<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20548
------------------------
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 INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
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. JOHN SCHUSTER, ESQ.
MICHAEL L. BLAU, ESQ. CAHILL GORDON & REINDEL
MCDERMOTT, WILL & EMERY 80 PINE STREET
75 STATE STREET, SUITE 1700 NEW YORK, NY 10005
BOSTON, MA 02109 (212) 701-3000
(617) 345-5000
</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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
PROPOSED MAXIMUM AMOUNT OF
AGGREGATE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($0.01 par value)........................................ $34,000,000 $10,304
===================================================================================================================
</TABLE>
(1) 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.
================================================================================
<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
PRELIMINARY PROSPECTUS DATED OCTOBER 23, 1997
SHARES
[FIRST DENTAL 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 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- -----------------------------------------------------------------------------------------------------
Total.................................. $ $ $
- -----------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3).................. $ $ $
=====================================================================================================
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at $ , which are payable by
the Company.
(3) Assumes exercise in full of a 30-day option granted by the Company to the
Underwriters to purchase up to additional shares of Common Stock,
on the same terms and conditions, solely to cover over-allotments, if any.
See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, 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 in New York City on or about
, 1997.
------------------------
PAINEWEBBER INCORPORATED PRUDENTIAL SECURITIES INCORPORATED
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
[MAP OF EASTERN UNITED STATES SHOWING LOCATION OF DENTAL FACILITIES]
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS
MARKET PRICE, THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<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") 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, equipment, non-clinical 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. First Dental has entered into a
Management Agreement (the "Management Agreement") with a dental professional
corporation (the "P.C.", and together with other affiliated professional
corporations and associations, the "affiliated P.C.s"), pursuant to which
dentists employed by the P.C. practice dentistry at the Dental Facilities.
Concurrently with this Offering, First Dental will acquire DentalCare Partners,
Inc. ("DCP") which manages 17 Dental Facilities in the Southeastern United
States, and subsequent to this Offering, expects to acquire Group Dental
Associates ("GDA") which operates eight Dental Facilities in New Jersey and
certain related businesses (collectively, the "Pending Acquisitions"). As used
in this Prospectus, unless the context otherwise requires, the "Company" shall
mean (a) the combined operations of First Dental and the P.C., when used with
respect to historical information contained herein or (b) the combined
operations of First Dental, the Pending Acquisitions, the P.C. and other
affiliated professional corporations when used with respect to the current
business description and information about events that will occur after the
consummation of this Offering. "First Dental" shall include the Pending
Acquisitions when used with respect to information about events that will occur
after the consummation of this Offering and the "Network" shall mean the network
for the provision of dental services by the Company at the Dental Facilities.
Unless otherwise indicated, the information in this Prospectus (i) gives effect
to a one-for-three reverse stock split of the Common Stock to be effected prior
to the closing of the Offering, (ii) assumes that the Underwriters'
over-allotment option will not be exercised, and (iii) 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 First Dental believes to be reliable, although there can be no
assurance to that effect.
THE COMPANY
First Dental is among the largest providers of dental practice management
services in the Eastern United States, with geographic concentrations of managed
Dental Facilities in New England, the Mid-Atlantic and the Southeastern United
States. The Company provides dental services at 58 Dental Facilities in 11
states, served by approximately 102 general dentists and 50 specialists, 107
hygienists, and 163 dental assistants. Dentists practicing at the Dental
Facilities provide a mix of general dentistry services and specialty services
such as endodontics, oral surgery, orthodontics, periodontics and pediatric
dentistry which varies by site. The Company's Dental Facilities generated net
revenue, on a pro forma basis, of $43.0 million for the year ended December 31,
1996, and $22.5 million for the six months ended June 30, 1997. For the six
months ended June 30, 1997, approximately 87% of the Company's net revenue, on a
pro forma basis, was generated by fee-for-service or indemnity insurance
patients, and approximately 13% was generated by managed care patients.
The Company seeks to enhance its presence in the markets it currently
serves and to continue to expand its Network through the acquisition or
development of additional Dental Facilities in other markets in the Eastern
United States where there are opportunities to acquire or develop Dental
Facilities fitting First Dental's facility profile. Operationally, 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 and by
achieving operating efficiencies.
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. Based on HCFA estimates, the
dental services market grew at an annual compound rate of approximately 8.1%
from 1980 to 1995, and is projected to grow at an annual compound rate
3
<PAGE> 5
of approximately 6.2% through the year 2005. First Dental 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, First
Dental 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.
First Dental believes that three major trends are impacting consumers'
demand for dental care in the United States: (i) an increased emphasis on
preventive and cosmetic dentistry; (ii) the development of multi-specialty group
practices; and (iii) the evolution from direct pay to third-party reimbursement.
First Dental intends to take advantage of each of these industry trends. First,
the Company stresses the importance of preventive dentistry, while providing
consumers with access to high quality cosmetic dental care. Second, First Dental
is developing dense geographic networks that can share dental specialists,
maximize the utilization of existing Dental Facilities and offer comprehensive
geographic coverage for managed care plans. Finally, First Dental works closely
with insurance companies to negotiate dental contracts which are simple to
administer and provide adequate compensation for services performed.
First Dental's long term objective is to make each of its Dental Facilities
the leading multi-specialty dental care provider in the local market it serves.
Key elements of the Company's strategy include expanding the size and density of
the Network through acquisitions and de novo Dental Facility development;
increasing Dental Facility net patient revenue through expansion of hours and
addition of dental staff, through advertising and marketing, and through
selective managed care contracting; and lowering the cost of service delivery
through economies of scale in purchasing, reducing administrative expenses,
utilizing management information systems, and creating more efficient practices
with standardized quality-control protocols. By using its approach to managing
an integrated network of Dental Facilities, First Dental 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 expands the Network by acquiring the operating assets of
existing dental practices or developing de novo Dental Facilities. First Dental
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 because affiliating allows the dentists to focus on the
delivery of 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 these dentists the opportunity to obtain
liquidity for the equity that they have built in their practices while remaining
affiliated with their practices. By using its approach to managing an integrated
network of Dental Facilities, First Dental believes it will enable dentists to
realize significantly greater productivity and profitability than traditional
individual and small-group dental practices.
4
<PAGE> 6
THE OFFERING
Common Stock Offered by the
Company.............................. shares(1)
Common Stock to be Outstanding after
the Offering......................... shares(1)
Use of Proceeds...................... Repay outstanding indebtedness,
consummate the Pending Acquisitions,
acquire and expand other Dental
Facilities and for general corporate
purposes, including working capital.
See "Use of Proceeds."
Proposed NASDAQ National Market
symbol............................... MOLR
- ---------------
(1) Assumes (i) the issuance of an aggregate of 453,000 shares in connection
with the consummation of the Pending Acquisitions, (ii) the issuance of
10,250 shares of Common Stock which First Dental is obligated to issue to a
Selling Dentist as partial consideration for the acquisition of his dental
practice in September 1996, on or prior to the date the Offering commences,
(iii) no exercise of any outstanding options or warrants to purchase 534,891
shares of Common Stock at a weighted average exercise price of $14.37 per
share, (iv) no issuance of any of the 100,000 shares of Common Stock
reserved under First Dental's 1996 Stock Plan, of which 26,333 shares are
issuable upon the exercise of outstanding stock options exercisable at the
initial public offering price, no issuance of any shares issuable to
employees of the affiliated P.C. of which 67,138 shares are issuable upon
the exercise of outstanding stock options at the initial public offering
price, and no issuance of 242,203 shares issuable upon the exercise of stock
options issued in exchange for options to acquire DCP common stock in
connection with the DCP Acquisition.
5
<PAGE> 7
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ------------------------------------
PRO FORMA PRO FORMA
1995 1996 1996(1) 1996 1997 1997(1)
-------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue................ $ 2,190 $ 15,313 $ 42,996 $ 3,881 $ 13,806 $ 22,581
Dental Facility expenses... 3,273 18,168 45,179 5,405 14,028 21,485
-------- ---------- ---------- ------- ------- --------
Dental Facility margin
(deficit)................ (1,083) (2,855) (2,183) (1,524) (222) 1,096
General and administrative
expenses................. 976 3,541 4,873 1,129 2,212 3,172
Interest expense, net...... 51 655 1,572 31 715 983
-------- ---------- ---------- ------- ------- --------
Net loss................... $ (2,110) $ (7,051) $ (8,628) $ (2,684) $ (3,149) $ (3,059)
======== ========== ========== ======= ======= ========
Net loss per share......... $ (10.68) $ (5.22) $ (4.59) $ (2.22) $ (1.62) $ (1.28)
======== ========== ========== ======= ======= ========
Weighted average shares
outstanding.............. 197,607 1,348,043 1,879,608 1,203,517 1,937,202 2,390,038
======== ========== ========== ======= ======= ========
OTHER OPERATING DATA(2):
Number of dentists......... 19 91 63 100 152
Number of Dental
Facilities............... 9 36 17 33 58
Number of states........... 1 5 2 5 11
Number of operatories...... 69 210 118 197 381
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 580 $ 8,515
Working capital (deficit)................................... (9,030) (1,388)
Management Agreement, net................................... 13,354 26,508
Total assets................................................ 24,975 52,513
Long-term debt and capital lease obligations, less current
portion................................................... 1,788 19,049
Total stockholders' equity.................................. 9,088 16,087
</TABLE>
- ---------------
(1) Pro forma to give effect to (i) all acquisitions of Dental Facilities
consummated during 1996 (collectively, the "1996 Acquisitions") and (ii) the
Pending Acquisitions, in each case as if such acquisitions had occurred on
January 1, 1996. See "Business -- Dental Facilities Acquired or Developed to
Date," "Unaudited Pro Forma Condensed Combined Financial Information," "The
Pending Acquisitions" and Note 3 to the Company's Combined Financial
Statements.
(2) Presented as of end of period.
(3) Pro forma to reflect the Pending Acquisitions and the issuance in July 1997
of $15.0 million in Senior Secured Fixed Rate Notes (the "Senior Notes") as
such transactions had been consummated on June 30, 1997.
(4) Pro forma as adjusted to reflect: (i) the Pending Acquisitions; (ii) the
issuance of the Senior Notes; and (iii) the sale of shares of Common
Stock offered hereby (at an assumed initial public offering price of $
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds."
6
<PAGE> 8
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; ACCUMULATED OPERATING DEFICIT
First Dental has operated its current business only since January 1995. It
has grown principally through acquisitions and is pursuing a strategy of
significant 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 $2.1 million, for the year ended December 31, 1996, a net loss of $7.1
million and for the six months ended June 30, 1997, a net loss of $3.1 million.
At June 30, 1997, the Company had an accumulated operating deficit of $12.3
million. On a pro forma basis, for the year ended December 31, 1996, the Company
incurred a net loss of $8.6 million and for the six months ended June 30, 1997,
a net loss of $3.1 million. There can be no assurance that the Company's results
of operations will improve or will become profitable. See "Selected Combined
Historical Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH IDENTIFICATION, ACQUISITION, DEVELOPMENT AND INTEGRATION
OF DENTAL FACILITIES
First Dental's strategy involves, among other things, significant growth
through the acquisition of additional Dental Facilities. First Dental acquired
nine Dental Facilities in 1995 and 27 Dental Facilities in 1996. Upon the
consummation of the Pending Acquisitions, First Dental will acquire 25
additional Dental Facilities. Substantially all of the Company's net revenue is
derived from the provision of dental services at the Dental Facilities;
therefore, the Company's financial success will be dependent, in part, upon an
increased number of profitable Dental Facilities.
The Company devotes substantial time and resources to acquisition-related
activities. Identifying appropriate acquisition candidates and negotiating and
consummating acquisitions can be a lengthy and costly process. There can be no
assurance that suitable acquisition candidates will be identified or that
acquisitions will be consummated on terms favorable to the Company, on a timely
basis or at all. The GDA Acquisition is not a condition to the consummation of
the Offering and there can be no assurance that such acquisition will be
consummated. In the event the closing of a planned acquisition fails to occur or
is delayed, the Company's quarterly financial results may be materially
adversely affected, which would likely cause a decline, perhaps substantial, in
the market price of the Common Stock. In addition, increasing consolidation in
the dental services industry may result in an increase in the difficulty of
identification of suitable facilities and in purchase prices required to be paid
by the Company to acquire dental practices.
The integration of acquired Dental Facilities typically requires the
implementation and centralization of purchasing, accounting, management
information systems, cash management and other systems, which may be difficult,
costly, and time-consuming. There can be no assurance that First Dental will be
successful in managing its combined operations as they currently exist or upon
consummation of the Pending Acquisitions or other subsequent acquisitions or
that any additionally acquired Dental Facilities will be effectively and
profitably integrated into the Network. The Company's operating results in
fiscal quarters immediately following an acquisition may be adversely affected
while First Dental attempts to integrate the acquired practices. First Dental
may encounter significant unanticipated costs or other problems associated with
the Company's integration of future acquisitions into the Network. There can be
no assurance that any future
7
<PAGE> 9
acquisition will not have a material adverse effect on the Company's operating
results, particularly during the period immediately following such acquisition.
LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING
Implementation of First Dental's growth strategy requires significant
capital resources. Such resources will be needed for the acquisition of
additional Dental Facilities, for the development of de novo Dental Facilities
and for the effective integration, operation, and expansion of the Dental
Facilities. First Dental 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. First Dental expects that capital requirements over the next
several years will substantially exceed cash flow generated from operations and
the net proceeds of the Offering. At June 30, 1997, the Company had a working
capital deficit of $9.0 million. To finance capital requirements, First Dental
anticipates that it will from time to time issue additional equity securities
and incur additional debt. First Dental is seeking to obtain a credit facility
with a commercial lender for acquisitions, working capital and other corporate
purposes. Additional debt or non-Common Stock equity financing could be required
to fund the Company's growth and operations. There can be no assurance that
First Dental will be able to obtain additional required capital on satisfactory
terms, if at all. The failure to raise the funds necessary to finance its future
cash requirements could materially adversely affect First Dental'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 First Dental's existing stockholders may result and, if additional funds are
raised through the incurrence of debt, such debt instruments may 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 MANAGEMENT AND STAFFING OF DENTAL FACILITIES
A key component of the Company's operating strategy is to increase
profitability by maximizing Dental Facility utilization through extended hours
of operation and the addition of general dentists, specialists, hygienists, and
dental assistants. Accordingly, the Company's financial success will be
dependent, in part, upon its ability to attract and retain for the Dental
Facilities a sufficient number of qualified dentists, specialists, hygienists,
and dental assistants. See "Business -- Business Strategy -- Increase Dental
Facility Revenue." No assurance can be made that the Company will continue to be
able to attract qualified dentists, specialists and clinical staff at acceptable
compensation levels, or at all. Failure to appropriately staff Dental Facilities
could have an adverse effect on the Company's revenues and results of
operations. First Dental believes that its future success will also depend in
part upon its ability to attract and retain qualified management personnel.
Competition for such personnel is intense, and First Dental competes with
numerous other employers, some of which have greater financial and other
resources than First Dental. There can be no assurances that First Dental will
be successful in attracting and retaining such personnel.
MANAGEMENT OF GROWTH
First Dental's strategy calls for rapid growth, substantially through the
acquisition of additional Dental Facilities, including through the consummation
of the Pending Acquisitions. The acquisition of 36 Dental Facilities in a series
of transactions during the period from January 1995 to October 1996, together
with the consummation of several private financings, required significant
attention from senior management and resulted in a reduced focus on the
increasing day-to-day needs of the finance and accounting departments. As a
result there were material weaknesses in the design and operation of the
Company's internal control structure during 1996. The Company has hired
additional qualified personnel and implemented certain operating policies and
procedures which it believes have substantially corrected such weaknesses. The
number of Dental Facilities managed by First Dental will increase from 33 at
September 30, 1997 to 58 upon consummation of the Pending Acquisitions. This
growth will place further strains on the Company's management, operations and
systems. First Dental's ability to manage its growth and compete effectively
will depend upon its ability to hire, train and assimilate additional management
and other employees, and to
8
<PAGE> 10
expand, improve and effectively utilize its operating, management, marketing,
information, and financial systems to accommodate its expanded operations. Any
failure by First Dental's management to anticipate, implement and manage
effectively the changes required to sustain its growth may have a material
adverse effect on its business, financial condition and operating results. In
addition, failure by First Dental to integrate successfully the management team
and the operations of the DCP Acquisition may adversely affect its business,
financial condition or operating results.
RELIANCE ON CERTAIN PERSONNEL AND RELATIONSHIPS
The success of First Dental depends to a great degree on the continued
services of its Chairman, Chief Executive Officer and President, Donald Strange;
its Chief Financial Officer, Joseph Anoli; and its Senior Vice Presidents,
Arnold Watkin, D.D.S. and Julian Osorio, D.M.D., who are also the directors,
stockholders and executive officers of the P.C. Upon the closing of the DCP
Acquisition, First Dental will be dependent on the services of DCP's Chief
Executive Officer and President, Douglas Brown, to help integrate the management
and operations of DCP with those of First Dental. The loss of the services of
one or more of these individuals could have a material adverse effect on First
Dental's business. See "Management."
COMPETITION
The dental practice management segment of the health care industry is in
its formative stage. First Dental 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, First Dental expects that the provision of
multi-specialty dental services at a network of convenient locations will become
increasingly common. First Dental is aware of several dental practice management
companies that are currently operating in the Eastern United States. Moreover,
dental practice management companies that currently operate in other parts of
the country may begin targeting this region in the future. Such competitors may
be better capitalized or otherwise enjoy competitive advantages which may make
it difficult for First Dental to compete against them or to acquire or develop
additional Dental Facilities on terms acceptable to First Dental. As the Company
seeks to consolidate its Network in the Southeastern United States after
consummation of the DCP Acquisition, and then to expand its operations
throughout the Eastern United States, it will face additional competition from
dental practice management companies which may have already established a strong
business presence in such new markets.
The business of providing general dental, orthodontic and other specialty
dental services is highly competitive in the markets in which the Company
operates. Competition may include general dentists and specialists who have more
established practices and reputations. The Company also competes against these
established practices in the recruitment and retention of general dentists,
specialists and clinical staff to accommodate the increase in number and
expansion of the Dental Facilities. If the availability of dentists begins to
decline in the markets in the Eastern United States in which the Company is or
intends to be active, the Company may find it more difficult to attract
qualified dentists to staff the Dental Facilities sufficiently. There can be no
assurance that the Company 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."
RELIANCE ON CONTINUED EMPLOYMENT OF SELLING DENTISTS
Most dentists practicing at the Dental Facilities have entered into
employment agreements with the P.C.; others are independent contractors. 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 by the P.C. 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 P.C. 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, First Dental could be materially adversely
affected. See "Business -- Affiliation Structure."
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RISKS ASSOCIATED WITH MANAGEMENT AGREEMENTS
A substantial portion of the Company's assets will consist of the
Management Agreement and similar agreements which First Dental will enter into
upon consummation of the Pending Acquisitions with each of the affiliated P.C.s
employing dentists practicing at the new Dental Facilities (collectively, the
"Management Agreements"). At June 30, 1997, the Company's combined balance sheet
reflected $13.4 million allocable to the existing Management Agreement, which
represented a substantial portion of its $25.0 million in total assets and $9.1
million in total stockholders' equity at such date. The amount allocable to the
Management Agreements on the Company's combined balance sheet will increase to
$26.5 million upon consummation of the Pending Acquisitions, and First Dental
expects such amount to increase further in the future in connection with
additional acquisitions. This increase will have an adverse impact on earnings
as the Management Agreements are amortized.
In the event of any sale or liquidation of First Dental or a portion of its
assets, there can be no assurance that the value of the Management Agreements
will be realized. In addition, First Dental continually evaluates whether events
and circumstances have occurred which indicate that any portion of the remaining
amount allocable to one or more of the Management Agreements may not be
recoverable. When factors indicate that the amount allocable to one or more of
the Management Agreements should be evaluated for possible impairment, the
Company may be required to reduce the carrying value of such 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.
Because First Dental derives its revenues through the Management
Agreements, any material loss of revenue by one or more affiliated P.C.s could
have a material adverse effect on First Dental's business, financial condition
and operating results, and any termination by one of the affiliated P.C.s of a
Management Agreement (which is permitted in the event of a bankruptcy by First
Dental or such affiliated P.C., or material breach without cure within 90 days
by First Dental), could have such an effect. The stockholders of the P.C. are
officers, and in the case of Dr. Watkin, also a director, of First Dental who
are licensed to practice dentistry. First Dental has entered into a Stock
Transfer Restriction Agreement with the stockholders of the P.C. whereby First
Dental controls the transfer of the P.C.s stock and may, in certain
circumstances, require the stock to be transferred to a designee of First
Dental. In the event of a breach of a Management Agreement by the P.C. or
another affiliated P.C., however, there can be no assurance that the legal
remedies available to First Dental will be adequate to compensate First Dental
or cover its damages resulting from such breach. See "Business -- Affiliation
Structure" and "-- Government Regulation -- State Regulation."
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 broadened in the future to cover services reimbursable by any payor.
If these laws were to be broadened in such a manner, they could have a material
adverse effect on the Company.
Fraud and Abuse. 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.
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Risk-Based Incentive Plans. 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 physician incentive plans which
involve payments made directly to induce the limitation or reduction of
medically necessary covered services. If an enforcement agency determines the
Company violated any of these regulations the Company could be suspended from
participation in the Medicare and Medicaid programs and civil penalties.
Medicare 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 an account opened in the name of the affiliated
P.C. If an enforcement agency determines the Company violated any of these
rules, the Company could be excluded from the Medicare program.
In the event that a dentist defaults in the payment of a
government-guaranteed student loan, federal regulations permit the Office of the
Inspector General to offset such overdue loan payments against Medicare income
due to the defaulting dentist's employer. First Dental cannot assure compliance
by the Company's dentists with the payment terms of their student loans, if any.
Reassignment Rules. The Company's revenues from all insurers, including
governmental insurers, are subject to significant regulation. Under certain
"reassignment" rules, First Dental may not be able to require the dentists to
assign third-party payor revenues received from government-sponsored payment
programs unless the dentists are employees of First Dental or other conditions
are met. In addition, under certain "incident to" rules, First Dental may only
be able to receive reimbursement from government-sponsored payment programs for
services provided by certain non-dentist personnel, who are either direct or
leased employees of First Dental, provided that certain other conditions are
met. If an enforcement agency determines the Company violated any of the various
"reassignment" and "incident to" rules pertaining to reimbursement from
government-sponsored payment programs, the Company could be excluded from the
Medicare program, and continued violation after notice, could result in criminal
penalties.
State Regulation
Fraud, Abuse and Fee-Splitting. Many states in which First Dental will
manage Dental Facilities 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 in which First Dental manages, or will manage, Dental Facilities also
impose significant penalties for false claims for dental services. Many states
also prohibit dentists from splitting fees with non-dentists. If an enforcement
agency determines the Company violated any of these fee-splitting laws, First
Dental's management agreements may be voidable. In addition, First Dental could
be prohibited from being paid for its management services in a manner related to
the revenues of the practice. Several states in which First Dental manages, or
will manage, Dental Facilities, including Maryland, New Hampshire, North
Carolina and South Carolina, either prohibit or require disclosure of
self-referral arrangements and may impose penalties for violation of these laws.
If an enforcement agency determines the Company violated any of the various
state laws pertaining to fraud, abuse and fee-splitting, First Dental could be
subject to civil or criminal penalties, termination from participation in the
Medicaid program and disciplinary action, including suspension or revocation of
license, imposed by the pertinent state board of dentistry against an affiliated
P.C.-employed dentist.
Corporate Practice of Dentistry. The laws of many states, including each
of the states in which First Dental manages or will manage Dental Facilities,
prohibit, either by specific provisions or as a matter of general policy,
non-dental entities, such as First Dental, from practicing dentistry, from
employing dentists
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and, in certain circumstances, dental assistants or dental hygienists, or from
exercising control over the provision of dental services. Many such states may
also limit the ability of a person other than a licensed dentist to own or
control equipment or offices used in a dental practice. If an enforcement agency
determines the Company's provision of its management services to the affiliated
P.C.s violates any of the state restrictions on the corporate practice of
dentistry, the Company could be subject to criminal or civil penalties and
potential disciplinary action taken by the relevant state board of dentistry
against the affiliated P.C.-employed dentist assisting the Company.
Some states in which First Dental manages or will manage Dental Facilities,
including Massachusetts, New Hampshire, New Jersey and Rhode Island, 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. If an enforcement
agency determines that the services which First Dental renders to the affiliated
P.C.s, pursuant to the management agreements, vest sufficient control over the
pertinent Dental Facility to require clinic licensure, and First Dental has not
obtained clinic licensure, First Dental may be subject to civil penalties or
denial of facility fee payments. The laws of some states in which First Dental
manages or will manage Dental Facilities, including Kentucky, Maine, New Jersey
and Vermont, may prohibit the advertising of dental services under a trade or
corporate name and require all advertisements to be solely in the name of the
dentist. A number of states, including each of the states in which First Dental
will manage Dental Facilities, may also regulate the content of advertisements
of dental services or 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. Although First Dental believes the
management services which it provides comply with various state regulations
pertaining to advertisements, promotional gift items and delegation of duties by
dentists to dental assistants, noncompliance could result in criminal or civil
penalties and disciplinary action taken by the pertinent state board of
dentistry against the affiliated P.C.-employed dentist to whom the advertisement
or promotional gift item applies or who delegated improperly duties to a dental
assistant.
Insurance Regulation. Except for Group Dental Health Administrators, Inc.,
a licensed dental plan organization in New Jersey that will be acquired as part
of the GDA Acquisition, First Dental does not engage in the business of
insurance. Nonetheless, there are certain regulatory risks associated with the
Company's role in negotiating and administering managed care contracts. State
insurance laws are subject to broad interpretation by regulators. As the Company
contracts with third-party payors or self-insured plans, on a captitation or
other basis under which the Company assumes financial risk, insurance regulators
in some states may determine that the Company is engaged in the business of
insurance. If First Dental or an affiliated P.C. is determined to be engaged in
the business of insurance, First Dental or such affiliated P.C. could be
required to either seek licensure as an insurance company or to change the
method of payment from third-party payors. There can be no assurance that the
Company's operations would not be materially adversely affected if First Dental
or an affiliated P.C. were to become subject to state insurance regulations. If
an enforcement agency determines that First Dental is engaging in the business
of insurance without a proper license, First Dental could be subject to criminal
penalties.
Although First Dental believes the Company's operations as currently
conducted are in material compliance with existing applicable laws, there can be
no assurance that First Dental's contractual arrangements with the P.C., or any
other affiliated P.C., and the dentists employed by such affiliated P.C.s 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 it employs, will not be deemed to constitute the unlicensed practice of
dentistry or the operation of an unlicensed clinic or health care facility.
First Dental has not sought judicial or regulatory interpretations with respect
to the way the Company conducts its business. There can be no assurance that a
review of the business of the Company by courts or regulatory authorities will
not result in a determination that could materially adversely affect the
Company's 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 First Dental's management services.
In addition, there can be no assurance that the integration into the network of
Dental Facilities in states in which
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the Company does not currently operate, such as the Dental Facilities to be
acquired in the Pending Acquisitions, will not be challenged as violating
federal or state laws with respect to the foregoing matters. 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 the jurisdictions in which the Dental
Facilities to be acquired in the Pending Acquisitions operate or to other
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
First Dental intends to use the net proceeds of the Offering to pay off
certain indebtedness, to finance the acquisition of Dental Facilities, including
the Dental Facilities described under "The Pending Acquisitions," to finance
expansion of the operations of existing and future Dental Facilities, for
working capital, and for other general corporate purposes. Accordingly, First
Dental'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. First Dental
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 First Dental.
Part of First Dental's growth strategy involves facilitating the award of
managed care contracts, including both preferred provider organization ("PPO")
and capitated arrangements, to the P.C. PPO arrangements reduce the fees paid to
providers for providing specific dental treatments and usually restrict member
choice to a selected 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, the P.C. has entered managed care
contracts of a material nature (representing one percent or more of the
Company's revenues on a pro forma basis) with four dental plans, of which two
are PPO arrangements and two are capitation contracts. The P.C. also maintains
contracts with several additional PPOs which do not generate material revenues
for the Company. For the six months ended June 30, 1997 approximately 4% of the
Company's revenues, on a pro forma basis, were derived from PPO plans and 9%
from capitation plans. Except for the GDA Dental Facilities, the revenues of the
Dental Facilities described in the Pending Acquisitions are primarily
fee-for-service.
There can be no assurance that First Dental will be able to negotiate, on
behalf of the affiliated P.C.s, 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 First Dental.
Moreover, to the extent that costs incurred by the Company 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 First Dental believes that
general dentists to date have typically been subject to lower monetary claims
for professional liability than experienced by providers of general medicine,
some of these lawsuits involve large claims and significant
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defense costs. Such suits, if successful, could result in substantial damage
awards that may exceed the limits of insurance coverage. First Dental provides
practice management services; it does not engage in the practice of dentistry,
or control the practice of dentistry by the P.C. or the dentists or their
compliance with regulatory requirements directly applicable to providers.
Nevertheless, there can be no assurance that First Dental will not become
subject to litigation in the future as a result of the dental services provided
by the dentists or clinical staff at the Dental Facilities. First Dental
maintains professional malpractice and general liability insurance for itself,
and is a named insured under professional liability insurance policies covering
its employees. First Dental is also indemnified under the Management Agreement
by the P.C. 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 First Dental 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, an
affiliated P.C. or First Dental 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 First Dental will collectively own
approximately % of the outstanding shares of Common Stock. Accordingly, some
of these persons may have the ability to influence First Dental's Board of
Directors and, therefore, the business, policies, and affairs of First Dental.
See "Principal Stockholders" and "Description of Capital Stock."
REPURCHASE OF PRACTICE ASSETS BY SELLING DENTISTS
Certain of the Selling Dentists have the right to elect to terminate their
employment agreements with the P.C., repurchase their dental practice assets
from First Dental at fair market value, and reacquire the site of the Dental
Facility in the event that one or more of the following occurs: (i) a material
breach of the Selling Dentist's employment agreement, practice acquisition
agreement, or lease by the Company; (ii) failure by First Dental to pay any
promissory notes issued in connection with the practice acquisition; or (iii)
failure by the Company to meet payroll or other obligations at the Dental
Facility. The Dental Facilities subject to these acquisition unwind provisions
for the six months ended June 30, 1997 accounted for 28.8% of the Company's net
patient revenue and 18.5% of the Company's total assets, pro forma to give
effect to the 1996 Acquisitions and the Pending Acquisitions as if they had
occurred on January 1, 1996. If a significant number of dentists were to
exercise such rights, the Company could be materially adversely affected.
None of the Selling Dentists have ever exercised their acquisition unwind
provisions. First Dental does not intend to offer these acquisition unwind
provisions in future acquisition agreements.
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 First Dental to raise capital through the sale of its
equity securities. First Dental 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 First Dental to register their Common Stock from time to
time.
After giving effect to the issuance of the shares of Common Stock offered
hereby, upon the closing of this Offering First Dental will have outstanding
shares of Common Stock. Of these shares, 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 First
Dental, as that term is defined under the Securities Act. The remaining
2,400,288 shares are "restricted securities" within the meaning of Rule 144 as
promulgated under the
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Securities Act of 1933 (the "Securities Act"). Beginning 180 days after the date
of this Prospectus (or earlier for certain limited transactions with the consent
of PaineWebber Incorporated on behalf of the Underwriters), 1,937,202 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. In addition, if First Dental
does not redeem the Senior Notes, together with accrued interest, by December
16, 1997, then the holders of such Senior Notes are entitled to warrants to
purchase an additional 174,421 shares of Common Stock, subject to certain
adjustments, at an exercise price of $.03 per share. The per share net tangible
book value of the Common Stock may be further diluted through First Dental'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 First Dental'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 First Dental, governmental
regulatory action, general conditions in the health care industry, or other
events or factors, many of which are beyond First Dental's control.
The offering price of the Common Stock offered hereunder was determined by
negotiations between the Representatives of the Underwriters and First Dental.
In determining the offering price of the Common Stock, First Dental and the
Representatives considered several factors, including estimates of the Company's
business potential and prospects, First Dental'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 First
Dental or the Company and may not be indicative of the price at which the Common
Stock will trade after completion of the Offering. During 1996, First Dental
issued 659,871 shares of Common Stock, resulting in gross proceeds of
approximately $14.7 million.
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."
THE COMPANY
Upon closing of this Offering and the acquisition of DCP, First Dental
intends to change its name to DentalCare Partners, Inc. First Dental 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. First Dental is
a Delaware corporation. Its executive offices are located at 85 Devonshire
Street, Boston, Massachusetts 02109, and its telephone number is (617) 742-4750.
First Dental commenced operations in January 1995 with the acquisition of
five Dental Facilities in Massachusetts. First Dental acquired four additional
Dental Facilities in Massachusetts during 1995 and 27 Dental Facilities in
Connecticut, Massachusetts, New Hampshire, Rhode Island and Vermont during 1996.
First Dental currently manages 33 Dental Facilities in the states of
Connecticut, Massachusetts, New Hampshire, Rhode Island, and Vermont, at which
the P.C. employs 59 general dentists and 41 specialists. First Dental had $15.3
million in net revenue for the year ending December 31, 1996.
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THE PENDING ACQUISITIONS
First Dental has entered into definitive agreements to acquire 17 Dental
Facilities in the Southeastern United States and eight Dental Facilities and
related businesses in New Jersey. The addition of the Dental Facilities
currently operated by DCP and GDA will significantly change the size and
geographic scope of the Company. The concurrent consummation of the DCP
Acquisition is a condition to the consummation of this Offering, and First
Dental intends to consummate the remaining Pending Acquisitions upon completion
of this Offering. There can be no assurance that First Dental will successfully
complete the GDA Acquisition.
THE DCP ACQUISITION
On October 2, 1997, First Dental entered into an agreement to merge with
DCP, in a transaction whereby DCP will become a wholly owned subsidiary of First
Dental (the "DCP Acquisition"). DCP is a dental practice management company
managing 17 Dental Facilities at which 28 general dentists and 61 clinical staff
provide services in the states of Kentucky, Maryland, North Carolina, South
Carolina, and Tennessee under the trade name DentalWorks. DCP reported net
patient revenues of approximately $12.4 million and $12.6 million for the years
ended December 31, 1995 and 1996 respectively. Shareholders of DCP shall receive
approximately 452,836 shares of Common Stock of First Dental in exchange for all
of the outstanding common stock of DCP. Upon consummation of the DCP
Acquisition, the shareholders of DCP will own 17% of the Common Stock of First
Dental outstanding prior to this Offering. Consummation of the DCP Acquisition
is a condition to the consummation of this Offering.
