRE AGREEMENT. This lease sets forth the entire agreement
between the parties and cannot be modified or amended except in writing duly
executed by the respective parties.
ARTICLE XXIII - PARTIAL INVALIDITY. The invalidity of one or more phrases,
sentences, clauses or articles shall not affect the remaining portions of this
lease, and if any part of this lease should be declared invalid by the final
order, decree or judgment of a court of competent jurisdiction, this lease shall
be construed as if such invalid phrases, sentences, clauses or articles had not
been inserted.
ARTICLE XXIV - HOLDOVER. If the Lessee remains on the Premises beyond the
expiration or earlier termination of this lease, such holding over shall not be
deemed to create any tenancy at will, but the Lessee shall be a Lessee at
sufferance only, at a daily rate equal to three (3) times the rent and other
charges for the last year under this lease and also for all additional rent
otherwise due and payable and all damages sustained by Landlord on account of
such holding over. The provisions of this Section shall not operate as a waiver
of any right of reentry provided in this Lease. However, all other conditions of
this lease to be performed by Lessee shall continue in force.
ARTICLE XXV - NON-WAIVER PROVISION. No assent or waiver, express or
implied, by the Lessor to the breach of any provision of this lease, and no
waiver, express or implied, of any such agreement or condition shall be deemed
to be a waiver of or assent to any succeeding breach. The acceptance by the
Lessor of rent or other payment or silence by the Lessor as to any breach shall
not be construed as waiving any of the Lessor's rights. No payment by the
Lessee or acceptance by the Lessor of a lesser amount than is due the Lessor
from the Lessee shall be deemed to be anything but payment on account, and the
acceptance by the Lessor of a check for a lesser amount with an endorsement or
statement thereon or upon a letter accompanying said check that said lesser
amount is payment in full shall not be deemed an accord and satisfaction, and
the Lessor may accept said check without prejudice to recover the balance due
or pursue any other remedy.
ARTICLE XXVI - PERSONS AND PROPERTY BOUND. The word "Lessor" shall
comprehend and bind the Lessor, and its heirs, legal representatives, successors
and assigns and the word "Lessee" shall comprehend and bind the Lessee, its
heirs, legal representatives, successors and assigns, or those in any manner
claiming through or under
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<PAGE> 20
said Lessee. Lessee hereby agrees for himself and each succeeding holder of the
Lessee's interest, or any portion thereof, that any judgement, decree or award
obtained against the Lessor or any succeeding owner of the Lessor's interest,
which is related to this lease, the Premises or the Lessee's use or occupancy of
the Premises or the Building, whether at law or in equity, shall be satisfied
out of the Lessor's equity in the land and Building, and further agrees to look
only to such assets and to no other assets of the Lessor for satisfaction.
ARTICLE XXVII - COUNTERPARTS AND HEADNOTES. This lease is executed in
duplicate, both copies of which are identical, and either one of which is to be
deemed to be complete in itself and may be introduced in evidence or used for
any purpose without the production of the other copy. The headnotes throughout
this lease and the coversheet are for convenience or reference only, and shall
in no way be held or deemed to define, limit, explain, describe, modify or add
to the interpretation, construction or meaning of any provision of this lease.
ARTICLE XXVIII - NO OFFER TO LEASE. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises. This document shall become
effective and binding only upon the execution and delivery hereof by Lessor and
by Lessee, and until such execution and delivery, Lessor shall not in any way
be bound to enter into a lease with Lessee for the Premises.
ARTICLE XXIX - NO RECORDING. This lease shall not be recorded.
ARTICLE XXX - ADDENDA. The Addenda attached hereto numbered 1 through 4 are
attached and incorporated herein by reference.
ARTICLE XXXI - TRUSTEE AS LESSOR. If the Lessor is a trust or a trustee or
trustees, it is agreed that no trustee nor any beneficiary under any agreement
or declaration of trust under which said trust exists or by virtue of which such
trustees act, shall be personally liable under any of the covenants or
agreements of the parties expressed herein or implied hereunder, or otherwise
because of anything arising from or connected with the use and occupation of the
demised Premises by the Lessee, and the parties agree that any and all claims
arising or accruing to them hereunder shall be enforced and satisfied only
against the assets and property of said trust and not in any case against said
trustees or any of them or their successors in trust individually.
ARTICLE XXXII - AUTHORITY. If Lessee is a corporation, each person
executing this Lease on behalf of the Lessee hereby covenants, represents and
warrants that Lessee is a duly incorporated or duly qualified (if foreign)
corporation and is authorized to do business in the Commonwealth of
Massachusetts (a copy of evidence thereof to be supplied to Lessor upon
request); and that each person executing this Lease on behalf of Lessee is an
officer of Lessee and that he or she is duly authorized to execute, acknowledge
and deliver this Lease to Lessor (a copy of a resolution to that effect to be
supplied to Lessor upon request).
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<PAGE> 21
EXECUTED AS A SEALED INSTRUMENT THIS______________ DAY OF ________________,199_.
LESSOR: LANDMAN OMNIBUS VII LIMITED PARTNERSHIP
BY: LANDMAN VII CORPORATION, ITS GENERAL PARTNER
BY:
------------------------------------------
ADDRESS: 39 Brighton Avenue, Boston, MA 02134
LESSEE: FIRST NEW ENGLAND DENTAL CENTERS, INC.
BY: /s/ Jerald Robbins
------------------------------------------
ADDRESS: 170 Commonwealth Avenue, Boston, MA
<PAGE> 22
ADDENDUM #1: RULES AND REGULATIONS
- ----------------------------------
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Lessee or used for any purpose other than for ingress to and egress from
the Premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Lessor. There shall not be used in any space, or in the public hall of the
building, either by a Lessee or by jobbers or others in the delivery or receipt
of merchandise, any hand trucks, except those equipped with rubber tires and
sideguards. If the Premises are situated on the ground floor of the Building,
Lessee thereof shall further, at Lessee's expense, keep the sidewalks and curb
in front of said Premise clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purpose other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Lessee who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No Lessee shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substances into any of the corridors or halls,
elevators, or out of the doors or windows or stairways of the Building and
Lessee shall not use, keep or permit to be used or kept any foul or noxious gas
or substance in the Premises or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Lessor or other occupants of the
Building by reason of noise, odors and/or vibrations, or interfere in any way
with other Lessees or those having business therein, nor shall any animals or
birds be kept in or about the Building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Lessor.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside of the
Premises or the Building or on the inside of the Premises if the same is visible
from the outside of the Premises without the prior written consent of Lessor,
except that the name of Lessee may appear on the entrance door of the Premises.
In the event of the violation of the foregoing by any Lessee, Lessor may remove
same without any liability, and may charge the expense incurred by such removal
to Lessee or Lessees violating this rule. Interior signs on doors and directory
tablet shall be inscribed, painted or affixed for each Lessee by Lessor at the
expense of such Lessee, and shall be of a size, color and style acceptable to
Lessor.
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6. Except with prior written consent of Lessor and as Lessor may direct, no
Lessee shall mark, paint, drill into, or in any way deface any part of the
Premises or the Building of which they form a part or cut or string wires, lay
linoleum, or other similar floor covering, so that the same shall come in direct
contact with the floor of the Premises, and, if linoleum or other similar floor
covering is desired to be used, an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. Except with the prior written consent of Lessor, no additional locks or
bolts of any kind shall be placed upon any of the doors or windows by any
Lessee, nor shall any changes be made in existing locks or mechanism thereof. If
requested, Lessee shall provide Lessor with a copy of a key for all new locks or
bolts. Each Lessee shall, upon the termination of his tenancy, restore to Lessor
all keys either furnished to or otherwise procured by, such Lessee. In the event
of the loss of any keys furnished to Lessee, Lessee shall pay to Lessor the cost
thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Premises only on the
freight elevators and through the service entrances and corridors or in an
alternative way approved by Lessor and only during hours and in a manner
approved by Lessor.
9. Canvassing, soliciting and peddling in the Building is prohibited and
each Lessee shall cooperate to prevent the same. -
10. Lessor shall have the right to prohibit any advertising by any Lessee
which, in Lessor's opinion, tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from Lessor,
Lessee shall refrain from or discontinue such advertising.
11. Except for those items necessary for the cleaning and maintenance of
Lessee's business, including office supplies, which shall be properly stored to
minimize the risk of fire and explosion, Lessee shall not bring or permit to be
brought or kept in or on the Premises, any inflammable, combustible or explosive
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other process, or any unusual or other objectionable odors to permeate in or
emanate from the Premises.
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<PAGE> 24
ADDENDUM #2; HAZARDOUS SUBSTANCES
- ---------------------------------
As used herein, the following definitions shall apply:
1. "Hazardous Substance" means any substance, waste or material which is deemed
hazardous, toxic, a pollutant or contaminant under any federal state or local
statute, law, ordinance, rule, regulation, or judicial or administrative order
or decision, now or hereafter in effect.
2. "Hazardous Substance on the Premises" means any hazardous substance present
in, on, near or emanating from the Premises or at the surface or below the
surface thereof. As used in this Addendum, the term "Premises" includes, in
addition to the leased Premises, the building(s) and grounds of which it is a
part.
3. "Applicable Law" shall mean all federal, state and local statutes, laws,
ordinances, rules and regulations and judicial and administrative orders,
rulings and decisions that are applicable now or in future to the Premises or
any portion thereof or to any activity which shall take place thereon.
Lessee shall not generate, store, release, dispose of or otherwise handle any
Hazardous Substance on the Premises; moreover, Lessee shall not take any action,
conduct any activity or fail to take any action which causes contributes, or is
likely to cause or contribute to, a threat of release of any Hazardous Substance
on the Premises.
Lessee furthermore shall not install or cause to be installed any chemical, oil
or gasoline storage tanks(s) on, under or around the Premises and it shall not
install or cause to be installed on, around or under the Premises any
transformers or other equipment which contain PCBs or other Hazardous
Substances.
Lessee shall defend, indemnify and hold harmless Lessor and any mortgagee of the
Premises from and against any and all liability, loss, suits, claims, actions,
causes of action, proceedings, demands, costs, penalties, fines and expenses,
including without limitation attorneys' fees, consultants' fees, and clean-up
costs, resulting from the presence of, release of, or threat of release of, any
Hazardous Substance on the Premises, or arising from the action or inaction of
Lessee, its employees, invitees, contractors, and agents, or arising out of the
generation, storage, treatment, handling, transportation, disposal or release
(or threat of release) by Lessee its employees, invitees, contractors and agents
of any Hazardous Substance at or near the Premises, or arising out of any
violation(s) by the same of any Applicable Law regarding Hazardous Substances.
Lessee shall remove, clean-up and remedy any Hazardous Substance on the
Premises, or any threat of release of Hazardous Substance on the Premises to
the extent required by Applicable Law, and Lessee shall be obligated to
continue to pay Base Rental, Additional Rents and other sums due under the
Lease until such removal, clean-up or remedy is completed in accordance with
Applicable Laws, whether or not the term of this Lease shall terminate or
expire. Lessee hereby grants Lessor the right to inspect the Premises
throughout the term of this Lease, to determine that Lessee is in compliance
with Applicable Laws and Lessee agrees to provide Lessor with all information
necessary to ascertain that Lessee is in compliance with Applicable Laws.
Lessee shall comply with all provisions of Massachusetts General Laws Chapter
21E, the Massachusetts Oil and Hazardous Material Release Prevention Act (the
"Act"), and in that regard shall comply with all "operator" obligations therein
including the reporting and requirements of Section 7 thereof.
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<PAGE> 25
Any release or threat of release of any Hazardous Substance on the Premises
arising from the action or inaction of Lessee, its employees, invitees,
contractors, or agents, any breach by Lessee of its obligations under this
Addendum, or any violation by Lessee of the provisions of the Act shall
constitute a default by Lessee under the Lease. In the event of such a default,
notwithstanding the provisions of Paragraph 21, Lessor shall have the additional
right, but not the obligation, to take any action or perform any act required by
this Addendum of the Lessee to such extent and in such manner as Lessor deems
appropriate, including paying necessary costs, fees and attorneys' fees. The
making of any such payment or the performing of any such act by the Lessor
shall not waive or release the Lessee from its obligations and agreements
hereunder. All amounts so paid by Lessor shall be immediately due and payable by
Lessee to Lessor on demand, as additional rent with interest thereon at the rate
of three percent over the prime rate of interest announced from time to time by
the First National Bank of Boston.
Lessor, in addition and not in limitation of its rights in the preceding
paragraph, shall have the right to enforce Lessee's obligations under this
Addendum by taking legal action seeking among other things, injunctive relief.
25
<PAGE> 26
ADDENDUM # 3: LESSEE'S OPTION TO TERMINATE DURING ORIGINAL TERM
- ---------------------------------------------------------------
During the Original Term only, Lessee shall have one option to terminate the
Lease prior to the Expiration Date on the last day of the thirty-sixth (36th)
full month of the Lease Term. Lessee's such option as provided in this
Addendum #3 is further subject to the following (which terms shall be deemed of
the essence and are to be strictly construed);
(1) Lessee's election to terminate shall be properly tendered only when received
in accordance with the following:
(a) Lessee shall deliver to Lessor and Lessor must receive from Lessee at least
six (6) months written notice of its intention to terminate the Lease.
Notwithstanding the foregoing, notice shall not be effective other than the last
day of a calendar month ("Date of Cancellation").
(2) Lessee shall not be in material default beyond any applicable periods of
cure at anytime prior to the exercise of this option to terminate, and shall not
be in material default at the exercise hereof.
(3) Lessee shall cure any material default under the Lease existing on the Date
of Cancellation and Lessee's obligation to cure any default within the period of
time specified in the Lease shall survive the Date of Cancellation. In the event
Lessee shall not have cured any defaults within the applicable cure period, this
option to terminate shall be deemed canceled. Provided that the termination of
the Lease shall be perfected according to the terms hereof, Lessee shall
surrender possession of the Premises to Lessor in accordance with the provisions
of the Lease free of all subtenants, if any, as if the Date of Cancellation were
the Expiration Date of the Lease and any and all of Lessee's obligations under
the Lease which are deemed to accrue after the Date of Cancellation shall cease
as of the Date of Cancellation. Lessee shall be liable for all obligations which
shall have accrued or which shall have been deemed to exist prior to the Date of
Cancellation, including but not limited to the covenants to indemnify Lessor and
the obligation to pay prorated real estate taxes and the provisions hereof shall
survive the termination of the Lease.
In addition to any other monies due to Lessor, Lessee shall tender to Lessor
along with the Notice of Cancellation an amount equal to the sum of (i) the
unamortized value as of the Date of Cancellation of the leasehold improvements
performed by Lessor in accordance with Addendum #4, and (ii) the unamortized
value of any and all brokerage commissions incurred by Lessor in connection with
this lease (collectively, "Improvement Buy-out"). In determining the Improvement
Buy-out to be payable hereunder, the value of Lessor's Improvements and the
brokerage commission shall be amortized over a sixty (60) month period.
26
<PAGE> 27
ADDENDUM #4: LESSOR'S IMPROVEMENTS - CAP ON COST
- -------------------------------------------------
Prior to the Commencement Date, Lessor shall make renovations and improvements
to the Premises ("Landlord's Work"), at Lessor's expense unless otherwise agreed
and shall be made using materials of a similar grade and quality as used by
Lessor throughout the Building..
Landlord's Work shall be performed in accordance with a plan (the "Plan") to be
supplied by Lessee which has been approved by each party as evidenced by its
initialing thereof. As so initialed, the Plan is incorporated herein by
reference.
Lessor shall be responsible for the cost of the Landlord's Work up to a maximum
amount of $40,250.00. If the cost of the Landlord's Work is to exceed
$40,250.00 then Lessor shall obtain Lessee's prior approval for incurring such
costs in excess thereof, whereupon Lessee shall be responsible for paying the
cost thereof in excess of said $40,250.00. Lessee shall pay such excess cost to
Lessor as it is incurred within fifteen (15) days of Lessor's bill therefor to
Lessee, which bill shall provide reasonable documentation of such excess costs.
In the event that Lessee fails to approve the expenditure of costs in excess of
$40,250.00 within three (3) days of Lessor's written request, then Lessor shall
have no obligation to perform any Landlord's Work the cost of which is in
excess of $40,250.00, and upon incurring said $40,250.00 amount for Landlord's
Work, Lessor shall be deemed to have fulfilled its obligations hereunder to
perform and complete Landlord's Work.
In the case of any delay in connection with the improvements and renovations,
the Commencement Date shall be extended as provided in Article 3 herein for the
period of such delays as provided in Article 3 herein unless Lessor and Lessee
agree that Lessee can occupy the Premises prior to substantial completion at a
rent to be agreed upon. Provided, however, in such event, Lessee shall not use
the Premises in such manner as will increase the cost of completion and agrees
that it shall pay Lessor an amount equal to 1/365th of the Minimum Rent for any
delay caused by Lessee or anyone employed by it, for each day of such delay.
Under no circumstances whatsoever shall Lessor be liable to Lessee for any
indirect or consequential damage caused by such delay.
Aside from those improvements specifically enumerated above, Lessee accepts
Premises "as is".
27
<PAGE> 28
SECRETARY'S CERTIFICATE
-----------------------
I, Joshua J. Vernaglia, Secretary of First New England Dental Centers,
Inc. hereby certify that the Corporation is authorized as Lessee, to enter into
a Lease with Landman Omnibus VII Limited Partnership, as Lessor, for
approximately 3,500 square feet of second (2nd) floor space, at 85 Devonshire
Street, Boston, Massachusetts 02109, with said Lease to be for a term of five
(5) years at a rent of $63,000.00 for the first year, as adjusted by the terms
of this Lease, a copy of which Lease is hereby attached and made a part hereof.
I further certify that Jerald Robbins, President of the Coporation, has
authority to execute and deliver to the Lessor the Lease on behalf of the
Corporation upon the above terms.
WITNESS my hands and seal of the Corporation, this 1st day of April, 1996.
/s/ Joshua J. Vernaglia
-----------------------
, Secretary
[Corporate Seal]
(Affix Corporate Seal)
28
<PAGE> 29
EXHIBIT 1
29
<PAGE> 30
SUBORDINATION. NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
THIS AGREEMENT, dated as of ___________, 1996, is made by and between Fleet
National Bank of Massachusetts (formerly known as Shawmut Bank, N.A.), a
national banking association, for itself and as Agent for other banks
(hereinafter called "Mortgagee"), and First New England Dental Centers, Inc., a
New Jersey corporation with a principal place of business at 170 Commonwealth
Avenue, Boston, MA (hereinafter called Tenant").
WITNESSETH:
(a) WHEREAS Tenant has entered into a certain lease dated ____________
(together with all amendments thereto and modifications thereof, hereinafter
called the "Lease") with Landman Omnibus VII Limited Partnership, a
Massachusetts Limited Partnership (hereinafter called "Landlord") covering
premises located within the building having an address of 85 Devonshire and
262-268 Washington Streets in Boston, Massachusetts (the "Property"); and
(b) WHEREAS Mortgagee has made a mortgage loan to Landlord, secured by
a Mortgage and Security Agreement encumbering, INTER ALIA, Landlord's interest
in such premises and the land on which it is situated
NOW THEREFORE, in consideration of the premises and of the sum of One
Dollar ($1.00) by each party in hand paid to the other, the receipt of which is
hereby acknowledged, it is hereby agreed as follows: -
1. Tenant agrees that the Lease is and shall be subject and subordinate to
said Mortgage and Security Agreement and to all renewals, modifications,
consolidations, replacements, increases and extensions thereof (the "Mortgage"),
to the full extent of the principal sum from time to time secured thereby, all
interest and charges thereon, and all payments relating to the Property, said
subordination to be with the same effect as though the Mortgage (including any
such renewals, modifications, consolidations, replacements, increases and
extensions) had been executed, acknowledged, delivered and recorded, and value
secured thereby given, prior to the execution and delivery of the Lease and the
recording thereof or of any notice thereof. If and to the extent that the Lease
shall entitle Tenant to notice of any mortgage, this Agreement shall constitute
notice to Tenant with respect to the Mortgage. Tenant agrees that from and after
the date that Mortgagee, its successors or assigns, or a court-appointed
receiver or trustee or a bona fide third-party purchaser shall have obtained
fee title to the Property pursuant to a foreclosure action or sale,
deed-in-lieu of foreclosure or similar proceeding incident to the Mortgage, any
provision in the Lease providing Tenant with an option to purchase the property
or any part thereof, or with a right of first refusal to purchase the Property
or any part thereof, shall be of no further force and effect and shall
automatically terminate as of such date and, notwithstanding any provision of
this Agreement or the Lease to the contrary, no such provision shall be binding
upon the Mortgagee or its successors and assigns or such receiver, trustee or
purchaser. Without limiting the generality of the foregoing, no such provision
shall apply to a sale of the Property or any portion thereof at foreclosure or
incident to a deed-in-lieu of foreclosure or similar proceeding.
2. Tenant agrees that it will attorn to and recognize Mortgagee, any other
purchaser at a foreclosure sale under the Mortgage, any transferee who acquires
the Property by deed-in-lieu of foreclosure, and their respective successors and
assigns (Mortgage, any such other purchaser or transferee, and their receptive
successors and assigns being referred to herein collectively as the
"Successors"), as Landlord under and for the unexpired balance (and any
extensions, if exercised) of the term of the Lease upon the same terms and
conditions set forth therein.
30
<PAGE> 31
3. Mortgagee agrees that in the event the Mortgagee forecloses the
Mortgage, Mortgagee will not terminate the Lease nor join Tenant in summary or
foreclosure proceedings nor in any way disturb Tenant's quiet enjoyment of its
premises so long as no default has occurred with respect to which any applicable
grace period has expired in the payment or performance by Tenant of any of its
obligation under the terms, covenants or conditions of the Lease.
4. Tenant agrees that in the event any Successor succeeds to the interest
of Landlord under the Lease, such Successor shall not be:
(a) liable for any act or omission of any prior landlord (including
Landlord) or any successor landlord; or
(b) liable for the return of any security deposit; or
(c) subject to any offsets or defenses under the Lease or otherwise
which Tenant might have arising in connection with any act or omission
of any prior landlord (including Landlord); or
(d) bound by any rent or additional rent which Tenant might have
prepaid for more than the then current month under the Lease to any
prior landlord (including Landlord); or
(e) bound by any amendment or modification of the Lease made without
its consent; or
(f) bound by any consent by any landlord under the Lease to any
assignment or sublease of the tenant's interest in the Lease made
without also obtaining such Successor's prior written consent; or
(g) personally liable for any default under the Lease or any covenant
or obligation on its part to be performed thereunder as landlord, it
being acknowledged that Tenant's sole remedy in the event of such
default shall be to proceed against such Successor's interest in the
Property; or
(h) liable for breach of any representation or warranty made by any
landlord or for any indemnification obligation of the landlord under
the Lease.
5. Tenant agrees to send to Mortgagee a copy of any notice of default given
to Landlord at the same time as such notice is given to Landlord. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in the Lease, then Mortgagee shall have an additional thirty (30)
days within which to cure such default or if such default cannot be cured within
that time, then such additional time as may be necessary to cure such default
including but not limited to, commencement of foreclosure proceedings if
necessary to effect such cure, in which event the Lease shall not be terminated
while such remedies are being so diligently pursued.
6. Any notice, consent or other communication, pursuant to the provisions
of this Agreement shall be in writing and shall be sent by registered or
certified mail, return receipt requested, or by a reputable commercial
overnight carrier that provides a receipt, such as Federal Express or Airborne,
and shall be deemed given three days after it is so
31
<PAGE> 32
mailed or one business day after it is delivered to such overnight carrier (as
the case may be) provided it is addressed as follows:
If to Mortgagee: Fleet National Bank of Massachusetts
(formerly known as Shawmut Bank, N.A.)
c/o Fleet National Bank
111 Westminster Street, Suite 800
Providence, Rhode Island 02903
Attn: Real Estate Division
with copy to: Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110
Attn: Jordan P. Krasnow, Esq.
If to Tenant: First New England Dental Centers, Inc.
85 Devonshire Streets
Boston, Massachusetts 02111
or to such other address as shall from time to time have been designated by
written notice by such party to the other party as herein provided.
7. Tenant consents to the assignment to Mortgagee of Landlord's interest in
and to the rents payable by Tenant under the Lease.
IN WITNESS WHEREOF, the parties hereto have executed these presents, which
shall be binding upon and inure to the benefit of their respective successors
and assigns, as of the day and year first above written.
TENANT: FIRST NEW ENGLAND DENTAL CENTERS, INC.
BY: /s/ Jerald Robbins
------------------
MORTGAGEE: FLEET NATIONAL BANK OF MASSACHUSETTS
(formerly known as Shawmut Bank, N.A.)
By:
------------------------
Name:
Title:
32
<PAGE> 33
STATE OF RHODE ISLAND )
) SS.
COUNTY OF )
On this _________ day of ________,1996, personally appeared before me
___________ to me personally known, who, being by me duly sworn, did say that he
is the ________________ of Fleet National Bank of Massachusetts (formerly known
as Shawmut Bank, N.A.) and such officer acknowledged the foregoing to be his
free act and deed and the free act and deed of Fleet National Bank of
Massachusetts.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year last above written.
----------------------
Notary Public
My Commission Expires:
COMMONWEALTH OF MASSACHUSETTS )
)SS.
COUNTY OF )
On this ___________day of ___________, 1996, personally appeared before me
________________ to me personally known, who, being by me duly sworn, did say
that he is the ___________________ of First New England Dental Centers, Inc. and
such officer acknowledged the foregoing to be his free act and deed and the free
act and deed of First New England Dental Centers, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year last above written.
----------------------
Notary Public
My Commission Expires:
33
<PAGE> 34
AGREEMENT TO VACATE AND AGREEMENT FOR JUDGMENT
Agreement entered into this day of October, 1996 by and between 85 Devonshire
Street, L.L.C. ("Landlord"), a Massachusetts Limited Liability Company and First
New England Dental Centers, Inc., a Massachusetts corporation with its principal
place of business at 85 Devonshire Street Boston, Massachusetts ("Tenant").
Whereas, Landlord is the owner of those buildings known as 85 Devonshire Street
and 258 and 262 Washington Street in Boston, Massachusetts ("Premises");
Whereas, the Tenant presently occupies a portion of the Premises commonly known
as Suites 601 and 602 thereof and uses the same for office and business
operations of the Tenant;
Whereas, the tenancy agreement which the Tenant had with respect to Suite 601 of
the Premises expired on September 30, 1996, and the Tenant never had and does
not now have any right to occupy or use that portion of the Premises known as
Suite 601 at 262 Washington Street;
Whereas, the Tenant has no right of any nature to continue to use and occupy any
part or portion of the Premises, and the Landlord is entitled to possession of
Suites 601 and 602 at this time;
Whereas, the Landlord has previously advised the Tenant in writing that the
Landlord requires the Tenant to vacate all portions of the Premises presently
occupied by the Tenant prior to October 1, 1996, and that the Landlord will
take all necessary and appropriate legal action to obtain possession of the
same;
Whereas, the Tenant has requested that it be permitted to remain in said Suites
601 and 602 until October 31, 1996 at 5:00 p.m.;
Whereas, the parties executed on October 1, 1996 a Letter Agreement detailing
and outlining the terms and conditions upon which the Landlord would allow the
Tenant to continue to use and occupy Suite 601 and 602 (said Letter Agreement
being attached hereto as Exhibit A and being made a part hereof); and
Whereas, as part of that Letter Agreement the parties have agreed to enter into
a comprehensive agreement encompassing all of their respective duties, rights
and obligations with respect to the use and occupancy of the Premises by the
Landlord.
Now therefore, the parties hereto covenant and agree as follows;
1. No later than 5:00 p.m. on October 31, 1996 the Tenant shall deliver
and surrender to the Landlord possession of all suites, units and
portions of the Premises now used and occupied by, or previously used
and occupied by the Tenant at the Premises. Said Premises shall be
in the same state and condition as they were at the time the Tenant
first took possession thereof. No later than such time the Tenant
shall remove all of its property, belongings, books, records, and
the like. Any such items remaining on the Premises after 5:00 p.m. on
October 31, 1996 shall be deemed abandoned by the Tenant, and shall
become the property of the Landlord.
2. In the event that the Tenant does not vacate all suites, units and
portions of the Premises and surrender possession of the same to the
Landlord in accordance with the immediately preceding numbered
paragraph, then the Landlord shall have the immediate and absolute
right, without further notice to the Tenant, to take any and all of
the following actions:
a. File with the appropriate court a Summary Process action with the
requested relief thereof being that a Judgement issue whereby the
Landlord is immediately granted sole and exclusive use and
possession of that portion of the Premises occupied by the
<PAGE> 35
Tenant, and that an Execution be issued forthwith. The Tenant
waives any right to appeal from, or object to the issuance
thereof.
b. Have the right to use self help and any means available to it to
immediately obtain and take use and possession of that portion of
the Premises occupied by the Tenant, without need of filing any
pleading. Summary Process action or any other action in any
court.
3. The Tenant shall pay all of the Landlord's costs, damages, expenses
and reasonable attorney's fees incurred in enforcing this Agreement
and obtaining possession of the Premises in the event that the Tenant
fails to vacate the Premises as called for herein.
4. For each day or part thereof that the Tenant occupies all or a portion
of the Premises beyond 5:00 p.m. on October 31, 1996, the Tenant shall
be obligated to pay to the Landlord the sum of $657.00 per day.
5. By executing the within Agreement, the Tenant consents to the filing
of any and all pleadings and documents referred to above, and the
taking of all action by the Landlord referred to above. The within
Agreement shall be and act as the Tenant's express authorization and
consent to the same. The Tenant covenants and agrees that, in
consideration of the Landlord permitting the Tenant to remain at the
Premises until October 31, 1996, the Tenant shall comply with all the
terms hereof, and shall not object to any action which the Landlord
takes as set forth above, should the Tenant fail to vacate the
Premises as called for herein. In the event the Tenant fails to comply
with any or all of the terms of this Agreement the Tenant does hereby
grant to the Landlord Power of Attorney on behalf of the Tenant to
assent to and agree to any Summary Process or other action which the
Landlord may undertake in order to enforce the terms and provisions
hereof.
6. No tenancy shall be or is created by the execution of this Agreement,
or by the Landlord allowing the Tenant to continue to occupy the
Premises as set forth herein.