It is First Dental's intent that dentists providing dental services at the
Dental Facilities to be acquired in the Pending Acquisitions will be employed by
the P.C., or additional professional corporations or associations established,
in states where the P.C. does not qualify to do business, that utilize
agreements and documents similar to those between First Dental and the P.C.
DCP was incorporated in 1990 and is one of the Southeast's largest dental
practice management companies. Until 1996, DCP pursued exclusively a de novo
Dental Facility strategy, opening removable prosthodontic (denture) facilities
in major population centers of Maryland, North Carolina, South Carolina,
Kentucky and Tennessee. In 1996 in response to the changing needs of dental
consumers and the requirements of managed care payors, DCP expanded its focus to
include all general dentistry services in addition to removal prosthodontic
services. At the same time, DCP decided to pursue a strategy of filling out its
regional network of providers through the acquisition of leading dental
practices in each of the markets in which they had established a presence. 15 of
the 17 Dental Facilities owned by DCP were developed de novo and most of DCP's
dentists are paid on a salary plus bonus basis.
THE GDA ACQUISITION
First Dental entered into agreements on August 29, 1997 to acquire all of
the common stock of eight dental practices, and a dental laboratory and all of
the common stock of Group Dental Health Administrators, a dental plan
organization (the "GDA Acquisition") owned by Drs. Saul Herman and Robert
Armento, (together, "GDA"). All the aforementioned entities are located in
northern New Jersey and collectively employ 15 general dentists, nine
specialists and 41 clinical staff. GDA reported net patient revenues of
approximately $4.7 million for each of the years ended December 31, 1995 and
1996.
According to the proposed terms of acquisition, all dentists, except Drs.
Herman and Armento, and all clinical staff, except those working for Dr.
Armento, will be offered employment with First Dental Associates, P.A. a New
Jersey professional corporation. Dr. Herman has entered into a non-compete
agreement and both Drs. Herman and Armento have entered into non-solicitation
agreements with First Dental. Dr. Armento will enter an agreement to provide
certain orthodontic services on behalf of the Company, but will continue to
retain the revenue from his existing patient base, and will be responsible for
his own staff, supplies and malpractice insurance. First Dental has agreed to
purchase GDA for an aggregate purchase price of $5.7 million in cash. First
Dental has paid Drs. Armento and Herman a $350,000 deposit which will be applied
to the purchase price unless the acquisition does not close by December 15,
1997, in which case the agreement
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may be terminated by either party. In that case, the deposit will be forfeited.
There can be no assurance that the GDA Acquisition will be completed.
GDA was formed in 1983. Each of GDA's eight facilities provide general
dentistry and several also provide orthodontic care or oral surgery. All of
GDA's facilities receive a significant portion of their revenue from capitated
managed dental care plans, have been developed de novo and pay their dentists on
a salary basis.
The Company is continually in discussions with dentists and other dental
practice consolidators regarding the acquisition of such dental practices,
although, except as set forth above, no binding agreements with respect to
material acquisitions have been reached.
USE OF PROCEEDS
The net proceeds to First Dental 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
First Dental. First Dental intends to use the net proceeds of the Offering as
follows: (i) approximately $15.9 million to redeem First Dental's outstanding
Senior Notes, together with accrued interest, (ii) $5.7 million to finance the
Pending Acquisitions, (iii) approximately $3.5 million to discharge certain
indebtedness of DCP, 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, including the
acquisition or expansion of Dental Facilities. First Dental's strategy involves,
among other things, significant growth through the acquisition of additional
Dental Facilities. Accordingly, First Dental is continually in discussions with
different dental practices regarding possible acquisitions. First Dental
currently does not have any binding understandings or agreements to acquire any
dental practices, other than the Pending Acquisitions.
The foregoing represents First Dental's best estimates based upon its
current plans and certain assumptions regarding the results of its future
operations and industry and general economic conditions. If actual results or
conditions differ from assumptions, First Dental 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, First Dental intends to invest the net proceeds in
short-term, investment-grade, interest-bearing securities.
The proceeds of the Senior Notes were used: (i) to pay off certain
indebtedness and (ii) for working capital of First Dental. The Senior Notes
accrue interest at the rate of 15% per annum and mature on July 25, 1998. For
additional information about the Senior Notes, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
First Dental has not declared or paid any cash dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. First Dental currently intends to retain all earnings, if any, for use
in its operations and the expansion of its business. 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."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of First Dental at June
30, 1997, pro forma to reflect the issuance of the Senior Notes and the Pending
Acquisitions as if they occurred at June 30, 1997, and pro forma as adjusted to
reflect the foregoing plus the sale of the shares of Common Stock offered by
First Dental hereby (assuming an initial public offering price of $ per share),
after deducting underwriting discounts and commissions and estimated expenses
payable by First Dental and the initial application of the estimated net
proceeds therefrom. This table should be read in conjunction with the Company's
combined financial statements and related notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 580 $ 8,515 $
======= ======= =======
Line of credit......................................... 5,994 -- --
Current portion of long-term debt and capital lease
obligations(3)....................................... 2,273 2,637
Long-term debt including capital lease obligations,
less current portion(3).............................. 1,788 19,049
Stockholders' equity:
Preferred Stock, $.10 par value 1,000,000 shares
authorized; no shares issued and outstanding...... -- --
Common Stock, $.01 par value 19,000,000 shares
authorized; 1,937,202 shares issued and
outstanding actual; 2,390,038 shares issued and
outstanding pro forma; and shares
issued and outstanding pro forma, as adjusted..... 58 72
Additional paid-in capital........................... 21,195 28,425
Unearned compensation................................ (101) (101)
Shares issuable(4)................................... 245 -- --
Accumulated deficit.................................. (12,309) (12,309)
------- ------- -------
Total stockholders' equity........................ 9,088 16,087
------- ------- -------
Total capitalization......................... $ 10,867 $ 37,773 $ --
======= ======= =======
</TABLE>
- ---------
(1) Assumes: (i) the issuance of $15.0 million in Senior Notes, the proceeds of
which were used to repay amounts outstanding under the line of credit, and
to provide working capital funds, (ii) the issuance of an aggregate of
452,836 shares in connection with the consummation of the Pending
Acquisitions, (iii) the issuance of the shares issuable as described in
footnote (4) hereof, (iv) no exercise of any outstanding options or warrants
to purchase 534,891 shares of Common Stock at a weighted average exercise
price of $14.37 per share, and (v) no issuance of any of the 100,000 shares
of Common Stock reserved under First Dental's 1996 Stock Plan, of which
26,333 shares are issuable upon the exercise of outstanding stock options
exercisable at the initial public offering price and 242,203 shares are
issuable upon the exercise of stock options issued in exchange for options
to acquire DCP common stock, in connection with the DCP Acquisition. See
"Description of Capital Stock."
(2) Pro forma as adjusted to reflect: (i) the Pending Acquisitions; (ii) the
issuance of the Senior Notes; and (iii) the sale of shares of Common
Stock offered hereby (at an assumed initial public offering price of $
per share) and the application of the net proceeds therefrom as described
under "Use of Proceeds."
(3) See Note 6 to Combined Financial Statements of the Company for information
concerning long-term debt.
(4) Based upon 10,250 shares of Common Stock which First Dental is obligated to
issue to a Selling Dentist, as partial consideration for the acquisition of
his dental practice in September 1996, on or prior to the date this Offering
commences.
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company at June 30, 1997, pro
forma to give effect to the issuance of the Senior Notes was ($11.6) million or
($4.87) 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 First Dental of shares
of Common Stock offered hereby at an assumed initial public offering price of
$ per share, the pro forma net tangible book value of the Company at June
30, 1997 would have been approximately $ per share. This represents an
immediate increase of $ per share to existing stockholders and an immediate
and substantial 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...................................................... $4.87
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 June 30, 1997,
after giving effect to the issuance of the Senior Notes, the differences between
the number of shares of Common Stock purchased from First Dental, 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................. 2,400,288 % $22,496,377 % $ 11.55
New investors.........................
--------- --- ----------- --- -----
Total................................. 100% $ % $
========= === =========== === =====
</TABLE>
The foregoing tables assume (i) the issuance of an aggregate of 452,836
shares in connection with the consummation of the Pending Acquisitions, (ii) the
issuance of 10,250 shares of Common Stock which First Dental is obligated to
issue to a Selling Dentist, as partial consideration for the acquisition of his
dental practice in September 1996, on or prior to the date the Offering
commences, (iii) no exercise of any outstanding options or warrants to purchase
534,891 shares of Common Stock at a weighted average exercise price of $14.37
per share, and (iv) no issuance of any of the 100,000 shares of Common Stock
reserved under First Dental's 1996 Stock Plan, of which 26,333 shares are
issuable upon the exercise of outstanding stock options exercisable at the
initial public offering price, no issuance of any shares issuable to employees
of the affiliated P.C. of which 67,138 are issuable upon the exercise of
outstanding stock options at the initial public offering price, and no issuance
of 242,203 shares issuable upon the exercise of stock options issued in exchange
for options to acquire DCP common stock in connection with the DCP Acquisition.
19
<PAGE> 21
SELECTED COMBINED HISTORICAL FINANCIAL DATA
The following selected combined financial data presented under the captions
"Statement of Operations Data" for the years ended December 31, 1995 and
December 31, 1996 and "Balance Sheet Data" as of December 31, 1995, and December
31, 1996 are derived from the combined financial statements of the Company,
which combined financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected combined financial data
presented below for the six months ended June 30, 1996 and 1997 are unaudited
and were prepared by management of First Dental on the same basis as the audited
combined financial statements included elsewhere herein and, in the opinion of
First Dental's management, include all adjustments necessary to present fairly
the information set forth therein. The results for the six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year ended December 31, 1997 or future periods.
The following data should be read in conjunction with the combined
financial statements of the Company and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
First Dental'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 SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------- ---------------------
1995 1996 1996 1997
------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue........................................... $ 2,190 $ 15,313 $ 3,881 $ 13,806
Dental Facility expenses.............................. 3,273 18,168 5,405 14,028
-------- ---------- ---------- ----------
Dental Facility deficit............................... (1,083) (2,855) (1,524) (222)
General and administrative expenses................... 976 3,541 1,129 2,212
Interest expense, net................................. 51 655 31 715
-------- ---------- ---------- ----------
Net loss.............................................. $(2,110) $ (7,051) $ (2,684) $ (3,149)
======== ========== ========== ==========
Net loss per share.................................... $(10.68) $ (5.22) $ (2.22) $ (1.62)
======== ========== ========== ==========
Weighted average shares outstanding................... 197,607 1,348,043 1,203,517 1,937,202
======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE
DECEMBER 31, DECEMBER 31, 30,
1995 1996 1997
------------ -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 43 $ 2,272 $ 580
Working capital (deficit).............................. (1,683) (4,616) (9,030)
Management Agreement, net.............................. 2,953 13,538 13,354
Total assets........................................... 4,575 24,705 24,975
Long-term debt and capital lease obligations,
less current portion................................. 229 1,924 1,788
Total stockholders' equity............................. 1,926 12,203 9,088
</TABLE>
20
<PAGE> 22
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The unaudited pro forma condensed combined financial data set forth below
gives effect to: (i) the 1996 Acquisitions as if they had occurred on January 1,
1996, (ii) the Pending Acquisitions as if they had occurred at January 1, 1996,
and (iii) issuance of the Senior Notes as if it had occurred on June 30, 1997
for purposes of the pro forma condensed combined balance sheet.
The pro forma unaudited financial data set forth below reflects certain
adjustments, including, among others, the amortization of the amounts allocable
to the Management Agreements with affiliated P.C.s resulting from the 1996
Acquisitions and the Pending 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 data 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 1996 Acquisitions and
the Pending Acquisitions, the issuance of the Senior Notes and the transactions
reflected therein had in fact occurred on such dates or to project the future
combined results of operations or financial condition of the Company. See "The
Pending Acquisitions" and Note [12] to the Company's Combined Financial
Statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------------
PRO FORMA
1996 1996 ACQUISITIONS FOR 1996
ACTUAL(1) ACQUISITIONS(2) ADJUSTMENTS(3) ACQUISITIONS DCP GDA
---------- --------------- ----------------- ------------ ------- ------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...................... $ 15,313 $10,358 $ -- $ 25,671 $12,628 $5,774
Dental Facility expenses......... 18,168 10,291 193 28,652 12,103 5,744
------ ------ ---- ------ ------ -----
Dental Facility margin
(deficit)...................... (2,855) 67 (193) (2,981) 525 30
General and administrative
expenses....................... 3,541 -- -- 3,541 1,332 --
Interest expense, net............ 655 100 176 931 621 20
------ ------ ---- ------ ------ -----
Net income (loss)................ $ (7,051) $ (33) $(369) $ (7,453) $(1,428) $ 10
====== ====== ==== ====== ====== =====
Net income (loss) per share...... $ (5.22)
======
Weighted average shares
outstanding.................... 1,348,043
======
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------
PRO FORMA
FOR 1996
PENDING ACQUISITIONS
ACQUISITIONS AND PENDING
ADJUSTMENTS(4) ACQUISITIONS
--------------- ------------
<S> <C<C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...................... $(1,077) $ 42,996
Dental Facility expenses......... (1,320) 45,179
========
========
========
-------
Dental Facility margin
(deficit)...................... (2,183)
243
General and administrative
expenses....................... 4,873
--
Interest expense, net............ 1,572
--
========
========
========
-------
Net income (loss)................ $ (8,628)
$ 243
=======================================================
Net income (loss) per share...... $ (4.59)
Weighted average shares
outstanding.................... 1,879,608
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------------
ACTUAL(1) DCP GDA ADJUSTMENTS(5) PRO FORMA
--------- ------ ------ ----------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net revenue............................................... $ 13,806 $6,129 $3,262 $(616) $ 22,581
Dental Facility expenses.................................. 14,028 5,676 2,402 (621) 21,485
--------- ------- ------ ----- ---------
Dental Facility margin (deficit).......................... (222) 453 860 5 1,096
General and administrative expenses....................... 2,212 505 455 -- 3,172
Interest expense, net..................................... 715 249 19 -- 983
--------- ------- ------ ----- ---------
Net income (loss)......................................... $ (3,149) $ (301) $ 386 $ 5 $ (3,059)
========= ======= ====== ===== =========
Net income (loss) per share............................... $ (1.62) $ (1.28)
========= =========
Weighted average shares outstanding....................... 1,937,202 2,390,038
========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------------------------------------
HISTORICAL
-------------------
COMPANY DCP GDA ADJUSTMENTS PRO FORMA(6)
--------- ------- ------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 580 $ 5 $ 8 $ 7,922 $ 8,515
Working capital (deficit)................................ (9,030) (1,104) 145 8,601 (1,388)
Management Agreements, net............................... 13,354 -- -- 13,154 26,508
Total assets............................................. 24,975 3,219 1,210 23,109 52,513
Long-term debt and capital lease obligations, less
current portion........................................ 1,788 3,131 130 14,000 19,049
Total stockholders' equity............................... 9,088 (2,433) 591 8,841 16,087
</TABLE>
21
<PAGE> 23
- ---------------
(1) Included in the actual combined statement of operations data of the Company
for the year ended December 31, 1996 and the six months ended June 30, 1997
are the results of operations of the 1996 Acquisitions since the date each
such acquisition occurred.
(2) Included in "1996 Acquisitions" are the combined results of operations for
each of the 1996 acquired companies from January 1, 1996 to the date each
such acquisition occurred.
(3) Adjustments give effect to the 1996 Acquisitions as if they occurred on
January 1, 1996. Adjustments include $193,000 in amortization of the
Management Agreements and $176,000 in interest expense on notes payable.
(4) Adjustments give effect to the 1996 Acquisitions and the Pending
Acquisitions as if they had occurred on January 1, 1996. Adjustments have
been made for: (i) the elimination of intercompany revenue of $1.1 million;
(ii) net reduction in Dental Facility expenses comprised of the elimination
of $1.1 million of intercompany expense; and the reduction of $1.1 million
in salaries and other costs associated with previous owners; offset by
$438,000 in amortization of the Management Agreements and $405,000 in other
operating costs; and (iii) to increase the weighted average shares
outstanding for the shares issued in connection with each acquisition.
(5) Pro forma to give effect to the Pending Acquisitions for the six months
ended June 30, 1997 as if they had occurred on January 1, 1996. Adjustments
have been made for: (i) the elimination of intercompany revenue of $616,000,
and (ii) net reduction in Dental Facility expenses comprised of the
elimination of $616,000 in intercompany expense; and the reduction of
$546,000 in salaries and other costs associated with previous owners; offset
by $219,000 in amortization of the Management Agreements and $322,000 in
other operating costs.
(6) Pro forma to give combined balance sheet effect to (i) the Pending
Acquisitions and (ii) the issuance of the Senior Debt, in each case as if
such transactions had occurred as of June 30, 1997. Adjustments for the DCP
Acquisition include issuance of 452,836 shares issued for value of $4.5
million, assumed net liabilities of $2.4 million and acquisition costs of
$700,000. Excess of consideration over fair value of assets acquired of $7.7
million was allocated to Management Agreements. Adjustments for the GDA
Acquisition include $5.7 million cash consideration, which is reflected as a
reduction of working capital (deficit), and $384,000 for acquisition costs.
Excess of consideration over fair value of assets acquired of $5.5 million
was allocated to Management Agreements.
22
<PAGE> 24
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 the largest provider of dental
practice management in New England. First Dental commenced its operations in
January 1995 when it began acquiring Dental Facilities. First Dental entered
into its Management Agreement with the P.C. in August 1995. First Dental
currently provides practice management services only at the Dental Facilities,
which are staffed exclusively by employees of First Dental and dentists and
specialists employed by the P.C. First Dental's significant growth in 1995 and
1996 resulted primarily from its acquisition of additional Dental Facilities.
Through September 30, 1997, First Dental had acquired 36 Dental Facilities in
five states, providing facility and management services to 100 dentists. In
January 1997, the operations of two of the acquired Dental Facilities were
combined with those of other Dental Facilities, and in April 1997, the
operations of a third acquired Dental Facility were combined with those of
another Dental Facility, resulting in First Dental providing management services
to 33 Dental Facilities.
The Company's revenues are derived from payment by fee-for-service
customers and third-party payors for dental services provided by the P.C. at the
Dental Facilities. First Dental has entered into a Management Agreement with the
P.C., pursuant to which First Dental provides practice management services to
the P.C. at the Dental Facilities. Practice management services include
providing premises, furnishings and equipment for the practice, as well as
secretarial, reception and clerical functions, strategic business planning,
financial management, marketing and advertising, materials purchasing, billing
and collection services. First Dental earns a base fee (the "Management Fee")
equal to its direct and indirect costs, including an allocable share of
corporate overhead. In addition, First Dental is entitled to an "Incentive
Management Fee" of approximately 70% of the P.C.'s net operating income, which
is defined as net patient revenues minus certain P.C. expenses, including the
Management Fee and the cost of supplies and clinical staff compensation expenses
but excluding compensation expenses for the P.C.'s dentists and specialists.
Upon acquisition of the operating assets of a dental practice by First Dental,
Selling Dentists typically enter into employment agreements with the P.C. The
P.C. has appointed First Dental as its billing agent. The risk for non-payment
of accounts receivable from patients or third-party payors (i.e., bad debts) is
borne by the P.C. However, these bad debts will reduce First Dental's Incentive
Management Fee.
Management believes that industry trends toward cost containment and lower
reimbursement rates will continue to result in a reduction from historical
levels in per visit revenue. Further reductions in reimbursement rates could
have an adverse effect on the Company's operations unless it is otherwise able
to offset such payment reductions through control of operating expenses or an
increase in patient volume. In addition, managed care arrangements, whereby the
provider of dental services assumes the financial risk of providing dental care
to a group of patients against a generally fixed fee, do not currently account
for a material amount of the Company's revenue. However, a material increase in
the volume or complexity of services required by capitated patients would
increase the risk that the cost of providing such care would exceed the fees
earned by the Company.
Compensation is the Company's primary expense. Additional expenses include
dental supplies, laboratory fees and occupancy expense. 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. Occupancy expense for the Dental Facilities vary
based on the size of each Dental Facility and the current rental rate for dental
office space in the particular geographic market. Costs of the Dental
Facilities, including salaries and benefits of dentists employed by the P.C.,
vary based on regional cost differences and First Dental's ability to implement
operational efficiencies and negotiate more favorable purchasing arrangements.
23
<PAGE> 25
On a pro forma basis for the six months ended June 30, 1997, the five
largest Dental Facilities collectively contributed 23.8% of the Company's net
revenue.
ACQUISITIONS
First Dental commenced operations in January 1995 and acquired nine Dental
Facilities in 1995 and 27 Dental Facilities in 1996. Changes in results of
operations for the years ended December 31, 1995 and December 31, 1996 and the
six month periods ending June 30, 1996 and 1997 were caused primarily by the
acquisition of these additional Dental Facilities. To date, all acquisitions
have been accounted for under the purchase method of accounting. As a result of
the number of acquisitions consummated by First Dental and the limited period of
operation of the Dental Facilities, First Dental does not believe that
period-to-period comparisons are meaningful.
First Dental typically purchases the operating assets, which typically
consist of dental chairs, equipment, supplies and leasehold improvements, of a
practice for a percentage of its annual net revenue. In most transactions the
Selling Dentist receives a mixture of Common Stock, cash and promissory notes.
Through 1996, First Dental offered new Selling Dentists a salary based on
attaining revenue targets equivalent to annualized net revenue prior to
acquisition. First Dental intends to utilize a new compensation formula for
Selling Dentists in future acquisitions, including the Selling Dentists in the
Pending Acquisitions. This new formula seeks to guarantee a certain percentage
of Dental Facility net revenue to the affiliated professional corporation by
reducing the Selling Dentist's initial compensation. However, when an individual
Dental Facility reaches a specified margin, additional Dental Facility profit is
split between the Selling Dentist and the professional corporation.
To date, the Company has acquired primarily fee-for-service practices from
individual dentists. Management believes that in the future, the dental delivery
system will include a variety of dental delivery sites, including large
entrepreneurial group practices, staff model practices developed in conjunction
with medical HMO plans, de novo facilities designed and implemented in quick
response to the needs of managed care payors, and de novo facilities designed to
respond to unique consumer demands (removable prosthodontics, cosmetic
dentistry, dental implants).
On August 29, 1997, First Dental entered agreements to acquire GDA, which
operates eight Dental Facilities in New Jersey. On October 22, 1997, First
Dental entered into an agreement to merge with DCP, which operates 17 Dental
Facilities in Maryland, Tennessee, Kentucky, North Carolina, and South Carolina.
See "The Pending Acquisitions."
24
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net revenue certain
items in the Company's statements of operations for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------- ---------------
1995 1996 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue................................................. 100.0% 100.0% 100.0% 100.0%
Dental Facility Expenses:
Dentists' salaries........................................ 31.5 36.8 37.1 35.6
Clinical staff salaries................................... 17.5 13.1 21.3 16.6
Staff salaries............................................ 16.8 11.4 14.3 10.1
Payroll tax and fringe benefits........................... 11.3 6.5 8.4 6.0
Dental supplies and laboratory fees....................... 25.3 14.2 20.5 10.9
Occupancy expense......................................... 16.7 7.7 10.4 6.9
Advertising and marketing................................. 9.5 2.3 4.5 2.2
Depreciation and amortization............................. 3.4 5.1 5.0 4.9
Dental Facility closings.................................. -- 4.1 -- --
Bad debt expense.......................................... 9.7 8.2 11.2 3.6
Other..................................................... 7.7 9.3 6.6 4.9
----- ----- ----- -----
Total Dental Facility expenses............................ 149.4 118.7 139.3 101.7
----- ----- ----- -----
Dental Facility deficit..................................... (49.4) (18.7) (39.3) (1.7)
General and administrative expense.......................... 44.6 23.1 29.1 16.0
----- ----- ----- -----
Operating loss.............................................. (94.0) (41.8) (68.4) (17.7)
Interest expense, net....................................... 2.3 4.2 0.8 5.2
----- ----- ----- -----
Net loss.................................................... (96.3)% (46.0)% (69.2)% (22.9)%
===== ===== ===== =====
</TABLE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Net Revenue. Net revenue was $2.2 million for the year ended December 31,
1995 and $15.3 million for the year ended December 31, 1996. The increase in net
revenue for the years ended December 31, 1995 and December 31, 1996 resulted
primarily from the acquisition of additional Dental Facilities and the addition
of specialty dental services and increased hours of operation.
Dental Facility Expenses. Dental Facility expenses were $3.3 million for the
year ended December 31, 1995 and $18.2 million for the year ended December 31,
1996. The percentage of specialists of total dentists affiliated with First
Dental was 21% at December 31, 1995 and 28% at December 31, 1996 and First
Dental expects the percentage of specialists to continue increasing over time.
Salary expense (including payroll tax and fringe benefits) represented
approximately 52% and 57% of total Dental Facility expenses for the years ended
December 31, 1995 and December 31, 1996, respectively. However, as a percentage
of net revenue, salary expense declined from approximately 77% to approximately
68% for the years ended December 31, 1995 and December 31, 1996, respectively.
This improvement was attributable primarily to growth in revenue and
stabilization of personnel costs.
Dental supplies and lab fees represented approximately 17% and
approximately 12% of total Dental Facility expenses for the years ended December
31, 1995 and December 31, 1996, respectively. As a percentage of net revenue,
however, dental supplies and lab fees declined from approximately 25% to
approximately 14% for the years ended December 31, 1995 and December 31, 1996,
respectively. This decline was attributable to improved discounts on such items
as a result of First Dental's bulk purchasing power.
25
<PAGE> 27
Occupancy expense represented approximately 11% and 7% of total Dental
Facility expenses for the years ended December 31, 1995 and December 31, 1996,
respectively. As a percentage of net revenue, occupancy expense declined from
approximately 17% to approximately 8% for the years ended December 31, 1995 and
December 31, 1996, respectively. This improvement was attributable primarily to
the growth in net revenue without expanding the space occupied by existing
Dental Facilities.
During 1996, First Dental incurred costs of $624,000 in connection with the
closing of its Danvers, Lowell, and Framingham, Massachusetts Dental Facilities.
A portion of the patients in these facilities were transferred to other
facilities and all of the dentists transferred to other facilities. In
accordance with First Dental's policy of continuously evaluating its Management
Agreement asset, a writedown of $445,000 was charged against the 1996 statement
of operations. An additional $179,000 was recorded as a reserve for estimated
closing costs of those facilities.
As a percentage of net revenue, bad debt expense declined from
approximately 10% to approximately 8% for the years ended December 31, 1995 and
December 31, 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 $1.0 million for the year ended December 31, 1995 and $3.5 million for the
year ended December 31, 1996. The increase was primarily the result of First
Dental's continuing additions to its management infrastructure during these
periods. Such additions consisted of additional executive, senior management and
staff personnel necessary to support the Company's expanding operations. As a
percentage of net revenue, however, general and administrative expenses declined
from approximately 45% to approximately 23% for the years ended December 31,
1995 and December 31, 1996, respectively. While First Dental expects that these
expenses will increase as it increases the number of Dental Facilities, it
believes that these expenses should continue to decline as a percentage of net
revenue.
Interest Expense. Interest expense was $51,000 and $655,000 for the years
ended December 31, 1995 and 1996, respectively. The increase was attributable
primarily to increased borrowings under the Company's line of credit with a
commercial bank. Such borrowings were used primarily to acquire additional
Dental Facilities and for general working capital purposes.
Net Loss. As a result of the foregoing, the Company reported a net loss of
$2.1 million for the year ended December 31, 1995 and $7.1 million for the year
ended December 31, 1996.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1997
Net Revenue. Net revenue was $3.9 million for the six months ended June
30, 1996 and $13.8 million for the six months ended June 30, 1997. The increase
in 1997 was attributable primarily to the acquisition of 27 Dental Facilities in
1996, of which 19 were acquired subsequent to June 30, 1996. The June 30, 1997
stub period reflects the operations of all 27 Dental Facilities acquired in 1996
for the entire 1997 period. In addition to new acquisitions, the Company
continued to increase net revenue through the addition of specialty dental
services, increased hours of operation and a marketing and promotion program.
Dental Facility Expenses. Dental Facility expenses were $5.4 million and
$14.0 million for the six months ended June 30, 1996 and 1997, respectively. The
primary reason for the increase was the acquisition of additional Dental
Facilities during 1996. As a percentage of net revenue, the Company has made
progress in reducing Dental Facility expenses during 1997 as a result of several
actions set forth in the following paragraphs.
Salary expense (including payroll taxes and fringe benefits) represented
approximately 58% and 67% of total Dental Facility expenses for the six months
ended June 30, 1996 and 1997, respectively. However, as a percentage of net
revenue, salary expense declined from approximately 81% to approximately 68% for
six months ended June 30, 1996 and 1997, respectively. This improvement was
attributable primarily to the following factors: (i) a reduction of non-clinical
staff at the Dental Facilities as functions were transferred to the corporate
office and clinical staffing at the Dental Facilities was adjusted based on
patient volume and workflows; (ii) a refinement of the associate dentist
compensation program to reflect salaries that were
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comparable with regional norms; (iii) a reduction in salary and/or bonuses of
certain dentists in exchange for stock options; and (iv) more efficient
utilization of part-time associate dentists to staff peak periods of business.
Dental supplies and lab fees represented approximately 15% and 11% of total
Dental Facility expenses for the six months ended June 30, 1996 and 1997,
respectively. As a percentage of net revenue, such costs declined from
approximately 21% to approximately 11% for the same periods. The decline in 1997
was attributable to the following protocols implemented during 1997: (i)
consolidation of purchases of laboratory services to an approved list of vendors
with whom First Dental has negotiated favorable pricing; (ii) consolidation of
dental supply purchases to one primary vendor with whom First Dental has
negotiated significant discounts; and (iii) the establishment of more efficient
ordering and utilization protocols for dental supplies.
Occupancy expense represented approximately 7% of total Dental Facility
expenses for each of the six months ended June 30, 1996 and 1997. As a
percentage of net revenue, occupancy expense declined from approximately 10% to
7% for the same periods. The improvement was attributable to the growth of net
revenue without expanding the space occupied by existing Dental Facilities.
Bad debt expense as a percentage of net revenue declined from approximately
11% to approximately 4% for the six months ended June 30, 1996 and 1997,
respectively. This was primarily a result of improved credit and collection
procedures and more sophisticated tracking and control of patient receivables at
both the Dental Facility and corporate levels.
General and Administrative Expenses. General and administrative expense
were $1.1 million and $2.2 million for the six months ended June 30, 1996 and
1997, respectively. The increase was primarily the result of First Dental's
additions to its management infrastructure to support the Company's expanding
operations. As a percentage of net revenue, however, general and administrative
expenses declined from approximately 29% to approximately 16% for the six months
ended June 30, 1996 and 1997, respectively. While First Dental expects that
these expenses will increase as it increases the number of Dental Facilities, it
believes that these expenses should continue to decline as a percentage of net
revenue.
Interest Expense. Interest expense was $31,000 and $714,000 for the six
months ended June 30, 1996 and 1997, respectively. The increase was attributable
primarily to increased borrowings under the Company's line of credit with a
commercial bank. Such borrowings were used primarily to acquire additional
Dental Facilities and for general working capital purposes.
Net Loss. As a result of the foregoing, the Company reported a net loss of
$2.7 million and $3.1 million for the six months ended June 30, 1996 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended December 31, 1995 and 1996 and the six months ended
June 30, 1997, the Company had a net loss of $2.1 million, $7.1 million and $3.1
million, respectively. At June 30, 1997, the Company's net working capital
deficit was $9.0 million.
For the years ended December 31, 1995 and December 31, 1996, and the six
months ended June 30, 1997 net cash used in operating activities was $1.8
million, $5.7 million and $2.5 million, respectively. Net cash used in investing
activities was $734,000 for the year ended December 31, 1995 and $8.4 million
for the year ended December 31, 1996. During both periods, net cash used in
investing activities was primarily for the acquisition of Dental Facilities. Net
cash used in investing activities was $1.1 million for the six months ended June
30, 1997. Such net cash was used primarily for expenses in connection with this
Offering and Dental Facility capital expenditures.
Net cash provided by financing activities for the years ended December 31,
1995 and December 31, 1996 totaled $2.5 million and $16.3 million, respectively,
primarily as a result of (i) $2.1 million and $13.5 million in proceeds received
from the issuance of Common Stock during the years ended December 31, 1995 and
December 31, 1996, respectively, and (ii) net borrowings of $3.7 million during
the year ended December 31, 1996. Net cash provided by financing activities for
the six months ended June 30, 1997 was primarily the result of $2.3 million in
net borrowings.
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During the years ended December 31, 1995 and December 31, 1996, First
Dental acquired nine and 27 Dental Facilities, respectively. The aggregate
purchase price paid in connection with the acquisitions made during the year
ended December 31, 1995 consisted of $661,000 in cash, 143,280 shares of Common
Stock, $2.0 million principal amount of promissory notes and of assumed
liabilities. The aggregate purchase price paid in connection with the
acquisitions made during the year ended December 31, 1996 consisted of $6.2
million in net cash, 180,576 shares of Common Stock, $4.5 million in principal
amount of promissory notes and of assumed liabilities.
First Dental has historically financed its acquisitions, capital
expenditures and working capital needs through a combination of (i) 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)
other borrowings, including the Senior Notes. First Dental also has unsecured
notes payable to certain Selling Dentists in the amount of $3.1 million
outstanding at June 30, 1997. Such notes are at interest rates ranging from 7%
to 10% with varying maturities through 2006.
On July 25, 1997, First Dental issued $15.0 million in aggregate principal
amount of Senior Notes. The Senior Notes bear interest at a rate of 15% per
annum and mature on July 25, 1998. The purchasers of the Senior Notes also
received warrants to purchase 174,421 shares of Common Stock exercisable at $.03
per share. The holders of the warrants have certain anti-dilution rights,
entitling them to additional warrants according to a weighted average formula,
in the event First Dental issues additional Common Stock (i) prior to the
earlier of the date on which First Dental's Common Stock becomes publicly traded
or July 25, 1998, at a price less than $30.00 per share, (ii) after July 25,
1998, if First Dental's Common Stock is not publicly traded, at a price per
share less than the higher of First Dental's book value or fair market value, or
(iii) once First Dental's Common Stock is publicly traded, at a price per share
less than the average over the preceding 20 days of the last reported sale
price. If the Senior Notes and all accrued interest are not paid in full by
December 16, 1997, First Dental will be required to issue to the Senior Note
holders warrants to purchase an additional 174,421 shares of Common Stock,
subject to adjustments, exercisable at $.03 per share. The Senior Notes will be
repaid from the net proceeds of the Offering. See "Use of Proceeds."
Under a Revolving Credit Agreement with the P.C., First Dental may extend
credit, up to $1.0 million, to the P.C. for working capital purposes; however,
no specific amount has been committed in advance. Such drawdowns on the
Revolving Credit Agreement, if any, will bear an interest rate equal to the
prime rate, plus 2% per annum.
First Dental's acquisition and de novo development strategy will require
substantial capital resources. First Dental is continually in discussion with
different dental practices regarding possible acquisition. At the present time
however, First Dental does not have any binding understanding or agreement to
acquire any Dental Facilities other than the Pending Acquisitions. First Dental
currently expects to develop on a de novo basis one or more Dental Facilities
during fiscal 1998. In addition, the operation and expansion of existing Dental
Facilities will require ongoing capital expenditures. The financing of future
Dental Facility acquisitions, de novo developments and expansions is anticipated
to be provided by a combination of the proceeds of this Offering, a new credit
facility anticipated to be in place at the closing of the Offering, and cash
flows from operations. Although no assurances can be made, First Dental believes
that the combination of these sources will be sufficient to meet its currently
anticipated acquisition, de novo development expansion and working capital needs
for fiscal 1998. See "Risk Factors -- Limited Capital; Need for Additional
Financing." In order to meet its long-term liquidity needs, First Dental 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which requires presentation of basic earnings per share ("Basic EPS") and
diluted earnings per share ("Diluted EPS") by all entities that have publicly
traded common stock or potential common stock (options, warrants, convertible
securities or contingent stock
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arrangements). SFAS 128 also requires a presentation of earnings per share by an
entity that has made a filing or is in the process of filing with a regulatory
agency in preparation for the sale of those securities in a public market. Basic
EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the
period. The computation of Diluted EPS does not assume conversion, exercise or
contingent exercise of securities that would have an antidilutive effect on
earnings. SFAS 128 is effective for both interim and annual periods ending after
December 15, 1997. The Company does not believe that the effect on the Company's
earnings per share resulting from the adoption of SFAS 128 will be material.
This Prospectus contains certain forward-looking statements with respect to
the financial condition, results of operations and business of First Dental,
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 First Dental operates, and
general economic conditions that are less favorable than expected. Investors
should carefully consider the information set forth under the heading "Risk
Factors."
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BUSINESS
GENERAL
First Dental is among the largest providers of dental practice management
services in the Eastern United States, with geographic concentrations of managed
Dental Facilities in New England, the Mid-Atlantic and the Southeastern United
States. The Company provides dental services at 58 Dental Facilities in 11
states, served by approximately 102 general dentists and 50 specialists, 107
hygienists, and 163 dental assistants. Dentists practicing at the Dental
Facilities provide a mix of general dentistry services and specialty services
such as endodontics, oral surgery, orthodontics, periodontics and pediatric
dentistry which varies by site. The Company's Dental Facilities generated net
patient revenue, on a pro forma basis, of $43.0 million for the year ended
December 31, 1996, and $22.5 million for the six months ended June 30, 1997. For
the six months ended June 30, 1997, 87% of the Company's revenue, on a pro forma
basis, was generated by fee-for-service or indemnity insurance patients, 9% was
generated by capitation insured patients, and 4% was generated by PPO-insured
patients.
The Company seeks to enhance its presence in the markets it currently
serves and to continue to expand its Network through the acquisition or
development of additional Dental Facilities in other markets in the Eastern
United States where there are opportunities to acquire or develop Dental
Facilities fitting First Dental's facility profile. Operationally, 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 and by
achieving operating efficiencies. First Dental's long term objective is to make
each of its Dental Facilities the leading multi-specialty dental care provider
in the local market it serves.
First Dental believes that three major trends are impacting consumers'
demand for dental care in the United States: (i) an increased emphasis on
preventive and cosmetic dentistry; (ii) the development of multi-specialty group
practices; and (iii) the evolution from direct pay to third party reimbursement.
First Dental intends to take advantage of each of these industry trends. First,
the Company stresses the importance of preventive dentistry, while providing
consumers with access to high quality cosmetic dental care. Second, First Dental
is developing dense geographic networks that can share dental specialists,
maximize the utilization of existing Dental Facilities and offer comprehensive
geographic coverage for managed care plans. Finally, First Dental works closely
with insurance companies to negotiate dental contracts which are simple to
administer and provide adequate compensation for services performed.
Key elements of the Company's strategy include expanding the size and
density of the Network through acquisitions and de novo Dental Facility
development; increasing Dental Facility net patient revenue through expansion of
hours and addition of dental staff, through advertising and marketing, and
through selective managed care contracting; and lowering the cost of service
delivery through economies of scale in purchasing, reducing administrative
expenses, utilizing management information systems, and creating more efficient
practices with standardized quality-control protocols. By using its approach to
managing an integrated network of Dental Facilities, First Dental 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.
INDUSTRY OVERVIEW
HCFA 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 United States, and HCFA has projected that dental
expenditures will reach $79.1 billion by the year 2005. Based on HCFA estimates,
the dental services market grew at an annual compound rate of approximately 8.1%
from 1980 to 1995, and is projected to grow at an annual compound rate of
approximately 6.2% through the year 2005. First Dental 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 has not yet undergone the consolidation
experienced in other parts of the health care industry. Dental care services in
the United States are generally delivered through fragmented
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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 dental hygienists or assistants and business
office personnel. Traditionally, dentists have devoted substantial time managing
the business aspects of the practice, reducing their time to deliver quality
dental care. According to the ADA's 1995 Survey of Dental Practice, 67.4% of the
nation's dental practitioners are working in a practice with no other dentists
and 20.3% are working in a practice with one other dentist. Recently, general
dental, orthodontic and other specialty practices have begun to follow the trend
of the health care industry 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. Group practices of three or
more dentists have grown since 1991, according to the ADA, from 4.1% of
practicing dentists to 12.4% of practicing dentists in 1995. First Dental
believes that this trend toward group practice will continue for the foreseeable
future.
First Dental 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) capital constraints on
dentists' ability to build or acquire dental practices in light of rising
educational debt; (v) the growing importance of capital resources to acquire and
maintain state-of-the-art dental equipment, laboratory and clinical facilities,
and management information systems; (vi) the desire to retain revenues from
higher-margin specialty procedures, which would otherwise be referred to
independent specialists; and (vii) the perceived need among dentists to prepare
for the cost-containment pressures and organizational demands of managed care.
First Dental believes that, as a result of these factors, individual
dentists increasingly will seek to affiliate with dental practice management
organizations 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. Dentists, over
time, can assume positions of professional leadership without investing
significant amounts of capital to acquire or build a dental practice. 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.
Dental services have historically been provided on a fee-for-service basis.
In a fee-for-service system, individual dentists established the fees charged
for each service and directly collected from the patient or billed the patient
for each service. The growth of dental insurance has greatly increased the
complexity of dental office administration and billing. Most dental offices now
submit claims to numerous dental plans, most of which have different guidelines.
First Dental believes that the trend toward third-party reimbursements, which
are growing as a percentage of total dental payments, will attract individual
dentists to dental practice management companies. According to the National
Association of Dental Plans ("NADP"), in 1995 approximately 46% of Americans
were covered by a dental benefit plan; by contrast according to statistics from
the National Center for Health Statistics only 6% of the population in 1970 were
covered by dental benefit plans.
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 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.
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First Dental believes that managed dental care plans, particularly
capitated managed dental care plans, are just beginning to penetrate the dental
insurance market in New England, North Carolina, South Carolina, and Tennessee.
According to the NADP, in 1995 7.9% of Americans were enrolled in capitated
dental care plans. In all states in which the Company manages Dental Facilities,
other than Maryland in which 14.5% of its residents were enrolled in dental
capitation plans, the percentage of residents enrolled in dental capitation
plans is less than the national average. The creation of dental practice
management companies and large, multi-specialty group practices that utilize
advanced data management systems and which are capable of bearing financial risk
may increase the demand for capitation plans among group purchasers in the
future. First Dental believes that dental practice management companies, such as
itself, will be well positioned to serve both PPO and capitation plans in the
future.
BUSINESS STRATEGY
First Dental is currently a major provider of dental practice management
services in New England, the Mid-Atlantic and the Southeastern United States and
seeks to pursue attractive expansion opportunities in other markets in the
Eastern United States. The key elements of the Company's strategy are to (i)
expand the size of the Network, (ii) increase the net revenue generated by each
Dental Facility, and (iii) lower the cost of service delivery in each of the
Dental Facilities as follows:
Expand the Size of the Network
Acquire Additional Dental Practices. First Dental intends to continue to
acquire Dental Facilities in the Eastern United States. With geographic
concentrations in New England, the Mid Atlantic and the Southeastern United
States, First Dental is able to cost-effectively advertise, contract with
managed care payors and maximize utilization of specialists among multiple
Dental Facilities. Priority locations for future acquisitions include both
significant population centers in which the Company does not yet have a
presence, and other strategic markets. First Dental will also acquire additional
Dental Facilities in 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 better positioned to negotiate managed
care contracts. Although First Dental historically has acquired Dental
Facilities individually, it may also purchase consolidated groups of Dental
Facilities, such as DCP, when appropriate.
De Novo Facility Development. The Company also intends to expand the
Network by developing de novo Dental Facilities. The Company opened its first de
novo Dental Facility in October 1997 and has developed plans for additional de
novo Dental Facilities, particularly in markets with opportunities to obtain
managed care contracts with sizeable enrolled patient populations. The
acquisition of DCP adds particular experience in this area as DCP has developed
15 of its 17 Dental Facilities on a de novo basis. De novo Dental Facilities
typically have lower operating expenses than acquired Dental Facilities and thus
are favorably positioned to contract more profitably with managed care
companies. De novo Dental Facilities also permit the Company to optimize
facility utilization by standardizing the layout of operations.
Increase Dental Facility Revenue
Maximize Dental Facility Utilization. The Company expands the capacity and
productivity of existing Dental Facilities by increasing practice hours and by
adding dentists, hygienists and dental assistants. Additionally, capacity can be
generated by reconfiguring or expanding certain Dental Facilities. The Company
seeks to increase net revenue at each Dental Facility by delivering
higher-margin specialty services that previously would have been referred
off-site, such as endodontics, oral surgery, orthodontics, periodontics, and
pediatric dentistry. These specialty services are performed by specialists who
generally rotate among a number of Dental Facilities.
Advertising and Marketing. First Dental uses a variety of targeted
marketing and advertising techniques to increase Dental Facility revenue. In New
England, First Dental emphasizes the retention and reactivation of existing
patients using direct mail and telephone campaigns. All of the Dental Facilities
utilize print advertising, in conjunction with the Company's toll-free numbers,
to attract new dental patients. Since May
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1997, First Dental has utilized extensive radio advertising in a variety of New
England markets. In the Southeastern United States, DCP uses extensive
television advertising to attract new patients and create brand name recognition
for its trade name, DentalWorks. As First Dental creates a denser Network in
major population centers, its print, radio and television advertising campaigns
should become increasingly more cost-effective. First Dental believes its
advertising and marketing campaigns provide it with a competitive advantage.
Managed Care. While the Company's primary focus is on fee-for-service
business, it also selectively pursues managed care contracts. The Company offers
both geographic concentration in certain markets and a package of dental
services emphasizing quality, availability and price that are tailored to meet
the needs of managed care organizations. Managed care patients can effectively
supplement a Dental Facility's fee-for-service patient base, thus maximizing its
capacity utilization. For example, several Dental Facilities have begun
participating in two managed care plans offered to Medicare-eligible senior
citizens. In these two instances, patients have effectively helped to fill
available Dental Facility chair capacity.
Lower the Cost of Service Delivery
High Quality Care. The Company believes that the delivery of high quality
patient care keeps costs low. Appropriate diagnoses and treatment can prevent
untimely emergencies or uncompensated rework. The Company promotes the
development and implementation of treatment protocols to ensure high quality
dental care at each Dental Facility. As part of the Company's commitment to high
quality care, it sponsors continuing professional education and training for
dentists and hygienists at the First Dental Education Institute focusing on both
clinical and practice management subjects. The First Dental Education Institute
is approved to offer continuing education credits by the Academy of General
Dentistry. The Company has also adopted and disseminated to all dentists
formalized standards of care to be utilized at all Dental Facilities.
Economies of Scale. Through the integration of the Dental Facilities into
the Network, First Dental is able to capitalize on economies of scale in
administration, finance, and in the purchase of equipment, dental supplies,
dental laboratories, professional liability insurance, and advertising. These
cost savings are generally not available to solo or small group dental
practices. First Dental employs a skilled managerial staff which assists in the
integration of all newly acquired or developed Dental Facilities and assists the
affiliated P.C.s in managing staff resources, scheduling patients, collecting
revenue and building dental practices.
Management Information Systems. First Dental uses information systems
technology to assist in managing the Dental Facilities, enhance the productivity
of the dentists and clinical staff, improve the quality of services provided,
and meet the data management requirements of managed care organizations and
other volume dental services purchasers. First Dental believes that the use of
information systems capable of producing managed care contract performance data
will, in the future, become an important component of its efforts to contract
with managed care organizations.
NETWORK DEVELOPMENT
Acquisition Criteria. The Company expands the Network's geographical
coverage primarily 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.
First Dental 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. Operating assets
typically consist of dental chairs, equipment, supplies and leasehold
improvements, and usually constitute a small portion of the purchase price for a
practice.
First Dental believes that factors defining a leading dental practice
include: local reputation, patient base, profitability, capacity to accommodate
six or more operatories, 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. First Dental identifies
potential candidates for acquisition through several means, including selected
inquiries of dentists by acquisition staff, direct inquiries by dentists,
referrals from other
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dentists, referrals from dental supply vendors, targeted direct mail campaigns,
participation in professional conferences, including the First Dental Education
Institute seminars, and referrals from practice brokers.
First Dental believes that acquisition opportunities will continue to
increase as it expands the geographic scope of the Company's operations
throughout the Eastern United States. Dedicated acquisition teams based in
Boston, Massachusetts and Raleigh, North Carolina identify and negotiate
acquisitions in New England and the Southeastern United States, respectively.
First Dental intends to establish a third team in the Mid-Atlantic region during
the second quarter of 1998.
Beginning in the third quarter of 1997, First Dental adopted a new
acquisition formula under which it negotiates a targeted "preferred margin" from
each acquired Dental Facility. Selling Dentists typically will reduce their
annual compensation in exchange for obtaining liquidity for the equity of their
practice. Once an acquired Dental Facility reaches a negotiated facility margin,
the Selling Dentist shares additional profits with the Company, increasing his
or her annual income.
De Novo Development Criteria. First Dental will consider de novo Dental
Facility development in three specific situations. First, First Dental will seek
to open de novo Dental Facilities in attractive regional markets where it has
been unable to identify an appropriate acquisition candidate. Second, First
Dental will seek to open de novo Dental Facilities in markets where it is trying
to develop additional managed care payor relationships, because de novo Dental
Facilities typically have lower operating expenses, making them more profitable
candidates for managed care opportunities. Finally, First Dental will open de
novo Dental Facilities in markets in which it has already established a presence
in order to achieve desired geographic concentration or address capacity
constraints.
Consummation of the Pending Acquisitions will bring expertise to First
Dental in de novo development. In particular, 15 of DCP's 17 Dental Facilities
are de novo Dental Facilities, as are all eight Dental Facilities operated by
GDA. First Dental recently opened its first de novo Dental Facility in Hyannis,
Massachusetts and has developed plans to open additional de novo Dental
Facilities in selected markets in New England and New Jersey. First Dental
expects de novo Dental Facilities typically to break even in six to 12 months,
although de novo Dental Facilities that start operation with significant managed
care contracts may break even more quickly. Future de novo Dental Facilities
will typically be designed as multi-specialty facilities with six to eight
operatories.
Affiliation and Integration of Dental Facilities. Upon the acquisition of
a Dental Facility, First Dental immediately assumes responsibility for the
management and administrative functions. The management and administrative
services provided by First Dental include administrative staffing, patient
scheduling, billing, collection services, accounting, marketing, centralized
purchase of office and dental supplies, equipment and insurance, access to
preferred laboratories (including internal laboratories) at favorable prices and
facility maintenance. These management services are available at favorable
prices from negotiated prime vendor agreements. First Dental utilizes a
proprietary Integration and Operations Manual, which formalizes its approach to
the management of personnel, accounting, insurance and reporting, at each Dental
Facility. First Dental assists the affiliated P.C.s with the implementation of
managed care contracts by reviewing plans submitted by managed care
organizations, negotiating contracts on behalf of the affiliated P.C.s.,
training Dental Facility business staff in plan implementation and reviewing the
financial results of these plans. Substantially all clinical staff and
management personnel formerly employed at the acquired Dental Facility become
employees of the affiliated P.C.s and First Dental, respectively.
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 Dental 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 the
affiliated P.C.s to rotate among several Dental Facilities clustered in one
geographic area. These specialists perform the higher margin procedures that the
general dentist historically would refer to an independent provider. First
Dental believes that these procedures, which include orthodontics, dental
implants, and periodontal surgery, potentially represent one of the fastest
growing market segments in dental services.
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Advantages to Dentists of Affiliation. First Dental believes that
participation in the Network offers the Selling Dentist several advantages over
the typical solo or small group practice. First Dental 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. First Dental'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 may expand their practices through the addition of
general dentists, specialists and clinical staff and have the opportunity to
consult with other experienced colleagues in a multi-specialty setting. Dentists
also gain access to in-house continuing education programs at the First Dental
Education Institute, 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
First Dental's experience, many dentists in the early stages of their careers
are carrying high education-related indebtedness. As a result, they face
significant financial hurdles to starting their own practices or buying an
existing practice, especially in view of the capital-intensive nature of modern
dentistry. First Dental believes the Company offers both recently graduated
dentists and more experienced dentists without their own practices substantial
advantages over a solo or small group practice. The Company offers general
dentists the opportunity to join a Dental Facility with a compensation formula
which rewards productivity. Dentists have the opportunity over time to assume
clinical leadership positions and can benefit from the resources of more
experienced dentists practicing at the Dental Facilities, as well as clinical
and other training programs, such as those at the First Dental Education
Institute. General dentists are also spared the burden of administrative and
management responsibilities, and can focus their efforts on delivering high
quality dental care.
First Dental has in-house staff to recruit dental specialists to be
employed by the affiliated P.C.s in the 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. First
Dental 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. 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.
DENTAL FACILITIES ACQUIRED OR DEVELOPED TO DATE
First New England Dental Centers, Inc.: Since January 1995, First Dental
has acquired 36 Dental Facilities in Connecticut, Massachusetts, New Hampshire,
Rhode Island and Vermont. In 1997, the clinical operations and patient base of
three Dental Facilities were merged into adjacent Dental Facilities and one
acquired Dental Facility was merged into a de novo Dental Facility. Currently,
the First Dental Facilities in New England include a total of 100 dentists
(including 41 specialists) and 168 clinical staff employed by the P.C., and 104
business and administrative staff working at the Dental Facilities and employed
by First Dental.
DentalCare Partners, Inc.: Since March 1990, DCP has developed 24 and
acquired two dental facilities in Florida, Maryland, Kentucky, North Carolina,
South Carolina and Tennessee. In 1996 and 1997 DCP divested nine Dental
Facilities that it had developed in Florida, South Carolina, North Carolina and
Maryland. Currently, DCP Dental Facilities in the Southeastern United States
include a total of 28 dentists and 61 clinical staff employed by affiliated
professional corporations, and 83 business, prosthodontic laboratory staff and
administrative staff working at the Dental Facilities and employed by DCP.
Group Dental Associates: Since December 1978, GDA has developed eight
Dental Facilities in New Jersey. Currently, GDA's Dental Facilities include a
total of 24 dentists (including nine specialists), 41 clinical staff, and 19
business and administrative staff working at the Dental Facilities and employed
by GDA.
Upon closing of the Pending Acquisitions, the Network will consist of 58
Dental Facilities in 11 states at which 152 dentists and 270 clinical staff
provides services. The following table sets forth certain information as of
October 15, 1997 concerning the Dental Facilities owned and operated by First
Dental.
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<PAGE> 37
<TABLE>
<CAPTION>
NUMBER OF
LOCATION DATE ACQUIRED OR OPENED(1) SPECIALIST SERVICES PROVIDED(2) OPERATORIES
- ------------------------------------ -------------------------- ------------------------------- -----------
<S> <C> <C> <C>
FIRST DENTAL FACILITIES
- ------------------------------------
Worcester, MA....................... January 1995 E, OS, O, P 9
Weymouth, MA........................ January 1995 E, OS, O, P, PD 9
Wellesley, MA....................... January 1995 O, P 4
Boston, MA (Newbury Street)......... May 1995 E, OS, O, P 7
Watertown, MA....................... June 1995 E, OS, O, P 4
Boston, MA (Federal Street)......... December 1995 E, OS, O, P 13
Leominster, MA...................... December 1995 E, OS, O, P 10
Hadley, MA.......................... January 1996 O, P 7
Malden, MA.......................... January 1996 E, OS, O, P 5
Marshfield, MA...................... April 1996 E, OS, P 5
Fitchburg, MA....................... April 1996 OS, O, P 6
Billerica, MA....................... April 1996 OS, O, P 6
Peabody, MA......................... June 1996 E, OS, O, P(6) 11
Raymond, NH......................... June 1996 OS, O, P 6
Exeter, NH.......................... July 1996 E, OS, O, P 4
Hingham, MA......................... July 1996 OS, P 6
Hyannis, MA(3)...................... August 1996 -- 8
Dudley, MA.......................... August 1996 OS, O,P 5
Morrisville, VT..................... September 1996 -- 4
Dalton, MA.......................... September 1996 P 6
Orange, CT.......................... September 1996 OS, O, P 5
Gardner, MA......................... October 1996 O 4
Athol, MA........................... October 1996 O 2
Fitchburg, MA....................... October 1996 O 4
Springfield, MA..................... October 1996 OS 4
Dover, NH........................... October 1996 O, P 12
Braintree, MA....................... October 1996 OS, O, P 6
Brookline, MA....................... October 1996 OS 3
Cranston, RI........................ October 1996 P 4
Hartford, CT........................ October 1996 OS, P 7
South Weymouth, MA.................. October 1996 -- 3
Lebanon, NH......................... October 1996 -- 10
Lebanon, NH......................... October 1996 O 4
DCP DENTAL FACILITIES(4)
- ------------------------------------
Memphis, TN......................... March 1990 -- 9
Louisville, KY...................... May 1990 -- 8
Gastonia, NC........................ June 1990 -- 8
West Columbia, SC................... June 1990 -- 8
Glen Burnie, MD..................... July 1990 -- 8
Greensboro, NC...................... February 1991 -- 7
Durham, NC.......................... July 1991 -- 8
Knoxville, TN....................... January 1992 -- 8
Charlotte, NC....................... May 1992 -- 8
Nashville, TN....................... June 1992 -- 8
Cary, NC............................ August 1992 -- 7
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
NUMBER OF
LOCATION DATE ACQUIRED OR OPENED(1) SPECIALIST SERVICES PROVIDED(2) OPERATORIES
- ------------------------------------ -------------------------- ------------------------------- -----------
<S> <C> <C> <C>
DCP DENTAL FACILITIES (CONTINUED)
Rosedale, MD........................ February 1994 -- 8
Nashville, TN....................... February 1994 -- 8
Memphis, TN......................... March 1994 -- 8
Winston-Salem, NC................... July 1995 -- 8
Jacksonville, NC.................... March 1996 -- 8
Memphis, TN......................... June 1997 -- 5
GDA DENTAL FACILITIES
- ------------------------------------
Roselle Park, NJ.................... December 1978 OS, O 11
Toms River, NJ...................... March 1981 O 8
East Brunswick, NJ.................. January 1984 O, P 7
Newark, NJ (South Street)........... December 1988 O 4
Kearney, NJ......................... December 1989 -- 3
Newark, NJ (Ferry Street)........... March 1993 OS, O, P, PD 7
West New York, NJ................... October 1995 -- 6
Basking Ridge, NJ................... June 1996 -- 4
</TABLE>
- ---------------
(1) Effective date of acquisition or opening.
(2) Services provided by Board Certified Specialists employed by the P.C.:
<TABLE>
<S> <C> <C>
E = Endodontics
OS = Oral Surgery
O = Orthodontics
P = Periodontics
PD = Pediatric Dentistry
</TABLE>
(3) The Hyannis Dental Facility was merged into a de novo Dental Facility opened
in Hyannis in October 1997.
(4) No dental specialists are employed at any DCP dental facilities, but general
dentists provide some specialty services at these dental facilities.
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<PAGE> 39
DENTAL FACILITY OPERATIONS
Within six to 12 months of acquisition or de novo development, a typical
Dental Facility generally will possess the following attributes: six to ten
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, fabricating
dentures and partial dentures, and placing crowns and bridges, most Dental
Facilities provide, to varying degrees, specialty dental services, such as
endodontics, oral surgery, orthodontics, periodontics and pediatric dentistry.
Dental specialists typically work in multiple Dental Facilities. As a result of
the multi-specialty nature of the Dental Facilities, First Dental plans to equip
most Dental Facilities with advanced dental equipment including fiber optic
handpieces, intraoral cameras, and panoramic and cephalometric X-ray equipment.
To ensure patient safety, most Dental Facilities possess an array of emergency
monitoring and response instruments generally unavailable at most solo
practices.
Scheduling. In First Dental's experience, individual dentists are only
able to treat patients approximately 35 hours per week, due to the
administrative burden of the practice and the exacting nature of the work. By
adding general dentists and specialists, First Dental typically increases the
number of hours per week that patients can see a dentist at the Dental
Facilities. At many Dental Facilities, First Dental can expand hours if
necessary to accommodate additional patient volume. Although heavily influenced
by different regional patterns of consumer demand, First Dental'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, with many Dental Facilities
open partial or full days on Saturdays.
DCP has already developed a customized patient scheduling system that
allows telephone operators to schedule patients at any of their Dental
Facilities in the Southeastern United States. Centralized scheduling capacity
allows Dental Facility front desk staff to respond more effectively and quickly
to walk-in patients and to patients arriving at, or leaving the facility. Such
centralized scheduling capacity is particularly valuable when coordinating
appointments for managed care patients. First Dental is evaluating the DCP
scheduling system for use by all Network Dental Facilities.
Fees and Payment Plans. The affiliated P.C.s establish an office fee
schedule for each Dental Facility based on market conditions in each region.
Delta Dental Plans and Blue Cross/Blue Shield Plans typically require pre-filing
of dental fee schedules and Dental Facilities participating in these plans file
fee schedules annually. Although Dental Facilities may offer promotions, the
Dental Facilities, in accordance with insurance company requirements, charge
insured and uninsured patients identical rates. Managed care patients are
charged fees by the Dental Facility providing care based on the particular
contracts under which they are covered.
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 by the finance
company in less than one half-hour.
Advertising and Marketing. First Dental uses a variety of targeted
marketing and advertising techniques to increase Dental Facility revenue. The
Dental Facilities in New England emphasize the retention and reactivation of
existing patients using direct mail and telephone campaigns. Since May 1997,
First Dental has utilized extensive radio advertising in a variety of New
England markets. From its inception, DCP has utilized extensive television
advertising to attract new patients and create brand name recognition for the
trade name, DentalWorks. The GDA Dental Facilities currently make extensive use
of print media. As the Company creates a denser Network in major population
centers, its print, radio and television advertising campaigns should become
increasingly more cost-effective. All of the Dental Facilities utilize print
advertising, in conjunction with toll-free numbers (1-800-33-SMILE,
1-800-4R-SMILE and 1-888-DENTURE), to attract new dental patients. Solo doctors
or small dental groups cannot as cost-effectively utilize these advertising
techniques. For the year-ended December 31, 1996, First Dental spent 2.3% of its
net revenue on
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<PAGE> 40
marketing and advertising and DCP spent 10.7% of its net revenue on marketing
and advertising. In the future, the Company plans to spend approximately 4% of
its net revenue on marketing and advertising.
Purchasing. The integration of the Dental Facilities enables First Dental
to take advantage of economies of scale that are generally not available to solo
or small group practices. First Dental is able to purchase laboratory services,
dental supplies and dental equipment, general liability and malpractice
insurance, employee benefit products, advertising and office furniture and
office equipment at reduced costs. First Dental has successfully negotiated
contracts both with large dental supply wholesalers as well as directly with
dental equipment manufacturers.
Management Information Systems. First Dental has licensed for use a dental
practice management information system that is currently used at 17 of its 33
Dental Facilities to track data related to each Dental Facility's operations and
financial performance. This system provides each of the currently participating
Dental Facilities with patient and practitioner scheduling, clinical
record-keeping, and revenue and collection data on a year-to-date basis. DCP
currently links all of its Dental Facilities with a customized management
information system.
First Dental is reviewing the capability of each of the current management
information systems to provide timely clinical, scheduling, and financial data.
First Dental intends to either (i) utilize a single management information
system to link all current and future Dental Facilities or (ii) utilize advanced
data warehousing technology to link groups of Dental Facilities using similar
software while simultaneously developing a single management information system
to be installed in future acquired or de novo Dental Facilities.
Quality Assurance. The Company 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 Company 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. The Company has also adopted and disseminated to all dentists
providing services at the Dental Facilities formalized standards of care to be
utilized throughout the Network.
MANAGED CARE
Given the increasingly complex demands of third-party payors, First Dental
seeks managed care plans that are comparatively simple to administer on behalf
of the affiliated P.C.s. The Company seeks plans that enhance its image as a
provider of high-quality dental care, and insurers that are establishing
treatment protocols and systems for measuring the impact of dental insurance
programs on the oral health of a population. The affiliated P.C.s will
participate in selective PPOs that offer acceptable reimbursement levels and
that promptly pay claims. The Company also seeks capitation plans providing
accurate enrollment information, timely capitation payments, and contractually
agreed-upon chairtime revenue guarantees in which the affiliated P.C.s can
participate.
The Company seeks to identify strategic dental plan carriers in each of
their regional market areas and participate in programs sponsored by these
carriers. The Company also seeks to participate in dental insurance plans newly
introduced to their regions, because those plans provide a significant
opportunity to access new patients. According to the NADP, 21% of Americans with
a capitated dental plan receive that coverage through their medical HMO. Other
medical HMOs have established PPO dental plans. These medical HMO-sponsored
plans are particularly popular among Medicare-eligible senior citizens. The
Company seeks to contract, through the affiliated P.C.s, with managed care
companies that have, or are introducing, these dental care components.
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<PAGE> 41
The affiliated P.C.s maintain material contracts with Delta Dental of
Massachusetts/Mass Public Employees PPO and Fallon Health Plan PPO and material
capitation contracts with Prudential Dental Maintenance Organization and CIGNA
Dental Health. The Company's Dental Facilities currently have a monthly roster
of 40,000 capitated lives, including 4,000 capitated lives at the DCP Dental
Facilities and 21,000 capitated lives at the GDA Dental Facilities.
The P.C.'s contracts with PPOs require participating Dental Facilities to
provide specified dental services to eligible participants at a discounted fee
level. All of the existing PPO arrangements involve a combination of patient
co-payments and insurance company payments made upon submission of a claim form.
Patients who are insured under the PPO may receive services from any office that
participates in the PPO. Patients are not assigned to a particular office and
participating offices are not "prepaid" by the insurance companies.
The capitation plans with which the P.C. contracts assign capitation plan
members to a particular Dental Facility. Dental Facilities are compensated in
several ways. First, the capitation plans provide a monthly capitation fee for
each patient assigned to a particular Dental Facility. Second, some procedures
require a patient co-payment. Third, some procedures require an additional
payment from the insurance company upon submission of a claim form. Fourth, some
capitation contracts provide guarantees upon submission of encounter data by the
P.C. and the insurance company makes these payments on a periodic basis.
The P.C. assumes financial risk in its PPO contracts because it performs
dental services at a discounted rate from the fees charged to fee-for-service
payors and these discounted fees may not be sufficient to cover the cost of the
services or may reduce the operating margin. The P.C. also assumes financial
risk in its capitation contracts because capitation plan members may require
more frequent or extensive dental services than expected or that may cost more
to provide than the monthly capitation payments, any additional payments
provided by the insurance company and the co-payments received by the P.C.
Although the P.C., and not First Dental, is party to these managed care
contracts, First Dental also assumes risk under these contracts due to the
formula by which it is compensated under the Management Agreement. Lower
operating margins or losses sustained by the P.C. under one or more managed care
contracts may diminish the Incentive Management Fee or even render the P.C.
unable to satisfy the Management Fee. First Dental manages this financial risk
through its review of plans submitted by managed care organizations, negotiation
of contracts on behalf of the P.C., training of Dental Facilities in plan
implementation, review of the financial results of plans and billing, collection
and other management services designed to maximize revenues and revenue
collection.
AFFILIATION STRUCTURE
Relationship with the P.C. The Company's net revenue are derived from
payments by fee-for-service customers and third-party payors for dental services
provided by dentists employed by the P.C. at the Dental Facilities. First Dental
enters into Management Agreements with the P.C. pursuant to which First Dental
provides practice management services to the P.C. at each of the Dental
Facilities. The practice management services which First Dental provides to the
P.C. include providing, for the practice at each of the Dental Facilities,
premises, furnishings, equipment and non-dentist staff who perform secretarial,
reception and clerical functions, strategic business planning, financial
management, marketing and advertising, materials purchasing, billing and
collection services. In some states, however, the practice management services
which First Dental provides are limited due to corporate practice of dentistry
restrictions.
First Dental employs two full-time dentist recruiters who participate with
the P.C. in selection and compensation decisions regarding new dentists. Under
the Management Agreements, First Dental is also appointed the P.C.'s agent for
billing and collection purposes. First Dental earns a Management Fee equal to
its direct and indirect costs, including an allocable share of general and
administrative expenses. In addition, First Dental is entitled to the Incentive
Management Fee of approximately 70% of the P.C. net operating income, which is
defined as net revenue minus certain P.C. expenses, including the Management
Fee, but excluding compensation expenses for the P.C. dentists.
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<PAGE> 42
The P.C. is responsible for all aspects of the dental and related clinical
services rendered by the practice, and for hiring and termination decisions
regarding its dentists, dental hygienists and dental assistant employees.
Nevertheless, the P.C. is obligated under the Management Agreements to conduct
the practice 52 weeks per year and to establish and enforce quality assurance
procedures. Additionally, First Dental has the right to terminate each of the
Management Agreements if the P.C. fails to remove any dentist determined by
First Dental to disrupt or interfere with its performance of its duties.
The term of each of the Management Agreements is 30 years, automatically
renewable for successive five-year terms unless either party gives 90 days
written notice of its intention not to renew the Management Agreement. The
Management Agreements may be terminated prior to the end of its respective
initial term by First Dental in the event of several specified contingencies.