This Agreement represents the entire understanding of the parties and is
executed by them as their free act and deed. This Agreement shall be binding
upon and benefit the heirs, successors and assigns of the parties hereto. In
the event of any breach hereof by the Tenant, the Tenant shall be liable to pay
to the Landlord all costs, expenses and reasonable legal costs incurred by the
Landlord to enforce the Landlord's rights hereunder, and shall be liable to
the Landlord for all consequential or compensatory damages which the Landlord
may suffer as the result of the Tenant failing to vacate the Premises as called
for herein.
85 Devonshire Street, L.L.C.
By: The Cathartes Group, Ltd., Manager
/s/ James B. Goldenberg Howard M. Hillman
- --------------------------------------- -----------------------------------
James B. Goldenberg Witness
First New England Dental Centers, Inc.
By:
/s/ Jerald Robbins
- --------------------------------------- -----------------------------------
Witness
<PAGE> 36
TENANT ESTOPPEL CERTIFICATE
---------------------------
TO: MetroWest Bank, having an address, 15 Park Street, Framingham, MA 01701
together with its successors and assigns ("Lender")
THIS IS TO CERTIFY THAT:
The undersigned has been advised that Lender intends to make a loan secured
by a first leasehold mortgage on those certain premises commonly known as 85
Devonshire Street, Boston, Suffolk County Massachusetts (the "Property"), in
which the undersigned currently occupies 3,500 s.f. of space under a Lease
Agreement dated July 10, 1996 (the "Lease") between the undersigned First New
England Dental ("Tenant") and LANDMAN OMNIBUS VII LIMITED PARTNERSHIP,
("Landlord"). Incident to Lender's proposed loan and mortgage, and at Lender's
request, Tenant hereby certifies as follows:
1. Tenant is the holder of the lessee's interest under the Lease.
2. The Lease is in full force and effect and has not been modified
changed, altered, amended or supplemented in any respect (except as
may be indicated at the end of this Paragraph 2) and is the only Lease
or agreement between Tenant and Landlord affecting said Premises.
Tenant will not enter into any material modifications of the Lease
without the prior written consent of Lender. If none, state "none".
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. The term of the Lease is currently scheduled to expire on May 31,
2001. If there are any rights of extension or renewal remaining under
the terms of the Lease, the same has not, as of the date of this
Tenant Estoppel Certificate, been exercised.
4. Tenant has made no agreements with Landlord or its agents or employees
concerning, and has no right to, free rent, partial rent, rebate of
rental payments or any other type of rental concession (except as may
be indicated at the end of this Paragraph 4). If none state "none".
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Tenant is current in payment of all fixed rent and other charges due
to be paid under the Lease, with minimum rent paid in full for the
period ending July, 1996. The monthly minimum (i.e. fixed) rent is
$5,250. No rent or other sum payable under the Lease is being paid in
arrears. No rent or other sum payable under the Lease has been paid in
advance of the due date thereof except for six months prepaid rent of
$31,500.00 which was paid upon possession of the premises and of which
$21,000.00 remains, and Tenant hereby agrees with Lender that it shall
not pay any minimum rent or any other sum due or to be paid under the
Lease more than thirty (30) days in advance of the due date hereof.
<PAGE> 37
6. Tenant, as the holder of the lessee's interest under the Lease, is in
occupancy of all the premises covered by the Lease, and is actively
conducting such business therein and had been conducting its business
since June 7, 1996. The conduct of such business falls within the
uses stipulated as being permitted under the terms of the Lease.
7. Should Lender advise Tenant that Landlord is in default in the
indebtedness to Lender and request that payment of all future rentals
be made directly to Lender, Tenant agrees that it shall make all
future rental payments under the Lease directly to Lender until
instructed otherwise by Lender.
8. All of the obligations on the part of Landlord under the Lease,
including any obligation for the performance of any construction work,
or installation of any equipment, have been carried out, and Tenant
has no claim or knowledge of any claim against the holder of
Landlord's interest on account of any default or failure of
performance under the Lease. Tenant is not in default of any of its
obligations to be paid or performed under the Lease. As of the date
hereof, Tenant is entitled to no offset or deduction in rent and has
no claim or defense to the payment of any obligation under the Lease.
9. Tenant has received or will receive payment or credit for tenant
improvement work in the total amount of $___________ (or if other than
cash, describe below). If none, state
None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. The Lease contains and Tenant has no outstanding options or rights of
first refusal to purchase the premises demised by the Lease or any
part thereof or the real property of which such premises are a part.
11. Tenant understands and acknowledges that (a) Landlord shall execute or
has executed an absolute assignment of the Lease and other leases in
favor or Lender; (b) notwithstanding said assignment, all rental,
additional rental and other payments due under the Lease shall
continue to be paid in accordance with the terms of the Lease until
and unless Tenant is notified to the contrary in writing by Lender;
and (c) the interest of Landlord in the Lease shall be or has been
assigned to Lender under the terms provided in said absolute
assignment or the mortgage and assignment of rents and leases securing
the Loan, and Lender assumes no duty, liability or obligation under
the Lease, either by virtue of said absolute assignment, the exercise
thereof or by any subsequent receipt or collection of rental,
additional rental or any other sums due thereunder.
12. No actions, whether voluntary or otherwise, are pending against Tenant
under the bankruptcy or other insolvency laws of the United States or
of any state thereof.
13. This certification is made to induce Lender to make certain fundings,
knowing that Lender shall rely upon the truth of this certificate in
disbursing said funds.
<PAGE> 38
DO NOT EXECUTE THIS CERTIFICATE UNLESS A TRUE, CORRECT AND COMPLETE COPY OF YOUR
LEASE AND ALL AMENDMENTS THERETO ARE ATTACHED. LENDER IS RELYING ON YOUR
STATEMENTS AND AGREEMENTS CONTAINED IN THIS CERTIFICATE IN TAKING ACTION
RESPECTING A LOAN REQUEST RELATIVE TO THE PROPERTY.
Dated this 24th day of July, 199_.
TENANT:
/s/ Jerald Robbins
- ----------------------------
By: Jerald Robbins
------------------------
Title: President
---------------------
<PAGE> 39
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
THIS AGREEMENT is made and entered into as of this _____ day of __________,
1996, by and among MetroWest Bank (the "Lender"), First New England Dental (the
"Tenant") and The Cathartes Group (the "Landlord").
Reference is made to the following facts:
A. Landlord and Tenant have entered into a lease, dated April 12, 1996,
(the "Lease") with respect to the property owned by the Landlord, known as
the 85 Devonshire Street located in Boston, Massachusetts, (hereinafter
referred to as the "Property" or the "Leased Premises").
B. On or about _____________, 1996, Landlord entered into and delivered to
Lender a Mortgage and Security Agreement (the "Mortgage"), relating to the
Property to secure among other things the payment of the indebtedness
described in the Mortgage and assignment of rents and leases. The Mortgage
and assignment of rents and leases is recorded in the _______________
County Registry of Deeds.
C. As a condition to making the loan which is secured by the Mortgage and
assignment of rents and leases, Lender has required that the Landlord
obtain from each Tenant, the within Agreement pursuant to which the Tenant
subordinates the Lease to the lien of the Mortgage and assignment of rents
and leases and the Tenant attorns to Lender in the event Lender obtains
possession of the Property. Tenant has requested that Lender provide Tenant
with certain non-disturbance protections on the terms set forth below.
NOW, THEREFORE, for and in consideration of the mutual covenants
hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender, Tenant
and Landlord hereby covenant and agree as follows:
1. SUBORDINATION. Tenant hereby subordinates all of its right, title and
interest as lessee under the Lease to the right, title and interest of
Lender under the Mortgage and assignment of rents and leases; and Tenant
further agrees that the Lease now is and shall at all times continue to be
subject and subordinate in each and every respect to the Mortgage and
assignment of rents and leases and to any and all increases, renewals,
modifications, extensions, substitutions, replacements and/or
consolidations of the Mortgage and assignment of rents and leases.
After recording, please return to:
First New England Dental
85 Devonshire Street
Boston, Massachusetts 02109
<PAGE> 40
2. NON-DISTURBANCE. So long as no default exists, the Lease shall not be
terminated, nor shall Tenant's use, possession or enjoyment of the Leased
Premises or rights under the Lease be interfered with in any foreclosure or
other action or proceeding in the nature of foreclosure instituted under or
in connection with the Mortgage and assignment of rents and leases or in
case Lender takes possession of the Property pursuant to any provisions of
the Mortgage and assignment of rents and leases, unless the Landlord would
have had such right to interfere if the Mortgage and assignment of rents
and leases had not been made, except that Lender and the person or entity
acquiring the interest of the Landlord as a result of any such action or
proceeding or deed in lieu of any such action or proceeding (the
"Purchaser") shall not be (a) liable for any act or omission of any prior
lessor under the Lease which occurred prior to the date Lender or Purchaser
obtained possession of the Property; or (b) liable for the return of any
security deposit which Tenant has paid to any prior lessor under the Lease
unless such security deposit was actually delivered to Lender; or (c)
subject to any offsets or defenses which the Tenant might have against any
prior lessor under the Lease; provided, however, that the foregoing shall
not limit Tenant's right to exercise against Lender or Purchaser any right
of Tenant to any offset or defense otherwise available to Tenant because of
events occurring after the date Lender takes possession of the Property; or
(d) bound by any base rent, percentage rent or any other payments which
Tenant might have paid more than thirty (30) days in advance of amounts due
for the current month to any prior lessor under the Lease; or (e) bound by
any amendment or modification of the Lease which increases the obligations
or responsibilities of Landlord thereunder or changes the rent or the term
thereof and is made without Lender's prior written consent; or (f) bound by
any consent by any lessor under the Lease to any assignment or sublease of
the Tenant's interest in the Lease made without also obtaining Lender's
prior written consent; or (g) personally liable for any default under the
Lease or any covenant or obligation on its part to be performed thereunder
as lessor, it being acknowledged that Tenant's sole remedy in the event of
such default shall be to proceed against Purchaser's or Lender's interest
in the Property.
3. ATTORNMENT. If the interests of the Landlord shall be transferred by
reason of the exercise of the power of sale contained in the Mortgage and
assignment of rents and leases (if applicable), or by any foreclosure or
other proceeding for enforcement of the Mortgage, or by deed in lieu of
foreclosure or such other proceeding, or if Lender takes possession of the
Property pursuant to any provisions of the Mortgage and assignment of rents
and leases then, unless the Lease is terminated in accordance with the
terms of the Lease or Paragraph 2 hereof, the Tenant thereunder shall be
bound to the Purchaser or Lender, as the case may be, under all of the
terms, covenants and conditions of the Lease for the balance of the term
thereof and any extensions or renewals thereof which may be effected in
accordance with any option therefor in the Lease, with the same force and
effect as if the Purchaser or Lender were the lessor under the Lease, and
Tenant, as lessee under the Lease, does hereby attorn to the Purchaser and
Lender if it takes possession of the Property, as its lessor under the
Lease. Such attornment shall be effective and self-operative without the
execution of any further instruments upon the succession by Purchaser to
the interest of the Landlord or the taking of possession of the Property by
Lender. Nevertheless, Tenant shall, from time to time, execute and deliver
such instruments evidencing such attornment as Purchaser or Lender may
require. The respective rights and obligations of Purchaser, Lender and of
the Tenant upon such attornment, to the extent of the then remaining
balance of the term of the Lease and any such extensions and renewals,
shall be and are the same as now set forth in the Lease except as otherwise
expressly provided in Paragraph 2 hereof.
<PAGE> 41
4. ASSIGNMENT OF LESSOR'S INTEREST IN LEASES. Tenant hereby acknowledges
that all of Landlord's right, title and interest as lessor under the Lease
is being duly assigned to Lender pursuant to the terms of the Mortgage and
assignment of rents and leases, and that pursuant to the terms thereof all
rental payments under the Lease shall continue to be paid to Landlord in
accordance with the terms of the Lease unless and until Tenant is otherwise
notified in writing by Lender. Upon receipt of any such written notice from
Lender, Tenant covenants and agrees to make payment of all rental payments
then due or to become due under the Lease directly to Lender or to Lender's
agent designated in such notice and to continue to do so until otherwise
notified in writing by Lender. Landlord hereby irrevocably directs and
authorizes Tenant to make rental payments directly to Lender following
receipt of such notice, and covenants and agrees that Tenant shall have the
right to rely on such notice without any obligation to inquire as to
whether any default exists under the Mortgage and assignment of rents and
leases or the indebtedness secured thereby, and notwithstanding any notice
or claim of Landlord to the contrary, and that Landlord shall have no right
or claim against Tenant for or by reason of any rental payments made by
Tenant to Lender following receipt of such notice. Tenant further
acknowledges and agrees: (a) that under the provisions of the Mortgage and
assignment of rents and leases, the Lease cannot be terminated (nor can
Landlord accept any surrender of the Lease) or modified in any of its
terms, or consent be given to the waiver or release of Tenant from the
performance or observance of any obligation under the Lease, without the
prior written consent of Lender, and no rent may be collected or accepted
by Landlord more than one month in advance without Lender's prior written
consent; and (b) that the interest of Landlord as lessor under the Lease
has been assigned to Lender for the purposes specified in the Mortgage and
assignment of rents and leases, and Lender assumes no duty, liability or
obligation under the Lease, except only under the circumstances, terms and
conditions specifically set forth in the Mortgage and assignment of rents
and leases.
5. NOTICE OF DEFAULT BY LANDLORD. Tenant, as lessee under the Lease, hereby
covenants and agrees to give Lender written notice specifying when the
Landlord has failed to perform any of the covenants or obligations of
Landlord, simultaneously with the giving of any notice of such default to
the lessor under the provisions of the Lease. Tenant agrees that Lender
shall have the right, but not the obligation, within a reasonable time
after receipt by Lender of such notice (or within such additional time as
is reasonably required to obtain possession of the Property if possession
is necessary for the Lender to correct or cure the condition) to correct or
remedy, or cause to be corrected or remedied, each such default before the
lessee under the Lease may take any action under the Lease by reason of
such default. Such notices to Lender shall be delivered to:
METROWEST BANK
15 PARK STREET
FRAMINGHAM, MA 01701
ATTN: NANCY CONNELLY
with a copy to:
Joshua J. Vernaglia, Esq.
CUDDY, BIXBY & DENNER
One Financial Center, 43rd Fl.
Boston, MA 02111
Attention: Esquire
<PAGE> 42
or to such other address as the Lender shall have designated to Tenant by
giving written notice to Tenant at:
First New England Dental
85 Devonshire Street
Boston, Massachusetts 02109
Attention: Jerald Robbins, President
or to such other address as may be designated by written notice from Tenant
to Lender.
6. NO FURTHER SUBORDINATION. Except as expressly provided in Paragraph 1
hereof, Landlord and Tenant covenant and agree with Lender that there shall
be no further subordination of the interest of Tenant under the Lease to
any lender or to any other party without first obtaining the prior written
consent of Lender. Any attempt to effect a further subordination of
Tenant's interest under the Lease without first obtaining the prior written
consent of Lender shall be null and void.
7. AS TO LANDLORD AND TENANT. As between Landlord and Tenant, Landlord and
Tenant covenant and agree that nothing herein contained nor anything done
pursuant to the provisions hereof shall be deemed or construed to modify
the Lease.
8. AS TO LANDLORD AND LENDER. As between Landlord and Lender, Landlord and
Lender covenant and agree that nothing herein contained nor anything done
pursuant to the provisions thereof shall be deemed or construed to modify
the Mortgage and assignment of rents and leases or any of the other
documents executed by the Landlord in connection with the loan from the
Lender.