The P.C. may terminate each of the Management Agreements only in the event of a
material breach by First Dental of a material term that is not cured within 90
days of written notice, or bankruptcy of First Dental or the P.C. In addition,
pursuant to the issuance of the Senior Notes, the P.C. has agreed not to
exercise its termination rights in certain circumstances.
First Dental has also entered into a Stock Transfer Restriction Agreement
with the existing P.C. and its stockholders, pursuant to which the P.C.'s
stockholders cannot sell, transfer, bequeath, pledge, encumber or otherwise
dispose of, whether voluntarily or involuntarily, any shares of the common stock
of the P.C. owned by such stockholder, except upon instruction from First
Dental. Further, upon the occurrence of any one of several events, including the
receipt of written transfer instructions from First Dental, the common stock of
the P.C. held by a stockholder automatically transfers to a designee of First
Dental. In addition, the stockholders may not take any of several specified
actions with respect to the P.C. without the consent of First Dental, including:
(i) the issuance or sale of securities or the amendment of the charter or
by-laws of the P.C.; (ii) the declaration or payment of any dividend; or (iii)
the merger, consolidation, liquidation, reorganization or sale of substantially
all of the assets of the P.C. The by-laws of the P.C. provide that one of the
P.C.'s three directors shall be a designee of First Dental, whose presence is
required for a quorum and whose affirmative vote is required for the P.C.'s
board to take any action. Each of Drs. Watkin and Osorio, the sole stockholders
of the P.C., are officers of First Dental. For the reasons given above, First
Dental believes that the Management Agreement, the Stock Transfer Restriction
Agreement and the P.C.'s by-laws provide First Dental with ultimate authority
over non-clinical matters.
First Dental intends to use the P.C. to employ the dentists and provide
dental services in the Dental Facilities acquired in the Pending Acquisitions
and in other future Dental Facilities that First Dental may acquire, where
permitted by law. In those states where the P.C does not qualify to do business,
First Dental intends to affiliate with other professional corporations that
utilize agreements and documents similar to those establishing the relationship
between First Dental and the P.C., to the extent permitted by law. Upon
consummation of the GDA Acquisition, First Dental will affiliate with First
Dental Associates, P.C., a New Jersey professional corporation, which will
provide the premises, equipment and material, as well as employ the dentists,
dental hygienists and dental assistants to provide dental services at GDA's
eight Dental Facilities. Upon consummation of the DCP Acquisition, First Dental
will seek to affiliate with to-be-formed Maryland, North Carolina and Tennessee
professional corporations, respectively, which will employ the dentists, dental
hygienists and dental assistants to provide dental services at the various DCP
Dental Facilities located in Maryland, North Carolina and Tennessee.
Employment Agreements. The affiliated P.C.s provide dental services at the
Dental Facilities through dentists with whom they have employment agreements or
independent contractor relationships. Most dentists enter into written
employment agreements with the affiliated P.C.s. Selling Dentists typically
enter into employment agreements with a non-compete covenant and an initial
three to five-year term. Other general dentists and specialists have renewable
one-year agreements, also with non-compete provisions. Under each such
agreement, the dentist agrees to provide services to patients consistent with
the dentist's professional abilities. The dentist agrees not to bill patients or
third-party payors directly, and assigns responsibility for billing and
collection to the affiliated P.C.s that, in turn, assigns responsibility for
billing, collection and funds management to First Dental under the terms of its
Management Agreement. In return, the affiliated P.C. pays the dentist
compensation consisting of a fixed salary, productivity-based formula, or a
combination of the fixed salary and productivity based formula along with a
standard package of benefits.
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In late 1996, First Dental offered all Selling Dentists the opportunity to
participate in a Stock Option Program in which participants reduced 1997
compensation in exchange for options. 16 Selling Dentists agreed to participate
in this 1996 program, reducing compensation by approximately $324,000 in
exchange for options to purchase 25,413 shares of Common Stock.
The productivity-based compensation formulas employed by the affiliated
P.C.s differ by region. At the present time, some dentists employed by
affiliated P.C.s are compensated based on their volume of dental production
while other employed dentists are paid on the basis of their net collections
after deducting lab expense. The affiliated P.C.s in New Jersey and in the
Southeastern United States typically pay employed dentists a lower percentage of
total patient revenue than does the P.C. First Dental believes that the
differential in doctor compensation is based in part on regional differences in
the cost of living. Additionally, the difference in average dentist compensation
is due to the fact that Dental Facilities in New England typically employ a
larger number of Selling Dentists who have negotiated higher compensation rates
in connection with the sale of their practices. This differential between First
Dental's regions is consistent with the compensation patterns of dental practice
management companies operating in the respective regions.
ACQUISITION UNWIND PROVISIONS
Most Selling Dentists have the right to elect to terminate their employment
agreements with the P.C., repurchase their dental practice assets from First
Dental at fair market value, and reacquire the site of the Dental Facility upon
certain catastrophic events, such as bankruptcy. Certain of the Selling Dentists
have these "acquisition unwind" rights upon certain non-catastrophic events.
Selling Dentists at the following Dental Facilities have such non-catastrophic
unwind provisions: Orange, CT, Malden, MA, Fitchburg, MA, Peabody, MA, Hingham,
MA, Dalton, MA, Braintree, MA, Gardner, MA, Athol, MA, Fitchburg, MA,
Springfield, MA, Raymond, NH, Dover, NH and Lebanon, NH. Events that give the
Selling Dentists the right to exercise the acquisition unwind provisions
include: (i) a material breach of the Selling Dentist's employment agreement,
practice acquisition agreement, or lease by the Company; (ii) failure by First
Dental to pay any promissory notes issued in connection with the practice
acquisition; or (iii) failure by the Company to meet payroll or other
obligations at the Dental Facility; provided that in any such event First Dental
or the P.C. have a cure period of between 14 and 90 days. None of the Selling
Dentists have ever exercised their acquisition unwind rights. First Dental does
not intend to offer these, or similar, acquisition unwind provisions in future
agreements with Selling Dentists. None of the dentist's currently employed by
DCP or GDA have acquisition unwind rights, and none of the Pending Acquisitions
contains such acquisition unwind provisions.
COMPETITION
The dental practice management segment of the health care industry is in
its formative stage. First Dental expects the dental practice management segment
to develop and become highly competitive. In addition, First Dental expects that
the provision of multi-specialty dental services at convenient locations will
become increasingly more common. First Dental is aware of two dental management
companies, Professional Dental Associates and Gentle Dental Centers, that are
currently operating in New England, two dental management companies, Valley
Forge Dental and DentalCo., Inc., which are currently operating in the
Mid-Atlantic Region, and three dental management companies, Castle Dental,
DentalCo., Inc., and Affordable Dentures, Inc., which are currently operating in
the Southeast. First Dental is aware that two managed dental care insurers,
CompDent and Dental Benefit Providers, have established dental practice
management subsidiaries and may choose to operate in First Dental's regions.
Although First Dental is not aware of any general dental practice management
companies operating in Kentucky or South Carolina, there are a number of
companies with dental practice management businesses similar to that of First
Dental, which currently operate in other parts of the country, including
Florida, and may begin targeting New England or other areas in the Eastern
United States in the future. As the Company seeks to expand its operations
beyond New England, the Mid-Atlantic and the Southeastern United States through
future acquisitions, it is likely to face competition from dental practice
management companies that have already established a strong business presence in
such locations. See "Risk Factors -- Competition."
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<PAGE> 44
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
Company operates 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 First Dental and the P.C. to operate in
compliance with applicable health care regulations.
Federal Regulation. Many of the federal laws apply only to dental services
that 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.
Fraud and Abuse. 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 the Medicare and Medicaid programs. Violations of the
federal fraud and abuse statute may result in substantial civil or criminal
penalties for individuals or entities, including exclusion from participation in
the Medicare and Medicaid programs. 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. Although the Company
believes that it is in compliance with the federal fraud and abuse statute, any
exclusion or penalty applied to the dentists at the Dental Facilities due to a
violation of the federal fraud and abuse laws could have a material adverse
effect upon the Company.
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 penalties. First Dental believes that its operations as
presently conducted do not pose a material risk of liability under Stark II,
primarily because the Company does not provide "designated health services".
Even if the Company were deemed to provide "designated health services," First
Dental believes its activities would be protected under the employment and group
practice exceptions to Stark II. Nevertheless, there can be no assurances 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.
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<PAGE> 45
Risk-Based Incentive Plans. 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
that 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. If an enforcement
agency determines that the Company violated any of these regulations the Company
could be suspended from participation in the Medicare and Medicaid programs and
subject to civil penalties.
Medicare 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 an account opened solely in the name of the P.C. If
an enforcement agency determines that the Company violated any of these rules,
the Company could be excluded from the Medicare program.
In the event that a dentist defaults in the payment of a
government-guaranteed student loan, federal regulations permit the Office of the
Inspector General to offset such overdue loan payments against Medicare income
due to the defaulting dentist's employer. First Dental cannot assure compliance
by the Company's dentists with the payment terms of their student loans, if any.
Reassignment Rules. 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, First Dental may not be able to
require dentists to assign third-party payor revenues received from
government-sponsored payment programs unless the dentists are employees of First
Dental, First Dental is a qualified billing agent for the dentists, or other
conditions are met. In addition, governmental payment programs limit
reimbursement for services provided by those non-dentist personnel, who are
either direct or leased employees of First Dental, which services were provided
"incident to" a dentist's services. If an enforcement agency determines that the
Company violated any of the various "reassignment" and "incident to" rules
pertaining to reimbursement from government-sponsored payment programs, the
Company could be excluded from the Medicare program and continued violations,
after notice, could result in criminal penalties.
STATE REGULATION
Fraud, Abuse and Fee-Splitting. Many states in which First Dental manages
Dental Facilities, including Connecticut, Kentucky, Maryland, New Hampshire, New
Jersey, North Carolina, Rhode Island, South Carolina, Tennessee and Vermont,
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 in which First Dental manages
Dental Facilities also impose significant penalties for false claims for dental
services. Many states in which First Dental manages Dental Facilities, including
Maryland, New Hampshire, North Carolina and South Carolina, either prohibit or
require disclosure of self-referral arrangements and may impose penalties for
violation of these laws. Many states, including Kentucky, Maryland,
Massachusetts, New Hampshire, New Jersey, North Carolina, Rhode Island, South
Carolina, Tennessee and Vermont, also prohibit dentists from splitting fees with
non-dentists. If an enforcement agency determines the Company violated any of
these laws prohibiting fee splitting, First Dental's Management Agreements may
be deemed voidable. In addition, First Dental may be prohibited from
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<PAGE> 46
being paid for its management services in a manner related to the revenues of
the practice. If an enforcement agency determines the Company violated any of
the various state laws pertaining to fraud, abuse and fee-splitting, the Company
could be subject to civil or criminal penalties, termination from participation
in the Medicaid program and disciplinary action, including suspension or
revocation of license, imposed by the pertinent state board of dentistry against
an affiliated P.C.-employed dentist.
Corporate Practice of Dentistry. The laws of many states, including each
of the states in which First Dental manages Dental Facilities, 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 typically prohibit, either
by specific provision or as a matter of general policy, non-dental entities,
such as First Dental, from practicing dentistry, from employing dentists and, in
certain circumstances, dental assistants or dental hygienists, or from
exercising control over the provision of dental services. Many states, including
Connecticut, Maryland, New Hampshire, New Jersey, North Carolina, Rhode Island,
Tennessee and Vermont, may limit the ability of a person other than a licensed
dentist to own or control equipment or offices used in a dental practice. If an
enforcement agency determines that the Company's provision of its management
services to the affiliated P.C.s violates any of the state restrictions on the
corporate practice of dentistry, the Company could be subject to criminal or
civil penalties and potential disciplinary action taken by the relevant state
board of dentistry against the affiliated P.C.-employed dentist assisting the
Company.
Some states, including Massachusetts, New Hampshire, New Jersey and Rhode
Island, 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. If
an enforcement agency determines that the services which First Dental renders to
the affiliated P.C.s, pursuant to the management agreements, vest sufficient
control by First Dental over the pertinent Dental Facility to require licensure
and First Dental has not obtained clinic licensure, First Dental may be subject
to civil penalties or denial of facility fee payments. The laws of some states,
including Kentucky, New Jersey and Vermont, may 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, including each of the
states in which First Dental manages Dental Facilities, may also regulate the
content of advertisements of dental services or the use of promotional gift
items. In addition, many states, including each of the states in which First
Dental manages Dental Facilities, may 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. If an enforcement agency determines that the
management services which it provides violate the various state regulations
pertaining to advertisements, promotional gift items and delegation of duties by
dentists to dental assistants, noncompliance could result in criminal or civil
penalties and disciplinary action taken by the pertinent state board of
dentistry against the affiliated P.C.-dentist to whom the advertisement or
promotional gift item applies or who delegated improperly duties to a dental
assistant.
Insurance Regulation. Except for Group Dental Health Administrators, Inc.,
which is a licensed dental plan organization in New Jersey, First Dental does
not engage in the business of insurance. Nonetheless, 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. State insurance laws are
subject to broad interpretation by regulators. As the Company contracts with
third-party payors or self-insured plans on a capitation or other basis under
which the Company assumes financial risk, insurance regulators in some states
may determine that the Company is engaged in the business of insurance,
particularly if the contracts are directly with entities that are not licensed
to engage in the business of insurance. If First Dental or the P.C. is
determined to be engaged in the business of insurance, First Dental or the P.C.
could be required to either seek licensure as an insurance company or to change
the method of payment from third-party payors. In addition, if a state
determines that First Dental is engaging in the business of insurance without a
proper license, First Dental could be subject to criminal penalties. There can
be no assurance that the Company's operations would not be materially adversely
affected if First Dental or the P.C. were to become subject to state insurance
regulations.
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<PAGE> 47
Although First Dental believes the Company's operations as currently
conducted are in material compliance with existing applicable laws, there can be
no assurance that First Dental's contractual arrangements with the P.C. 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 it employs, will not be deemed to
constitute the unlicensed practice of dentistry or the operation of an
unlicensed clinic or health care facility. First Dental has not sought judicial
or regulatory interpretations with respect to the way the Company conducts its
business. There can be no assurance that a review of the business of the Company
by courts or regulatory authorities will not result in a determination that
could materially adversely affect its 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.
INSURANCE
Each of the dentists, at the P.C.'s expense, is covered by a professional
malpractice insurance policy. First Dental maintains general liability and
umbrella coverage, including malpractice coverage of $1.0 million per occurrence
and $20.0 million in the aggregate. While First Dental believes its insurance
policies are adequate in amount and coverage for its current operations, there
can be no assurance that the coverage maintained by First Dental will be
sufficient to cover all future claims or will continue to be available in
adequate amounts or at a reasonable cost. First Dental intends to add each of
the Pending Acquisitions to its insurance policies upon the closing of each such
transaction.
LEGAL PROCEEDINGS
First Dental 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 First Dental, are
expected to have a material adverse effect on First Dental. Neither DCP or GDA
is currently engaged in any litigation which individually or in the aggregate,
if adversely decided, is expected to have a material adverse effect on First
Dental upon consummation of the Pending Acquisitions.
FACILITIES AND EMPLOYEES
First Dental's corporate headquarters are located at 85 Devonshire Street,
Boston, Massachusetts, in approximately 3,500 square feet occupied under a lease
that expires on May 31, 2001. First Dental believes that its headquarters
facilities will soon be inadequate in size to accommodate its rapid growth.
First Dental 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. First Dental
believes that suitable facilities are available in the market on commercially
reasonable terms.
First Dental 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 First Dental's acquisition. These sites are
usually located in a professional office building or retail setting, and First
Dental believes that each site is generally adequate, in size and design, to
accommodate the requirements of the respective Dental Facility. For the years
ended December 31, 1995 and 1996 and the six months ended June 30, 1997, First
Dental had lease costs of approximately $378,000, $1.2 million and $947,000,
respectively. First Dental anticipates that as it continues to acquire Dental
Facilities, it will continue its practice of leasing the sites formerly utilized
by the Selling Dentists.
DCP maintains a 5,000 square foot office for its corporate headquarters in
Raleigh, North Carolina, which First Dental intends, upon the closing of the DCP
Acquisition, to maintain as the Company's Southeastern United States regional
office. GDA maintains a corporate office adjacent to the Roselle Park,
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<PAGE> 48
New Jersey Dental Facility, which, upon the closing of the GDA Acquisition,
First Dental intends to maintain as its Mid-Atlantic regional office.
As of September 30, 1997, First Dental employed approximately 301 people,
including 168 clinical staff, but excluding the 100 dentists employed by the
P.C. As of September 30, 1997, the Pending Acquisitions employed approximately
52 dentists, 102 clinical staff and 102 business, administrative, and corporate
staff. First Dental and the Pending Acquisitions are not parties to any
collective bargaining agreement with a labor union and considers their relations
with their employees to be satisfactory.
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<PAGE> 49
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors currently consists of six members. First Dental's
executive officers and directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Donald E. Strange.................. 53 Chairman of the Board, President, and Chief
Executive Officer
Jerald Robbins..................... 41 Executive Vice President
Joseph A. Anoli.................... 50 Senior Vice President and Chief Financial Officer
John J. Brouder.................... 46 Senior Vice President -- Managed Care
Arnold Watkin, D.D.S. ............. 52 Senior Vice President -- Professional Relations and
Director
Julian Osorio, D.M.D. ............. 40 Senior Vice President -- Professional Relations
Louis S. Shuman, D.M.D. ........... 44 Senior Vice President -- Marketing and Advertising
George R. Begley................... 54 Director
Austin Broadhurst, Jr. ............ 50 Director
Donald J. Larson................... 47 Director
Kenneth A. Rubin................... 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 and the Bon Secours
Health System.
JERALD ROBBINS has served as the Executive Vice President of First Dental
since December 1996 and as the President of First Dental 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 First
Dental's Chief Financial Officer and Senior Vice President 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
First Dental 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 First Dental 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 First Dental. 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.
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<PAGE> 50
JULIAN OSORIO, D.M.D., has served as the Senior Vice President for
Professional Relations of First Dental 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
Marketing and Advertising of First Dental 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.
GEORGE R. BEGLEY was one of First Dental's founders and is a director. Mr.
Begley formed his own private investment bank 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., Abacus Investments Ltd., Roundabout
Hotels Ltd., Franca Americana S. A. and PVC Containers, Inc.
AUSTIN BROADHURST, JR., was elected a director of First Dental 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.
DONALD J. LARSON was elected a director of First Dental in December 1996.
He serves as President, Chief Executive Officer and a director of Cocentra,
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.
KENNETH A. RUBIN was elected a director of First Dental in July 1997. Since
1996, he has served as the Vice President of Wexford Management LLC, an
investment company. From 1983 to 1996, he held various officer positions most
recently as Managing Director for the Real Estate Group, at Bear, Stearns & Co.,
an investment bank.
The members of the Board of Directors serve until the next annual meeting
of stockholders and thereafter until their successors are elected and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
First Dental has an Audit Committee and a Compensation Committee. The Audit
Committee, consisting of Mr. Begley will recommend annually to the Board of
Directors the appointment of the independent public accountants of First Dental,
discuss and review the scope and fees of the prospective annual audits, review
the results thereof with the accountants, review and evaluate First Dental's
internal accounting controls and perform such other functions as directed by the
Board of Directors. The Compensation Committee, consisting of Messrs. Larson and
Broadhurst 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 First Dental ("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 3,333 shares of Common
Stock at an exercise price of $25.50 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
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<PAGE> 51
director of First Dental at that time. Directors who are also officers of First
Dental 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
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
----------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS(#)
- ---------------------------------------------------------- ---- -------- ------------
<S> <C> <C> <C>
Donald E. Strange......................................... 1996 $ 47,890(1) 100,000
Chief Executive Officer 1995 -- --
Jerald Robbins............................................ 1996 114,056 --
Executive Vice President 1995 73,700 41,600
Arnold Watkin, D.D.S. .................................... 1996 289,137(2)(3) 5,108
Senior Vice President 1995 54,200 --
Julian Osorio, D.M.D. .................................... 1996 201,798(2) 5,108
Senior Vice President 1995 -- --
Louis S. Shuman, D.M.D. .................................. 1996 165,736(2)(4) 4,167
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 U.S. Trading Group through December 31, 1996. See
"Certain Transactions."
(4) Employment commenced August 1, 1996.
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<PAGE> 52
STOCK OPTION INFORMATION
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 Securities and
Exchange Commission (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 First Dental's future
performance, among other things.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENTAGE OF TOTAL APPRECIATION
NUMBER OF SHARES OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
UNDERLYING OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------
NAME GRANTED FISCAL YEAR 1996 SHARE(1) DATE 5% 10%
- ---------------------------- ------------------ ------------------- --------- --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Donald E. Strange(2)........ 8,333 4.5% $ 19.50 10/1/01 $44,896 $ 99,208
8,333 4.5 19.50 1/1/02 47,441 105,519
8,333 4.5 19.50 4/1/02 50,017 111,982
8,333 4.5 19.50 7/1/02 52,625 118,600
8,333 4.5 19.50 10/1/02 55,625 125,379
8,333 4.5 19.50 1/1/03 57,938 132,320
8,333 4.5 19.50 4/1/03 60,643 139,430
8,333 4.5 19.50 7/1/03 63,382 146,710
8,333 4.5 19.50 10/1/03 66,154 154,167
8,333 4.5 19.50 1/1/04 68,960 161,803
8,333 4.5 19.50 4/1/04 71,800 169,623
8,333 4.5 19.50 7/1/04 74,676 177,631
Arnold Watkin, D.D.S.(3).... 2,083 1.1 19.50 10/1/02 13,816 31,345
2,083 1.1 19.50 10/1/03 16,538 38,542
941 * 25.50 12/31/01 6,632 14,655
Julian Osorio, D.M.D.(3).... 2,083 1.1 19.50 10/1/02 13,816 31,345
2,083 1.1 19.50 10/1/03 16,538 38,542
941 * 25.50 12/31/01 6,632 14,655
Louis S. Shuman,
D.M.D.(3)................. 2,083 1.1 19.50 10/1/02 13,816 31,345
2,083 1.1 19.50 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 First Dental's Board of Directors.
(2) Mr. Strange was granted options for 100,000 shares on October 1, 1996,
vesting 8,333 each October 1, January 1, April 1 and July 1, starting on
October 1, 1996, and expiring five years after vesting.
(3) Options for 4,167 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. Watkin and
Osorio were granted options for 941 shares on December 31, 1996 vesting
immediately and expiring five years thereafter.
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<PAGE> 53
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
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 VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF WARRANTS/OPTIONS 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............ -- -- 8,333 91,667
Jerald Robbins(1)............ 41,600 $809,952 -- -- -- --
Arnold Watkin, D.D.S ........ -- -- 941 4,167
Julian Osorio, D.M.D ........ -- -- 941 4,167
Louis S. Shuman, D.M.D....... -- -- -- 4,167
</TABLE>
- ---------------
(1) Mr. Robbins exercised options for 41,600 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 $19.50 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 First Dental, made all decisions concerning executive
compensation.
STOCK PLAN
First Dental'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, which are not intended to be incentive stock options, and
purchase rights to and awards of restricted Common Stock. A total of 100,000
shares of Common Stock has been authorized for issuance under the Stock Plan.
Employees, officers or directors of, or consultants or advisors to, First Dental
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 September 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 First Dental, 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 based on the
projected net profit established by the Board of Directors in its annual budget.
Upon First Dental's achievement of 90% of its projected net profits for any
applicable fiscal year and for every percentage point of net profit thereafter,
Mr. Strange receives a bonus of 5% of his base annual salary until 99% or more
of the projected net profit is reached when Mr. Strange's bonus is equal to 50%
of his base annual salary. If First Dental exceeds 100% of its projected net
profit, First Dental may pay Mr. Strange an additional bonus at such times and
in such amounts as it may determine in its sole discretion. Pursuant to the
terms of his employment agreement,
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<PAGE> 54
Mr. Strange purchased 5,128 shares of Common Stock at a price of $19.50 per
share, and was granted stock options for 100,000 shares of Common Stock at an
exercise price of $19.50 per share, to vest ratably on a quarterly basis over
the term of the agreement. If First Dental 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 12 months following
termination. If First Dental terminates Mr. Strange's employment within one year
following a "change in control" of First Dental (as defined in his employment
agreement), First Dental 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 First Dental, 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
First Dental's Board of Directors. If First Dental 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 12 months following
termination. If First Dental terminates Mr. Robbins' employment within three
months following a "change in control" of First Dental (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 10-year
consulting agreement with First Dental, 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
First Dental 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 10-year
consulting agreement with First Dental, 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
First Dental 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.
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<PAGE> 55
CERTAIN TRANSACTIONS
During 1996, First Dental paid to John R. Lakian, a former director and
principal stockholder of First Dental, fees totaling $455,000, of which $230,000
was paid in consideration for business consulting services on behalf of First
Dental and $225,000 was paid in consideration for a personal guarantee of $3.0
million of certain indebtedness of First Dental. In 1997, Mr. Lakian received an
additional $100,000 for increasing his guarantee from $3.0 million to $5.0
million. Such indebtedness of First Dental, and Mr. Lakian's guarantee thereof,
was terminated in July 1997. In the opinion of First Dental's management, these
fees are comparable to the fees that would have been charged by an unrelated
party in an arm's length transaction.
During 1996, First Dental paid to George R. Begley, a director and
principal stockholder of First Dental, fees totaling $182,500, of which $150,000
was paid in consideration for business consulting services on behalf of First
Dental and $32,500 was paid in consideration for a personal guarantee of $3.0
million of certain indebtedness of First Dental. Such indebtedness of First
Dental, and Mr. Begley's guarantee thereof, was terminated in July 1997. In the
opinion of First Dental's management, these fees are less than the fees that
would have been charged by an unrelated party in an arm's length transaction.
On December 24, 1994, First Dental 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 a monthly fee for financial advisory
services. The agreement was modified, effective November 1, 1996, such that
First Dental would pay The Fort Hill Group, Inc. $13,000 per month for
assistance with acquisitions through October 31, 1998. First Dental has paid The
Fort Hill Group, Inc. $127,000 in 1996 and $87,000 through the six months ended
June 30, 1997 under the agreement.
During 1996, First Dental paid to Medident, Inc., a company in which Dr.
Arnold Watkin, a director and officer of First Dental, 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, First Dental ceased payments to
Medident, Inc. and commenced paying Dr. Watkin directly for consulting services
rendered to First Dental.
In December 1995, in connection with the acquisition of his dental
practice, Dr. Watkin received an unsecured loan of $210,000 from First Dental
bearing simple interest at 8.5% per annum. A payment of interest accrued during
1996 was paid in December 1996 and future payments of interest and principal
commence December 1997. The loan is payable in full on or before December 29,
2000.
First Dental 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, First Dental provides
Dental Facilities, non-dentist support personnel, and administrative and other
services to Osorio and Watkin, D.M.D., P.C. During the year ended December 31,
1996, First Dental was paid approximately $15.3 million and through the six
months ended June 30, 1997 approximately $13.9 million under the Management
Agreement.
In connection with this Offering, First Dental has adopted a policy whereby
any further transactions between First Dental and its officers, Directors or
principal stockholders, or any affiliates of the foregoing persons, shall be on
terms no less favorable to First Dental than could reasonably be obtained in a
transaction with independent third parties, and that any such interested
transaction shall be approved by a majority of First Dental's disinterested
outside directors.
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<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 1997 the beneficial
ownership of the Common Stock by: (i) each person who is known by First Dental
to own beneficially 5% or more of First Dental's Common Stock, (ii) each of
First Dental's Directors, (iii) First Dental's Chief Executive Officer and each
other Named Executive Officer, and (iv) all directors and current executive
officers of First Dental as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES ------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(2)(3) PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------- ------------------------ ----------------- --------------
<S> <C> <C> <C>
John R. Lakian........................... 465,245(4) 24.0% %
The Fort Hill Group
767 3rd Avenue
New York, NY 10017
George R. Begley(1)...................... 141,273(5) 7.3
Donald J. Larson......................... 1,111(6) * *
Cocentra, Inc.
312 Union Wharf
Boston, MA 02109
Austin Broadhurst, Jr.................... 1,778(7) * *
Lamalie Amrop International
One Station Place,
5th Floor South
Stamford, CT 06902
Kenneth A. Rubin(1)...................... --(8) -- --
Donald E. Strange(1)..................... 38,462(9) 2.0 *
Jerald Robbins(1)........................ 42,043 2.2
Arnold Watkin, D.D.S.(1)................. 48,858(10) 2.5
Julian Osorio, D.M.D.(1)................. 48,858(10) 2.5
Louis S. Shuman, D.M.D.(1)............... 17,468(11) * *
All Directors and current executive
officers as a group (10 persons)
(5),(6),(7),(8),(9),(10),(11),(12)..... 353,061 18.2
</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.
(4) Includes 8,333 shares issuable upon exercise of a warrant held by Canal
Square, Inc. of which Mr. Lakian is a 25% shareholder.
(5) Consists of 141,273 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 2,222 shares subject to the unvested portion of options.
(7) Consists of shares issuable upon exercise of the vested portion of options.
Excludes 2,222 shares subject to the unvested portion of options held by
Mr. Broadhurst.
(8) Excludes 174,421 shares subject to invested portion of warrants held by
Wexford Management LLC, of which Mr. Rubin is Vice President.
(9) Includes 33,333 shares issuable upon exercise of the vested portion of
options. Excludes 66,667 shares subject to the unvested portion of options
held by Mr. Strange.
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<PAGE> 57
(10) Includes 3,025 shares issuable upon exercise of the vested portion of
options. Excludes 2,083 shares subject to the unvested portion of options.
(11) Includes 2,083 shares issuable upon exercise of the vested portion of
options. Excludes 2,083 shares subject to the unvested portion of options.
(12) Includes 5,417 and 8,333 shares issuable upon exercise of the vested
portion of options and excludes 16,250 and 1,667 shares subject to the
unvested portion of options held by Messrs. Anoli and Brouder,
respectively.
DESCRIPTION OF CAPITAL STOCK
The following summary description is qualified in its entirety by reference
to First Dental'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 First Dental will consist of
19,000,000 shares of Common Stock, $0.01 par value per share, and 1,000,000
shares of Preferred Stock, $0.01 par value per share, of which shares of Common
Stock and no shares of Preferred Stock will be issued and outstanding.
First Dental has applied for quotation of the Common Stock on the NASDAQ
National Market under the symbol "MOLR."
CAPITAL 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 subject to and
qualified by the voting rights of the holders of the Preferred Stock of any
series as may be designated by the Board of Directors, provided that no such
series of Preferred Stock shall have any voting rights unless such rights are
approved by a majority of the outstanding shares of Common Stock. 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 subject
to and qualified by the dividend rights of the holders of the Preferred Stock,
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
First Dental, 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 series of Preferred
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
First Dental 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 First Dental before the person becomes an
interested stockholder; (ii) the interested stockholder acquires 85% or more of
the outstanding voting stock of First Dental 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 First Dental'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 First Dental, (b) any person that is an affiliate or associate
of First Dental and was the owner of 15% or more of the outstanding voting stock
of First Dental 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
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<PAGE> 58
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 First Dental to engage in business combinations with
an interested person, the application of Section 203 to First Dental may provide
a barrier to hostile or unwanted takeovers. Under Delaware law, First Dental
could have opted out of Section 203 but elected to be subject to its provisions.
First Dental's Certificate of Incorporation limits the liability of
Directors to First Dental 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 First Dental 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 First Dental'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.
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, First Dental 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 tradable without
restriction, except for any shares purchased by affiliates of First Dental 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 2,400,288 shares of Common Stock outstanding upon
consummation of the DCP Acquisition (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 180 days after the date of this Prospectus (or earlier for
certain limited transactions or with the written consent of PaineWebber
Incorporated on behalf of the Underwriters), 1,937,202 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 463,086 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, a person (or persons whose shares are
aggregated) whose restricted shares have been fully paid for and held for at
least one year from the later of the date of issuance by First Dental 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 First Dental. A person (or
persons whose shares are aggregated) who is not deemed to have been an
"affiliate" of First Dental at any time during the 90 days preceding the sale,
and whose restricted shares have been fully paid for and held for at least two
years from the later of the date of issuance by First Dental or acquisition from
an affiliate, would be entitled to sell such
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<PAGE> 59
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.
Pursuant to various registration rights agreements, certain holders of
First Dental's Common Stock (including options and warrants to purchase Common
Stock) have certain demand and piggyback registration rights with respect to an
aggregate of up to 1,113,356 shares of Common Stock (prior to the consummation
of the DCP Acquisition). These registration rights are exercisable after the
closing of this Offering, subject to certain limitations. First Dental has
agreed to pay substantially all expenses incident to the registration of such
shares, other than underwriting discounts and commissions.
Each of First Dental's principal stockholders, executive officers and
directors, who upon the closing of the Offering will own an aggregate of 752,408
shares of Common Stock and options to purchase 161,735 shares of Common Stock,
have agreed, except for certain limited exceptions or without the prior written
consent of PaineWebber Incorporated, 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 First Dental beneficially owned by them for a period of 180 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 First Dental to
sell its equity securities in the future at times and prices which it deems
appropriate.
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<PAGE> 60
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated and
Prudential Securities Incorporated, (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement by and among First Dental and the Representatives (the "Underwriting
Agreement"), to purchase from First Dental, and First Dental 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>
PaineWebber Incorporated.....................................................
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. The Underwriting Agreement also provides that the Underwriters are
committed to purchase, and First Dental 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 First Dental 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.
First Dental 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.
First Dental 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 First Dental that they do not expect the
Underwriters to confirm sales to any account over which they exercise
discretionary authority.
First Dental 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 First
Dental 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
First Dental owned by any of them prior to the expiration of 180 days from the
date of this Prospectus without the prior written consent of PaineWebber
Incorporated, except for (a) in the case of First Dental, 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 First Dental'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 PaineWebber Incorporated; (ii) pursuant to the laws of
testamentary or intestate descent; (iii) pursuant to a final and
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<PAGE> 61
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.
Prior to the Offering, there has been no public market for the Common Stock
of First Dental. The initial public offering price has been determined pursuant
to negotiations between First Dental and the Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, will be certain financial information of First
Dental, the history of, and the prospects for, First Dental and the industry in
which it competes, an assessment of First Dental's management, First Dental's
past and present operations, the prospects for, and timing of, future revenues
of First Dental, the present state of First Dental's development, and the above
factors in relation to market values and various valuation measures of other
companies in the dental practice management or similar businesses. 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 Offering, the rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids of purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus), the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
PaineWebber Incorporated, on behalf of the Underwriters, may also impose a
penalty bid on certain of the Underwriters. This means that if PaineWebber
Incorporated, on behalf of the Underwriters, purchases shares of Common Stock in
the open market to reduce the Underwriters short position or to stabilize the
price of the Common Stock, it may reclaim the amount of the selling concession
from the Underwriters who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither First Dental nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above might have on the price of the Common Stock. In
addition, neither First Dental nor any of the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
LEGAL MATTERS
Certain legal matters with respect to the shares of Common Stock offered
hereby will be passed upon for First Dental by Lyne, Woodworth & Evarts LLP,
Boston, Massachusetts. Joshua Vernaglia, a partner in Lyne, Woodworth & Evarts
LLP, has served as secretary of First Dental since it commenced operations, but
is not an employee of First Dental. Certain other legal matters will be passed
upon for First Dental by McDermott, Will & Emery, Boston, Massachusetts. Cahill
Gordon & Reindel (a partnership including a professional corporation), New York,
New York, has acted as counsel to the Underwriters.
60
<PAGE> 62
EXPERTS
The combined financial statements and schedule of First New England Dental
Centers, Inc. as of December 31, 1995 and 1996 and for the years 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.
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.
61
<PAGE> 63
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
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.
62
<PAGE> 64
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.
ADDITIONAL INFORMATION
First Dental has filed with the Commission, a Registration Statement on
Form S-1 (together with all amendments thereto, the "Registration Statement")
under 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
First Dental 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.
63
<PAGE> 65
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
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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-28
Financial Statements:
Balance Sheets.................................................................. F-29
Statements of Operations........................................................ F-30
Statements of Changes in Stockholder's Equity................................... F-31
Statements of Cash Flows........................................................ F-32
Notes to Financial Statements................................................... F-33
HOWARD S. MARKOWITZ, D.D.S.
Independent Auditor's Report....................................................... F-37
Financial Statements:
Balance Sheets.................................................................. F-38
Statements of Income............................................................ F-39
Statements of Changes in Proprietor's Equity.................................... F-40
Statements of Cash Flows........................................................ F-41
Notes to Financial Statements................................................... F-42
WILLIAM H. GRASS, D.D.S., P.C.
Independent Auditor's Report....................................................... F-46
Financial Statements:
Balance Sheets.................................................................. F-47
Statements of Operations........................................................ F-48
Statements of Changes in Stockholder's Equity................................... F-49
Statements of Cash Flows........................................................ F-50
Notes to Financial Statements................................................... F-51
RICHARD S. HAROLD, D.M.D., P.C.
Independent Auditor's Report....................................................... F-55
Financial Statements:
Balance Sheets.................................................................. F-56
Statements of Operations........................................................ F-57
Statements of Changes in Stockholder's Equity (Deficit)......................... F-58
Statements of Cash Flows........................................................ F-59
Notes to Financial Statements................................................... F-60
</TABLE>
F-1
<PAGE> 66
<TABLE>
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<S> <C>
FAMILY DENTISTRY
Report of Independent Accountant................................................... F-64
Balance Sheets -- December 31, 1995 & 1994......................................... F-65
Statements of Operations for the Years Ended December 31, 1995 & 1994.............. F-66
Statements of Changes in Proprietor's Capital for the Years Ended December 31, 1995
& 1994.......................................................................... F-66
Statements of Cash Flows for the Years Ended December 31, 1995 & 1994.............. F-67
Notes to Financial Statements -- December 31, 1995................................. F-68
FAMILY DENTISTRY
Report of Independent Accountant................................................... F-70
Balance Sheet -- March 31, 1996.................................................... F-71
Statement of Operations for the Three Months Ended March 31, 1996.................. F-72
Statement of Changes in Proprietor's Capital for the Three Months Ended March 31,
1996............................................................................ F-72
Statement of Cash Flows for the Three Months Ended March 31, 1996.................. F-73
Notes to Financial Statements -- March 31, 1996.................................... F-74
ARTHUR P. WEIN, D.D.S., P.C.
Independent Auditor's Report....................................................... F-76
Financial Statements:
Balance Sheets.................................................................. F-77
Statements of Income and Retained Earnings...................................... F-78
Statements of Cash Flows........................................................ F-79
Notes to Financial Statements................................................... F-80
RAMIRO BLANCO, D.D.S., M.S.C., P.C.
Independent Auditor's Report....................................................... F-85
Financial Statements:
Balance Sheets.................................................................. F-86
Statements of Operations........................................................ F-87
Statements of Changes in Stockholder's Equity................................... F-88
Statements of Cash Flows........................................................ F-89
Notes to Financial Statements................................................... F-90
Supplementary Information:
Independent Auditor's Report on Supplementary Information....................... F-96
Schedules of Total Assets of Combined Dental Practices Assuming January 1, 1994
as Date of Acquisition (Unaudited)............................................. F-97
Schedules of Revenues and Expenses of Combined Dental Practices Assuming January
1, 1994, as Date of Acquisition (Unaudited).................................... F-98
L. ELIZABETH BURNS, D.M.D., P.C.
Independent Accountants Report..................................................... F-99
Financial Statements:
Balance Sheets.................................................................. F-100
Statements of Operations and Changes in Stockholders' Equity.................... F-101
Statements of Cash Flows........................................................ F-102
Notes to Financial Statements................................................... F-103
</TABLE>
F-2
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<TABLE>
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STEVEN R. BADER, D.M.D., and LOUIS S. SHUMAN, D.M.D., P.C.
Independent Auditors' Report....................................................... F-105
Balance Sheet as of December 31, 1995 with comparative figures for 1994............ F-106
Statements of Current Loss and Deficit for the year ended December 31, 1995 with
comparative figures for 1994.................................................... F-107
Statement of Cash Flows for the year ended December 31, 1995 with comparative
figures for 1994................................................................ F-108
Notes to Financial Statements as of December 31, 1995.............................. F-109
STEVEN R. BADER, D.M.D., and LOUIS S. SHUMAN, D.M.D., P.C.
Independent Auditors' Report....................................................... F-114
Balance Sheet as of May 31, 1996................................................... F-115
Statements of Current Earnings and Deficit for the five months ended May 31,
1996............................................................................ F-116
Statement of Cash Flows for the five months ended May 31, 1996..................... F-117
Notes to Financial Statements as of May 31, 1996................................... F-118
PAUL D. SILVER, D.M.D., P.A.
Independent Auditor's Report....................................................... F-122
Financial Statements:
Balance Sheets.................................................................. F-123
Statements of Operations........................................................ F-124
Statements of Changes in Stockholder's Equity................................... F-125
Statements of Cash Flows........................................................ F-126
Notes to Financial Statements................................................... F-127
CRAM-CHEMA, P.A.
Independent Auditor's Report....................................................... F-132
Financial Statements:
Balance Sheets.................................................................. F-133
Statements of Income and Retained Earnings...................................... F-134
Statements of Cash Flows........................................................ F-135
Notes to Financial Statements................................................... F-136
BUCHWALTER and PAPUGA, DDS, INC.
Accountant's Report................................................................ F-139
Balance Sheets..................................................................... F-140
Statements of Operations........................................................... F-141
Statements of Change in Stockholders' Equity....................................... F-142
Statements of Cash Flows........................................................... F-143
Notes to Financial Statements...................................................... F-144
</TABLE>
F-3
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<TABLE>
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<S> <C>
EDWARD P. SZLYK, D.D.S.
Independent Accountant's Report.................................................... F-146
Financial Statements:
Balance Sheets.................................................................. F-147
Statements of Income and Proprietor's Capital................................... F-148
Statements of Cash Flows........................................................ F-149
Notes to Financial Statements................................................... F-150
EDWARD S. KOLLAR, D.D.S.
Independent Auditor's Report....................................................... F-151
Financial Statements:
Balance Sheets.................................................................. F-152
Statements of Operations and Proprietor's Capital............................... F-153
Statements of Cash Flows........................................................ F-154
Notes to Financial Statements................................................... F-155
MARK S. FERRIERO, D.D.S., PROPRIETOR
Independent Auditor's Report....................................................... F-158
Financial Statements:
Balance Sheets.................................................................. F-159
Statements of Income............................................................ F-160
Statements of Proprietor's Capital.............................................. F-161
Statements of Cash Flows........................................................ F-162
NOTES TO FINANCIAL STATEMENTS........................................................ F-163
MARK S. FERRIERO, D.D.S., PROPRIETOR
Independent Auditor's Report....................................................... F-166
Financial Statements:
Balance Sheets.................................................................. F-167
Statements of Income............................................................ F-168
Statements of Proprietor's Capital.............................................. F-169
Statements of Cash Flows........................................................ F-170
NOTES TO FINANCIAL STATEMENTS........................................................ F-171
MARK E. ELLICSON, D.M.D., P.C.
Independent Auditor's Report....................................................... F-173
Financial Statements:
Balance Sheets.................................................................. F-174
Statements of Operations........................................................ F-175
Statements of Changes in Stockholder's Equity (Deficit)......................... F-176
Statements of Cash Flows........................................................ F-177
Notes to Financial Statements................................................... F-178
</TABLE>
F-4
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<TABLE>
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<S> <C>
DRS. FEINGOLD & RAPPAPORT, P.C.
Independent Auditor's Report....................................................... F-184
Financial Statements:
Balance Sheets.................................................................. F-185
Statements of Income and Retained Earnings...................................... F-186
Statements of Cash Flows........................................................ F-187
Notes to Financial Statements................................................... F-188
FRANK WEISNER, DMD, ORTHODONTIST, P.C.
Independent Auditor's Report....................................................... F-192
Financial Statements:
Balance Sheets.................................................................. F-193
Statements of Income and Accumulated Deficit.................................... F-194
Statements of Cash Flows........................................................ F-195
Notes to Financial Statements................................................... F-196
Supplementary Information:
Independent Auditor's Report on Supplementary Information....................... F-198
Schedules of Operating Expenses................................................. F-199
BELKNAP DENTAL ASSOCIATES, P.C.
Independent Auditor's Report....................................................... F-200
Financial Statements:
Balance Sheets.................................................................. F-201
Statements of Operations........................................................ F-202
Statements of Changes in Stockholder's Equity................................... F-203
Statements of Cash Flows........................................................ F-204
Notes to Financial Statements................................................... F-205
INGOLDSBY and BERGMAN, P.C.
Independent Auditors' Report....................................................... F-210
Balance Sheet as of December 31, 1995 with comparative figures for 1994............ F-211
Statements of Current Earnings and Retained Earnings (Deficit) for the year ended
December 31, 1995 with comparative figures for 1994............................. F-212
Statement of Cash Flows for the year ended December 31, 1995 with comparative
figures for 1994................................................................ F-213
Notes to Financial Statements as of December 31, 1995.............................. F-214
INGOLDSBY and BERGMAN, P.C.
Independent Auditors' Report....................................................... F-217
Balance Sheet as of September 30, 1996............................................. F-218
Statements of Current Loss and (Deficit) for the nine months ended September 30,
1996............................................................................ F-219
Statement of Cash Flows for the nine months ended September 30, 1996............... F-220
Notes to Financial Statements as of September 30, 1996............................. F-221
</TABLE>
F-5
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<TABLE>
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DAVID I. PECK, D.M.D.
Independent Auditors' Report....................................................... F-224
Balance Sheets as of September 30, 1996 and December 31, 1995 and 1994............. F-225
Statements of Income for the nine months ended September 30, 1996 and the years
ended December 31, 1995 and 1994................................................ F-226
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-227
Statements of Cash Flows for the nine months ended September 30, 1996 and for the
years ended December 31, 1995 and 1994.......................................... F-228
Notes to Financial Statements...................................................... F-229
GEOFFREY M. PARRILLO, D.M.D.
Independent Auditor's Report....................................................... F-231
Financial Statements:
Balance Sheets.................................................................. F-232
Statements of Operations........................................................ F-233
Statements of Changes in Proprietor's Capital................................... F-234
Statements of Cash Flows........................................................ F-235
Notes to Financial Statements................................................... F-236
KNUDSON, KNIGHTS AND PREDMORE
Independent Auditor's Report....................................................... F-240
Balance Sheets..................................................................... F-241
Statements of Operations and Partners' Equity...................................... F-242
Notes to Financial Statements...................................................... F-243
Supplementary Schedules:
Supporting Schedules of Cost of Fees Collected.................................. F-247
KNUDSON, KNIGHTS AND PREDMORE
Independent Auditor's Report....................................................... F-249
Balance Sheets..................................................................... F-250
Statements of Operations and Partners' Equity...................................... F-251
Notes to Financial Statements...................................................... F-252
Supplementary Schedules:
Supporting Schedules of Cost of Fees Collected.................................. F-256
ROBERT W. SENIFF, DDS
Independent Auditor's Report....................................................... F-258
Balance Sheets as of December 31, 1995 and 1994.................................... F-259
Statements of Operations and Proprietor's Capital for the year ended December 31,
1995 and the six months ended December 31, 1994................................. F-260
Statements of Cash Flows for the year ended December 31, 1995 and the six months
ended December 31, 1994......................................................... F-261
Notes to Financial Statements as of December 31, 1995 and 1994..................... F-262
</TABLE>
F-6
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<TABLE>
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<S> <C>
ROBERT W. SENIFF, DDS
Independent Auditor's Report....................................................... F-267
Balance Sheet as of September 30, 1996............................................. F-268
Statement of Operations and Proprietor's Capital for the nine months ended
September 30, 1996.............................................................. F-269
Statement of Cash Flows for the nine months ended September 30, 1996............... F-270
Notes to Financial Statements as of September 30, 1996............................. F-271
</TABLE>
F-7
<PAGE> 72
When the transaction referred to in paragraph 5 of Note 12 of the Notes to
Combined Financial Statements has been consummated, we will be in a position to
render the following report.
KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
To Board of Directors and Stockholders
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 1996, and the related
combined statements of operations, stockholders' equity and cash flows for the
years ended December 31, 1995 and 1996. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial 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 1996, and the results of their
operations and their cash flows for the years ended December 31, 1995 and 1996,
in conformity with generally accepted accounting principles.
Boston, Massachusetts
March 28, 1997, except as to
paragraph 4 of Note 11, which
is as of July 25, 1997 and except
as to Note 12, which is as
of October 22, 1997
F-8
<PAGE> 73
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1995 1996 1997
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 42,558 $ 2,272,494 $ 580,284
Accounts receivable, net of allowance for
doubtful accounts of $445,000 in 1995,
$1,691,000 in 1996 and $1,260,000 in 1997... 694,439 2,867,669 3,623,363
Note receivable from officer, current
portion..................................... -- 52,500 52,500
Due from Dentists............................. -- 317,688 52,346
Other current assets.......................... -- 200,741 510,679
----------- ----------- ------------
Total current assets..................... 736,997 5,711,092 4,819,172
----------- ----------- ------------
Property and equipment, net................... 524,713 3,866,433 3,981,296
Management Agreements, net.................... 2,952,892 13,537,985 13,353,621
Deferred offering costs....................... -- 1,330,616 2,060,078
Note receivable from officer.................. 360,000 175,350 164,938
Other assets.................................. 500 83,564 596,379
----------- ----------- ------------
Total non-current assets................. 3,838,105 18,993,948 20,156,312
----------- ----------- ------------
Total assets............................. $ 4,575,102 $24,705,040 $ 24,975,484
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................ -- 3,694,166 5,994,166
Accounts payable.............................. 711,021 1,335,664 2,358,243
Accrued compensation.......................... 361,280 1,668,587 1,624,575
Accrued expenses.............................. 464,297 1,282,552 1,598,936
Current portion of long-term debt............. 871,673 2,125,989 1,993,053
Current portion of capital lease
obligations................................. 11,993 220,565 279,744
----------- ----------- ------------
Total current liabilities................ 2,420,264 10,327,523 13,848,717
----------- ----------- ------------
Noncurrent liabilities:
Long-term debt, less current portion.......... 211,797 1,295,308 1,082,013
Capital lease obligations, less current
portion..................................... 17,177 628,843 705,730
----------- ----------- ------------
Total noncurrent liabilities............. 228,974 1,924,151 1,787,743
----------- ----------- ------------
Total liabilities........................ 2,649,238 12,251,674 15,636,460
----------- ----------- ------------
Redeemable common stock............................ -- 250,837 250,837
Stockholders' equity:
Preferred stock, $.01 par value, authorized
1,000,000 shares............................ -- -- --
Common stock, $.01 par value, authorized
19,000,000 shares........................... 9,439 19,372 19,372
Additional paid-in capital.................... 4,026,050 21,233,450 21,233,450
Unearned compensation......................... -- (135,694) (101,110)
Issuable shares............................... -- 245,693 245,693
Accumulated deficit........................... (2,109,625) (9,160,292) (12,309,218)
----------- ----------- ------------
Total stockholders' equity............... 1,925,864 12,202,529 9,088,187
----------- ----------- ------------
Total liabilities and stockholders'
equity................................. $ 4,575,102 $24,705,040 $ 24,975,484
=========== =========== ============
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE> 74
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED STATEMENTS OF OPERATIONS
FROM JANUARY 1, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
FOR THE YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
JANUARY 1, 1995 ENDED JUNE 30,
(INCEPTION) TO YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 31, 1996 1997
1995 1996 ----------- -----------
--------------- ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue................................ $ 2,190,313 $ 15,312,848 $ 3,881,258 $13,805,877
Dental Facility expenses:
Dentists' salaries.................... 688,523 5,631,930 1,438,166 4,912,759
Clinical Staff salaries............... 383,455 2,008,218 828,034 2,289,976
Staff salaries........................ 369,009 1,747,373 553,945 1,392,507
Payroll taxes and fringe benefits..... 248,504 988,460 324,605 825,138
Dental supplies and laboratory fees... 554,823 2,171,743 794,325 1,509,122
Occupancy expense..................... 365,034 1,178,321 403,543 946,395
Advertising and marketing............. 208,436 356,124 174,998 301,104
Depreciation and amortization......... 74,137 780,407 192,555 675,866
Facility closings..................... -- 623,632 -- --
Bad debts............................. 212,892 1,253,984 435,661 495,982
Other................................. 167,741 1,427,513 259,033 679,396
----------- ----------- ----------- -----------
Total Dental Facility expenses... 3,272,544 18,167,705 5,404,865 14,028,245
Dental Facility margin (deficit)........... (1,082,241) (2,854,857) (1,523,607) (222,368)
General and administrative expenses........ 976,344 3,541,239 1,128,899 2,212,074
----------- ----------- ----------- -----------
Operating loss............................. (2,058,585) (6,396,096) (2,652,506) (2,434,442)
Interest expense, net...................... 51,040 654,571 31,325 714,484
----------- ----------- ----------- -----------
Net loss................................... $(2,109,625) $ (7,050,667) $(2,683,831) $(3,148,926)
=========== =========== =========== ===========
Net loss per share......................... $ (10.68) $ (5.22) $ (2.22) $ (1.62)
=========== =========== =========== ===========
Weighted average shares outstanding........ 197,607 1,348,043 1,203,517 1,937,202
=========== =========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-10
<PAGE> 75
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
FOR THE YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN UNEARNED ISSUABLE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION SHARES DEFICIT EQUITY
--------- ------- ----------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 (inception)... -- $ -- $ -- $ -- $ -- $ -- $ --
Initial issuance of common stock......... 50,000 500 713,506 -- -- -- 714,006
Issuance of additional common stock.... 750,617 7,506 1,379,703 -- -- -- 1,387,209
Stock issued for acquisitions.......... 143,280 1,433 1,932,841 -- -- -- 1,934,274
Net loss............................... -- -- -- -- -- (2,109,625) (2,109,625)
--------- ------- ----------- --------- -------- ------------ -----------
Balances at December 31, 1995............ 943,897 9,439 4,026,050 -- -- (2,109,625) 1,925,864
Issuance of common stock, net of
issuance costs....................... 659,871 6,599 13,535,589 -- -- -- 13,542,188
Stock issued for acquisitions.......... 180,576 1,806 3,283,468 -- 245,693 -- 3,530,967
Exercise of options and warrants....... 152,858 1,528 3,057 -- -- -- 4,585
Premium on convertible notes payable... -- -- 205,286 -- -- -- 205,286
Compensation related to issuance of
stock options........................ -- -- 180,000 (180,000) -- -- --
Amortization of unearned compensation
expense.............................. -- -- -- 44,306 -- -- 44,306
Net loss............................... -- -- -- -- -- (7,050,667) (7,050,667)
--------- ------- ----------- --------- -------- ------------ -----------
Balances at December 31, 1996............ 1,937,202 19,372 21,233,450 (135,694) 245,693 (9,160,292) 12,202,529
Amortization of unearned compensation
expense.............................. -- -- -- 34,584 -- -- 34,584
Net loss............................... -- -- -- -- -- (3,148,926) (3,148,926)
--------- ------- ----------- --------- -------- ------------ -----------
Balances at June 30, 1997 (unaudited).... 1,937,202 $19,372 $21,233,450 $ (101,110) $245,693 $(12,309,218) $(9,088,187)
========= ======= =========== ========= ======== ============ ===========
</TABLE>
See accompanying notes to combined financial statements.
F-11
<PAGE> 76
FIRST NEW ENGLAND DENTAL CENTERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
FROM JANUARY 1, 1995 (INCEPTION) TO DECEMBER 31, 1995 AND
FOR THE YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 1, 1995 SIX MONTHS ENDED JUNE 30,
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31, -------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(2,109,625) $(7,050,667) $(2,683,831) $(3,148,926)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 74,137 780,407 192,555 675,866
Amortization of unearned compensation....... -- 44,306 -- 34,584
Facility closings........................... -- 623,632 -- --
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable......................... 155,031 (770,082) (299,160) (755,694)
Due from Dentists........................... -- (317,688) -- 265,342
Other current assets........................ -- (319,242) (99,133) (309,938)
Accounts payable and accrued expenses....... (238,570) (71,154) 1,203,358 1,338,963
Accrued compensation........................ 361,280 1,407,307 239,750 (44,012)
Other current assets........................ -- -- (9,009) (524,675)
---------- ---------- ---------- ----------
Net cash used in operating activities... (1,757,747) (5,673,181) (1,455,470) (2,468,490)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisitions, net of cash acquired............... (661,308) (6,134,351) (1,540,210) --
Capital expenditures............................. (71,751) (816,740) (128,774) (318,030)
Deferred offering costs.......................... -- (1,330,616) -- (729,462)
Deposits......................................... (500) (83,064) (10,500) (28,116)
---------- ---------- ---------- ----------
Net cash used in investing activities... (733,559) (8,364,771) (1,679,484) (1,075,608)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock........... 2,101,215 13,542,188 2,927,505 --
Proceeds from exercise of warrants............... -- 4,585 -- --
Proceeds from note receivable from officer....... -- -- -- 17,850
Net borrowings under line of credit.............. -- 3,694,166 1,393,662 2,300,000
Proceeds from borrowings......................... 470,000 -- -- --
Loan acquisition costs........................... -- -- (257,500) --
Repayment of long-term debt...................... (37,351) (761,226) (720,728) (346,231)
Repayment of capital lease obligations........... -- (211,825) (25,048) (119,731)
---------- ---------- ---------- ----------
Net cash provided by financing
activities............................ 2,533,864 16,267,888 3,317,891 1,851,888
---------- ---------- ---------- ----------
Increase in cash and cash equivalents................ 42,558 2,229,936 182,937 (1,692,210)
---------- ---------- ---------- ----------
Cash and cash equivalents, at beginning of period.... -- 42,558 42,558 2,272,494
---------- ---------- ---------- ----------
Cash and cash equivalents, at end of period.......... $ 42,558 $ 2,272,494 $ 225,495 $ 580,284
========== ========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 43,649 $ 671,256 $ 54,375 $ 637,956
========== ========== ========== ==========
Income taxes..................................... $ -- $ 11,260 $ -- $ --
========== ========== ========== ==========
Acquisitions:
Assets acquired.................................. $ 4,567,639 $14,455,287 $5,342,381 $ --
Liabilities assumed and issued................... 1,972,057 4,499,391 1,543,147 --
Common stock issued.............................. 1,934,274 3,781,804 2,219,283 --
---------- ---------- ---------- ----------
Cash paid........................................ 661,308 6,174,092 1,579,951 --
Less cash acquired............................... -- 39,741 39,741 --
---------- ---------- ---------- ----------
Net cash paid for acquisitions.......... 661,308 6,134,351 1,540,210 --
========== ========== ========== ==========
Supplemental noncash investing and financing
activities:
Property acquired under capital leases........... $ 29,170 $ 1,032,064 $ 173,612 $ 255,797
========== ========== ========== ==========
Exchange of note receivable from and note payable
to officer..................................... $ -- $ 150,000 $ 150,000 $ --
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-12
<PAGE> 77
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FROM JANUARY 1, 1995 (INCEPTION) TO DECEMBER 31, 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
(1) DESCRIPTION OF BUSINESS
First New England Dental Centers, Inc. ("First Dental") 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 before commencing operations in
January 1995. Prior to January 1995, First Dental had nominal assets and
liabilities. First Dental has entered into Management Agreements and Stock
Transfer Restriction agreements with each of Osorio and Watkin D.M.D., P.C. and
Edward S. Kollar, D.D.S., P.C. (collectively hereinafter referred to as
"P.C.s"), under which it provides fully integrated dental practice management
services. These two agreements give First Dental full and unilateral control
over the P.C.s, except for professional dental judgments, and accordingly the
financial statements are presented on a combined basis.
Osorio and Watkin, D.M.D., P.C., a Massachusetts Professional Corporation
has two 50% shareholders, Drs. Osorio and Watkin, both of whom are officers of
First Dental. The stockholders cannot sell, transfer, bequeath, pledge, or
encumber, or otherwise dispose of, whether voluntarily or involuntarily any
shares of the stock of the P.C. (the "Shares") which the stockholders own.
Further, the Shares automatically transfer to an individual designated by First
Dental upon the occurrence of a number of events including the receipt of
written transfer instructions from First Dental. The Stockholders may not take
any of several specified actions including the issuance or sale of new
securities in the P.C., amending the charter or by-laws of the P.C., declaration
or payment of any dividend, or merger, consolidation, reorganization,
liquidation or sale of substantially all of the assets of the P.C. Pursuant to
the P.C.'s by-laws, the Board of Directors of the P.C. consists of Drs. Osorio,
Watkin and an officer of First Dental. A quorum of the directors requires the
presence of the First Dental director, and a vote of the directors in favor of
any action requires the affirmative vote of the First Dental director. The
Edward S. Kollar, D.D.S., P.C. agreement, whose revenues consist of a practice
in Vermont and were immaterial to the combined results, have similar terms to
the Osorio and Watkin D.M.D., P.C. agreement, however, the Edward S. Kollar,
D.D.S., P.C. merged into Osorio and Watkin, D.M.D., P.C. in April 1997.
Certain 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 First Dental at fair market value, and
reacquire the site of the dental facility in the event that one or more of the
following occurs: (1) First Dental 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) First
Dental 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,
First Dental could be materially adversely affected.
Under the Management Agreements, the P.C.s record the patient service
revenues. First Dental accrues as net income for the P.C.s the difference
between the net patient services revenues and the management fee payable to
First Dental. The management fee consists of the actual direct costs and
indirect costs, including an allocable share of corporate overhead, incurred by
First Dental. Direct costs include the expenses for the premises, furnishings,
equipment and administration and management. Administration and management
services include secretarial, reception and clerical functions, business
planning, financial management, bookkeeping, accounting, data processing,
maintaining dental records, materials purchasing and management, human resource
management, billing and collecting of receivables and processing of payables,
and maintaining malpractice insurance. First Dental also provides dental
hygienists and other clinical staff. In addition to the management fee, First
Dental is entitled to an incentive fee equal to 70% of the "P.C.s net operating
income." P.C.s net operating income is the difference between its net revenues
less expense, including supplies and the management fee paid to First Dental but
excluding salaries paid to the P.C.s dentists and specialists. 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.
F-13
<PAGE> 78
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared on an accrual
basis of accounting and present the financial position and results of operations
on a combined basis. First Dental, through its Management Agreements, its Stock
Transfer Restriction Agreements in the case of Osorio and Watkin D.M.D., P.C.
and the P.C.'s by-laws 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 First Dental. The receivables have been assigned to
First Dental for billing purposes and have been pledged to secure amounts
outstanding under the line of credit. For purposes of display, the combined
results of operations as recorded on the P.C.s and First Dental's books are
shown below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1996
--------------------------------------- ------------------------------------------
FIRST FIRST
P.C.s DENTAL TOTAL P.C.s DENTAL TOTAL
----------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Patient service
revenue........ $ 2,190,313 $ -- $ 2,190,313 $ 15,312,848 $ -- $ 15,312,848
Management fee
(expense)...... (3,489,881) 3,489,881 -- (16,142,828) 16,142,828 --
FNEDC direct and
indirect
expenses....... -- (3,489,881) (3,489,881) -- (16,142,828) (16,142,828)
Incentive fee
(expense)
70% to First
Dental
30% to P.C.s... -- -- -- -- -- --
Dentist salaries
and benefits... (810,057) -- (810,057) (6,220,687) -- (6,220,687)
----------- ----------- ----------- ------------ ------------ ------------
Net loss......... $(2,109,625) $ -- $(2,109,625) $ (7,050,667) $ -- $ (7,050,667)
=========== =========== =========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
--------------------------------------- ------------------------------------------
FIRST FIRST
P.C.s DENTAL TOTAL P.C.s DENTAL TOTAL
----------- ----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Patient service
revenue........ $ 3,881,258 $ -- $ 3,881,258 $ 13,805,258 $ -- $ 13,805,258
Management fee
(expense)...... (4,636,781) 4,636,781 -- (11,569,803) 11,569,803 --
FNEDC direct and
indirect
expenses....... -- (4,636,781) (4,636,781) -- (11,569,803) (11,569,803)
Incentive fee
(expense) 70%
to First Dental
30% to P.C.s... -- -- -- -- -- --
Dentist salaries
and benefits... (1,928,308) -- (1,928,308) (5,384,381) -- (5,384,381)
----------- ----------- ----------- ------------ ------------ ------------
Net loss......... $(2,683,831) $ -- $(2,683,831) $ (3,148,926) $ -- $ (3,148,926)
=========== =========== =========== ============ ============ ============
</TABLE>
Unaudited Information
The combined financial statements as of June 30, 1997 and for the six month
periods ended June 30, 1996 and 1997 and the related information included in the
notes to the combined financial statements are
F-14
<PAGE> 79
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
unaudited. These combined financial statements should be read in connection with
the annual audited combined financial statements and the footnotes thereto.
Results for the six months ended June 30, 1997 are not necessarily indicative of
the results for the year ending December 31, 1997. However, the accompanying
unaudited June 30, 1997 combined financial statements reflect all adjustments
which are, in the opinion of management, of a normal and recurring nature
necessary for a fair presentation of the combined financial position and results
of operations of the Company.
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.
Cash and cash equivalents
For purposes of the statements of cash flows, First Dental 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 First Dental to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash and trade receivables. First Dental 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. First Dental's sales are primarily to customers in the New
England region, and as such, First Dental is directly affected by the well-being
of that geographic region.
Fair Value of Financial Instruments
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 1996, and June 30, 1997, 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.
F-15
<PAGE> 80
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Management Agreements
Management Agreements are amortized on a straight-line basis over the
period of expected benefit of 30 years. Amortization expense for the years ended
December 31, 1995 and 1996 was $38,300 and $281,323, respectively. These
expenses were approximately $114,660 and $184,364 for the six months ended June
30, 1996 and 1997, respectively. Accumulated amortization was $38,300 and
$319,623 as of December 31, 1995 and 1996, and $536,525 as of June 30, 1997,
respectively.
Income Taxes
First Dental 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 and liabilities of a change in the tax rates is
recognized in income in the period that includes the enactment date.
Long-Lived Assets
First Dental 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 longlived 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.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to record
compensation costs for stock-based employee compensation plans at fair value.
First Dental has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the market value of First Dental's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
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.
Deferred Offering Costs
In January 1997, the First Dental filed a Form S-1 Registration Statement
with the Securities and Exchange Commission (SEC). Costs related to the filing
consist of legal, accounting and printing costs and will be charged against the
proceeds received from a successful offering. Should the offering not occur, the
costs will be expensed.
F-16
<PAGE> 81
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITIONS
During the years ended December 31, 1995 and 1996, the First Dental
acquired 9 and 27 Dental Facilities, respectively. 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 First Dental's combined financial
statements from the dates of the acquisitions. Summary information concerning
the acquisitions is as follows:
<TABLE>
<CAPTION>
DATE SELLER LOCATION
- --------- ----------------------------------------- -----------------------------------------
<C> <S> <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, MA/Hyannis, MA
9/1/96 Dr. Kollar Morrisville, VT
9/1/96 Dr. Ellicson Dalton, MA
9/1/96 Drs. Feingold and Rappaport Orange, CT
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>
The aggregate purchase price paid in connection with the acquisitions made
in 1995 consisted of $661,308 in cash, 143,280 shares of Common Stock valued at
$1,934,274, and $1,972,057 in promissory notes and assumed liabilities.
The difference between the consideration paid during 1995 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 $6,134,351 in net cash, 180,586 shares of Common Stock
valued at $3,781,804, $4,499,391 in promissory notes and assumed liabilities.
The Common Stock includes 14,637 shares of redeemable Common Stock valued at
$250,837 (see Note 9(d)). The promissory notes payable include $392,000 of notes
that are convertible into 27,936 shares of Common Stock (see Note 6).
F-17
<PAGE> 82
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the consideration paid in 1996 and the net fair
value of assets and liabilities acquired of $10,662,725 has been allocated to
the value of the Management Agreements.
Shares of the company's common stock issued in connection with the
acquisitions were valued at the fair market value as of the date of acquisition.
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 the adjustments for depreciation and amortization
of assets acquired and interest expense on acquisition financing, and shares
outstanding for stock issued.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues $22,486,775 $25,671,226
Net loss (2,649,321) (7,453,458)
Net loss per share (5.70) (5.22)
</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) FACILITY CLOSINGS
In the fourth quarter of 1996, First Dental decided to close certain
facilities because of their inability to generate future cash flows. First
Dental has recorded charges of $444,751 and $178,881 for the impairment of the
management agreements and an estimate of the future lease obligations,
respectively.