9. TITLE OF PARAGRAPHS. The titles of the paragraphs of this agreement are
for convenience and reference only, and the words contained therein shall
in no way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this agreement.
10. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
11. PROVISIONS BINDING. The terms and provisions hereof shall be binding
upon and shall inure to the benefit of the heirs, executors,
administrators, successors and permitted assigns, respectively, of Lender,
Tenant and Landlord. The reference contained to successors and assigns of
Tenant is not intended to constitute and does not constitute a consent by
Landlord or Lender to an assignment by Tenant, but has reference only to
those instances in which the Landlord and Lender shall have given written
consent to a particular assignment by Tenant thereunder:
<PAGE> 43
IN WITNESS WHEREOF, the parties have hereunto set their respective hands and
seals.
"LENDER"
By:
-----------------------
Its:
-----------------------
"TENANT"
By: /s/ Jerald Robbins
-----------------------
Jerald Robbins
Its: President
-----------------------
"LANDLORD"
By:
-----------------------
Its:
-----------------------
COMMONWEALTH OF MASSACHUSETTS
Suffolk ,ss July 24, 1996
- -------
Then personally appeared the above-named Jerald Robbins President of First
New England Dental Centers, Inc., and acknowledged the foregoing instrument
to be his/her free act and deed as President of said corporation, before me.
/s/ Joshua J. Vernaglia, Jr.
---------------------------
Notary Public
My commission expires:
[Stamp JOSHUA J. VERNAGLIA, JR.
NOTARY PUBLIC
MY COMMISSION EXPIRES JUNE 1, 2001]
<PAGE> 44
COMMONWEALTH OF MASSACHUSETTS
___________________,ss _______________, 199_
Then personally appeared the above-named _________________________,
_________________ of ______________________, and acknowledged the foregoing
instrument to be his/her free act and deed as ___________________ of said
____________________, before me.
------------------------------------
Notary Public
My commission expires:
COMMONWEALTH OF MASSACHUSETTS
___________________,ss _______________, 199_
Then personally appeared the above-named _________________________,
_________________ of ______________________, and acknowledged the foregoing
instrument to be his/her free act and deed as ___________________ of said
____________________, before me.
------------------------------------
Notary Public
My commission expires:
<PAGE> 45
TENANT ESTOPPEL CERTIFICATE
---------------------------
TO: MetroWest Bank, having an address, 15 Park Street, Framingham, MA 01701
together with its successors and assigns ("LENDER")
THIS IS TO CERTIFY THAT:
The undersigned has been advised that Lender intends to make a loan secured
by a first leasehold mortgage on those certain premises commonly known as 85
Devonshire Street, Boston, Suffolk County Massachusetts (the "Property"), in
which the undersigned currently occupies 1,700 s.f. of space under a Lease
Agreement dated (the "Lease") between the undersigned First New England Dental
("Tenant") and LANDMAN OMNIBUS VII LIMITED PARTNERSHIP, ("Landlord"). Incident
to Lender's proposed loan and mortgage, and at Lender's request, Tenant hereby
certifies as follows:
1. Tenant is the holder of the lessee's interest under the Lease.
2. The Lease is in full force and effect and has not been modified
changed, altered, amended or supplemented in any respect (except as
may be indicated at the end of this Paragraph 2) and is the only Lease
or agreement Tenant and Landlord affecting said Premises. Tenant will
not enter into any material modifications of the Lease without the
prior written consent of Lender. If none, state "none".
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. The term of the Lease is currently scheduled to expire on September
30, 1996. If there are any rights of extension or renewal remaining
under the terms of the Lease, the same has not, as of this date of
this Tenant Estoppel Certificate, been exercised.
4. Tenant has made no agreements with Landlord or its agents or employees
concerning and has no right to, free rent, partial rent, rebate of
rental payments or any other type of rental concession (except as may
be indicated at the end of this Paragraph 4). If none state "none".
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Tenant is current in payment of all fixed rent and other charges due
to be paid under the Lease, with minimum rent paid in full for the
period ending June, 1996 with the exception of $1,480.00 (July, 1996
rent) for a rent increase which occurred June 1, 1996. The monthly
minimum (i.e. fixed) rent is $1,740.00. No rent or other sum payable
under the Lease is being paid in arrears. No rent or other sum payable
under the Lease has been paid in advance of the due date thereof, and
Tenant hereby agrees with Lender that it shall not pay any minimum
rent or any other sum due or to be paid under the Lease more than
thirty (30) days in advance of the due date hereof.
<PAGE> 46
6. Tenant, as the holder of the lessee's interest under the Lease, is in
occupancy of all the premises covered by the Lease, and is actively
conducting such business therein and had been conducting its business
since April 3, 1996. The conduct of such business falls within the
uses stipulated as being permitted under the terms of the Lease.
7. Should Lender advise Tenant that Landlord is in default in the
indebtedness to Lender and request that payment of all future rentals
be made directly to Lender, Tenant agrees that it shall make all
future rental payments under the Lease directly to Lender until
instructed otherwise by Lender.
8. All of the obligations on the part of Landlord under the Lease,
including any obligation for the performance of any construction work,
or installation of any equipment, have been carried out, and Tenant
has no claim or knowledge of any claim against the holder of
Landlord's interest on account of any default or failure of
performance under the Lease. Tenant is not in default of any of its
obligations to be paid or performed under the Lease. As of the date
hereof, Tenant is entitled to no offset or deduction in rent and
has no claim or defense to the payment of any obligation under the
Lease.
9. Tenant has received or will receive payment or credit for tenant
improvement work in the total amount of $________ (or if other than
cash, describe below). If none, state "none".
None.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. The Lease contains and Tenant has no outstanding options or rights of
first refusal to purchase the premises demised by the Lease or any
part thereof or the real property of which such premises are a part.
11. Tenant understands and acknowledges that (a) Landlord shall execute or
has executed an absolute assignment of the Lease and other leases in
favor or Lender; (b) notwithstanding said assignment, all rental,
additional rental and other payments due under the Lease shall
continue to be paid in accordance with the terms of the Lease until
and unless Tenant is notified to the contrary in writing by Lender;
and (c) the interest of Landlord in the Lease shall be or has been
assigned to Lender under the terms provided in said absolute Lender
assumes no duty, liability or obligation under the Lease, either by
virtue of said absolute assignment, the exercise thereof or by any
subsequent receipt or collection of rental, additional rental or any
other sums due thereunder.
12. No actions, whether voluntary or otherwise, are pending against
tenant under the bankruptcy or other insolvency laws of the United
States or of any state thereof.
13. This certification is made to induce Lender to make certain fundings,
knowing that Lender shall rely upon the truth of this certificate in
disbursing said funds.
<PAGE> 47
DO NOT EXECUTE THIS CERTIFICATE UNLESS A TRUE, CORRECT AND COMPLETE COPY OF YOUR
LEASE AND ALL AMENDMENTS THERETO ARE ATTACHED. LENDER IS RELYING ON YOUR
STATEMENTS AND AGREEMENTS CONTAINED IN THIS CERTIFICATE IN TAKING ACTION
RESPECTING A LOAN REQUEST RELATIVE TO THE PROPERTY.
Dated this 24th day of July, 1996.
TENANT:
/s/ Jerald Robbins
- -------------------------
By: Jerald Robbins
---------------------
Title: President
---------------------
<PAGE> 48
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
THIS AGREEMENT is made and entered into as of this day of ,
1996, by and among MetroWest Bank (the "Lender"), First New England Dental
(the "Tenant") and The Cathartes Group (the "Landlord").
Reference is made to the following facts:
A. Landlord and Tenant have entered into a lease, dated (the "Lease") with
respect to the property owned by the Landlord, known as 262-268
Washington Street located in Boston, Massachusetts, (hereinafter referred
to as the "Property" or the "Leased Premises").
B. On or about __________, 1996, Landlord entered into and delivered to
Lender a Mortgage and Security Agreement (the "Mortgage"), relating to the
Property to secure among other things the payment of the indebtedness
described in the Mortgage and assignment of rents and leases. The Mortgage
and assignment of rents and leases is recorded in the _______________
County Registry of Deeds.
C. As a condition to making the loan which is secured by the Mortgage and
assignment of rents and leases, Lender has required that the Landlord
obtain from each Tenant, the within Agreement pursuant to which the Tenant
subordinates the Lease to the lien of the Mortgage and assignment of rents
and leases and the Tenant attorns to Lender in the event Lendor obtains
possession of the Property. Tenant has requested that Lender provide
Tenant with certain non-disturbance protections on the terms set
forth below.
NOW, THEREFORE for and in consideration of the mutual covenants hereinafter
set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender, Tenant and Landlord
hereby covenant and agree as follows:
1. SUBORDINATION. Tenant hereby subordinates all of its right, title and
interest as lessee under the Lease to the right, title and interest of
Lender under the Mortgage and assignment of rents and leases, and Tenant
further agrees that the Lease now is and shall at all times continue to be
subject and subordinate in each and every respect to the Mortgage and
assignment of rents and leases and to any and all increases, renewals,
modifications, extensions, substitutions, replacements and/or
consolidations of the Mortgage and assignment of rents and leases.
After recording, please return to:
First New England Dental
85 Devonshire Street
Boston, Massachusetts 02109
<PAGE> 49
2. NON-DISTURBANCE. So long as no default exists, the Lease shall not be
terminated, nor shall Tenant's use, possession or enjoyment of the Leased
Premises or rights under the Lease be interfered with in any foreclosure
or other action or proceeding in the nature of foreclosure instituted under
or in connection with the Mortgage and assignment of rents and leases or in
case Lender takes possession of the Property pursuant to any provisions of
the Mortgage and assignment of rents and leases, unless the Landlord would
have had such right to interfere if the Mortgage and assignment of rents
and leases had not been made, except that Lender and the person or entity
acquiring the interest of the Landlord as a result of any such action or
proceeding or deed in lieu of any such action or proceeding (the
"Purchaser") shall not be (a) liable for any act or omission of any prior
lessor under the Lease which occurred prior to the date Lender or
Purchaser obtained possession of the Property; or b) liable for the
return of any security deposit which Tenant has paid to any prior lessor
under the Lease unless such security deposit was actually delivered to
Lender; or (c) subject to any offsets or defenses which the Tenant might
have against any prior lessor under the Lease; provided, however, that the
foregoing shall not limit Tenant's right to exercise against Lender or
Purchaser any right of Tenant to any offset or defense otherwise
available to Tenant because of events occurring after the date Lender
takes possession of the Property; or (d) bound by any base rent,
percentage rent or any other payments which Tenant might have paid more
than thirty (30) days in advance of amounts due for the current month to
any prior lessor under the Lease; or (e) bound by any amendment or
modification of the Lease which increases the obligations or
responsibilities of Landlord thereunder or changes the rent or the term
thereof and is made without Lender's prior written consent; or (f) bound by
any consent, by any lessor under the Lease to any assignment or sublease of
the Tenant's interest in the Lease made without also obtaining Lender's
prior written consent; or (g) personally liable for any default under the
Lease or any covenant or obligation on its part to be performed thereunder
as lessor, it being acknowledged that Tenant's sole remedy in the event of
such default shall be to proceed against Purchaser's or Lender's interest
in the Property.
3. ATTORNMENT. If the interests of the Landlord shall be transferred by
reason of the exercise of the power of sale contained in the Mortgage and
assignment of rents and leases (if applicable), or by any foreclosure or
other proceeding for enforcement of the Mortgage, or by deed in lieu of
foreclosure or such other proceeding, or if Lender takes possession of the
Property pursuant to any provisions of the Mortgage and assignment of rents
and leases then, unless the Lease is terminated in accordance with the
terms of the Lease or Paragraph 2 hereof, the Tenant thereunder shall be
bound to the Purchaser or Lender, as the case may be, under all of the
terms, covenants and conditions of the Lease for the balance of the term
thereof and any extensions or renewals thereof which may be effected in
accordance with any option therefor in the Lease, with the same force
and effect as if the Purchaser or Lender were the lessor under the
Lease, and Tenant, as lessee under the Lease, does hereby attorn to the
Purchaser and Lender if it takes possession of the Property, as its
lessor under the Lease. Such attornment shall be effective and
self-operative without the execution of any further instruments upon the
succession by Purchaser to the interest of the Landlord or the taking of
possession of the Property by Lender. Nevertheless, Tenant shall, from
time to time, execute and deliver such instruments evidencing such
attornment as Purchaser or Lender may require. The respective rights and
obligations of Purchaser, Lender and of the Tenant upon such attornment,
to the extent of the then remaining balance of the term of the Lease and
any such extensions and renewals, shall be and are the same as now set
forth in the Lease except as otherwise expressly provided in Paragraph 2
hereof.
<PAGE> 50
4. ASSIGNMENT OF LESSOR'S INTEREST IN LEASES. Tenant hereby acknowledges
that all of Landlord's right, title and interest as lessor under the lease
is being duly assigned to Lender pursuant to the terms of the Mortgage and
assignment of rents and leases, and that pursuant to the terms thereof all
rental payments under the Lease shall continue to be paid to Landlord in
accordance with the terms of the Lease unless and until Tenant is
otherwise notified in writing by Lender. Upon receipt of any such
written notice from Lender, Tenant covenants and agrees to make payment
of all rental payments then due or to become due under the Lease directly
to Lender or to Lender's agent designated in such notice and to continue
to do so until otherwise notified in writing by Lender. Landlord hereby
irrevocably directs and authorizes Tenant to make rental payments
directly to Lender following receipt of such notice, and covenants and
agrees that Tenant shall have the right to rely on such notice without
any obligation to inquire as to whether any default exists under the
Mortgage and assignment of rents and leases or the indebtedness secured
thereby, and nothwithstanding any notice or claim of Landlord to the
contrary, and that Landlord shall have no right or claim against Tenant
for or by reason of any rental payments made by Tenant to Lender following
receipt of such notice. Tenant further acknowledges and agrees: (a) that
under the provisions of the Mortgage and assignment of rents and leases,
the Lease cannot be terminated (nor can Landlord accept any surrender of
the Lease) or modified in any of its terms, or consent be given to the
waiver or release of Tenant from the performance or observance of any
obligation under the Lease, without the prior written consent of Lender,
and no rent may be collected or accepted by Landlord more than one month
in advance without Lender's prior written consent; and (b) that the
interest of Landlord as lessor under the Lease has been assigned to Lender
for the purposes specified in the Mortgage and assignment of rents and
leases, and Lender assumes no duty, liability or obligation under the
Lease, except only under the circumstances, terms and conditions
specifically set forth in the Mortgage and assignment of rents and leases.
5. NOTICE OF DEFAULT BY LANDLORD. Tenant, as lessee under the Lease, hereby
covenants and agrees to give Lender written notice specifying when the
Landlord has failed to perform any of the covenants or obligations of
Landlord, simultaneously with the giving of any notice of such default to
the lessor under the provisions of the Lease. Tenant agrees that Lender
shall have the right, but not the obligation, within a reasonable time
after receipt by Lender of such notice (or within such additional time as
is reasonably required to obtain possession of the Property if possession
is necessary for the Lender to correct or cure the condition) to correct or
remedy, or cause to be corrected or remedied, each such default before the
lessee under the Lease may take any action under the Lease by reason of
such default. Such notices to Lender shall be delivered to:
METROWEST BANK
15 PARK STREET
FRAMINGHAM, MA 01701
ATTN: NANCY CONNELLY
with a copy to:
Joshua J. Vernaglia, Esquire
CUDDY, BIXBY & DENNER
One Financial Center, 43rd Fl.
BOSTON, MA 02111
Attention: Esquire
<PAGE> 51
or to such other address as the Lender shall have designated to Tenant by
giving written notice to Tenant at:
First New England Dental
85 Devonshire Street
Boston, Massachusetts O21O9
Attention: Jerald Robbins, President
or to such other address as may be designated by written notice from Tenant
to Lender.
6. NO FURTHER SUBORDINATION. Except as expressly provided in Paragraph 1
hereof; Landlord and Tenant covenant and agree with Lender that there shall
be no further subordination of the interest of Tenant under the Lease to
any lender or to any other party without first obtaining the prior written
consent of Lender. Any attempt to effect a further subordination of Tenant
interest under the Lease without first obtaining the prior written
consent of Lender shall be null and void.
7. AS TO LANDLORD AND TENANT. As between Landlord and Tenant, Landlord and
Tenant covenant and agree that nothing herein contained nor anything done
pursuant to the provisions hereof shall be deemed or construed to modify
the Lease.
8. AS TO LANDLORD AND LENDER. As between Landlord and Lender, Landlord and
Lender covenant and agree that nothing herein contained nor anything done
pursuant to the provisions thereof shall be deemed or construed to modify
the Mortgage and assignment of rents and leases or any of the other
documents executed by the Landlord in connection with the loan from the
Lender.
9. TITLE OF PARAGRAPHS, The titles of the paragraphs of this agreement are
for convenience and reference only, and the words contained therein shall
in no way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this agreement.
10. GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
11. PROVISIONS BINDING. The terms and provisions hereof shall be binding
upon and shall inure to the benefit of the heirs, executors,
administrators, successors and permitted assigns, respectively, of Lender,
Tenant and Landlord. The reference contained to successors and assigns of
Tenant is not intended to constitute and does not constitute a consent by
Landlord or Lender to an assignment by Tenant, but has reference only to
those instances in which the Landlord and Lender shall have given written
consent to a particular assignment by Tenant thereunder
<PAGE> 52
IN WITNESS WHEREOF, the parties have hereunto set their respective hands and
seals.
"LENDER"
By:
------------------------------
Its:
-----------------------------
"TENANT"
By: /s/ Jerald Robbins
------------------------------
Jerald Robbins
Its: President
-----------------------------
"LANDLORD"
By:
------------------------------
Its:
-----------------------------
COMMONWEALTH OF MASSACHUSETTS
Suffolk ss July 24, 1996
- ---------------------, -------------
Then personally appeared the above-named Jerald Robbins
----------------------------------
President of First New England Dental Centers, Inc., and
- -------------------- --------------------------------------------
acknowledged the foregoing instrument to be his/her free act and deed as
President of said corporation, before me.
- --------------- -----------------
/s/ Joshua J. Vernaglia, Jr.
---------------------------------
Notary Public
My commission expires:
[STAMP: JOSHUA J. VERNAGLIA, JR.
NOTARY PUBLIC
MY COMMISSION EXPIRES JUNE 1, 2001]
<PAGE> 53
COMMONWEALTH OF MASSACHUSETTS
ss , 199
- ---------------------, ------------ --
Then personally appeared the above-named
----------------------------------,
of , and
- -------------------- --------------------------------------------
acknowledged the foregoing instrument to be his/her free act and deed as
of said , before me.
- --------------- -----------------
---------------------------------
Notary Public
My commission expires:
COMMONWEALTH OF MASSACHUSETTS
ss , 199
- ---------------------, ------------ --
Then personally appeared the above-named
----------------------------------,
of , and
- -------------------- --------------------------------------------
acknowledged the foregoing instrument to be his/her free act and deed as
of said , before me.
- --------------- -----------------
---------------------------------
Notary Public
My commission expires:
<PAGE> 54
USE AND OCCUPANCY LICENSE AGREEMENT
-----------------------------------
THIS USE AND OCCUPANCY LICENSE AGREEMENT is made as of the 3rd day of April,
1996 between Landman Omnibus VII Limited Partnership, a Massachusetts limited
partnership having an address c/o Berkeley Investments, Inc., 101 Federal
Street, Boston, Massachusetts 02110 ("Owner") and First New England Dental
Centers, Inc., a New Jersey corporation with a principal place of business at
170 Commonwealth Avenue, Boston, MA ("Occupant").
WHEREAS, the parties hereto have executed a lease (the "Lease") of the
premises (the "Premises") consisting of approximately 3,500 square feet of
rentable space having an address of 85 Devonshire Street, Boston, Massachusetts
02109 located on the second (2nd) floor of the building (the "Building")
situated at and numbered 85 Devonshire and 262-268 Washington Streets in Boston,
Massachusetts, which Lease was estimated to commence April 1, 1996; and
WHEREAS, Owner has not yet completed its improvements to the Premises in
accordance with Addendum #3 of the Lease; and
WHEREAS, User desires to occupy approximately 1,700 square feet of
rentable sixth (6th) floor space at the Building (the "Licensed Space") for the
period until Owner's improvements to the Premises according to Addendum #3 of
the Lease are substantially completed; and
WHEREAS, Owner is willing to grant a license to Occupant to permit such
occupancy upon the terms and conditions herein.
NOW THEREFOR, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, Owner hereby grants to Occupant a
license which shall be revocable as provided in this Agreement to use and occupy
such Licensed Space on the terms hereinafter set forth.
1. TERM. The term of this Agreement shall commence on April 5, 1996 and shall
end on the "Expiration Date", which shall be the earliest to occur of the
following:
a. The Commencement Date of the aforesaid Lease; or
b. The thirtieth day following the delivery of written notice by either
party to the other of its intent to terminate this agreement.
2. DELIVERY OF THE PREMISES. Occupant acknowledges that it has inspected the
Licensed Space and is fully familiar with the physical condition thereof and
agrees to take the same "as is".
3. FEE. Occupant shall pay owner monthly in advance the amount of One Thousand
($1,000.00) Dollars as a fee for such use and occupancy of the Licensed Space,
and it shall pay a pro-rata share of such amount for any portion of a calendar
month in which it occupies the Licensed Space. Except for all costs and charges
for telephone service, which shall be the sole responsibility of User, Owner
shall be responsible for the cost of all other utilities supplied to the
Licensed Space.
<PAGE> 55
4. USE. Occupant shall use and occupy the Licensed Space solely as
administrative offices for a consortium of dental practices and such other
lawful use incidental and related thereto.
5. ASSIGNMENT AND SUBLETTING. Occupant shall not assign, transfer, mortgage or
pledge this Agreement or its rights hereunder, nor enter into any other
occupancy arrangement for the Licensed Space.
6. COMPREHENSIVE COMMERCIAL LIABILITY INSURANCE. User agrees to maintain
throughout the term of this Agreement, Comprehensive Commercial Liability
Insurance written on an occurrence basis. Such insurance shall include coverage
for products/completed operations, personal injury, broad form property damage,
extended bodily injury and broad form contractual liability. The minimum limit
of liability carried on such insurance shall be $1,000,000 combined single limit
for each occurrence with any aggregate limit applying only to each of the
following: products/completed operations, personal injury and contractual
liability. However, if the policy contains a general policy aggregate or an
aggregate which applies to coverages other than the aforementioned coverages,
the Lessee shall purchase minimum limit of $1,000,000 per occurrence/$2,000,000
aggregate per location. Owner and Occupant each waive all claims and rights
against the other with respect to the Licensed Space to the extent of any
casualty for which there is recovery under any insurance policy, and all
property insurance policies carried by either party shall include a waiver of
its rights of subrogation against the other.
7. INDEMNIFICATION. To the fullest extent permitted by law, Occupant shall
defend, indemnify and hold harmless Owner, its agents, and any and all
affiliates of Owner, including, without limitation, any corporations or other
entities controlling, controlled by or under common control with Owner, from and
against any and all claims or liabilities (including injury to persons and
damage to property) arising from Occupant's use or occupancy of the Licensed
Space, the Building or the common areas or arising out of the conduct of its
business, or from any activity, work, or thing done or permitted by Occupant or
its agents, employees, invitees, licensees, contractors or subcontractors in or
about the Licensed Space or Building or the lot or arising from any breach of
default in the performance of any obligation on Occupant's part to be performed
hereunder, or arising from any act or negligence of Occupant, or of its agents,
employees, invitees, contractors or subcontractors or licensees, and from and
against all costs, attorney's fees, expenses and liabilities incurred or any
actions or proceedings brought thereon to the extent not due to the negligence
of Owner or Owner's employees or agents.
8. NO ALTERATIONS. Occupant agrees to make no alterations or additions or
improvements to the Licensed Space or to any portion of the Building, except
that it shall be permitted to install its property and any security or other
equipment necessary for the use and occupancy of the Licensed Space in
accordance with the terms hereof.
9. MAINTENANCE. Occupant shall maintain the Licensed Space in the same condition
as they are in on the date of this Agreement, reasonable wear and tear and
damage by fire or other casualty or by taking only excepted. Owner agrees to
maintain the structure of the Building of which the Licensed Space are a part in
the same condition as it is on the commencement date of this Agreement,
reasonable wear and tear, damage by fire and other casualty only excepted,
unless such maintenance is required because of the conduct of Occupant or those
for whose conduct Occupant is legally
2
<PAGE> 56
responsible. Owner shall be responsible for maintaining the Building's HVAC and
electrical systems which serve the Available Space.
10. OWNER'S ACCESS. Upon reasonable prior notice to Occupant (except in the
event of and emergency, in which event no notice shall be required), Owner shall
be permitted to enter the Licensed Space for the purpose of making repairs,
inspecting the Licensed Space or showing it to prospective tenants or to
mortgagees.
11. CASUALTY AND EMINENT DOMAIN. In the event that a portion of the Licensed
Space or the Building is damaged by fire or other casualty, or is taken by
eminent domain, either party hereto may elect to terminate this Agreement by
giving ten (10) days' written notice to the other. All property within the
Licensed Space shall be at the sole risk of Occupant, and Owner shall not be
responsible for loss or damage occasioned by any cause including the use or
escape of water from any source, bursting of pipes, theft or casualty.
12. DEFAULT. The following events shall constitute Events of Default hereunder:
(1) if Occupant fails to observe or perform any covenant, agreement or
obligation of Occupant hereunder, and such failure continues for three (3) days
after written notice thereof, or (2) if Occupant is declared bankrupt or
insolvent or makes an assignment for the benefit or its creditors.
13. TERMINATION. This Agreement shall terminate on the earlier to occur of the
Expiration Date or upon an Event of Default.
14. SURRENDER. Occupant shall remove all of its effects in such manner as it
determines in its sole discretion from the Licensed Space within 24 hours of
termination, and shall quilt, yield up and deliver to Owner the Licensed Space
in the condition as they were in on the date hereof, reasonable wear and tear
and damage by fire or other casualty or taking only excepted. If Occupant shall
fail to remove its effects from the Licensed Space within 24 hours, Owner shall
be permitted to store all such effects at the direction and at the sole cost and
expense of Occupant. If Occupant shall fail to direct Owner as to such storage,
Owner shall be permitted to store or dispose of all such effects at the sole
cost and expense of Occupant.
15. NOTICES. Any notice from Owner to Occupant relating to the Licensed Space or
to the occupancy thereof, shall be deemed duly served if left at the Licensed
Space addressed to Occupant, or if mailed to the Licensed Space, registered or
certified mail, return receipt requested, postage prepaid addressed to Occupant.
Any notice from Occupant to the Owner relating to the Licensed Space or to the
occupancy thereof, shall be deemed duly served if mailed to the Owner by
registered or certified mail, return receipt requested, postage prepaid, or hand
delivered by recognized commercial delivery service, addressed to the Owner at
the address set forth above or at such address as Owner shall notify Occupant in
writing from time to time.
16. MISCELLANEOUS PROVISIONS. This Agreement shall be governed by the laws of
the Commonwealth of Massachusetts. This Agreement contains the entire agreement
of the parties and may not be modified except by a writing signed by both
parties. Failure of either party to complain of any act or omission on the part
of the other party shall not be deemed to be a waiver by said party of
3
<PAGE> 57
any its rights hereunder. If any provision of this Agreement shall to any extent
be invalid, the affect the remainder of this Agreement and the application of
such provisions and other circumstances shall not be affected thereby. The
paragraphs headings used herein are for reference and convenience only and shall
not be deemed to construe, limit or modify the terms hereof.
Executed under seal as of the date first above written.
OWNER: LANDMAN OMNIBUS VII LIMITED PARTNERSHIP
BY: LANDMAN VII CORPORATION, ITS GENERAL PARTNER
BY:
-----------------------------------------------
OCCUPANT: FIRST NEW ENGLAND DENTAL CENTERS, INC.
BY:
-----------------------------------------------
4
<PAGE> 58
SECRETARY'S CERTIFICATE
-----------------------
I, JOSHUA J. VERNAGLIA, Secretary of First New England Dental Centers, Inc.
hereby certify that the Corporation is authorized, as User, to enter into a Use
and Occupancy License Agreement between the Corporation and Landman Omnibus VII
Limited Partnership, as Owner, whereby the Corporation shall have the use of
approximately 1,700 rentable square feet of space having an address of 85
Devonshire Street, Boston, Massachusetts 02109 located on the sixth (6th) floor
of the building situated at and number 85 Devonshire and 262-268 Washington
Street in Boston, Massachusetts, at the monthly fee of $1,000.00.
I further certify that, JERALD ROBBINS, President of the Corporation, has
authority to execute and deliver to the Owner said Use and Occupancy License
Agreement on behalf of the Corporation.
WITNESS my hand and seal of the Corporation, this 3rd day of April, 1996
/s/ JOSHUA J. VERNAGLIA
-------------------------------------
, Secretary
(Affix Corporate Seal)
5
<PAGE> 59
SECRETARY'S CERTIFICATE
-----------------------
I, Joshua J. Vernaglia, Secretary of First New England Dental Centers, Inc. (the
"Corporation") hereby certify that the Corporation is authorized as the Occupant
of a Use and Occupancy License Agreement between the Corporation and Landman
Omnibus VII Limited Partnership as Owner, whereby the Corporation has a License
to use and occupy 1,700 +/- rentable square feet of space at 85 Devonshire
Street, Boston, Massachusetts 02109, (i) to enter into this _____ Amendment of
the Use and Occupancy License Agreement between the Corporation and Landman
Omnibus VII Limited Partnership (the "Amendment"), which amendment is dated
________, and (ii) to perform such acts and enter into such agreements as are
necessary or desirable in connection with the execution and delivery of the
Amendment. The terms of said Amendment include, without limitation, the
following:
1. Extending the term of the Use and Occupancy License Agreement at a monthly
fee of $1,740.00.
I further certify that Jerry Robbins, as President of the Corporation, has
authority to execute and deliver to the Owner under the Use and Occupancy
License Agreement said Amendment on behalf of the Corporation.
WITNESS my hand and the seal of the Corporation, this 24th day of July, 1996.