F-18
<PAGE> 83
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) SELECTED BALANCE SHEET INFORMATION
The details of certain balance sheet accounts were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment:
Equipment........................... $351,381 $2,044,417 $ 2,249,142
Leasehold improvements.............. 135,000 774,378 827,118
Furniture and fixtures.............. 45,000 278,776 299,693
Equipment under capital leases...... 29,170 1,303,784 1,599,227
-------- ---------- ----------
Total property and
equipment................. 560,551 4,401,355 4,975,180
Less accumulated depreciation and
amortization..................... 35,838 534,922 993,884
-------- ---------- ----------
Property and equipment,
net....................... $524,713 $3,866,433 $ 3,981,296
======== ========== ==========
Accrued expenses:
Due on closing...................... $301,297 $ 39,679 $ 13,651
Facility closings................... -- 178,881 115,083
Deferred rent....................... -- 146,746 174,262
Professional services............... 96,000 747,374 1,084,836
Other............................... 67,000 169,872 211,104
-------- ---------- ----------
$464,297 $1,282,552 $ 1,598,936
======== ========== ==========
</TABLE>
(6) LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Eastern Bank,
floating rate equal to the base
rate plus one percent, maturity
date of June 14, 1998. Loan was
paid off in June 1996............ $ 470,000 $ -- $ --
Notes payable to sellers in
connection with acquisitions, at
interest rates ranging from 7% to
10% with various maturities
through 2006..................... 613,470 3,029,297 2,683,066
Convertible notes payable to
sellers in connection with
acquisitions, at rates of 7% with
various maturities through
2006............................. -- 392,000 392,000
---------- ---------- ----------
1,083,470 3,421,297 3,075,066
Less current portion............... 871,673 2,125,989 1,993,053
---------- ---------- ----------
Long-term portion.................. $ 211,797 $1,295,308 $1,082,013
========== ========== ==========
</TABLE>
F-19
<PAGE> 84
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of June 30, 1997 for each of
the next five years are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
----------
<S> <C>
1997............................................................. $1,993,053
1998............................................................. 585,997
1999............................................................. 203,741
2000............................................................. 55,925
2001............................................................. 44,350
Thereafter....................................................... 192,000
----------
$3,075,066
==========
</TABLE>
In the event the revolving line of credit is terminated or canceled by
either First Dental or the Bank, or First Dental refinances with another lender,
or an initial public offering of stock is consummated, First Dental shall pay to
the Bank a fee equal to two and one-half (2.5%) percent of the aggregate amount
available to First Dental with a minimum payment of $75,000 and a maximum
payment of $125,000.
On December 3, 1996 First Dental entered into a commitment letter with
Fleet National Bank for the purpose of extending the revolving line of credit
facility. First Dental paid a commitment fee of $100,000 upon acceptance of the
credit line agreement and must pay an additional $100,000 upon closing of an
initial public offering by First Dental. The term of the extension will be three
years from the closing date and will increase the borrowing base of the facility
depending upon the amount raised by the IPO and First Dental's annualized
earnings before interest, taxes, depreciation and amortization.
UNAUDITED
In May 1997, First Dental extended its line of credit with Fleet Bank from
$5,000,000 to $6,000,000. At June 30, 1997, First Dental has a $6,000,000
revolving line of credit from Fleet National Bank which bears interest at the
bank's prime rate plus 2.5% (10.75% at December 31, 1996) and matures on July
25, 1997. As of June 30, 1997, First Dental's balance on this line of credit is
$5,994,166. The loan is collateralized by the assets of First Dental and is
personally guaranteed up to $5,000,000 by a principal shareholder of First
Dental (see Note 10). The loan was paid off on July 25, 1997.
Convertible Debt
As a result of the acquisition of Ingoldsby and Bergman, P.C., First Dental
issued to Dr. Ingoldsby and Dr. Bergman convertible promissory notes in the
amount of $100,000 each. Each promissory note is convertible into 10,768 shares
of First Dental's common stock. The notes are convertible up to 30 days after
notification from First Dental of the completion of an initial public offering.
If the election is not made, each note is due on November 2, 1997.
The premium allocated to the conversion feature of the notes was $205,286.
The amount was calculated at the date of issue as the difference between the
conversion price and the fair value of the common stock multiplied by the number
of shares into which the notes are convertible. The amount was allocated to the
asset Management Agreement and to additional paid-in capital.
As a result of the Springfield acquisition, Dr. Peck was also issued a
promissory note for $192,000 which can be converted into 6,400 shares of the
First Dental's common stock. The note is convertible up to 30 days after
notification from the First Dental of the completion of an initial public
offering. If he does not convert, the First Dental must pay off the loan at the
end of the election period. If the First Dental does not become a registrant
with the SEC, the note is due on November 8, 2006.
F-20
<PAGE> 85
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------------- JUNE 30,
1995 1996 1997
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Operating loss carryforwards....................... $ 379,336 $ 2,295,868 $ 3,489,667
Accrued expenses and other liabilities............. 282,924 407,356 380,902
Management Agreements and other intangibles........ 65,982 281,983 221,663
Acquisition related differences.................... 144,157 418,276 17,953
Allowance for doubtful accounts.................... -- 313,345 355,468
--------- ----------- ---------
872,399 3,716,828 4,465,653
Valuation allowance................................ (775,362) (3,143,520) (4,194,908)
--------- ----------- ---------
Net deferred tax asset............................. 97,037 573,308 270,745
Deferred tax liabilities:
Acquisition related differences.................... 95,280 368,802 49,864
Property and equipment............................. 1,757 204,506 220,881
--------- ----------- ---------
97,037 573,308 270,745
--------- ----------- ---------
Net deferred tax asset..................... $ -- $ -- $ --
========= =========== =========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1995 and
1996 was $775,362 and $3,143,520, respectively, principally attributable to the
increase in net operating losses. This allowance has been established due to the
uncertainty in the ability of First Dental to benefit from the federal and state
operating loss carryforwards. 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 will be allocated as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Income tax benefits that would be reported in the
combined statement of earnings........................ $660,503 $2,812,062 $ 3,990,063
Management Agreements and other intangibles............. 114,859 331,458 204,845
-------- --------- ---------
$775,362 $3,143,520 $ 4,194,908
======== ========= =========
</TABLE>
F-21
<PAGE> 86
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
JUNE 30,
1995 1996 1997
---------------------- ------------------------- -------------------------
FEDERAL STATE FEDERAL STATE FEDERAL STATE
--------- -------- ----------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Deferred income tax
asset -- current......... $ 337,317 $ 93,270 $ 993,531 $ 270,987 $ 669,200 $ 186,982
Deferred income tax
asset -- noncurrent...... 434,607 7,205 2,455,542 39,337 3,603,410 26,164
Valuation allowance........ (688,874) (86,488) (2,958,401) (185,119) (4,040,890) (154,018)
Deferred income tax
liability -- current..... (44,117) (10,878) (291,854) (69,653) (20,104) --
Deferred income tax
liability -- noncurrent... (38,933) (3,109) (198,818) (55,552) (211,616) (59,128)
--------- ------- ---------- -------- -------- --------
Net deferred
income tax
asset........... $ -- $ -- $ -- $ -- $ -- $ --
========= ======= ========== ======== ======== ========
</TABLE>
At June 30, 1997, the First Dental has net operating loss carryforwards for
Federal income tax purposes of approximately $10,300,000 which are available to
offset future Federal taxable income, if any.
The following table reconciles the Federal statutory income tax rate and
the First Dental's effective income tax rate:
<TABLE>
<CAPTION>
DECEMBER 31, SIX MONTHS
----------------- ENDED
1995 1996 JUNE 30,
----- ----- 1997
----------
(UNAUDITED)
<S> <C> <C> <C>
Income taxes at Federal statutory rate......................... 34.0% 34.0% 34.0%
State taxes, net of Federal benefit............................ 4.5 1 .1 (1.0)
Management Agreement and other permanent differences........... (0.1) (1.0) (1.6)
Acquisition-related expenses................................... (1.6) 2 .0 --
Valuation reserve.............................................. (36.8) (36.1) (31.4)
----- ----- -----
Effective income tax rate............................ 0.0% 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.
First Dental and the P.C.s file as a consolidated group for Federal income
tax purposes.
F-22
<PAGE> 87
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES
Lease Commitments
Future minimum lease payments under capital leases with remaining terms of
one or more years consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
CAPITAL
-----------
(UNAUDITED)
<S> <C>
1998............................................. $ 406,142
1999............................................. 373,269
2000............................................. 287,577
2001............................................. 151,340
2002............................................. 38,707
Thereafter....................................... 3,028
----------
Total minimum lease obligation................... 1,260,063
Less amount representing interest................ 274,589
----------
Present value of minimum lease obligation........ 985,474
Less current portion............................. 279,744
----------
Long-term capital lease obligation............... $ 705,730
==========
</TABLE>
Future minimum lease payments under noncancelable operating leases with
remaining terms of one or more years consist of the following at December 31,
1996:
<TABLE>
<CAPTION>
OPERATING
-----------
(UNAUDITED)
<S> <C>
1997............................................. $ 1,297,698
1998............................................. 1,228,509
1999............................................. 1,172,974
2000............................................. 1,136,901
2001............................................. 852,398
Thereafter....................................... 1,885,741
----------
Total minimum lease obligation................... $ 7,574,221
==========
</TABLE>
As part of its operations, First Dental enters into various leasing
arrangements. First Dental routinely leases premises for dental facilities and
corporate offices. First Dental principally operates in leased dental facilities
with terms of up to 10 years with renewable options for additional periods. For
each of its acquisitions, First Dental either assumed the operating lease for
the dental facility, was assigned the lease by the prior lessee or entered into
a new lease agreement. Capital lease obligations of acquired entities and the
associated assets were either assumed by First Dental or were paid off as part
of the acquisition transaction.
First Dental follows the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," in determining the criteria for
capital leases. Leases that do not meet such criteria are classified as
operating leases, and related rentals are charged to expense in the period
incurred.
(9) STOCKHOLDER'S EQUITY
(a) Stock Split
On November 24, 1995, First Dental declared a 199 for 1 stock dividend,
which has been retroactively reflected within the financial statements. (See
also Note 12)
F-23
<PAGE> 88
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Sales of Common Stock
During 1995, First Dental issued 800,617 shares of Common Stock for gross
proceeds of $2,101,215 at prices ranging from $.03 to $13.50 per share. Common
stock issued includes 666,667 shares in connection with a rights offering that
commenced in April 1995. Under the rights offering, the Company offered to its
existing shareholders the right to purchase additional shares based on a ratio
of 3.33 shares for every share owned at $.90 per share. Shares not sold to
existing shareholders under the rights offering were offered and sold to outside
investors.
During 1996, First Dental issued 659,871 shares of Common Stock at prices
ranging from $13.50 to $25.50 per share for gross proceeds of $14,687,071.
Common stock is reported net of offering and placement costs.
(c) Issuable Shares
During 1996, First Dental recorded as Issuable Shares 10,250 shares at
$24.00 per share as part of the consideration for an acquisition. The shares
will be issued on the earlier to occur of either an initial public offering by
First Dental or September 3, 2001.
(d) Redeemable Common Stock
As part of two acquisitions of dental facilities, the acquisition
agreements provide that First Dental may be required to repurchase 14,637 shares
of the common stock previously issued to the two dentists as part of the
acquisition their respective dental facilities. The dentists have the option to
put the stock back to First Dental at the original issuance value of $250,837.
The dentists must notify First Dental of their election to exercise the option
by April 15, 1997. If the option is elected, the dentists may redeem their stock
and request payment from First Dental anytime before September 30, 1997. The
dentists redeemed their stock on July 25, 1997.
(e) Stock Warrants
Effective May 29, 1995, First Dental issued warrants to certain investors
to purchase 110,000 shares of Common Stock for $.03 per share. The warrants were
issued in connection with certain loan guarantees and financial accommodations
given First Dental. These warrants were exercised in July 1996. In January,
March, May, and November 1996, First Dental issued warrants to purchase 900;
358; 8,333; and 17,657 shares of Common Stock for $.03 per share, $.03 per
share, $19.50 per share and $28.05 per share, respectively. The value of
warrants was determined based on the fair value of common stock at the date of
issuance. The impact on the financial statements of warrants issued was not
material. 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 and November 1996 warrants are exercisable for a period of ten
years.
Subsequent to December 31, 1996, First Dental issued warrants for services
in connection with equity placement to purchase 45,000 shares of Common Stock at
prices ranging from $25.50 to $28.05 per share. The warrants are exercisable for
a period of ten years.
(f) Stock Options
Executives and other key employees have been granted options to purchase
Common Stock of First Dental. Stock options generally have a maximum term of
five years and vest immediately or ratably over one to four year periods. First
Dental has elected to adopt the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" and therefore will continue to recognize compensation expense for
stock options in accordance with Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees". During 1996, First Dental recorded
$180,000 of
F-24
<PAGE> 89
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
unearned compensation, which is shown as a reduction of stockholders' equity in
the accompanying combined financial statements and is being amortized ratably
over the vesting period. First Dental recognized $44,306 of unearned
compensation expense in 1996. Had compensation cost been determined based on the
fair value at the grant date for stock options issued in accordance with the
provisions of SFAS No. 123, First Dental's net loss and loss per share would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net loss -- as reported........................... $(2,109,625) $(7,050,667)
Net loss -- pro forma............................. (2,118,054) (7,660,479)
Loss per share -- as reported..................... (10.68) (5.22)
Loss per share -- pro forma....................... (10.71) (5.67)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
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 is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996
------------------------ -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- --------------------------------------------------- ------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period................. -- $ -- 59,500 $ .99
Granted............................................ 59,500 .99 269,247 21.27
Exercised.......................................... -- -- (41,600) .03
------- ---- --------- -----
Outstanding at end of period....................... 59,500 $.99 287,147 $20.16
======= ==== ========= =====
Options exercisable at end of period............... 58,389 107,258
Weighted-average fair value of options granted
during the year.................................. $.30 $ 6.12
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -----------------------------------
RANGE OF NUMBER WEIGHTED-AVERAGE NUMBER
EXERCISE OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
PRICES 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE 12/31/96 EXERCISE PRICE
- -------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$.90 14,567 3.5 years $ .90 14,567 $ .90
13.50 to 19.50 180,833 4.5 years 18.96 39,583 17.28
21.00 to 30.00 91,747 4.8 years 25.59 53,108 25.29
------- -------
287,147 107,258
======= =======
</TABLE>
(10) RELATED PARTY TRANSACTIONS
On December 24, 1994, First Dental entered an agreement with The Fort Hill
Group, Inc., of which a principal stockholder 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 First Dental will pay the Fort Hill Group, Inc. $13,000 per
month for assistance with
F-25
<PAGE> 90
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
acquisitions through October 31, 1998. First Dental paid The Fort Hill Group,
Inc. $127,500 in 1996 and $85,000 for the six months ended June 30, 1997.
In December 1995, in connection with the acquisition of his dental
practice, Dr. Watkin received an unsecured loan of $210,000 from First Dental
bearing simple interest at 8.5% per annum. The loan is payable in full on or
before December 29, 2000.
During 1996, First Dental paid to a principal stockholder of First Dental,
fees totaling $455,000, of which $230,000 was paid in consideration for business
consulting services on behalf of the First Dental and $225,000 was paid in
consideration for a personal guarantee of $3,000,000 of First Dental's
$5,000,000 Credit Facility. In the opinion of First Dental's management, these
fees are comparable to the fees that would have been charged by an unrelated
party in an arms length transaction.
During 1996, First Dental paid to another stockholder fees totaling
$182,500, of which $150,000 was paid in consideration for business consulting
services on behalf of First Dental and $32,500 was paid in consideration for a
personal guarantee of $3,000,000 of First Dental's $5,000,000 Credit Facility.
In the opinion of First Dental's management, these fees are comparable to the
fees that would have been charged by an unrelated party in an arms length
transaction.
During 1996, First Dental paid to Medident, Inc., a company in which an
officer 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,
First Dental ceased payments to Medident, Inc. and commenced paying the officer
directly for consulting services rendered to First Dental.
UNAUDITED
For the six months ended June 30, 1997, First Dental paid $100,000 to a
principal stockholder in consideration for an increase in a personal guarantee
from $3,000,000 to $5,000,000 of First Dental's $6,000,000 credit facility.
(11) LIQUIDITY AND FINANCING COMMITMENT
For the years ended December 31, 1995 and 1996, First Dental has a net loss
of $2,109,625 and $7,050,667, respectively. At December 31, 1996, the First
Dental's net working capital deficit is $4,116,430. Management has begun to
implement strategies to reduce future operating losses and to acquire additional
more profitable operations. However, management does not believe that their
strategies will be sufficient to address the current liquidity crisis.
Accordingly, First Dental needs to raise additional capital to fund its
expected operating losses in 1997 and to acquire additional operations. In this
connection, First Dental has filed an initial public offering (IPO) registration
statement with the Securities and Exchange Commission. In addition, it is
working with the investment banking firm involved with the IPO, on a best
efforts private placement. Two stockholders and their investment firm, the Fort
Hill Group, Inc., have also begun a private placement effort on behalf of the
First Dental. However, there can be no assurances that these financing efforts
will raise sufficient financing timely enough to avoid a liquidity crisis or
that these efforts will be successful at all.
To address the immediate liquidity needs, on March 28, 1997, First Dental
received a financial commitment from two stockholders and the Fort Hill Group,
Inc. to fund First Dental's anticipated cash requirements for 1997 should First
Dental's financing efforts be unsuccessful or not accomplished timely.
Accordingly, First Dental is economically dependent upon the commitment of the
stockholders and their investment firm for its continued immediate liquidity
needs.
F-26
<PAGE> 91
FIRST NEW ENGLAND DENTAL CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On July 25, 1997, First Dental issued a private placement of senior debt in
the amount of $15,000,000 along with detachable warrants for 174,421 shares of
common stock at $.03 per share. The senior debt bears interest at a rate of 15%
compounded on a quarterly basis and is due on July 25, 1998. The senior debt is
collateralized by all the assets of First Dental. As a result of the issuance of
the senior debt, the revolving line of credit with Fleet Bank was paid off and
closed. The detachable warrants represent 7.5% of First Dental's outstanding
common stock on a fully diluted basis. The detachable warrants expire on July
25, 2001. In the event that the common stock of First Dental is not publicly
traded as of December 16, 1997, the senior debt requires First Dental to issue
additional warrants to the holders of the debt entitling the holders thereof to
acquire an additional 7.5% of First Dental's common stock on a fully diluted
basis. First Dental valued the detachable warrants at $1,000,000 and recorded
the fair value of the warrants as a credit to Additional Paid-in Capital.
12. SUBSEQUENT EVENTS (unaudited):
In connection with the private placement discussed in Note 11, the Company
issued 223,000 warrants at $.03. In addition, 33,000 warrants previously issued
at $25.50 per share were cancelled and re-issued at $.03. The Company recorded
deferred financing costs of $1,471,000 in connection with these transactions.
During August 1997, First Dental entered into a commitment to purchase the
assets of Dr. Saul Herman Dental Associates (the "New Jersey Facilities") for
$5.7M in cash. The New Jersey Facilities consist of 8 dental facilities and a
Health Maintenance Organization located in New Jersey. Subsequent to June 30,
1997, First Dental paid Dr. Herman $350,000 as a deposit on the purchase. If the
acquisition does not close by December 15, 1997, the deposit is forfeited.
On October 22, 1997, First Dental entered into an agreement to merge with
DentalCare Partners ("DCP"), in a transaction whereby DCP will become a wholly
owned subsidiary of First Dental. DCP manages 17 dental facilities across
Kentucky, Maryland, North Carolina, South Carolina, and Tennessee under the
trade name Dental Works. Shareholders of DCP shall receive approximately 452,800
shares of First Dental Common Stock in exchange for the Common Stock of DCP.
After the DCP acquisition, the shareholders of DCP will own 17% of the Common
Stock of First Dental. Consummation of the DCP Acquisition is a condition to the
consummation of First Dental's Form S-1 Registration Statement filing with the
Securities and Exchange Commission.
On October 22, 1997, the Board of Directors approved the filing of a
registration statement by the Company with the SEC covering the proposed sale of
shares of its common stock to the public (the Offering).
On October 22, 1997, the Board of Directors approved, subject to
shareholder approval, amendments to the Company's Amended and Restated Articles
of Incorporation to effect a one-for-three reverse stock split of the
outstanding Common Stock. All common and common equivalent shares and per share
amounts in these financial statements have been adjusted retroactively to give
effect to the stock split.
F-27
<PAGE> 92
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-28
<PAGE> 93
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-29
<PAGE> 94
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-30
<PAGE> 95
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-31
<PAGE> 96
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-32
<PAGE> 97
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-33
<PAGE> 98
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-34
<PAGE> 99
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-35
<PAGE> 100
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-36
<PAGE> 101
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-37
<PAGE> 102
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-38
<PAGE> 103
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-39
<PAGE> 104
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-40
<PAGE> 105
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-41
<PAGE> 106
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-42
<PAGE> 107
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-43
<PAGE> 108
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-44
<PAGE> 109
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-45
<PAGE> 110
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-46
<PAGE> 111
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-47
<PAGE> 112
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-48
<PAGE> 113
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-49
<PAGE> 114
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-50
<PAGE> 115
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-51
<PAGE> 116
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-52
<PAGE> 117
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-53
<PAGE> 118
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-54
<PAGE> 119
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-55
<PAGE> 120
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-56
<PAGE> 121
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-57
<PAGE> 122
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-58
<PAGE> 123
RICHARD S. HAROLD, D.M.D., 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 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-59
<PAGE> 124
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-60
<PAGE> 125
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-61
<PAGE> 126
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-62
<PAGE> 127
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-63
<PAGE> 128
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-64
<PAGE> 129
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-65
<PAGE> 130
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-66
<PAGE> 131
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-67
<PAGE> 132
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-68
<PAGE> 133
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-69
<PAGE> 134
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-70
<PAGE> 135
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-71
<PAGE> 136
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-72
<PAGE> 137
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-73
<PAGE> 138
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-74
<PAGE> 139
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-75
<PAGE> 140
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-76
<PAGE> 141
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-77
<PAGE> 142
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-78
<PAGE> 143
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-79
<PAGE> 144
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-80
<PAGE> 145
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>
APRIL AUGUST 31
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>
APRIL AUGUST 31
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>
APRIL AUGUST 31
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-81
<PAGE> 146
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-82
<PAGE> 147
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-83
<PAGE> 148
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-84
<PAGE> 149
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-85
<PAGE> 150
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-86
<PAGE> 151
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-87
<PAGE> 152
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-88
<PAGE> 153
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-89
<PAGE> 154
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-90
<PAGE> 155
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-91
<PAGE> 156
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-92
<PAGE> 157
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-93
<PAGE> 158
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-94
<PAGE> 159
SUPPLEMENTARY INFORMATION
F-95
<PAGE> 160
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-96
<PAGE> 161
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-97
<PAGE> 162
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-98
<PAGE> 163
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-99
<PAGE> 164
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-100
<PAGE> 165
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-101
<PAGE> 166
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-102
<PAGE> 167
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-103
<PAGE> 168
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-104
<PAGE> 169
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-105
<PAGE> 170
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-106
<PAGE> 171
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-107
<PAGE> 172
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-108
<PAGE> 173
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-109
<PAGE> 174
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-110
<PAGE> 175
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-111
<PAGE> 176
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-112
<PAGE> 177
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-113
<PAGE> 178
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-114
<PAGE> 179
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-115
<PAGE> 180
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-116
<PAGE> 181
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-117
<PAGE> 182
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-118
<PAGE> 183
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-119
<PAGE> 184
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-120
<PAGE> 185
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-121
<PAGE> 186
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-122
<PAGE> 187
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-123
<PAGE> 188
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-124
<PAGE> 189
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-125
<PAGE> 190
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-126
<PAGE> 191
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-127
<PAGE> 192
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-128
<PAGE> 193
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-129
<PAGE> 194
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-130
<PAGE> 195
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-131
<PAGE> 196
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-132
<PAGE> 197
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-133
<PAGE> 198
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-134
<PAGE> 199
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-135
<PAGE> 200
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-136
<PAGE> 201
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-137
<PAGE> 202
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-138
<PAGE> 203
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-139
<PAGE> 204
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-140
<PAGE> 205
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-141
<PAGE> 206
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-142
<PAGE> 207
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-143
<PAGE> 208
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-144
<PAGE> 209
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-145
<PAGE> 210
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-146
<PAGE> 211
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-147
<PAGE> 212
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-148
<PAGE> 213
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-149
<PAGE> 214
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-150
<PAGE> 215
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-151
<PAGE> 216
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-152
<PAGE> 217
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-153
<PAGE> 218
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-154
<PAGE> 219
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-155
<PAGE> 220
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-156
<PAGE> 221
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-157
<PAGE> 222
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-158
<PAGE> 223
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-159
<PAGE> 224
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-160
<PAGE> 225
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-161
<PAGE> 226
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-162
<PAGE> 227
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-163
<PAGE> 228
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-164
<PAGE> 229
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-165
<PAGE> 230
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-166
<PAGE> 231
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-167
<PAGE> 232
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-168
<PAGE> 233
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-169
<PAGE> 234
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-170
<PAGE> 235
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-171
<PAGE> 236
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-172
<PAGE> 237
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-173
<PAGE> 238
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-174
<PAGE> 239
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-175
<PAGE> 240
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-176
<PAGE> 241
MARK E. ELLICSON, D.M.D., P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED YEARS ENDED DECEMBER
AUGUST 31, 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-177
<PAGE> 242
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-178
<PAGE> 243
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-179
<PAGE> 244
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-180
<PAGE> 245
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-181
<PAGE> 246
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 YEARS ENDED DECEMBER
AUGUST 31, 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-182
<PAGE> 247
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-183
<PAGE> 248
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-184
<PAGE> 249
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-185
<PAGE> 250
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-186
<PAGE> 251
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-187
<PAGE> 252
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-188
<PAGE> 253
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-189
<PAGE> 254
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-190
<PAGE> 255
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-191
<PAGE> 256
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-192
<PAGE> 257
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-193
<PAGE> 258
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-194
<PAGE> 259
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-195
<PAGE> 260
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-196
<PAGE> 261
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-197
<PAGE> 262
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-198
<PAGE> 263
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-199
<PAGE> 264
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-200
<PAGE> 265
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
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
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-201
<PAGE> 266
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-202
<PAGE> 267
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-203
<PAGE> 268
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-204
<PAGE> 269
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-205
<PAGE> 270
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-206
<PAGE> 271
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-207
<PAGE> 272
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-208
<PAGE> 273
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-209
<PAGE> 274
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-210
<PAGE> 275
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-211
<PAGE> 276
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-212
<PAGE> 277
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-213
<PAGE> 278
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-214
<PAGE> 279
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-215
<PAGE> 280
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-216
<PAGE> 281
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-217
<PAGE> 282
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-218
<PAGE> 283
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-219
<PAGE> 284
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-220
<PAGE> 285
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-221
<PAGE> 286
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-222
<PAGE> 287
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-223
<PAGE> 288
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-224
<PAGE> 289
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-225
<PAGE> 290
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-226
<PAGE> 291
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-227
<PAGE> 292
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-228
<PAGE> 293
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-229
<PAGE> 294
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
------------- ------- -------
<C> <S> <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-230
<PAGE> 295
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-231
<PAGE> 296
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-232
<PAGE> 297
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-233
<PAGE> 298
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-234
<PAGE> 299
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-235
<PAGE> 300
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-236
<PAGE> 301
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-237
<PAGE> 302
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-238
<PAGE> 303
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-239
<PAGE> 304
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-240
<PAGE> 305
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-241
<PAGE> 306
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-242
<PAGE> 307
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-243
<PAGE> 308
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-244
<PAGE> 309
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-245
<PAGE> 310
SUPPLEMENTARY SCHEDULES
F-246
<PAGE> 311
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-247
<PAGE> 312
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-248
<PAGE> 313
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-249
<PAGE> 314
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-250
<PAGE> 315
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-251
<PAGE> 316
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-252
<PAGE> 317
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-253
<PAGE> 318
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-254
<PAGE> 319
SUPPLEMENTARY SCHEDULES
F-255
<PAGE> 320
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-256
<PAGE> 321
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-257
<PAGE> 322
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-258
<PAGE> 323
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-259
<PAGE> 324
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-260
<PAGE> 325
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-261
<PAGE> 326
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-262
<PAGE> 327
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-263
<PAGE> 328
SUPPLEMENTARY INFORMATION
F-264
<PAGE> 329
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-265
<PAGE> 330
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-266
<PAGE> 331
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-267
<PAGE> 332
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-268
<PAGE> 333
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-269
<PAGE> 334
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-270
<PAGE> 335
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-271
<PAGE> 336
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-272
<PAGE> 337
SUPPLEMENTARY SCHEDULES
F-273
<PAGE> 338
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-274
<PAGE> 339
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-275
<PAGE> 340
[PHOTOS OF OPERATORY BAYS AT THE PEABODY DENTAL FACILITY]
<PAGE> 341
============================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
The Company................................ 15
Use of Proceeds............................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Combined Historical Financial
Data..................................... 20
Unaudited Pro Forma Condensed Combined
Financial Data........................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 23
Business................................... 30
Management................................. 48
Certain Transactions....................... 54
Principal Stockholders..................... 55
Description of Capital Stock............... 56
Shares Eligible for Future Sale............ 57
Underwriting............................... 59
Legal Matters.............................. 60
Experts.................................... 61
Additional Information..................... 63
Index to Financial Statements.............. F-1
</TABLE>
------------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES 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
[FIRST DENTAL LOGO]
FIRST NEW ENGLAND
DENTAL CENTERS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
------------------------
[ ], 1997
============================================================
<PAGE> 342
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 First Dental. 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................ $10,325
Nasdaq listing fee................................................. $*
National Association of Securities Dealers filing fee.............. $ 4,000
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.
First Dental's By-laws provide for indemnification of directors, officers,
employees, and agents of First Dental 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> 343
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception, the Registrant has sold or issued the following
unregistered securities:
(1) Effective January 1, 1995, Registrant issued 750 shares of its
Common Stock (150,000 shares after giving effect to 199 for 1 stock
dividend) for aggregate consideration of $699,985 to Penzance
Partners II, Inc ("Penzance").
(2) 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.
(3) 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.
(4) On November 24, 1995, Registrant declared a 199 for 1 stock
dividend effective as of that date.
(5) On December 15, 1995, pursuant to the merger of Penzance with and
into Registrant, Registrant issued 1,100,800 shares to stockholders
of Penzance in exchange for their respective holdings in Penzance.
(6) Between December 18, 1995 and March 1996, Registrant issued 713,196
shares to accredited investors at a price of $4.50 per share.
(7) On March 15, 1996, Registrant issued 10,000 shares to William M.
DeArman in consideration for past consulting services provided to
Registrant.
(8) In May 1996, Registrant issued 29,914 shares to accredited
investors at prices of $4.50 and $6.50 per share.
(9) On May 17, 1996, Registrant issued a warrant for 25,000 shares at
an exercise price of $6.50 per share to an accredited investor in
consideration for equity placement services provided to Registrant.
(10) In June 1996, Registrant issued 76,923 shares to accredited
investors at a price of $6.50 per share.
(11) In July 1996, Registrant issued 458,574 shares pursuant to the
exercise of various warrants and stock options with an exercise
price of $0.01 per share.
(12) In September 1996, Registrant issued 25,089 shares to accredited
investors at prices of $4.50 and $6.50 per share.
(13) On October 1, 1996, Registrant issued 15,385 shares at a price of
$6.50 per share to Registrant's Chief Executive Officer pursuant to
the terms of his employment agreement.
(14) On October 23, 1996, Registrant issued 10,000 shares to accredited
investors at a price of $8.50 per share.
(15) On October 31, 1996, Registrant issued warrants for 100,000 shares
at an exercise price of $8.50 per share in consideration for equity
placement services provided to Registrant.
(16) 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.
(17) 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.
II-2
<PAGE> 344
(18) In November 1996, Registrant issued 57,148 shares to accredited
investors at prices of $6.50 and $8.50 per share.
(19) On November 21, 1996, Registrant issued warrants for 95,471 shares
at an exercise price of $9.35 per share in consideration for equity
placement services provided to Registrant.
(20) On December 31, 1996, Registrant issued 5,882 shares to a Selling
Dentist in consideration for practice identification and
acquisition services.
(21) Between December 29, 1995 and November 19, 1996, Registrant issued
971,568 shares to various Selling Dentists as part of the purchase
consideration for the operating assets of their respective 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. All
Selling Dentists receiving shares as part of the purchase
consideration were accredited investors.
(22) On July 25, 1997, Registrant issued senior secured fixed rate notes
(the "Senior Notes") in an aggregate principal amount of $15.0
million, together with warrants for 591,806 shares exercisable at a
price of $.01 per share to certain accredited investors.
(23) On October 22, 1997, Registrant issued warrants for 770,000 shares
exercisable at a price of $.01 per share to Oakes Fitzwilliams &
Co., Limited and certain other individuals in consideration for
assistance with the placement of the Senior Notes.
On October 22, 1997, Registrant's Board of Directors approved a 1-for-3
reverse split of its outstanding Common Stock, which is not reflected in items
(1) through (23).
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. Registrant sold (or otherwise
issued) its Common Stock to a limited number of investors in isolated, private
transactions. Neither Registrant nor any person acting on Registrant's behalf
offered or sold such Common Stock by any form of general solicitation or general
advertising. Most purchasers, other than the purchasers described in items (16)
and (17) and the Selling Dentists whose purchases are described in item (21),
were acquainted with one or more executive officers or directors of Registrant
prior to their investment. Selling Dentists were offered shares of Common Stock
only in connection with the acquisition of their respective dental practices in
separate negotiated acquisition transactions.
Registrant took reasonable care to assure, including through the use of
investor questionnaires and subscription agreements, (i) that purchasers were
acquiring the Common Stock for their own account, for investment purposes only,
and not with a view to resale, (ii) that purchasers received written disclosure
that such Common Stock was not registered under the Securities Act and could not
be resold without registration (or an available exemption therefrom), and (iii)
that all certificates representing shares of Registrant's Common Stock included
a legend setting forth the above restrictions on transfer.
Except as discussed in the following two sentences, Registrant believes
that all of the purchasers were accredited investors under Regulation D.
Registrant was initially capitalized through the sale of its Common Stock, as
described in item (1), to Penzance Partners II, Inc., an investment vehicle for
Registrant's founders and certain family members and close associates. All but
three of these investors, Registrant believes, were accredited investors.
Consequently, assuming that the sales of Common Stock set forth in item (1)
above were not integrated with subsequent sales (pursuant to the non-integration
criteria of Rule 502(a) or the waiver provisions of Rule 508), and in light of
Registrant's satisfaction of the other relevant requirements, Registrant
believes that the sales of Common Stock set forth in items (6) through (21) and
(23) would also satisfy the requirements of Rule 506 of Regulation D.
Registrant sold the Senior Notes and Warrants described in item (22)
pursuant to Rule 506 of Regulation D. All of the purchasers were accredited
investors, and Registrant believes that it has complied with the applicable
provisions of Rules 501 and 502.
II-3
<PAGE> 345
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a list of exhibits furnished:
<TABLE>
<C> <S>
1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger dated as of October 22, 1997 between First New
England Dental Centers, Inc. and Dental Care Partners, Inc.