/s/ JOSHUA J. VERNAGLIA
-------------------------------------
, Secretary
(Affix Corporate Seal)
2
<PAGE> 60
COMMENCEMENT-EXPIRATION CONFIRMATION
REFERENCE is hereby made to a lease ("Lease"), dated as of April 12, 1996 by
and between Landman Omnibus VII Limited Partnership, a Massachusetts limited
partnership having an address c/o Berkeley Investments, Inc., 101 Federal
Street, Boston, Massachusetts 02110, as lessor and First New England Dental
Centers, Inc., a New Jersey corporation, as lessee, for the premises consisting
of approximately 3,500 square feet of rentable space having an address of 85
Devonshire Street, Boston, Massachusetts 02109 located on the second (2nd) floor
of the building (the "Building") situated at and numbered 85 Devonshire and
262-268 Washington Street in Boston, Massachusetts.
Whereas, the parties desire set out and confirm their agreement as to the
Commencement Date and the Expiration Date of the initial term of the Lease, as
those terms are used therein.
NOW THEREFORE, the parties hereby agree and state as follows:
1. The Commencement Date, as that term is utilized in the Lease is "June 1,
1996" and not "April 1, 1996", as stated in the Lease.
2. The Expiration Date, as that term is utilized in the Lease, is May 31, 2001.
3. Base-Month CPI, as that term is utilized in Article III.2 of the Lease
("Adjusted Rent"), means the CPI published in "April, 996) and not "February,
1996". Moreover, all references to the month of "February" in said Article III.2
shall mean "April".
4. All other terms and provisions of the Lease remain the same and are hereby
ratified by the parties.
EXECUTED under seal this 12th day of July, 1996.
LESSOR: LANDMAN OMNIBUS VII LIMITED PARTNERSHIP
BY: LANDMAN VII CORPORATION, ITS GENERAL PARTNER
BY:/s/ Illegible
-----------------------------------------------
LESSEE: FIRST NEW ENGLAND DENTAL CENTER, INC.
BY: /s/ Jerry Robbins
------------------------------------------------
Jerry Robbins, Its President
<PAGE> 1
Exhibit 10.18
[LOGO]
[HEALTH-TECH LETTER HEAD]
November 15, 1996
Mr. Thomas R. Sahrmann
First New England Dental Centers, Inc.
85 Devonshire Street
Boston, MA 02109
Dear Tom:
Please accept this as written confirmation that First New England Dental Centers
have been issued DENTECH Site Licenses for the fourteen dental offices that are
currently on-line with the server.
In addition, the Peabody, Dalton and Dover offices have all purchased DENTECH
Licenses for their stand alone systems.
Please do not hesitate to let me know if I can be of any further assistance.
Very truly yours,
HEALTH - TECH SYSTEMS, INC.
/s/Glenn E. Meltzer
Glenn E. Meltzer
<PAGE> 2
FIRST NEW ENGLAND DENTAL CENTERS, INC.
FINANCE DEPARTMENT
85 DEVONSHIRE STREET-SUITE 208
BOSTON, MA 02109
617-624-0910
617-624-0919 FAX
Mr. Glen Meltzer
Health-Tech Systems, Inc. By: FAX Transmission
275 Oser Avenue
Hauppauge, NY 11788-3034
November 15, 1996
SUBJECT: CONFIRMATION OF DENTECH LICENSING
Please accept this letter as FNEDC's request for you to confirm in writing the
fact that Health-Tech Systems, Inc. has issued site licenses to FNEDC for the
fourteen (14) dental offices that are currently on the FNEDC server.
In addition, please confirm the licensing status of the FNEDC facilities that
have the stand alone Dentech software. These facilities are as follows:
Peabody (Bader Shuman),
Dalton (Ellicson),
Braintree (Bergman),
Dover (Chaikin)
Please Fax your response my attention and to Mr. Mark Stein at McDermott, Will
& Emery at 617-345-5077.
Please feel free to call if you have any questions.
Sincerely,
/s/ Thomas R. Sahrmann
Thomas R. Sahrmann
Vice President Controller
Copy to: Donald Strange, CEO
Jerry Robbins, President
Joe Anoli, CFO
<PAGE> 1
Exhibit 10.19
January 28, 1997
Philip C. Feldberg, D.D.S
250 Lamberton Road
Windsor, Ct 06095
Re: Practice Acquisition
--------------------
Dear Dr. Feldberg:
This letter agreement confirms our mutual understanding with respect to the
acquisition by First New England Dental Centers, Inc., a Delaware corporation
("FNEDC"), of your dental practice (the "Practice") conducted through New
England Dental Center, Inc., a Connecticut professional corporation (the
"Company").
1. DEFINITIVE AGREEMENTS; CONSUMMATION OF THE ACQUISITION. Subject to (i) a
due diligence investigation, including completion of the schedules to be
attached to the Plan of Reorganization and Agreement of Merger attached hereto
as EXHIBIT A (the "Merger Agreement"), satisfactory to FNEDC, (ii) strict
compliance by you and the Company of the restrictive covenants set forth herein,
and (iii) the conditions to closing set forth in the Merger Agreement, the
following shall occur:
(a) FORMATION OF SUBSIDIARY. On or before the Closing Date (defined
below), the Company shall (i) form a Connecticut business corporation
subsidiary, (ii) transfer all of the Company's assets to such subsidiary,
(iii) acquire all of the assets, but none of the liabilities, of New
England Dental Lab., Inc. and transfer all of such assets to the Company's
subsidiary, and (iv) transfer stock ownership of such subsidiary to you.
(b) PLAN OF REORGANIZATION AND AGREEMENT OF MERGER. You and FNEDC will
execute the Merger Agreement on the Closing Date, whereby the Company's
subsidiary will be merged with and into FNEDC.
(c) EMPLOYMENT AGREEMENT. You and Osorio and Watkin, D.M.D., P.C.
shall enter into the Employment Agreement attached hereto as EXHIBIT B on
the Closing Date.
<PAGE> 2
(d) ANCILLARY AGREEMENTS. On the Closing Date, you and FNEDC shall
execute the Lease Agreement and the Consulting Agreement, and FNEDC shall
execute the Promissory Note, attached hereto as EXHIBIT C, EXHIBIT D and
EXHIBIT E, respectively, and you and FNEDC shall execute and deliver such
other instruments, agreements and documents as required by the Merger
Agreement or as either party shall reasonably request in order to fulfill
the terms and conditions of the Merger Agreement.
2. INTERIM CONDUCT OF THE PRACTICE. Between the date of this letter
agreement and the Closing Date, unless FNEDC shall otherwise consent in writing,
the following covenants shall be in full force and effect:
(a) REQUIRED ACTIONS. The Company shall do the following, other than
as expressly provided for herein:
i) maintain its corporate existence;
ii) conduct its business only in the ordinary course;
iii) preserve its business organization intact, retain its
permits and licenses, and use its best efforts to preserve
the existing contracts and goodwill of its patients,
prospective patients, suppliers and others having business
relations with it;
iv) have in effect and maintain at all times all insurance of
the kinds, in the amounts and with the insurers as is
presently in effect or equivalent insurance;
v) keep in working condition and good order and repair all of
the material equipment, fixtures and other properties of the
Company, normal wear and tear excepted, and use best efforts
to preserve the goodwill of those persons, firms or
corporations having business relations with the Company;
vi) maintain its books, accounts and records in its usual,
regular and ordinary manner and post all entries therein
promptly in compliance with accepted practice and all
applicable laws;
vii) pay and discharge when due all taxes, assessments and
governmental charges imposed upon it or any of its
properties, or upon the income or profit therefrom;
<PAGE> 3
viii) operate in such a manner as to assure that your
representations and warranties set forth in the Merger
Agreement will be true and correct as of the Closing Date;
and
ix) meet its obligations under all contracts, agreements,
instruments and arrangements.
(b) PROHIBITED ACTIONS. The Company shall not do any of the following,
other than as expressly provided for herein:
i) change its method of management or operations;
ii) terminate the services of any present employee, consultant
or agent;
iii) amend its charter or bylaws;
iv) directly or indirectly redeem, purchase or otherwise acquire
or dispose of any properties or assets except in the
ordinary course of business;
v) subject any of its properties or assets to any mortgage,
pledge, security interest or lien;
vi) directly or indirectly redeem, purchase or otherwise acquire
any of its outstanding capital stock;
vii) incur any indebtedness for borrowed money, make any loans or
advances to any individual, firm or corporation or assume,
guarantee or endorse or otherwise become responsible for the
obligation of any other individual, firm or corporation
except in the ordinary course of business;
viii) modify, amend, cancel or terminate any existing agreement
material to its business, including the making of any
substantial prepayment on any existing obligation, except in
the ordinary course of business;
ix) make any material change in the accounting methods or
practices employed by the Company as at the date hereof in
respect of the business of the Company;
<PAGE> 4
x) enter into any contract or commitment other than in the
usual and ordinary course of business consistent with past
practice;
xi) increase the compensation payable or to become payable to
any officer, director, employee or agent of the Company or
make or enter into any bonus payment arrangement with any
officer, director, employee, or agent, or hire or engage any
additional management personnel or consultants for the
business of the Company;
xii) declare or pay any dividend or distribution in respect of
its capital stock, either in cash, kind or in shares of
stock or issue or authorize any securities of the Company or
grant stock options, warrants or other rights to acquire
shares of its stock or securities convertible into or
exchangeable for shares of its capital stock;
xiii) take any other action which would adversely affect or
detract from the value of the Company or its capital stock,
including without limitation cancelling any debts or claims;
and/or
xiv) waive any rights of material value or modify, amend, alter
or terminate any material contract.
(c) NO OFFER. Neither you nor the Company will, directly or
indirectly, offer, solicit offers for or sell, assign, pledge or otherwise
transfer any shares of the Company's capital stock prior to the Closing
Date. Neither you nor the Company will, directly or indirectly, through any
officer, director, agent or otherwise, (i) solicit, initiate or encourage
submission of proposals or offers from any person relating to any
acquisition or purchase of any of the shares of the Company's capital stock
and/or the Company's assets, or any equity interest in, the Company or any
equity investment, merger, consolidation or business combination with the
Company, or (ii) participate in any discussions or negotiations regarding,
or furnish to any other person, any non-public information with respect to,
or otherwise cooperate in any way with, or assist or participate,
facilitate or encourage, any effort or attempt by any other person to do or
seek any of the foregoing.
3. CONFIDENTIALITY. Except as otherwise required by law, the parties agree
to hold in confidence all confidential data and information acquired from one
another and will not use or divulge
<PAGE> 5
to third parties (other than agents and representatives of such parties) any
such confidential data or information.
4. CLOSING DATE. The Closing contemplated by the Merger Agreement shall
take place on February 14, 1997 or such other date as the parties shall mutually
agree to by written amendment to this letter agreement (the "Closing Date").
5. ANNOUNCEMENTS. You hereby agree that this proposed acquisition may be
disclosed in detail in any registration statement filed with the Securities
Exchange Commission by FNEDC.
6. JURISDICTION. The provisions of this letter agreement shall be governed
by Massachusetts law.
7. BINDING NATURE. It is the intent of you, the Company and FNEDC that this
letter agreement constitute, and this letter agreement does constitute, a
binding agreement between the parties hereto, subject to its terms and
condition.
*
*
*
*
*
*
*
*
<PAGE> 6
8. ACCEPTANCE. If the foregoing is acceptable to you and the Company,
please sign and return the enclosed copy of this letter to the undersigned. This
letter may be executed in counterparts.
Very truly yours,
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By:___________________________
Donald Strange
President
Accepted and Agreed:
NEW ENGLAND DENTAL CENTER, INC.
By:___________________________________
Philip C. Feldberg, D.D.S.,
President
- --------------------------------------
Philip C. Feldberg, D.D.S,
Individually
- --------------------
Date
<PAGE> 1
Exhibit 10.20
FIRST NEW ENGLAND DENTAL CENTERS, INC.
85 Devonshire Street, 2nd Floor
Boston, Massachusetts 02109
January 15, 1997
VIA FACSIMILE
- -------------
Saul Herman, D.D.S.
35 Vanderbilt Drive
Livingston, NJ 07039
Robert Armento, D.D.S.
31 Oak Place
North Caldwell, NJ 07006
Re: Acquisition of Dr. Herman South Street Corp., P.A., Ferry Street
Dental Associates, P.A., Dr. S. Herman Group Dental Associates, P.A.,
Group Dental Associates of Toms River, P.A., Group Dental Associates
of East Brunswick, P.A., Ridge Dental Center, P.A., 57th Street Dental
Center, P.A., Dr. Herman and Associates, P.A., Doctor's Denture
Service P.A. and Group Dental Health Administrators by First New
England Dental Centers, Inc.
----------------------------------------------------------------------
Dear Drs. Herman and Armento:
This letter agreement (this "Letter") confirms our understanding with
respect to the proposed acquisition of (i) all of the outstanding stock of Dr.
Herman South Street Corp., P.A., Ferry Street Dental Associates, P.A., Dr. S.
Herman Group Dental Associates, P.A., Group Dental Associates of Toms River,
P.A., Group Dental Associates of East Brunswick, P.A., Ridge Dental Center,
P.A., 57th Street Dental Center, P.A., Dr. Herman and Associates, P.A., Doctor's
Denture Service P.A. ("Dr. Denture") and (ii) substantially all of the assets of
Group Dental Health Administrators (individually, "Health Administrators," and
collectively with each of the above entities, "Group Dental Associates") by
First New England Dental Centers, Inc. ("First Dental"). The dental practices
operated by Group Dental Associates are referred to herein as the "Practices,"
and the laboratory operated by Dr. Denture is referred to as the "Laboratory".
The transactions proposed herein shall be conditioned upon and subject to, among
other terms and conditions as set forth below, satisfactory completion by First
Dental of its due diligence investigation. First Dental's understanding of the
terms of the proposed transactions, all of which are subject to legal review by
First Dental's counsel, is as follows:
1. CONSIDERATION AND CLOSING. The aggregate consideration to be paid by
First Dental at the closing for the assets of Health Administrators
and the stock of the other Constituent Entities shall be Five Million
Seven Hundred Thousand Dollars
<PAGE> 2
Dr. Saul Herman
January 15, 1997
Page 2
($5,700,000) to be paid in cash (the "Purchase Price") plus the
assumption of specified liabilities of Health Administrators. The
Closing shall take place on or before February 28, 1997 at the offices
of McDermott, Will & Emery at 75 State Street, Boston, Massachusetts,
or at such other place or time as the parties shall mutually agree.
The Purchase Price shall be payable at Closing as follows: (i) Four
Million Seven Hundred Thousand Dollars ($4,700,000) in cash to Dr.
Saul Herman; (ii) One Million Dollars ($1,000,000) to Dr. Robert
Armento reduced by Five Hundred Seventy Thousand ($570,000) (the
"Escrow Fund") to an escrow agent mutually satisfactory to the parties
(the "Escrow Agent"). The Escrow Agent shall hold the Escrow Fund
pursuant to an escrow agreement mutually satisfactory to the parties
which shall provide for the release of half of the Escrow Fund (less
the amount of any claims) six (6) months from the date of the Closing
with the balance (less the amount of any claims) to be released twelve
(12) months from the date of Closing.
2. AGREEMENTS. You hereby agree with us to execute and enter into, and to
cause each of the Constituent Entities to execute and enter into, the
following written agreements, and to execute and deliver the following
filings, as applicable to each of you and the Constituent Entities, on
or prior to Closing:
(a) PURCHASE AND SALE AGREEMENTS. Each Constituent Entity and its
respective shareholder(s) will enter into a purchase and sale
agreement (the "Purchase Agreements") for the acquisition by
First Dental, in the case of Health Administrators, of
substantially all of its assets and in the case of the other
Constituent Entities, all of their outstanding stock. The
Purchase Agreements will contain customary representations,
warranties, covenants, conditions and indemnifications.
In addition, the Purchase Agreements will include the following
terms and conditions to the parties obligations:
i) NO MATERIAL ADVERSE CHANGES. There shall have been no
material adverse changes from the date of this Letter
in (1) any of the Practices, or (2) the assets or
financial condition of each Constituent Entity, or (3)
Group Dental Associates as a whole.
ii) REGULATORY AND OTHER APPROVALS. The obligation to
proceed with the transactions contemplated hereby will
be subject to obtaining any regulatory and other
approvals (collectively, "Approvals") required in order
for First Dental (a) to own the assets or acquire the
stock of each of the Constituent Entities, as the case
may be (b) to operate the Practices, (c) to operate the
Laboratory as a
<PAGE> 3
Dr. Saul Herman
January 15, 1997
Page 3
properly licensed laboratory, and (d) to operate Health
Administrators as a properly licensed health
maintenance organization.
iii) THIRD PARTY CONSENTS. All necessary consents to the
consummation of the transactions shall have been
obtained.
iv) LIENS. All of the assets used in connection with the
Practices, the Laboratory and the business of Health
Associates shall be free and clear of all liens,
security interests and other encumbrances.
v) RENTAL PAYMENTS. The Constituent Entities shall in the
first instance increase their rental payments on
facilities leased from Dr. Saul Herman or entities
controlled by him to cover the debt service and
operating expenses on the properties PROVIDED, however,
that Dr. Saul Herman shall cooperate with First Dental
to refinance those properties to reduce the amount of
such debt service.
vi) AUTOMOBILE LEASES. Designated vehicle leases for
automobiles leased by the Constituent Entities shall be
assumed by Dr. Saul Herman or his designees.
vii) EQUIPMENT LEASES. Dr. Mark Herman shall be indemnified
in connection with any equipment leases for which he is
responsible or a guarantor.
(b) NON-COMPETITION AND NON-SOLICITATION AGREEMENT FOR SAUL HERMAN,
D.D.S. Dr. Saul Herman shall execute and deliver an agreement
among First Dental, Osorio and Watkin, D.M.D., P.C. or a
to-be-formed professional association (the "P.A.") and Saul
Herman, D.D.S. (the "Non-Competition and Non- Solicitation
Agreement"), pursuant to which:
i) for a period of one (1) year following the date of
closing, Dr. Herman shall be prohibited from engaging
in any dental practice activity within a fifteen (15)
mile radius of any of the Constituent Entities' present
locations (the "Non-Compete Area");
<PAGE> 4
Dr. Saul Herman
January 15, 1997
Page 4
ii) for a period of three (3) years following the date of
closing, Dr. Herman shall be prohibited from (A) owning
or managing any dental or dental-related specialty
practice within the Non- Compete Area, (B) owning,
operating or managing a health maintenance organization
within the State of New Jersey, and (C) owning,
operating or managing a laboratory or other facility
within the State of New Jersey which provides any
services or manufactures any products which compete,
directly or indirectly, with the products and/or
services manufactured and/or provided by the
Laboratory; and
iii) for a period of three (3) years following the date of
closing, Dr. Herman shall not solicit for employment or
employ any employee of the P.A. or of First Dental, nor
solicit business from any patient or former patient of
the P.A. and/or of any of the Constituent Entities.
(c) EMPLOYMENT AGREEMENT FOR MARK HERMAN, D.D.S. Dr. Mark Herman
shall execute and deliver an employment agreement between the
P.A. and Mark Herman, D.D.S. (the "Employment Agreement")
pursuant to which Dr. Herman will be employed for a term of one
(1) year commencing February 28, 1997, which term shall be
automatically renewed for an additional one (1) year term;
PROVIDED, however, that either party may terminate the Employment
Agreement at any time following June 30, 1997 by giving (30) days
prior written notice to the other party. Annual compensation to
be paid by the P.A. to Dr. Herman shall be no less than $150,000
and no greater than $250,000, as mutually agreed to by the
parties based upon reasonable criteria to be established by First
Dental. Additionally, Dr. Herman shall be entitled to receive and
participate in the P.A.'s standard corporate benefits package for
all of its current dentists. The Employment Agreement shall
contain restrictive covenants prohibiting Dr. Herman, during the
term of the Employment Agreement and for a period of six (6)
months following the date of its termination or expiration, from
(i) engaging in any dental practice activity within a fifteen
(15) mile radius of any of the Constituent Entities' present
locations, (ii) owning or managing any dental or dental-related
specialty practice within a fifteen (15) mile radius of any of
the Constituent Entities' present locations, (iii) owning,
operating or managing a health maintenance organization within
the State of New Jersey, and (iv) owning, operating or managing a
laboratory or other facility within the State of New Jersey which
provides any services or manufactures any products which compete,
directly or indirectly, with the products and/or services
manufactured and/or provided by
<PAGE> 5
Dr. Saul Herman
January 15, 1997
Page 5
the Laboratory. Further, during the term of the Employment
Agreement and for six (6) months following the date of its
termination or expiration, Dr. Herman shall not solicit for
employment or employ any employee of the P.A. or of First Dental,
nor solicit business from any patient or former patient of the
P.A. and/or of any of the Constituent Entities.
(d) AGREEMENTS BETWEEN ROBERT ARMENTO, D.D.S. AND THE P.A. Dr.
Armento shall execute and deliver an agreement with the P.A. (the
"Capitation Agreement") pursuant to which Dr. Armento shall be
paid $7,500 per month in exchange for providing professional
orthodontic services to all managed care/capitated patients of
the P.A. at the former Group Dental Associates locations in Toms
River and East Brunswick (the "Locations"). The Capitation
Agreement shall be for a term of two years which term shall be
automatically renewed for an additional two year term; PROVIDED,
however, that either party may terminate the Capitation Agreement
at any time following the expiration of the initial two year term
upon ninety (90) days written notice to the other party.
Dr. Armento also shall execute and deliver an agreement (the
"Armento Agreement") pursuant to which Dr. Armento will contract
with the P.A. to provide orthodontic services to patients of the
P.A. for a term of two years, which term shall be automatically
renewed for an additional two year term; PROVIDED, however, that
the P.A. may terminate the Armento Agreement at any time "for
cause"; and FURTHER PROVIDED, that Dr. Armento may terminate the
Armento Agreement at any time following the expiration of the
initial term of the Armento Agreement by giving no less than
ninety (90) days notice of his intent to so terminate. Pursuant
to the Armento Agreement, Dr. Armento shall provide exclusive
orthodontic services to patients of the P.A. at the Locations in
exchange for receipt of payment from the P.A. of 60% of the
P.A.'s net collections for such services. Notwithstanding the
above, Dr. Armento shall be entitled to retain all revenue
attributable to services rendered by Dr. Armento and his staff to
(i) patients of the P.A. who were patients of Dr. Armento prior
to the Closing, and (ii) patients who are entitled to dental and
related care benefits under agreements with First Local 863 (New
Jersey Health Care Administrators), Sheet Metal Locals #25 and
#28, New Jersey Carpenters Local #27, Prudential, DMO, PruCare,
Rutgers (RCHP), Cigna, US Healthcare-Aetna, Operating Engineers
Local #825, MetLife, Local #1158 IBEW and Oxford (collectively,
the "Plans"). Dr. Armento shall provide and be responsible for
the cost of his own staff, supplies and malpractice insurance.
The P.A. shall provide reasonable marketing services on behalf of
Dr. Armento. First Dental shall guarantee the payment obligations
of the P.A. to Dr. Armento under the Armento Agreement and the
Capitation Agreement.
<PAGE> 6
Dr. Saul Herman
January 15, 1997
Page 6
The Armento Agreement shall also contain restrictive covenants
prohibiting Dr. Armento, during the term of the Armento Agreement
and for a period of three (3) years following the date of its
termination or expiration, from (i) engaging in any dental or
dental-related specialty practice activity within a five (5) mile
radius of any of the Constituent Entities' present locations and
within a five (5) mile radius of Dr. Armento's present practice
location, if such location is not within the above-described
area, (ii) owning or managing any dental or dental-related
specialty practice within a five (5) mile radius of any of the
Constituent Entities' present locations and within a five (5)
mile radius of Dr. Armento's present practice location, if such
location is not within the above-described area, (iii) owning,
operating or managing a health maintenance organization within
the State of New Jersey, and (iv) owning, operating or managing a
laboratory or other facility within the State of New Jersey which
provides any services or manufactures any products which compete,
directly or indirectly, with the products and/or services
manufactured and/or provided by the Laboratory. Further, during
the term of the Armento Agreement and for three (3) years
following the date of its termination or expiration, Dr. Armento
shall not solicit for employment or employ any employee of the
P.A. or of First Dental nor solicit dental or dental-related care
(other than orthodontic care) business from any patient or former
patient of the P.A. and/or of any of the Constituent Entities.
During the term of the Armento Agreement, the P.A. shall be
restricted from providing professional orthodontic services
within a fifteen (15) mile radius of the Locations to patients of
the P.A. other than through Dr. Armento and his staff. The
Armento Agreement shall further provide that, in the event Dr.
Armento desires to sell his practice or any portion thereof at
any time during the term of the Armento Agreement or during the
six-month period following the expiration or termination thereof,
First Dental shall have the right of first negotiation with
respect to such sale.
3. EMPLOYEES. First Dental and/or the P.A. will hire existing employees
of Health Administrators at their current salary levels. Health
Administrators will fully vest and terminate all employee benefit
plans applicable to its employees.
4. INTERIM CONDUCT OF THE PRACTICES, THE LABORATORY AND HEALTH
ASSOCIATES. Pending execution of mutually agreeable definitive
agreements, Group Dental Associates will continue to operate the
Practices, the Laboratory and the business of Health Associates in the
ordinary course, except that First Dental will be notified in advance
and must approve any and all of the following actions:
(a) Transactions involving any capital expenditures, including
leases, in excess of $10,000;
<PAGE> 7
Dr. Saul Herman
January 15, 1997
Page 7
(b) The sale, transfer or other disposition of any assets material to
any of the Practices, the Laboratory and/or the business of
Health Associates; and
(c) Entering into any new employment agreement, consulting agreement
and/or other professional engagement, or increasing in excess of
four percent (4%) the compensation to be paid to any current
employee, consultant or agent of any of the Practices, the
Laboratory or Health Associates.
5. DUE DILIGENCE. Immediately following the execution of this Letter,
each Constituent Entity will allow First Dental, its
employees, financial advisors, attorneys, accountants and other
authorized representatives free and full access to its premises,
employees, accountants, customers, vendors, books and records. Each
Constituent Entity will cause all requested documents and information
to be delivered promptly. The transactions contemplated hereby are
expressly conditioned upon the satisfactory completion by First
Dental, in its sole discretion, of such review and investigation of
the Practices, the Laboratory and the business of Health Associates.
6. EXCLUSIVITY. No Constituent Entity, and none of you, has any other
commitments or understandings regarding the sale, merger or other
disposition of all or a majority of the assets and/or stock of any of
the Practices, the Laboratory and/or Health Associates. During the
period commencing as of the date of this Letter up through and
including the subsequent six (6) months, you agree to negotiate only
with First Dental and neither you nor any Constituent Entity shall (i)
solicit, entertain or support any inquiry, solicitation, proposal or
offer from any other party regarding the sale, merger, consolidation
or other disposition of all or a majority of the assets or stock of
the Practices, the Laboratory, Health Associates or any of them, or
(ii) furnish any information concerning any of the Practices, the
Laboratory or the business of Health Associates to any other person.
You shall promptly notify First Dental in writing of any such written
inquiries, proposals, solicitations or offers.
7. BREAK-UP FEE. Each of you hereby agrees that, for a period of six (6)
months following the date of execution of this Letter, in the event of
a sale, merger, consolidation or other disposition of all or a
majority of the assets or stock of any of the Practices, the
Laboratory, Health Associates or any of them to, with or into a third
party other than an affiliate of First Dental and/or the P.A., or in
the event Group Dental Associates or any of the Constituent Entities
otherwise combines or forms a partnership with a third party other
than an affiliate of First Dental and/or the P.A., then First Dental
would be irreparably harmed. Accordingly, in the event of any such
sale, merger, consolidation or other combination (a "Transaction")
within the six (6) month period following the execution of this
Letter, each of you hereby agrees that the Constituent Entities shall
be jointly and severally liable to First Dental for liquidated
<PAGE> 8
Dr. Saul Herman
January 15, 1997
Page 8
damages in the amount of One Million Dollars ($1,000,000) if such a
Transaction occurs within the first three (3) months of such six (6)
month period and in the amount of Seven Hundred Fifty Thousand Dollars
($750,000) if such a Transaction occurs within the last three (3)
months of such six (6) month period, which liquidated damages shall be
due and payable to First Dental immediately upon the consummation of
any such sale, merger, consolidation or other combination.
8. CONFIDENTIAL INFORMATION. Each party hereto agrees that it or he shall
hold in confidence any and all Confidential Information that it or he
receives or discloses to another party hereto prior to the Closing.
Confidential Information for purposes of this Letter shall include,
but not be limited to, reports, memoranda, statistics, forms, notes,
records, financial information, patient lists, charts, know-how,
work-in-progress, trade secrets, business methods and processes, legal
documents or any other matter relating to the business of any party
(regardless of whether disclosed on paper, tape, diskette, or any
other media) or information verbally disclosed and identified by the
disclosing party as confidential. Each party agrees that it or he
shall not, without the other party's prior written consent, disclose
the Confidential Information of such other party to anyone except the
disclosing party's own employees, affiliates, representatives, legal
counsel and/or financial advisors on a need-to-know basis
(collectively, "the "Representatives"), nor use such Confidential
Information for any purpose other than in connection with the
transactions contemplated hereby.
9. DISCLOSURE REQUIRED BY LAW. If a party or any of its Representatives
(the "Compelled Party") becomes legally compelled (by deposition,
interrogatory, request for documents, subpoena, civil investigative
demand or similar process) to disclose any of the Confidential
Information of another party hereto (the "Other Party"), the Compelled
Party or its Representatives, as the case may be, shall provide the
Other Party with prompt prior written notice of such requirement so
that the Other Party may seek a protective order or other appropriate
remedy, or waive compliance with the terms of this Letter. If so
required or permitted to disclose Confidential Information, the
Compelled Party or its Representatives, as the case may be, shall
furnish only that portion of the Confidential Information which the
Compelled Party or its Representatives, as the case may be, is advised
by counsel is legally required and to exercise its best efforts to
obtain assurance that confidential treatment will be accorded such
Confidential Information. In any event, neither the Compelled Party
nor any of its Representatives will oppose action by the Other Party
to obtain an appropriate protective order or other reliable assurance
that confidential treatment will be accorded to the Confidential
Information.