3.1 Restated Certificate of Incorporation of First New England Dental Centers, Inc.+
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 Note Purchase Agreement dated as of July 25, 1997 for $15,000,000 Senior Secured
Fixed Rate Notes due July 25, 1998, between First New England Dental Centers,
Inc., Osorio and Watkin, D.M.D., P.C., the Purchasers and the Agent (as defined
therein).
10.2 Form of Warrant Agreement dated July 25, 1997 between First New England Dental
Centers, Inc. and each of the Purchasers.
10.3 Security Agreement dated as of July 25, 1997 between First New England Dental
Centers, Inc., Osorio and Watkin, D.M.D., P.C. and the Collateral Agent named
therein.
10.4 Registration Rights Agreement dated as of July 25, 1997 by and among First New
England Dental Centers, Inc. and the Initial Holders named therein.
10.5 Management Agreement effective as of August 4, 1995 between First New England
Dental Centers, Inc. and Osorio and Watkin, D.M.D., P.C.+
10.6 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.+
10.7 Security Agreement between First New England Dental Centers, Inc. and Osorio and
Watkin, D.M.D., P.C. dated as of August 4, 1995.+
10.8 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.+
10.9 Amended and Restated By-laws of Osorio and Watkin D.M.D., P.C.
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 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.+
10.17 License of Dentech Dental Office Management Computer System.+
10.18 Stock Purchase Agreement dated as of August 29, 1997 between First New England
Dental Centers, Inc. and Saul Herman, D.D.S. and Robert Armento, D.D.S.
10.19 Stock Purchase Agreement dated as of August 29, 1997 between FNEDC of New Jersey,
Inc. and Saul Herman, D.D.S. and Robert Armento, D.D.S.
10.20 Stock Purchase Agreement between First New England Dental Centers, Inc. and Clark
Ingoldsby, D.D.S. and Steven Bergman, D.M.D.
10.21 Asset Purchase and Sale Agreement by and among Mark E. Ellicson, D.M.D., P.C.,
Mark E. Ellicson, D.M.D. and First New Englind Dental Centers, Inc.
10.22 Plan of Reorganization and Agreement of Merger among First New England Dental
Centers, Inc., Frank Weisner, D.M.D., Orthodontist, P.C. and Frank Weisner, D.M.D.
</TABLE>
II-4
<PAGE> 346
<TABLE>
<C> <S>
10.23 Schedule of material differences between (i) each Asset Purchase Agreement entered
into by First New England Dental Centers, Inc. during the last two years and
Exhibit 10.21 and (ii) each Merger Agreement entered into by First New England
Dental Centers, Inc. during the last two years and Exhibit 10.22.
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.
23.9 Consent of Moody, Cavanaugh & 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 Carlin, Charron & Rosen 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 of the Registration Statement).
27 Financial Data Schedule for years ended December 31, 1995 and 1996 and 6 months
ended June 30, 1997 (for SEC use only).
</TABLE>
- ---------------
* To be filed by amendment
+ Incorporated by reference, pursuant to Rule 411(c), from Registration
Statement on Form S-1 of the Registration filed January 31, 1997 (File No.
333-20845) and withdrawn on order of the Commission at the request of the
Registrant effective September 17, 1997.
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,
II-5
<PAGE> 347
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 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-6
<PAGE> 348
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 23rd day of October, 1997.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: /s/ DONALD E. STRANGE
---------------------------------------
Donald E. Strange
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Donald E. Strange and Joseph A.
Anoli such person's true and lawful attorney-in-fact and agent, with power of
substitution and resubstitution to execute, deliver, and file for such person
and in such person's name, place and stead, in any and all capacities, any and
all amendments (including post-effective amendments) to this Registration
Statement, together with all exhibits thereto and any and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary or advisable to carry out
the full intent of this Power of Attorney, to the same extent and with the same
effect as such person might or could do personally, hereby ratifying,
confirming, and approving all acts and things that any said attorney-in-fact and
agent, or any substitute or substitutes of any of them, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<C> <S> <C>
/s/ DONALD E. STRANGE Chairman, President, Chief October 10, 1997
- --------------------------------------------- Executive Officer and
Donald E. Strange Director
/s/ JOSEPH A. ANOLI Chief Financial Officer October 10, 1997
- ---------------------------------------------
Joseph A. Anoli
/s/ ARNOLD WATKIN, D.D.S. Director October 7, 1997
- ---------------------------------------------
Arnold Watkin, D.D.S.
/s/ GEORGE R. BEGLEY Director October 10, 1997
- ---------------------------------------------
George R. Begley
/s/ AUSTIN BROADHURST, JR. Director October 8, 1997
- ---------------------------------------------
Austin Broadhurst, Jr.
/s/ DONALD J. LARSON Director October 10, 1997
- ---------------------------------------------
Donald J. Larson
</TABLE>
II-7
<PAGE> 349
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
12/31/96..................... 445,000 604,000 (1,253,984) 1,895,984 1,691,000
6/30/97...................... 1,691,000 -- (435,661) 4,661 1,260,000
</TABLE>
S-1
<PAGE> 350
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS PAGE
------ ------------------------------------------------------------------------ -----
<C> <S> <C>
1* Form of Underwriting Agreement.
2.1* Agreement and Plan of Merger dated as of October 22, 1997 between First
New England Dental Centers, Inc. and Dental Care Partners, Inc.
3.1 Restated Certificate of Incorporation of First New England Dental
Centers, Inc.+
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 Note Purchase Agreement dated as of July 25, 1997 for $15,000,000 Senior
Secured Fixed Rate Notes due July 25, 1998, between First New England
Dental Centers, Inc., Osorio and Watkin, D.M.D., P.C., the Purchasers
and the Agent (as defined therein).
10.2 Form of Warrant Agreement dated July 25, 1997 between First New England
Dental Centers, Inc. and each of the Purchasers.
10.3 Security Agreement dated as of July 25, 1997 between First New England
Dental Centers, Inc., Osorio and Watkin, D.M.D., P.C. and the Collateral
Agent named therein.
10.4 Registration Rights Agreement dated as of July 25, 1997 by and among
First New England Dental Centers, Inc. and the Initial Holders named
therein.
10.5 Management Agreement effective as of August 4, 1995 between First New
England Dental Centers, Inc. and Osorio and Watkin, D.M.D., P.C.+
10.6 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.+
10.7 Security Agreement between First New England Dental Centers, Inc. and
Osorio and Watkin, D.M.D., P.C. dated as of August 4, 1995.+
10.8 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.+
10.9 Amended and Restated By-laws of Osorio and Watkin D.M.D., P.C.
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 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.+
10.17 License of Dentech Dental Office Management Computer System.+
10.18 Stock Purchase Agreement dated as of August 29, 1997 between First New
England Dental Centers, Inc. and Saul Herman, D.D.S. and Robert Armento,
D.D.S.
10.19 Stock Purchase Agreement dated as of August 29, 1997 between FNEDC of
New Jersey, Inc. and Saul Herman, D.D.S. and Robert Armento, D.D.S.
10.20 Stock Purchase Agreement between First New England Dental Centers, Inc.
and Clark Ingoldsby, D.D.S. and Steven Bergman, D.M.D.
</TABLE>
<PAGE> 351
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBITS PAGE
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<C> <S> <C>
10.21 Asset Purchase and Sale Agreement by and among Mark E. Ellicson, D.M.D.,
P.C., Mark E. Ellicson, D.M.D. and First New Englind Dental Centers,
Inc.
10.22 Plan of Reorganization and Agreement of Merger among First New England
Dental Centers, Inc., Frank Weisner, D.M.D., Orthodontist, P.C. and
Frank Weisner, D.M.D.
10.23 Schedule of material differences between (i) each Asset Purchase
Agreement entered into by First New England Dental Centers, Inc. during
the last two years and Exhibit 10.21 and (ii) each Merger Agreement
entered into by First New England Dental Centers, Inc. during the last
two years and Exhibit 10.22.
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 Carus & 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.
23.9 Consent of Moody, Cavanaugh & 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 Carlin, Charron & Rosen 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 of the Registration
Statement).
27 Financial Data Schedule for years ended December 31, 1995 and 1996 and 6
months ended June 30, 1997 (for SEC use only).
</TABLE>
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* To be filed by amendment
+ Incorporated by reference, pursuant to Rule 411(c), from Registration
Statement on Form S-1 of the Registration filed January 31, 1997 (File No.
333-20845) and withdrawn on order of the Commission at the request of the
Registrant effective September 17, 1997.
<PAGE> 1
EXHIBIT 10.1
================================================================================
FIRST NEW ENGLAND DENTAL CENTERS, INC.
OSORIO AND WATKIN, D.M.D., P.C.
$15,000,000
Senior Secured Fixed Rate Notes due July 25, 1998
NOTE PURCHASE AGREEMENT
Dated as of July 25, 1997
================================================================================
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TABLE OF CONTENTS
PAGE
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1. AUTHORIZATION OF NOTES.......................................................................................1
2. SALE AND PURCHASE OF NOTES...................................................................................1
2.1. Obligation to Purchase............................................................................1
2.2. Purchase Date.....................................................................................2
2.3. Allocation of Purchase Price of Warrants..........................................................2
2.4. Interest Rate Limitation...........................................................................2
3. CONDITIONS TO THE PURCHASE DATE..............................................................................3
3.1. Documents Required................................................................................3
3.2. Opinions of Counsel...............................................................................7
3.3. Payment of Accrued Fees and Expenses..............................................................7
3.4. Representations and Warranties....................................................................7
3.5. No Default........................................................................................8
3.6. Purchase Permitted by Applicable Requirements of Law, Etc.........................................8
3.7. No Litigation or Other Proceedings................................................................8
3.8. No Material Adverse Change........................................................................8
4. RESERVED.....................................................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................................8
5.1. Organization; Power and Authority; Capitalization; Warrants.......................................9
5.2. Authorization, Enforceability, Etc...............................................................10
5.3. Disclosure.......................................................................................10
5.4. Organization and Ownership of Shares of Subsidiaries, Etc........................................11
5.5. Financial Statements.............................................................................11
5.6. Compliance with Laws, Other Instruments, Etc.....................................................12
5.7. Governmental Authorizations, Etc.................................................................12
5.8. Litigation.......................................................................................13
5.9. Taxes............................................................................................13
5.10. Title to Property; Leases.......................................................................14
5.11. Security Interests, Etc.........................................................................14
5.12. Licenses, Permits, Etc..........................................................................14
5.13. Compliance with ERISA...........................................................................15
5.14. Private Offering by the Company.................................................................16
5.15. Use of Proceeds; Margin Regulations.............................................................16
5.16. Status Under Certain Statutes...................................................................17
5.17. Securities Act Matters..........................................................................17
5.18. Employee and Labor Matters......................................................................17
5.19. Environmental Matters...........................................................................18
5.20. No Burdensome Agreements........................................................................19
5.21. Existing Indebtedness; Future Liens.............................................................19
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5.22. Solvency........................................................................................19
5.23. Related Party Transactions......................................................................20
5.24. Material Contracts..............................................................................20
5.25. Pari Passu Obligations..........................................................................20
5.26. No Significant Subsidiaries.....................................................................21
5.27. Management Agreement............................................................................21
6. REPRESENTATIONS AND COVENANTS OF EACH OF THE PURCHASERS.....................................................21
6.1. Purchase for Investment..........................................................................21
6.2. Accredited Investor..............................................................................21
6.3. Power and Authority..............................................................................22
7. PREPAYMENTS AND REDEMPTIONS OF THE NOTES....................................................................22
7.1. Optional Prepayments of the Notes................................................................22
7.2. Offer to Repurchase Notes and Reduce Commitments in Respect of a Change of
Control........................................................................................22
7.3. Mandatory Redemptions of the Notes...............................................................23
7.4. Allocation of Partial Prepayments................................................................24
7.5. Maturity; Surrender, Etc.........................................................................24
7.6. Purchase of Notes................................................................................25
8. AFFIRMATIVE COVENANTS.......................................................................................25
8.1. Information Covenants............................................................................25
8.2. Compliance with Law..............................................................................30
8.3. Maintenance of Insurance.........................................................................31
8.4. Maintenance of Properties........................................................................31
8.5. Payment of Taxes and Claims; Performance of Material Obligations.................................31
8.6. Preservation of Corporate Existence, Etc.........................................................32
8.7. Maintenance of Books and Records; Inspection.....................................................32
8.8. Use of Proceeds..................................................................................33
8.9. Search Reports...................................................................................33
8.10. Additional Subsidiaries.........................................................................33
8.11. Appointment of Directors........................................................................34
8.12. Designation of Shares of Common Stock...........................................................34
9. NEGATIVE COVENANTS..........................................................................................34
9.1. Limitations on Transactions with Affiliates......................................................34
9.2. Limitations on Liens.............................................................................35
9.3. Limitations on Indebtedness......................................................................37
9.4. Limitations on Sale-Leaseback Transactions.......................................................38
9.5. Limitations on Restricted Payments...............................................................38
9.6. Limitations on Fundamental Changes, Asset Sales, Acquisitions, Etc...............................38
9.7. Limitations on Investments, Etc..................................................................40
9.8. Limitation on Issuance of Capital Stock..........................................................41
</TABLE>
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<TABLE>
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9.9. Limitation on Modifications of Indebtedness; Modifications of Certificate of
Incorporation, Bylaws and Certain Other Agreements; Etc........................................41
9.10. Limitations on Conduct of Business..............................................................42
9.11. Limitations on Accounting Changes and Changes in Fiscal Year....................................42
9.12. Limitations on Speculative Transactions.........................................................42
9.13. Limitations on Capital Expenditures.............................................................43
9.14. Limitations on Changes to Management Agreement..................................................43
10. RESERVED...................................................................................................43
11. EVENTS OF DEFAULT..........................................................................................43
11.1. Events of Default...............................................................................43
11.2. Acceleration....................................................................................47
11.3. Other Remedies..................................................................................47
11.4. Rescission......................................................................................47
11.5. Restoration of Rights and Remedies..............................................................48
11.6. No Waivers or Election of Remedies, Etc.........................................................48
12. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..............................................................48
12.1. Registration of Notes...........................................................................48
12.2. Transfer and Exchange of Notes..................................................................49
12.3. Replacement of Notes............................................................................50
13. PAYMENTS ON NOTES..........................................................................................50
14. EXPENSES, INCREASED COSTS AND INDEMNIFICATION, ETC.........................................................51
14.1. Transaction Expenses............................................................................51
14.2. Indemnity.......................................................................................52
14.3. Reserved........................................................................................54
14.4. Survival........................................................................................54
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT...............................................54
16. AMENDMENT AND WAIVER.......................................................................................54
16.1. Requirements....................................................................................54
16.2. Solicitation of Holders of Notes................................................................54
16.3. Binding Effect, Etc.............................................................................55
16.4. Notes Held by Company, Etc......................................................................55
17. NOTICES....................................................................................................55
18. REPRODUCTION OF DOCUMENTS..................................................................................56
19. MISCELLANEOUS..............................................................................................56
</TABLE>
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<TABLE>
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19.1. Successors and Assigns..........................................................................56
19.2. Payments Due on Non-Business Days...............................................................57
19.3. Satisfaction Requirement........................................................................57
19.4. Severability....................................................................................57
19.5. Construction; Accounting Terms, Etc.............................................................57
19.6. Computation of Time Periods.....................................................................57
19.7. Execution in Counterparts.......................................................................58
19.8. Governing Law; Submission to Jurisdiction, Etc..................................................58
19.9. Waiver of Jury Trial............................................................................58
20. THE COLLATERAL AGENT.......................................................................................59
20.1 Appointment......................................................................................59
20.2 Nature of Duties.................................................................................59
20.3 Rights, Exculpation, Etc.........................................................................59
20.4 Reliance.........................................................................................60
20.5 Indemnification..................................................................................60
20.6 Imprimis Investors LLC Individually..............................................................60
20.7 Successor Collateral Agent.......................................................................61
20.8 Collateral Matters...............................................................................61
</TABLE>
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SCHEDULES
Schedule I - Information Relating to Purchasers
Schedule II - Defined Terms
Schedule 5.1 - Capitalization
Schedule 5.4 - Subsidiaries
Schedule 5.5(b) - Material Adverse Events
Schedule 5.5(c) - Liabilities and Other Obligations
Schedule 5.7 - Governmental Authorizations and Other Approvals
Schedule 5.8 - Disclosed Litigation
Schedule 5.12 - License and Intellectual Property Infringements, Etc.
Schedule 5.15 - Transaction Costs and Expenses
Schedule 5.18 - Employee and Labor Matters
Schedule 5.19 - Environmental Matters
Schedule 5.21 - Existing Indebtedness
Schedule 5.24 - Material Contracts
Schedule 5.25 - Senior Indebtedness
Schedule 9.1 - Transactions with Affiliates
Schedule 9.2 - Existing Liens
Schedule 9.5 - Management and Consulting Agreements
Schedule 9.7 - Existing Investments
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Warrant Agreement
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Solvency Certificate
Exhibit F - Form of Opinion of Special Counsel for the Companies
Exhibit G - Form of Compliance Certificate
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<PAGE> 7
FIRST NEW ENGLAND DENTAL CENTERS, INC.
85 Devonshire Street
Boston, Massachusetts 02109
OSORIO AND WATKIN, D.M.D., P.C.
85 Devonshire Street
Boston, Massachusetts 02109
Senior Secured Fixed Rate Notes due July 25, 1998
As of July 25, 1997
TO EACH OF THE PURCHASERS LISTED IN
SCHEDULE I ATTACHED HERETO:
Ladies and Gentlemen:
First New England Dental Centers, Inc., a Delaware corporation
("First New England"), and Osorio and Watkin, D.M.D., P.C., a Massachusetts
professional corporation ("O&W" and together with First New England each a
"Company" and collectively, the "Companies"), each hereby agrees with you as
follows:
1. AUTHORIZATION OF NOTES.
The Companies will authorize the issue and sale of $15,000,000
in aggregate principal amount of Senior Secured Fixed Rate Notes due July 25,
1998 (the Notes delivered pursuant to Section 2 of this Agreement and any such
Notes issued in substitution therefor pursuant to Section 12 of this Agreement
being, collectively, the "Notes"). Each of the Notes shall be in substantially
the form of Exhibit A attached hereto, with such amendments, supplements and
other modifications thereto, if any, as shall be approved from time to time by
the Purchasers and each of the Companies in accordance with the Note Documents.
Capitalized terms used in this Agreement, unless otherwise defined in this
Agreement, shall have the meanings specified in Schedule II attached hereto; and
references in this Agreement to a "Schedule" or an "Exhibit" are, unless
otherwise specified herein, references to a Schedule or an Exhibit attached to
this Agreement.
2. SALE AND PURCHASE OF NOTES.
2.1. OBLIGATION TO PURCHASE.
Subject to the terms and conditions of this Agreement, the
Companies will issue and sell to each of the purchasers listed in Schedule I
attached hereto (the "Purchasers"), and each of the Purchasers will purchase
from the Companies on the Purchase Date, Notes in the aggregate principal
amounts set forth opposite each of the respective Purchaser's names on
<PAGE> 8
Schedule I hereto, at the purchase price of 100% of the aggregate principal
amount thereof. The Notes purchased and sold under this Section 2.1 and repaid
or prepaid may not be repurchased and resold. The Companies agree to record on
the Register referred to in Section 12.1 hereof the Notes. The Companies agree
to execute and deliver to each Purchaser a promissory note in registered form to
evidence such Purchaser's purchase hereunder and registered as provided in
Section 12.1 hereof (herein, a "Registered Note"), dated the Purchase Date,
payable to such Purchaser and otherwise duly completed. Notes other than
Registered Notes shall be null and void and shall be returned to the Companies.
A Registered Note may not be exchanged for a promissory note that is not a
Registered Note.
2.2. PURCHASE DATE.
The sale and purchase of the Notes shall occur at the offices
of Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022, at or
before 1:00 P.M. (New York City time) on July 25, 1997 or on such other Business
Day thereafter as may be agreed upon among the Companies and the Purchasers (the
"Purchase Date"). On the Purchase Date, subject to the fulfillment of the
applicable conditions set forth in Section 3, the Companies will deliver to each
of the Purchasers the Notes to be purchased by each such Purchaser on the
Purchase Date in the form of a single Note (or such greater number of Notes in
denominations of at least $25,000 or integral multiples of $25,000 in excess
thereof as any such Purchaser may request), dated such Purchase Date and
registered in the name of such Purchaser (or in the name of its nominee),
against delivery by such Purchaser to the Companies or their order of same day
funds in the amount of the aggregate purchase price therefor.
2.3. ALLOCATION OF PURCHASE PRICE OF WARRANTS.
The parties hereto agree that for federal income tax purposes,
the purchase price to be attributed to the Notes is $14,350,000 and the Warrants
issued to the Purchasers hereunder on the Purchase Date is $650,000.
2.4. INTEREST RATE LIMITATION.
Notwithstanding any provisions of this Agreement, the Notes or
the other Note Documents, in no event shall the amount of interest paid or
agreed to be paid by the Companies exceed an amount computed at the highest rate
of interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement, the Notes or the
other Note Documents at the time performance of such provision shall be due,
shall involve exceeding the interest rate limitation validly prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then, ipso
facto, the obligations to be fulfilled shall be reduced to an amount computed at
the highest rate of interest permissible under applicable law, and if for any
reason whatsoever any Purchaser shall ever receive as interest an amount which
would be deemed unlawful under such applicable law such interest shall be
automatically applied to the payment of principal of the Notes outstanding
hereunder (whether or not then due and payable), without prepayment charge,
premium or penalty, and not to the payment of interest, or shall be refunded to
the Companies if such principal and all other obligations of the Companies to
such Purchaser have been paid in full.
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<PAGE> 9
3. CONDITIONS TO THE PURCHASE DATE.
Each of the Purchaser's obligations to purchase and pay for
the Notes to be sold on the Purchase Date is subject to the fulfillment to the
Major Purchaser's satisfaction, on or prior to the Purchase Date, of the
following conditions:
3.1. DOCUMENTS REQUIRED.
The Major Purchaser shall have received the following
documents, each dated as of the Purchase Date (except as otherwise specified
below) and in the form of the respective Exhibit attached hereto, if any, or
otherwise in form and substance satisfactory to the Major Purchaser:
(a) Note Purchase Agreement. This Agreement duly executed
by each of the Companies and each of the Purchasers.
(b) Notes. Notes, registered in the name of each
Purchaser, in such aggregate principal amounts as is specified to be
purchased by such Purchaser in the Notice of Sale and Purchase and in
such number of Notes and in such denominations (of at least $25,000 per
Note) as are specified to the Companies by such Purchaser (and in the
absence of such specification, in a single Note), in each case duly
executed by each of the Companies.
(c) Security Agreements. One or more security agreements,
in each case in substantially the form of Exhibit B attached hereto
(the security agreements delivered pursuant to this subsection, as
amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and Section 16, the "Security
Agreements"), duly executed by each of the Companies and each of their
respective Subsidiaries, together with:
(i) proper financing statements (Form UCC-1 or a
comparable form) or the equivalent thereof under the Uniform
Commercial Code (or similar law or statute) of all
jurisdictions that may be necessary or that the Major
Purchaser may deem desirable in order to perfect and protect
the liens and security interests created under the Security
Agreements, covering the Collateral described therein, in each
case completed in a manner satisfactory to the Major Purchaser
and duly executed by the applicable Company; and
(ii) evidence that all other actions that may be
necessary or that the Major Purchaser may deem desirable in
order to perfect and protect the Liens and security interests
created under the Security Agreements have been taken or will
be taken in accordance with the terms of the Note Documents.
(d) Warrant Agreements. One or more warrant agreements in
favor of each Purchaser in substantially the form of Exhibit C attached
hereto (the warrant agreements delivered pursuant to this subsection,
as amended, supplemented or otherwise modified
-3-
<PAGE> 10
from time to time in accordance with the terms thereof and Section 16,
the "Warrant Agreements") duly executed by First New England.
(e) Registration Rights Agreements. One or more
registration rights agreements in favor of each Purchaser in
substantially the form of Exhibit D attached hereto (the registration
rights agreements delivered pursuant to this subsection, as amended,
supplemented or otherwise modified from time to time in accordance with
the terms thereof and Section 16, the "Registration Rights Agreements")
duly executed by First New England.
(f) Corporate Approvals and Other Similar Documentation.
Certified copies of the resolutions of the board of directors (or
persons performing similar functions) of each of the Companies
approving each of the Note Documents to which it is or is to be a
party, the issuance and sale of the Notes and the other transactions
contemplated hereby and thereby and all documents evidencing other
necessary corporate action with respect to each such Note Document, the
issuance and sale of the Notes and the other transactions contemplated
hereby and thereby.
(g) Organizational Documents. A copy of the certificate
of incorporation or other organizational documents of each of the
Companies and each amendment thereto, certified (as of a date
reasonably near the Purchase Date) by the Secretary of State of the
jurisdiction of organization of each such Company as being a true and
complete copy thereof.
(h) Good Standing Certificates. A copy of a certificate
of the Secretary of State of the jurisdiction of organization of each
of the Companies, dated reasonably near the Purchase Date, listing the
certificate of incorporation of each such Company and each amendment
thereto on file in the office of such Secretary of State and certifying
that (i) such amendments are the only amendments to the organizational
documents of such Company on file in his office, (ii) such Company has
paid all franchise taxes (or the equivalent thereof) to the date of
such certificate and (iii) such Company is duly incorporated and in
good standing under the laws of such State.
(i) Foreign Qualification Certificates. Copies of
certificates of the Secretary of State (or the equivalent Governmental
Authority) of each jurisdiction in which each Company is qualified as a
foreign corporation, dated reasonably near the Purchase Date, in each
case stating that such Company is duly qualified and in good standing
as a foreign corporation in such jurisdiction and has filed all annual
reports required to be filed, and paid all franchise taxes (or the
equivalent thereof) required to be paid, in such jurisdiction to the
date of such certificate.
(j) Secretary's Certificate. A certificate from the
secretary or an assistant secretary (or a Person performing similar
functions) of each of the Companies certifying:
-4-
<PAGE> 11
(i) the absence of any amendments to the
certificate of incorporation of such Company since the date of
the Secretary of State's certificate referred to in subsection
(g) of this Section 3.1;
(ii) the completeness and accuracy of the
resolutions of the board of directors of such Company and all
documents evidencing other necessary corporate action thereof
referred to in subsection (f) of this Section 3.1;
(iii) the completeness and accuracy of the bylaws
of such Company as in effect on the date the resolutions of
the board of directors of such Company referred to in
subsection (f) of this Section 3.1 were adopted and on the
Purchase Date (a copy of which shall be attached to such
certificate);
(iv) the names and true signatures of the
officers of such Company authorized to sign each of the Note
Documents to which it is or is to be a party and the other
agreements, instruments and other documents to be delivered
hereunder or thereunder; and
(v) such other matters as the Major Purchaser
shall specify relating to the existence and good standing of
such Company and the corporate and other necessary authority
for, and the validity of, each of the Note Documents to which
it is or is to be a party and any other matters relevant to
any of the foregoing.
(k) Officer's Certificate. A certificate of each of the
Companies, signed on behalf of each such Company by the Senior
Financial Officer thereof (the statements made in which certificate
shall be true on and as of the Purchase Date), certifying as to:
(i) the due organization and good standing of
such Company and each of its Subsidiaries in their respective
jurisdictions of organization and the absence of any
proceeding for the dissolution or liquidation of such Company
or any of its Subsidiaries;
(ii) the completeness and accuracy of all of the
representations and warranties made by such Company in this
Agreement and the other Note Documents to which it is or is to
be a party, before and after giving effect to the issue and
sale of the Notes and to the application of the proceeds
therefrom as contemplated by Section 5.15(a), as though made
on and as of the Purchase Date;
(iii) the absence of any event occurring and
continuing, or resulting from the issue and sale of the Notes
or the consummation of any of the other transactions
contemplated hereby, that constitutes a Default or an Event of
Default;
(iv) neither such Company nor any of its
Subsidiaries having changed its jurisdiction of organization,
having been a party to any merger, consolidation or other
similar transaction or having issued or sold any shares of its
capital stock
-5-
<PAGE> 12
(or other ownership or profit interests therein), or any
warrants, options or other rights therefor, at any time
following the date of the most recent unaudited consolidated
financial statements of such Company and its Subsidiaries
referred to in Section 5.5(a);
(v) the absence of any existing or, to the best
of his knowledge, threatened event or circumstance applicable
to such Company or any of its Subsidiaries that could
reasonably be expected to impair the ability of such Company
to repay the Notes; and
(vi) the satisfaction of all conditions precedent
by such Company to the issuance and sale of the Notes on and
as of the Purchase Date.
(l) Solvency Certificates. A certificate from the chief
financial officer of each of the Companies, in substantially the form
of Exhibit E attached hereto, attesting to the Solvency of each such
Company and its Subsidiaries, taken as a whole, immediately before and
immediately after giving effect to the Note Documents and all of the
transactions contemplated hereby or thereby to occur on or about the
Purchase Date and assuming the sale and purchase of Notes on such date
in an aggregate principal amount of $15,000,000.
(m) Financial Information. Copies of (i) the audited
consolidated financial statements of the Companies and their respective
Subsidiaries referred to in Section 5.5(a), in each case accompanied by
an unqualified opinion of KPMG Peat Marwick LLP, independent
accountants of the Companies, and (ii) the unaudited financial
statements of each of the Companies and their respective Subsidiaries
referred to in Section 5.5(a), together with a certificate of a Senior
Financial Officer of each of the Companies with respect thereto.
(n) Consents. Certified copies of all Governmental
Authorizations, and all consents, approvals and authorizations of, and
notices to and other actions by, all Persons with whom any of the
Companies or any of their respective Subsidiaries has any contractual
obligations, as shall be required for the execution, delivery or
performance of this Agreement and the other Note Documents or the
consummation of the issuance and sale of the Notes or any of the other
transactions contemplated hereby or thereby.
(o) Existing Indebtedness. Certified copies of all of the
agreements, instruments and other documents evidencing or setting forth
the terms and conditions of the Indebtedness of each of the Companies
and their respective Subsidiaries existing on the Purchase Date and in
an aggregate amount of at least $100,000 (all of which Indebtedness is
described on Schedule 5.21 attached hereto).
(p) Fleet National Bank Facility. A termination agreement
with respect to the $5,000,000 Revolving Line of Credit Note dated June
14, 1996, as amended, among the Companies and Fleet National Bank,
together with UCC-3 termination statements for all
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<PAGE> 13
UCC-1 financing statements filed by Fleet National Bank and which cover
any portion of the Collateral.
(q) UCC Searches. Certified copies of requests for copies
or information on Form UCC-11, listing all effective financing
statements which name as debtor either Company, tax liens and judgment
liens, together with copies of such financing statements, none of
which, except as otherwise agreed to in writing by the Major Purchaser,
shall cover any of the Collateral.
(r) Foreign Qualifications. A certificate, dated as of a
date not more than 10 Business Days prior to the Purchase Date, of the
appropriate official(s) of the states of incorporation and each state
of foreign qualification of the Companies and their Subsidiaries,
certifying as to the subsistence in good standing of, and the payment
of taxes by, such Person in such states and listing all charter
documents of such Person on file with such official(s);
(s) Insurance Certificates. A certificate of insurance
evidencing insurance on the property of the Companies and their
Subsidiaries as is required by Section 8.3 of this Agreement, naming
the Collateral Agent as additional insured and loss payee, using a long
form loss payee endorsement, for all insurance maintained by the
Companies and their Subsidiaries.
(t) Additional Documentation. Such other information as
the Major Purchaser may reasonably request.
3.2. OPINION OF COUNSEL.
The Purchasers shall have received the favorable opinion,
dated the Purchase Date and of McDermott, Will & Emery, special counsel for the
Companies in substantially the form of Exhibit F attached hereto or otherwise in
form and substance satisfactory to the Major Purchaser, and addressing such
other matters as the Major Purchaser (or its counsel) may reasonably request
(and the Company hereby instructs its special counsel to deliver such opinion to
the Purchasers).
3.3. PAYMENT OF ACCRUED FEES AND EXPENSES.
Without limiting the provisions of Section 14.1, all of the
accrued fees and expenses incurred by the Major Purchaser in connection with the
transactions contemplated by this Agreement and the other Note Documents
(including, without limitation, the accrued fees and expenses of one special
counsel to the Major Purchaser) to be paid by the Companies on or prior to the
Purchase Date shall have been paid.
3.4. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of each of the Obligors
contained in this Agreement and each of the other Note Documents shall be
complete and correct on the Purchase
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Date, before and after giving effect to the issue and sale of the Notes and to
the application of the proceeds therefrom as contemplated by Section 5.15(a).
3.5. NO DEFAULT.
After giving effect to the issue and sale of the Notes and to
the application of the proceeds therefrom as contemplated by Section 5.15(a), no
Default or Event of Default shall have occurred and be continuing.
3.6. PURCHASE PERMITTED BY APPLICABLE REQUIREMENTS OF LAW, ETC.
The purchase of and any payment for the Notes to be purchased
on the Purchase Date (a) shall be permitted by the applicable Requirements of
Law of each jurisdiction to which such Purchaser is subject, (b) shall not
violate any applicable Requirements of Law (including, without limitation,
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System)
and (c) shall not subject such Purchaser to any tax, penalty or other liability
under or pursuant to any applicable Requirements of Law.
3.7. NO LITIGATION OR OTHER PROCEEDINGS.
Except as described on Schedule 5.8 attached hereto, there
shall exist no action, suit, investigation, litigation or proceeding pending or,
to the best knowledge of the Companies, threatened against or affecting any of
the Obligors or any of their respective Subsidiaries or any of the property or
assets thereof in any court or before any arbitrator or by or before any other
Governmental Authority of any kind that (a) either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect or (b)
challenges the legality, validity, binding effect or enforceability of this
Agreement or any of the other Note Documents or the consummation of the sale and
purchase of the Notes or any of the other transactions contemplated hereby or
thereby.
3.8. NO MATERIAL ADVERSE CHANGE.
Except as described on Schedule 5.5(b) attached hereto, since
December 31, 1996, there shall not have occurred (in the judgment of the Major
Purchaser) a material adverse change in the business, condition (financial or
otherwise), operations, results of operations, assets, property, liabilities or
prospects of either of the Companies or their respective Subsidiaries.