10. RETURN OF CONFIDENTIAL INFORMATION. If First Dental, in its sole and
reasonable discretion and after conduct of due diligence, decides not
to consummate the
<PAGE> 9
Dr. Saul Herman
January 15, 1997
Page 9
transactions contemplated hereby, each party and its Representatives
shall promptly return to the other parties all Confidential
Information respectively belonging to such other parties and shall
give to such other parties all materials prepared by such party and
its Representatives which contain or otherwise relate to the
Confidential Information, including any and all copies or
reproductions thereof, and each party agrees to destroy all copies of
any analyses, compilations, studies or other documents prepared by
that party for the use of that party containing or verifying any
Confidential Information. Moreover, each party agrees not to make any
public announcement regarding the transactions contemplated hereby
between the parties without the mutual consent of all of the parties
hereto. The obligations of the parties as recipients of information
pursuant to this Letter shall not apply to any such information (a)
which is generally available to the public or otherwise in the public
domain, other than as a result of disclosure by such recipient party
or by virtue of a breach of this Letter, (b) which was available to
the parties on a non-confidential basis prior to its disclosure, or
(c) is approved for release by written authorization of an authorized
officer of the party whose Confidential Information is to be
disclosed.
11. EQUITABLE REMEDIES. The parties hereto agree and acknowledge that the
Confidential Information of each of the parties, as it exists from
time to time, is a valuable, special and unique asset of such party,
that the terms of this Letter are reasonable and necessary to protect
the legitimate interests of the parties and that a violation or
threatened violation of any of the terms of this Letter by one party
would cause irreparable injury to the business of the other party
whose Confidential Information would be improperly disclosed, for
which damages would be inadequate compensation. Accordingly, the
parties acknowledge, consent and agree that in the event of any such
violation or threatened violation by one party, the party whose
Confidential Information would be disclosed shall be entitled to
commence an action for preliminary, temporary and permanent injunctive
relief or other equitable relief. The obligations with respect to the
Confidential Information under this Letter shall survive any decision
by First Dental not to consummate the transactions contemplated
hereby.
12. EXPENSES. Each party shall bear its own legal and accounting expenses
in connection with the investigation, negotiation and consummation of
the transactions contemplated hereby, except that you shall be
responsible for such expenses incurred by any of the Constituent
Entities.
13. JURISDICTION. The provisions of this Letter and the agreements shall
be governed by Massachusetts law, without regard for its principles of
conflict of laws.
<PAGE> 10
Dr. Saul Herman
January 15, 1997
Page 10
14. BINDING PROVISIONS. With the exception of Sections 6 through 14, this
Letter shall not constitute a binding obligation of the parties.
Very truly yours,
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
/s/Jerald Robbins
------------------------
Jerald Robbins
Executive Vice President
Accepted and Agreed to this
15th day of January, 1997:
/s/Saul Herman, D.D.S.
- ----------------------------
Saul Herman, D.D.S.
/s/Robert Armento, D.D.S.
- -----------------------------
Robert Armento, D.D.S.
<PAGE> 1
Exhibit 23.1
The Board of Directors
First New England Dental Centers, Inc:
The audits referred to in our report dated December 6, 1996, included the
related financial statements schedules as of December 31, 1995 and
September 30, 1996 and for the year ended December 31, 1995 and the nine-month
period ended September 30, 1996, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein (or incorporated herein
by reference) and to the reference to our firm under the heading "Selected
Combined Financial Information" and "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
January 30, 1997
<PAGE> 1
Exhibit 23.2
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Arnold Watkin, D.D.S., P.C. referred to in our report dated
November 15, 1996, included the related financial statement schedules as of
December 31, 1995 and 1994, and for the years ended December 31, 1995 and 1994,
included in the registration statement. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.3
[CARAS & SHULMAN, PC LETTERHEAD]
To the proprietor of
Howard S. Markowitz, D.D.S. D/B/A
Leominster Family Dentists
Leominster, MA
The audits referred to in our report dated November 15, 1996, included the
related financial statement schedules as of December 31, 1995, and for each of
the years in the two-year period ended December 31, 1995, included in the
registration statement (or incorporated by reference in the registration
statement). These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits. In our opinion, such
financial statement schedules, when considered in relation to the basis
(consolidated) financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts"
in the prospectus.
[facsimile signature]
CARAS & SHULMAN, PC
Certified Public Accountants
Burlington, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.4
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of William H. Grass, D.D.S., P.C. referred to in our report dated
November 15, 1996, included the related financial statement schedules as of
January 31, 1996, December 31, 1995 and 1994, and for the month ended
January 31, 1996 and for the years ended December 31, 1995 and 1994, included in
the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.5
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Richard S. Harold, D.M.D., P.C. referred to in our report dated
November 15, 1996, included the related financial statement schedules as of
January 31, 1996, December 31, 1995 and 1994, and for the month ended
January 31, 1996 and the years ended December 31, 1995 and 1994, included in
the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.6
[Ellie Rozinsky, CPA Letterhead]
To the Owner of
Family Dentistry
Marshfield, Massachusetts
The audits referred to in my reports dated November 12, 1996, included the
related financial statement schedules as of March 31, 1996, December 31,
1995, and December 31, 1994, and for each of those periods, included in the
registration statement (or incorporated by reference in the registration
statement). These financial statement schedules are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statement schedules based on my audits. In my opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
I consent to the use of my reports included herein (or incorporated herein by
reference) and to the reference to me under the heading "Experts" in the
prospectus.
/s/ Elle Rozinsky, CPA
Hull, MA January 28, 1997
<PAGE> 1
Exhibit 23.7
[CARAS & SHULMAN LETTERHEAD]
To the Board of Directors and
Shareholder's of
Arthur P. Wein, D.D.S., P.C.
Fitchburg, MA
The audits referred to in our report dated November 15, 1996, included
the related financial statement schedules as of April 27, 1996, August 31,
1995 and 1994, and for each of the periods ended April 27, 1996, August 31,
1995 and 1994, included in the registration statement (or incorporated by
reference in the registration statement). These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic (consolidated) financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
[facsimile signature]
CARAS & SHULMAN, PC
Certified Public Accountants
Burlington, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.8
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Ramiro Blanco, D.D.S., M.S.C., P.C. referred to in our report
dated November 15, 1996, included the related financial statement schedules
as of March 31, 1996 and December 31, 1995, and for the three months
ended March 31, 1996 and from date of inception, September 1, 1995
through December 31, 1995, included in the registration statement.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.9
[MOODY, CAVANAUGH & COMPANY, LLP Letterhead]
To the Board of Directors
L. Elizabeth Burns, D.M.D.,P.C.
16 Pine Street
Lowell, Massachusetts 01851
The audits referred to in our report dated December 6, 1996, included the
related financial statement schedules as of May 31, 1996 and September 30, 1995
and 1994, and for the eight months ended May 31, 1996 and for the years ended
September 30, 1995 and 1994, included in the registration statement (or,
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
[facsimile signature]
Moody, Cavanaugh & Company, LLP
North Andover, MA 01845
January 28, 1997
<PAGE> 1
[deBAIROS & COMPANY, P.C. Letterhead]
Exhibit 23.10
The Board of Directors
Steven R. Bader, D.M.D., and
Louis S. Shuman, D.M.D., P.C.
The audits referred to in our report dated November 27, 1996, included the
related schedule of valuation and qualifying accounts as of May 31, 1996, and
for each of the two years ended December 31, 1995 and the five month period
ended May 31, 1996, included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ deBairos & Company, P.C.
-----------------------------
deBairos & Company, P.C.
Cambridge, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.11
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Paul D. Silver, D.M.D., P.A. referred to in our report dated
November 15, 1996, included the related financial statement schedules as of
May 31, 1996, December 31, 1995 and 1994, and for the five months ended
May 31, 1996 and for the years ended December 31, 1995 and 1994, included in
the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.12
[MOODY, CAVANAUGH & COMPANY, LLP Letterhead]
To the Board of Directors
Cram-Chema, P.A.
40A Front Street
Exeter, NH 03833
The audits referred to in our report dated November 22, 1996, included the
related financial statement schedules as of June 30, 1996 and December 31, 1995
and 1994, and for the six months ended June 30, 1996 and for the years ended
December 31, 1995 and 1994, included in the registration statement (or,
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
[facsimile signature]
Moody, Cavanaugh & Company, LLP
North Andover, MA 01845
January 28, 1997
<PAGE> 1
[DePaola, Begg & Associates Letterhead]
Exhibit 23.13
To the Board of Directors
Buchwalter and Papuga, DDS, Inc.
175 Derby Street - Suite 11
Hingham, Massachusetts 02043
The audits referred to in our report dated November 19, 1996, included the
related financial statement schedules as of June 30, 1996, and for each of the
two-year period ended December 31, 1995, included in the registration
statement. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits. In our opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ DePaola, Begg & Associates, P.C.
Hyannis, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.14
[Jon H. Fudeman Letterhead]
The Edward P. Szlyk, D.D.S.
Dudley, Massachusetts
The audits referred to in our report dated November 15, 1996, included the
related financial statement schedules as of July 31, 1996 and December 31, 1995
and 1994, and for each of the years in the three-year period ended July 31,
1996, included in the registration statement (or incorporated by reference in
the registration statement). These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic (consolidated) financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/Jon H. Fudeman
Jon H. Fudeman
Certified Public Accountant
Worcester, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.15
[JURNAK & JURNAK, CPAS LETTERHEAD]
Dr. Edward S. Kollar
Edward S. Kollar, D.D.S.
The audits referred to in our report dated November 25, 1996, included the
related financial statement schedules as of December 31, 1994, December 31,
1995, and August 31, 1996 included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Proprietor's management. Our
responsibility is to express an opinion on these financial statement schedules.
Based on our audits, in our opinion, such financial statement schedules when
considered in relation to the basic (consolidated) financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ Jurnak & Jurnak, CPAs
Jurnak & Jurnak, CPAs
Jeffersonville, VT
January 28, 1997
<PAGE> 1
Exhibit 23.16
[Rucci, Bardaro + Barrett, P.C. Letterhead]
To the Proprietor
Mark S. Ferriero, D.D.S.
The audits referenced to in our reported dated November 20, 1996, included in
the financial statement schedules as of July 31, 1996, December 31, 1995 and
1994 and for the seven month period ended July 31, 1996 and the years ended
December 31, 1995 and 1994 included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth herein.
We consent to the use of our report herein (or incorporated herein by reference)
and to the reference to our firm under the heading of "experts" in the
prospective.
/s/Rucci, Bardaro + Barrett, P.C.
Rucci, Bardaro + Barrett, P.C.
Certified Public Accountants
January 28, 1997
Malden, Massachusetts
<PAGE> 1
Exhibit 23.17
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Mark E. Ellicson, D.M.D., P.C. referred to in our report dated
November 15, 1996, included the related financial statement schedules as of
August 31, 1996, December 31, 1995 and 1994, and for the eight months ended
August 31, 1996 and for the years ended December 31, 1995 and 1994, included in
the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
EXHIBIT 23.18
[BEERS, HAMERMAN & COMPANY, P.C. LETTERHEAD]
The Board of Directors
Drs. Feingold and Rappaport, P.C.
380 Boston Post Road
Orange, CT 06477
The audits referred to in our report dated November 20, 1996, included the
related financial statement schedules as of December 31, 1994, December 31,
1995, and August 31, 1996, and for the years ended December 31, 1994 and 1995
and the eight month period ended August 31, 1996, included in the registration
statement (or, incorporated by reference in the registration statement). These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic (consolidated)
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ Beers Hamerman & Company, P.C.
New Haven, Connecticut
January 28, 1997
<PAGE> 1
EXHIBIT 23.19
[GOFF, CARLIN & CAGAN LLP LETTERHEAD]
The Board of Directors
Frank Weisner, DMD, Orthodontist, P.C.
The audits referred to in our report dated November 15, 1996 included the
related financial statement schedules as of December 31, 1995 and 1994 and
September 30, 1996, and for each of the years in the two year period ended
December 31, 1995 and the nine months ended September 30, 1996, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ GOFF, CARLIN & CAGAN LLP
- ----------------------------
GOFF, CARLIN & CAGAN LLP
Worcester, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.20
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Belknap Dental Associates, P.C. referred to in our report dated
November 15, 1996, included the related financial statement schedules as of
October 31, 1996, December 31, 1995 and 1994, and for the ten months ended
October 31, 1996 and for the years ended December 31, 1995 and 1994, included in
the registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.21
[deBairos & Company Letterhead]
The Board of Directors
Ingoldsby & Bergman, P.C.
The audits referred to in our report dated December 10, 1996, included the
related schedule of valuation and qualifying accounts as of September 30, 1996,
and for each of the two years ended December 31, 1995 and the nine month period
ended September 30, 1996, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
Cambridge, Massachusetts /s/ deBairos & Company, P.C.
----------------------------
January 28, 1997 deBairos & Company, P.C.
<PAGE> 1
Exhibit 23.22
[JOSEPH D. KALICKA & COMPANY, LLP LETTERHEAD]
To the Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of David I. Peck, D.M.D., (a proprietorship) referred to in
our report dated November 25, 1996, included the related financial statement
schedules as of September 30, 1996, December 31, 1995, and December 31, 1994,
and for each period then ended, included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the owner. Our responsibility is
to express an opinion on these financial statement schedules based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
We consent to the use of our reports included herein (or incorporated
herein by reference).
/s/ Joseph D. Kalicka & Company, LLP
JOSEPH D. KALICKA & COMPANY, LLP
Certified Public Accountants
Holyoke, Massachusetts
January 28, 1997
<PAGE> 1
Exhibit 23.23
[Vitale, Caturano and Company Letterhead]
Board of Directors
First New England Dental Centers, Inc.
Boston, Massachusetts
The audits of Geoffrey M. Parrillo, D.M.D. referred to in our report dated
November 23, 1996, included the related financial statement schedules as of
September 30, 1996, December 31, 1995 and 1994, and for the nine months ended
September 30, 1996 and for the years ended December 31, 1995 and 1994,
included in the registration statement. These financial statement schedules
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statement schedules based on our
audits. In our opinion, such financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ VITALE, CATURANO AND COMPANY, P.C.
VITALE, CATURANO AND COMPANY, P.C.
January 28, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.24
[BARRETT & DATTILIO, P.C. LETTERHEAD]
December 20, 1996
RE: KNUDSON, KNIGHTS & PREDMORE
To: The Partners of Knudson, Knights & Predmore
The audits referenced to in our report dated December 13, 1996, included in the
financial statement schedules as of September 30, 1996, December 31, 1995 and
1994 and for the nine months period ended September 30, 1996 and the years
ended December 31, 1995 and 1994 included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth herein.
We consent to the use of our report herein (or incorporated herein by
reference) and to the reference to our firm under the heading of "experts" in
the prospective.
/s/ Barrett & Dattilio, P.C.
January 28, 1997 Barrett & Dattilio, P.C.
Quechee, Vermont Certified Public Accountants
Registration #440
<PAGE> 1
Exhibit 23.25
[BARRETT & DATTILIO, P.C. LETTERHEAD]
December 20, 1996
RE: ROBERT SENIFF AUDIT
To: Robert W. Seniff, DDS
The audits referenced to in our report dated December 13, 1996, included in the
financial statement schedules as of September 30, 1996, December 31, 1995 and
1994 and for the nine months period ended September 30, 1996 and the years ended
December 31, 1995 and 1994 included in the registration statement (or
incorporated by reference in the registration statement). These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth herein.
We consent to the use of our report herein (or incorporated herein by
reference) and to the reference to our firm under the heading of "experts" in
the prospective.
/s/ Barrett & Dattilio, P.C.
January 28, 1997 Barrett & Dattilio, P.C.
Quechee, Vermont Certified Public Accountants
Registration #440
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
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