4. RESERVED.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Each of the Companies represents and warrants to each of the
Purchasers that as of the Purchase Date:
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<PAGE> 15
5.1. ORGANIZATION; POWER AND AUTHORITY; CAPITALIZATION; WARRANTS.
Each of the Companies and each of their respective
Subsidiaries are Persons duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of organization and are duly
qualified as foreign corporations or other entities and are in good standing in
each other jurisdiction in which the ownership, lease or operation of their
property and assets or the conduct of their businesses requires such
qualification, other than any such jurisdiction in which the failure to be so
qualified or in good standing, either individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect. Each of the
Companies and each of their respective Subsidiaries have all corporate and other
necessary power and authority, and the legal right, to own or to hold under
lease all of the property and assets they purport to own or hold under lease and
to conduct the business they conduct and propose to conduct. Each of the
Obligors has all corporate and other necessary power and authority, and the
legal right, to execute and deliver this Agreement, the Notes and the other Note
Documents to which it is or is to be a party, to perform its Obligations
hereunder and thereunder and to consummate all of the transactions contemplated
hereby and thereby. On the Purchase Date after giving effect to the transactions
contemplated hereunder to occur on the Purchase Date, the authorized Capital
Stock of each of the Companies will consist of the securities described in Part
I of Schedule 5.1 hereto. Except for any shares of Common Stock of First New
England to be issued pursuant to the Warrants and as set forth on Part II of
Schedule 5.1 hereto, there are no other shares of capital stock of any of the
Companies outstanding and no other outstanding options, warrants, convertible or
exchangeable securities, subscriptions, rights (including preemptive rights),
stock appreciation rights, calls or commitments of any character whatsoever to
which any of the Companies is a party or may be bound requiring the issuance or
sale of shares of any capital stock of any of the Companies, and there are no
contracts or other agreements by which any of the Companies is or may become
bound to issue additional shares of its capital stock or any options, warrants,
convertible or exchangeable securities, subscriptions, rights (including
preemptive rights), stock appreciation rights, calls or commitments of any
character whatsoever relating to such shares. First New England has (a)
authorized the issuance of warrants to purchase 523,262 shares of Common Stock,
which warrants shall be substantially in the form of Exhibit C hereto (such
certificates, together with the rights to purchase Common Stock provided thereby
and all warrant certificates covering such stock issued upon transfer, division
or combination of, or in substitution for, any thereof, being herein called the
"Warrants") for issuance to the Purchasers pursuant to this Agreement, and (b)
authorized the issuance of such number of shares of Common Stock as shall be
necessary to permit First New England to comply with its obligations to issue
Common Stock upon exercise of the Warrants, and has duly reserved such number of
shares of Common Stock solely for such purpose (including, without limitation,
such additional number of shares of Common Stock as may be required from time to
time by Section 2.9 of the Warrant Agreements including, without limitation, an
additional 523,262 shares of Common Stock for certain events described in the
Warrant Agreements). The Common Stock to be delivered upon exercise of the
Warrants, will be duly authorized, issued and outstanding, fully-paid and
non-assessable and will be issued free of any preemptive rights. After giving
effect to the transactions contemplated hereby and in the Note Documents and the
issuance to the Purchasers of the Warrants, all of the issued and outstanding
Capital Stock of each of the Companies is and will be validly issued, fully paid
and non-assessable and free of all
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<PAGE> 16
liens, pledges and preemptive rights. The Warrants issued on the Purchase Date
to the Purchasers evidence the right to purchase a number of shares of Common
Stock of First New England equal to seven and one-half percent (7.5%) of the
outstanding Common Stock of First New England on a Fully Diluted Basis (as such
term is defined in the Warrants).
5.2. AUTHORIZATION, ENFORCEABILITY, ETC.
This Agreement and each of the other Note Documents have been
duly authorized by all necessary corporate action (including, without
limitation, all necessary shareholder action) on the part of each of the
Obligors intended to be a party thereto. This Agreement has been, and the Notes
and each of the other Note Documents, when delivered hereunder, will have been,
duly executed and delivered by each of the Obligors intended to be a party
thereto. This Agreement constitutes, and the Notes and each of the other Note
Documents, when delivered hereunder, will constitute, the legal, valid and
binding obligations of each of the Obligors intended to be a party thereto,
enforceable against such Obligor in accordance with their respective terms,
except as such enforceability may be limited by the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
5.3. DISCLOSURE.
All of the information furnished by or on behalf of any of the
Obligors or any of their respective Subsidiaries in writing to the Purchasers
pursuant to or in connection with this Agreement or any of the other Note
Documents or any other document, certificate or other writing furnished to the
Purchasers in connection with the sale and purchase of the Notes or any of the
other transactions contemplated hereby is complete and correct in all material
respects as of the date on which such information was so provided; and all such
information does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made therein, in light of
the circumstances under which any such statements were made, not misleading. All
financial projections and forecasts that have been prepared by any of the
Companies or any of their respective Subsidiaries and made available to the
Purchasers have been prepared in good faith based upon reasonable assumptions
and represented, at the time each such financial projection or forecast was
delivered to the Purchasers, such Company's best estimate of its future
financial performance (it being recognized by the Purchasers that such financial
projections or forecasts are not to be viewed as facts and that the actual
results during the period or periods covered by any such financial projections
or forecasts may differ materially from the projected or forecasted results).
The registration statement on form S-1 dated January 31, 1997
of First New England under the Securities Act of 1933, as amended (the
"Securities Act"), as of the date of such registration statement, does not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
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<PAGE> 17
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES, ETC.
Schedule 5.4 attached hereto sets forth all of the
Subsidiaries of each of the Companies as of the Purchase Date, showing, as to
each such Subsidiary, the correct name thereof, the jurisdiction of its
organization and the percentage of shares of each class of its capital stock or
similar equity interests outstanding that are owned by the applicable Company
and/or one or more of its Subsidiaries. All of the outstanding shares of capital
stock or similar equity interests of each Subsidiary of the Companies shown on
Schedule 5.4 attached hereto as being owned by a Company and/or one or more of
its Subsidiaries have been validly issued, are fully paid and nonassessable and
are owned by such Company and/or one or more of its Subsidiaries, free and clear
of all Liens.
5.5. FINANCIAL STATEMENTS.
(a) The audited consolidated balance sheets of the
Companies and their respective Subsidiaries as of December 31, 1995 and December
31, 1996 and the related audited consolidated statements of operations,
stockholders' equity and cash flows of the Companies and their respective
Subsidiaries for the Fiscal Years ended December 31, 1995 and December 31, 1996,
in each case including the schedules and notes thereto and accompanied by an
opinion of KPMG Peat Marwick LLP, the independent accountants of the Companies,
and the consolidated balance sheets of the Companies and their respective
Subsidiaries as of March 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows of the Companies and their
respective Subsidiaries for the three-month period then ended, duly certified by
a Senior Financial Officer of each of the Companies, copies of all of which have
been furnished to the Purchasers, fairly present (subject, in the case of such
balance sheet as of March 31, 1997 and such statements of operations,
stockholders' equity and cash flows for the three month period then ended, to
normal year-end audit adjustments and the inclusion of footnotes) the
consolidated financial condition of the Companies and their respective
Subsidiaries as at such dates and the consolidated results of operations and
cash flows of the Companies and their respective Subsidiaries for the respective
periods ended on such dates. All of the financial statements referred to above
in this subsection (a), including the schedules and notes thereto, have been
prepared in accordance with generally accepted accounting principles applied
consistently throughout the respective periods covered thereby.
(b) Except as set forth on Schedule 5.5(b) attached
hereto, since December 31, 1996, there has been (i) no material adverse change
in the business, condition (financial or otherwise), operations, results of
operations, assets, property, liabilities or prospects of any of the Companies
or their respective Subsidiaries, and (ii) no development, event or circumstance
relating to or affecting any Company or any of its Subsidiaries that, either
individually or in the aggregate, has had or could reasonably be expected to
have a Material Adverse Effect, provided that no development, event or
circumstance set forth on Schedule 5.5(b) has had or could reasonably be
expected to have a Material Adverse Effect of the type described in clauses (b)
or (c) of the definition thereof.
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<PAGE> 18
(c) There are no liabilities or obligations of any of the
Companies or any of their respective Subsidiaries of any nature whatsoever
(whether absolute, contingent, accrued or otherwise and whether or not due)
that, either individually or in the aggregate, could reasonably be expected to
be material to such Company, either individually or together with its
Subsidiaries, in each case except for those liabilities and obligations that are
fully disclosed in the unaudited consolidated financial statements of such
Company or its Subsidiaries referred to in subsection (a) of this Section 5.5 or
on Schedule 5.5(c) attached hereto.
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by each of the
Obligors of each of the Note Documents to which it is or is to be a party and
the consummation of the sale and purchase of the Notes and the other
transactions contemplated hereby and thereby do not (a) contravene such
Obligor's certificate of incorporation or bylaws (or similar organizational
documents), (b) violate any Requirement of Law, (c) conflict with or result in
the breach of, or constitute a default under, any loan or purchase agreement,
indenture, mortgage, deed of trust, lease, instrument, contract or other
agreement binding on or affecting such Obligor, any of its Subsidiaries or any
of their respective property or assets or (d) except for the Liens created under
the Collateral Documents, result in or require the creation or imposition of any
Lien upon or with respect to any of the property or assets of such Obligor or
any of its Subsidiaries. Neither any of the Obligors nor any of their respective
Subsidiaries is in violation of any of the terms of its certificate of
incorporation or bylaws (or similar organizational documents) or any Requirement
of Law or in breach of any loan or purchase agreement, indenture, mortgage, deed
of trust, lease, instrument, contract or other agreement referred to in the
immediately preceding sentence, the violation or breach of which, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
(a) Each of the Companies and each of their respective
Subsidiaries and employees (including, without limitation, all dentists employed
by the Companies) (i) own or possess all of the Governmental Authorizations that
are necessary to own or lease and operate their respective property and assets
and to conduct their respective businesses as presently conducted, except where
and to the extent that the failure to obtain or maintain in effect any such
Governmental Authorization, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect, and (ii) have not
received any notice relating to or threatening the revocation, termination,
cancellation, denial, impairment or modification of any such Governmental
Authorization, nor is any Company or any of its Subsidiaries (including, without
limitation, all dentists employed by the Companies) in violation or
contravention of, or in default under, any such Governmental Authorization.
(b) No Governmental Authorization, and no consent,
approval or authorization of, or notice to, or other action by, any other
Person, is required for the due execution, delivery, recordation, filing or
performance by any of the Obligors of this Agreement or any of the other Note
Documents to which it is or is to be a party, or for the consummation of
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<PAGE> 19
the sale and purchase of the Notes or any of the other transactions contemplated
hereby and thereby, except for such Governmental Authorizations, and such
consents, approvals, authorizations, notices and other actions, as are described
on Schedule 5.7 attached hereto, all of which have been obtained or made on or
prior to the Purchase Date and are in full force and effect or will be obtained
or made in accordance with the terms of the Note Documents and, thereafter, will
be in full force and effect.
5.8. LITIGATION.
Except as described on Schedule 5.8 attached hereto, there is
no action, suit, investigation, litigation or proceeding pending or, to the best
knowledge of each of the Companies, threatened against or affecting any of the
Obligors or any of their respective Subsidiaries or any of the property or
assets thereof in any court or before any arbitrator or by or before any other
Governmental Authority of any kind that (a) either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect or (b)
challenges the legality, validity, binding effect or enforceability of this
Agreement or any of the other Note Documents or the consummation of the sale and
purchase of the Notes or any of the other transactions contemplated hereby or
thereby.
5.9. TAXES.
(a) Each of the Obligors and each of their respective
Subsidiaries have filed or caused to be filed all tax returns and reports that
are required to have been filed in any jurisdiction, and have paid all taxes
shown to be due and payable on such returns and all taxes shown to be due and
payable on any assessments of which such Obligor or such Subsidiary, as the case
may be, has received notice and all other taxes, assessments, levies, fees and
other governmental charges imposed upon any of the Obligors or any of their
respective Subsidiaries, or their property, assets, income or franchises, to the
extent such taxes, assessments, levies, fees and other charges have become due
and payable and before they have become delinquent, except for taxes,
assessments, levies, fees or other governmental charges the amount,
applicability or validity of which is being contested in good faith and by
appropriate proceedings diligently conducted and with respect to which such
Obligor or such Subsidiary, as the case may be, has established reserves in
accordance with GAAP in effect from time to time.
(b) As of the Purchase Date, neither any of the Obligors
nor any of their respective Subsidiaries or Affiliates has entered into an
agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of any such Obligor or any such Subsidiary or Affiliate, or is aware of
any circumstances that would cause the taxable years or other taxable periods of
any of the Obligors or any of their respective Subsidiaries or Affiliates not to
be subject to the normally applicable statute of limitations.
(c) None of the Companies nor any of their respective
Subsidiaries is or at any time has been a member of an affiliated, consolidated,
combined or unitary group other than such group of which First New England or
O&W is the common parent (within the meaning of Section 1504(a)(1) of the
Internal Revenue Code).
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<PAGE> 20
(d) None of the Obligors is an S corporation with the
meaning of Section 1361 of the Internal Revenue Code.
5.10. TITLE TO PROPERTY; LEASES.
The Obligors and each of their respective Subsidiaries have
good and sufficient title to, or a valid and enforceable leasehold interest in,
all of their respective property and assets that, either individually or in the
aggregate, are material, in each case free and clear of all Liens other than the
Liens expressly permitted under Section 9.2. All leases under which any of the
Obligors or any of their respective Subsidiaries are a lessor or a lessee are
valid and subsisting and are in full force and effect in all material respects.
5.11. SECURITY INTERESTS, ETC.
Each of Collateral Documents create valid and perfected first
priority Liens on and security interests in the Collateral (subject to Permitted
Liens) in favor of the Collateral Agent, for the benefit of the Purchasers,
securing the payment of the Notes and all of the other Obligations of the
Obligors under or in respect of the Note Documents. All filings and other
actions necessary to perfect and protect such Liens and security interests have
been duly made or taken and are in full force and effect or will be duly made or
taken in accordance with the terms of the Note Documents; and all filing and
recording fees and taxes have been duly paid.
5.12. LICENSES, PERMITS, ETC.
(a) Each of the Companies and each of their respective
Subsidiaries and employees (including, without limitation, all dentists employed
by the Companies) own or possess all of the licenses, permits, franchises,
authorizations, consents and approvals, and own or have the legal right to use
all of the patents, copyrights, service marks, trademarks and trade names (or
other rights thereto), that are necessary to own or lease and operate their
respective property and assets and to conduct their respective businesses as
presently conducted, without known conflict with the rights of any other Person.
Except as described on Part A of Schedule 5.12 attached hereto, no action, suit,
investigation, litigation or proceeding of any Person is pending or, to the best
knowledge of each of the Companies, is threatened challenging the use of any
such license, permit, franchise, authorization, consent, approval, patent,
copyright, service mark, trademark, trade name or other right, or the validity
or effectiveness thereof.
(b) No product or service of any of the Companies or any
of their respective Subsidiaries materially infringes on any license, permit,
franchise, authorization, consent, approval, patent, copyright, service mark,
trademark, trade name or other right owned by any other Person.
(c) There is no material violation by any Person of any
right of any of the Companies or any of their respective Subsidiaries with
respect to any license, permit, franchise, authorization, consent, approval,
patent, copyright, service mark, trademark, trade name or other right owned or
used by such Company or any such Subsidiary.
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<PAGE> 21
5.13. COMPLIANCE WITH ERISA.
(a) Each of the Companies and each of their ERISA
Affiliates have operated and administered each ERISA Plan in compliance with its
terms and with the provisions of ERISA and all other applicable Requirements of
Law.
(b) During the immediately preceding six-year period, (i)
no Termination Event has occurred or, to the best knowledge of each of the
Companies, could reasonably be expected to occur with respect to any Plan, (ii)
no "accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA and Section 412 of the Internal Revenue Code), whether or not waived, has
occurred with respect to any Plan and (iii) no Lien in favor of the PBGC or a
Plan has arisen or could reasonably be expected to arise on account of any Plan.
(c) None of the Companies nor any of their ERISA
Affiliates has incurred any liability pursuant to Title I or IV or ERISA or the
penalty or excise tax provisions of the Internal Revenue Code relating to ERISA
Plans, and no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by any
such Company or any such ERISA Affiliate, or in the imposition of any Lien on
any of the rights, properties or assets of any such Company or any such ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA, such penalty or
excise tax provisions or Section 401(a)(29) or 412 of the Internal Revenue Code.
(d) None of the Companies nor any of their ERISA
Affiliates (i) has incurred or, to the best knowledge of each of the Companies,
could reasonably be expected to incur any Withdrawal Liability in respect of any
Multiemployer Plan or any Multiple Employer Plan or (ii) would become subject to
any Withdrawal Liability if such Company or any such ERISA Affiliate were to
withdraw completely from all Multiemployer Plans and all Multiple Employer Plans
as of the most recent valuation date of each such Plan.
(e) No prohibited transaction (within the meaning of
Section 406 of the Internal Revenue Code) or breach of fiduciary responsibility
has occurred with respect to any ERISA Plan which has subjected or may subject
any Company or any of their ERISA Affiliates to any liability under Section 406,
409, 502(i) or 502(l) of ERISA or Section 4975 of the Internal Revenue Code, or
under any agreement or other instrument pursuant to which such Company or any of
the ERISA Affiliates has agreed or is required to indemnify any Person against
any such liability.
(f) The actuarial present value of all "benefit
liabilities" (as defined in Section 4001 of ERISA) under all of the Plans,
determined as of the end of each such Plan's most recently completed plan year
on the basis of the actuarial assumptions specified for funding purposes in such
Plan's most recent actuarial valuation report, whether or not vested, did not
exceed the aggregate current value of the assets of all such Plans allocable to
such benefit liabilities by more than $100,000 in the aggregate.
(g) None of the Companies nor any of their ERISA
Affiliates has been notified that any Multiemployer Plan is in reorganization
(within the meaning of Section 4241 of
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<PAGE> 22
ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is being
terminated (within the meaning of Title IV of ERISA), and to the best knowledge
of each of the Companies, no Multiemployer Plan could reasonably be expected to
be in reorganization, insolvent or terminated.
(h) The execution and delivery of this Agreement, the
issuance and sale of the Notes hereunder and the consummation of any of the
transactions contemplated hereby will not involve any transaction that is
subject to the prohibitions of Section 406 of ERISA or in connection with which
a tax could be imposed pursuant to Section 4975 of the Internal Revenue Code.
5.14. PRIVATE OFFERING BY THE COMPANIES.
(a) None of the Companies nor any Person acting on their
behalf has taken, or will take, any action that would subject the issuance and
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.
(b) None of the Companies nor any Person acting on their
behalf has directly or indirectly offered or sold the Notes by any form of
general solicitation or general advertising, including, without limitation, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or any broadcast over television or radio
or any seminar or meeting whose attendees have been invited by any form of
general solicitation or general advertising (within the meaning of Rule 502(c)
of Regulation D under the Securities Act).
5.15. USE OF PROCEEDS; MARGIN REGULATIONS.
(a) The proceeds received from the sale of the Notes will
be used by the Companies solely (i) to pay the transaction costs and expenses
incurred in connection with the sale of the Notes as set forth in Schedule 5.15
hereof, (ii) to make acquisitions of dental care practices, (iii) to pay off
existing Indebtedness of the Companies due and payable on or before July 24,
1998 as set forth on Schedule 5.21, and (iv) for other general corporate
purposes of the Companies and their respective Subsidiaries not otherwise
prohibited under the terms of the Note Documents.
(b) None of the Companies nor any of their respective
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying any "margin stock" (within the meaning of Regulation G or
U of the Board of Governors of the Federal Reserve System (12 CFR 207)). No part
of the proceeds from the sale of the Notes will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin stock or for the purpose of
purchasing, carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of the Board of Governors of
the Federal Reserve System (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of the Board of Governors of the Federal Reserve
System (12 CFR 220). Margin stock does not constitute more than 25% of the value
of the consolidated property and assets of any of the Companies or their
respective Subsidiaries and the Companies do not have any present intention
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<PAGE> 23
that margin stock will constitute more than 25% of the value of such
consolidated property and assets. None of the transactions contemplated by this
Agreement and the Note Documents (including, without limitation, the direct and
indirect use of proceeds of the Notes) will violate or result in a violation of
the Securities Act or the Exchange Act or any of the rules and regulations
promulgated thereunder or in such Regulation G, T, U or X, as applicable.
5.16. STATUS UNDER CERTAIN STATUTES.
(a) None of the Companies nor any of their respective
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended, the Public Utility Act of 1935, as amended, or the Federal Power
Act, as amended.
(b) None of the Companies nor any of their respective
Subsidiaries is an "investment company", or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" (each as
defined in the Investment Company Act of 1940, as amended). Neither the sale and
purchase of the Notes nor the application of the proceeds therefrom or the
repayment thereof by the Companies, nor the consummation of any of the other
transactions contemplated hereby, will violate any provision of such Act or any
rule, regulation or order of the Securities and Exchange Commission thereunder.
(c) None of the Companies nor any of their respective
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" (each within the meaning of the Public Utility Holding
Company Act of 1935, as amended).
(d) None of the Companies nor any of their respective
Subsidiaries is a "personal holding company" (as defined in Section 542 of the
Internal Revenue Code).
(e) Each of the Companies and each of their respective
Subsidiaries are current with all reports and documents, if any, required to be
filed with any securities commission or similar agency of any applicable
jurisdiction and are in compliance with all applicable rules and regulations of
such commissions and agencies.
5.17. SECURITIES ACT MATTERS.
The offer, sale and issuance of the Notes and Warrants to the
Purchasers as contemplated by this Agreement, the agreements set forth in
Section 3.1 of this Agreement and the issuance and delivery of the shares of
Common Stock upon exercise of the Warrants are exempt from the registration and
prospectus delivery requirements of the Securities Act.
5.18. EMPLOYEE AND LABOR MATTERS.
Except as set forth in Schedule 5.18, during the three years
preceding the Purchase Date, there has been no strike, work stoppage, slowdown
or other material labor dispute or grievance involving the Companies or their
employees, nor is any such action, dispute or grievance pending or to the
knowledge of each of the Companies, after due inquiry, threatened
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against the Companies as of the Purchase Date. Except as set forth in Schedule
5.18, as of the Purchase Date neither of the Companies are party to any
collective bargaining agreement and have no knowledge after due inquiry of any
pending or threatened effort to organize any of their employees. Except as set
forth in Schedule 5.18, there are no pending retaliatory or wrongful discharge
claims or employment discrimination charges or complaints or administrative or
judicial complaints arising therefrom pending against either Company or against
any of their employees before any Governmental Authority, which have had or
could reasonably be expected to have a Material Adverse Effect, nor to the
knowledge of each of the Companies after due inquiry are any such charges or
complaints threatened against either Company. The Companies are in compliance
with all applicable statutes and orders relating to the employment of labor,
including, without limitation, any provision thereof relating to wages, bonuses,
collective bargaining agreements, equal pay, occupational safety and health,
equal employment opportunity and wrongful or retaliatory termination of
employment, except for such noncompliance as in the aggregate would not result
in a Material Adverse Effect.
5.19. ENVIRONMENTAL MATTERS.
Except as described on Schedule 5.19 attached hereto:
(a) The operations and properties (whether owned or
leased) of each of the Companies and each of their respective
Subsidiaries comply in all material respects with all Environmental
Laws and Environmental Permits, and all necessary Environmental Permits
have been obtained and are in full force and effect for all of the
operations and properties of such Company and each such Subsidiary. All
past noncompliance with any such Environmental Laws or Environmental
Permits, if any, has been resolved without ongoing material obligations
or costs to the Companies or any of their respective Subsidiaries. To
the best knowledge of each of the Companies, no circumstances exist
that, either individually or in the aggregate, could reasonably be
expected (i) to form the basis of an Environmental Action against any
of the Companies or any of their respective Subsidiaries or any of
their properties or (ii) to cause any such property to be subject to
any restrictions on ownership, occupancy, use or transferability under
any Environmental Law.
(b) There is no asbestos or asbestos-containing material
on any property owned or operated by any of the Companies or any of
their respective Subsidiaries in violation of applicable Environmental
Law that could reasonably be expected to give rise to liability
thereunder.
(c) None of the Companies nor any of their respective
Subsidiaries is undertaking, nor has any of them completed, either
individually or together with other potentially responsible parties,
any investigation or assessment or remedial or response action relating
to any actual or threatened release, discharge or disposal of Hazardous
Materials at any site, location or operation, either voluntarily or
pursuant to the order of any Governmental Authority or the requirements
of any Environmental Law; and all Hazardous Materials generated, used,
treated, handled or stored at, or released, discharged
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or disposed of on, or transported to or from, any property owned or
operated by any of the Companies or any of their respective
Subsidiaries have been disposed of in a manner that does not violate,
and could not reasonably be expected to give rise to liability under,
any applicable Environmental Law.
(d) None of the Companies nor any of their respective
Subsidiaries has received any notice from any Governmental Authority
regarding any violation or alleged violation of, noncompliance or
alleged noncompliance with, or liability or potential liability under
or in respect of, any Environmental Law or Environmental Permit by such
Company or any such Subsidiary, nor does such Company or any such
Subsidiary have knowledge or have any reason to believe that any such
notice will be received or is being threatened.
5.20. NO BURDENSOME AGREEMENTS.
None of the Companies nor any of their respective Subsidiaries
is a party to any loan or purchase agreement, indenture, mortgage, deed of
trust, lease, instrument, contract or other agreement or subject to any
Requirement of Law or any charter or corporate or other similar restriction
that, either individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
5.21. EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Schedule 5.21 attached hereto sets forth a complete
and correct list of all outstanding Indebtedness of the Companies and each of
their respective Subsidiaries as of the Purchase Date and the maturity dates of
all such Indebtedness. None of the Companies nor any of their respective
Subsidiaries is in default, and no waiver of default is currently in effect, in
the payment of any principal of or interest on any Indebtedness of any Company
or any such Subsidiary, and no event or condition exists with respect to any
Indebtedness of any such Company or any such Subsidiary that would permit (or
that with notice or the lapse of time, or both, would permit) one or more
Persons to cause such Indebtedness to become due and payable, or would require
an offer to prepay, redeem, repurchase, purchase or defease such Indebtedness to
be made, in each case prior to its stated maturity or its regularly scheduled
dates of payment.
(b) None of the Companies nor any of their respective
Subsidiaries has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property or assets, whether
now owned or hereafter acquired, to be subject to a Lien not expressly permitted
under Section 9.2.
5.22. SOLVENCY.
Each of the Companies is and the Companies and their
respective Subsidiaries, taken as a whole, are, and upon giving effect to the
issuance and sale of all of the Notes and the other transactions contemplated
hereby will be, Solvent.
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5.23. RELATED PARTY TRANSACTIONS.
Except as set forth on Schedule 9.1 attached hereto:
(a) no officer or director of the Companies and no member
of the immediate family of any officer or director thereof is indebted
to any of the Companies in any amount, nor are any of the Companies
indebted to (or committed to make loans or extend or guarantee credit
to or otherwise to make Investments in) any of them;
(b) to the best knowledge of the Companies, neither any
officer or director of any of the Companies nor any member of the
immediate family of any officer or director thereof has any direct or
indirect ownership or profit interest in any corporation or other
entity with which any Company is affiliated or with which any Company
has an ongoing business relationship, or in any corporation or other
entity that competes with the Company, that exceeds 1% of the aggregate
ownership and profit interests therein; and
(c) no officer or director of any Company and no member
of the immediate family of any officer or director thereof has any
direct or indirect financial interest in any material contract of
either Company.
5.24. MATERIAL CONTRACTS.
(a) Except for the agreements, contracts, plans, leases,
arrangements and commitments set forth in Schedule 5.24 attached hereto, none of
the Companies nor any of their respective Subsidiaries is a party or subject to
any agreement, contract, plan, lease, arrangement or commitment that (i) is
material to the business, condition (financial or otherwise), operations,
results of operations, assets, property or liabilities of such Company and its
Subsidiaries, taken as a whole, (ii) provides for the purchase in excess of
$100,000 of materials, supplies, goods, services, equipment or other property or
assets, except in the ordinary course of business, (iii) involves any
partnership, joint venture or other similar arrangement or (iv) restricts such
Company or any of its Subsidiaries from engaging in or competing in any line of
business, with any Person or in any geographic area.
(b) Each agreement, contract, plan, lease, arrangement
and commitment disclosed or required to be disclosed pursuant to clause (a) of
this Section 5.24 is the legal, valid and binding obligation of such Company a
party thereto or its applicable Subsidiary, enforceable against such Company or
such Subsidiary in accordance with its terms, and is in full force and effect;
and none of such Company or any of its Subsidiaries or, to the best knowledge of
such Company, any other party thereto is in default in any material respect
under the terms of any such agreement, contract, plan, lease, arrangement or
commitment.
5.25. PARI PASSU OBLIGATIONS.
The Obligations for the payment of money of each of the
Companies under this Agreement and the other Note Documents rank senior in right
of payment to all other Obligations for the payment of money of such Company
other than the outstanding Indebtedness
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of the Company described on Schedule 5.25 attached hereto and any purchase money
Indebtedness of the Company incurred pursuant to Section 9.3(c). The Obligations
for the payment of money of the Company under this Agreement and the other Note
Documents rank at least pari passu in right of payment with all outstanding
Indebtedness of the Company described on Schedule 5.21 attached hereto and all
purchase money Indebtedness of the Company incurred pursuant to Section 9.3(c).
5.26. NO SIGNIFICANT SUBSIDIARIES.
None of the Subsidiaries of the Companies is a "significant
subsidiary" within the meaning of Regulation S-X promulgated by the Securities
and Exchange Commission under the Securities Act.
5.27. MANAGEMENT AGREEMENT.
The Management Agreement between First New England and O&W has
been validly authorized and duly executed and delivered by each of the parties
thereto and constitutes the legal, valid and binding obligation of each party
thereto, enforceable against each party thereto in accordance with its terms,
except to the extent that the enforceability thereof may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors'
rights and remedies and by general principles of equity.
5.28. NO POWER OF ATTORNEY.
Neither Company has granted a power of attorney to any Person
that would allow such Person to sign or file any financing statement, mortgage,
indenture, document, agreement or other instrument that grants or creates a Lien
on any Collateral or any of the Companies' assets.
6. REPRESENTATIONS AND COVENANTS OF EACH OF THE PURCHASERS.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes and the
Warrants for your own account or for one or more separate accounts maintained by
you, in each case for investment and not with a view to the distribution thereof
or with any present intention of distributing or selling the Notes or the
Warrants; provided that the disposition of your property shall at all times be
within your control.
6.2. ACCREDITED INVESTOR.
You are an "accredited investor" (as defined in Rule 501 of
Regulation D under the Securities Act) and by reason of your business and
financial experience, and the business and financial experience of those Persons
retained to advise you with respect to your investment in the Notes and the
Warrants, and you, together with such advisors, have such knowledge,
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<PAGE> 28
sophistication and experience in financial and business matters as to be capable
of evaluating the merits and risks of the prospective investment, and are able
to bear the economic risk of such investment and, at the present time, are able
to afford a complete loss of such investment. You are not purchasing the Notes
and the Warrants in reliance upon any investigation made by any of the other
Purchasers, their Affiliates or Lazard Freres & Co. LLC.
6.3. POWER AND AUTHORITY.
You confirm that you have the legal right and power and all
authority required to execute and deliver and to carry out the terms of this
Agreement and all other documents or instruments required hereby to which you
are a party.
7. PREPAYMENTS AND REDEMPTIONS OF THE NOTES.
7.1. OPTIONAL PREPAYMENTS OF THE NOTES.
The Companies may, at their option, upon not less than five
Business Days' prior written notice to the holders of the Notes, prepay all or
any part of the Notes, in an aggregate principal amount of $1,000,000 or
integral multiples of $100,000 in excess thereof (or, if less, the remaining
aggregate principal amount of all Notes outstanding at such time), at a purchase
price in cash equal to 100% of the aggregate principal amount of the Notes so
prepaid, plus all accrued and unpaid interest thereon, if any, to the date of
such prepayment. Each notice of an optional prepayment of the Notes pursuant to
this Section 7.1 shall specify the date fixed for such prepayment, the aggregate
principal amount of the Notes to be prepaid on such date, the principal amount
of each Note held by such holder to be prepaid (determined in accordance with
Section 7.4) and the interest to be paid on the prepayment date with respect to
such principal amount being prepaid, and shall state that such prepayment is to
be made pursuant to this Section 7. 1.
7.2. OFFER TO REPURCHASE NOTES AND REDUCE COMMITMENTS IN RESPECT OF A CHANGE
OF CONTROL.
(a) Upon the occurrence of a Change of Control, each
holder of the Notes will have the right to require the Companies to repurchase
all or any portion (equal to $1,000,000 or an integral multiple of $100,000 in
excess thereof) of the Notes of such holder pursuant to an offer made in the
manner described below (each, a "CHANGE OF CONTROL OFFER"), at a purchase price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of such repurchase (the "CHANGE
OF CONTROL PAYMENT"). Within three Business Days following any Change of
Control, the Companies shall deliver a notice, by facsimile confirmed the same
day by overnight courier service, to each holder of the Notes stating:
(i) that the Change of Control Offer is being made
pursuant to this Section 7.2 and that all Notes tendered shall be
accepted for repurchase;
(ii) the parties, and the events or circumstances giving rise,
to the Change of Control for which such Change of Control Offer is
being made, in reasonable detail;
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<PAGE> 29
(iii) the repurchase price for the Note or Notes of such
holder and the Change of Control Repurchase Date therefor;
(iv) that any Note not tendered for repurchase shall
continue to accrue interest in accordance with the terms thereof;
(v) that, unless the Companies default in the payment of
the Change of Control Payment, all Notes accepted for repurchase
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Repurchase Date; and
(vi) that holders whose Notes are being tendered for
repurchase only in part shall be issued new Notes equal in principal
amount to the unpurchased portion of the Notes surrendered.
The Companies shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control. Any holder of the
Notes that elects to have all or a portion of its Notes repurchased as part of
the Change of Control Offer shall deliver notice to the Companies of its
election at least three Business Days prior to the scheduled Change of Control
Repurchase Date. Any holder of a Note that does not deliver to the Companies
notice accepting the Change of Control Offer at least three Business Days prior
to the Change of Control Repurchase Date shall be deemed to have rejected such
Change of Control Offer. Notwithstanding the foregoing provisions of this
subsection (a), the failure of the Companies to deliver the notice referred to
in the third sentence of this subsection (a) to any holder of the Notes shall
not affect or impair the obligation of the Companies to purchase any Note from
such holder on the applicable Change of Control Repurchase Date.
(b) On a date that is no earlier than 30 days nor later
than 60 days from the date that the Companies deliver or cause to be delivered
notice of the Change of Control to the holders or, if the Companies fail to
deliver such notice or cause such notice to be delivered, on the date that is 30
days after the occurrence of such Change of Control (the "CHANGE OF CONTROL
REPURCHASE DATE"), the Companies (i) shall, to the extent lawful, accept for
repurchase all Notes or portions thereof properly tendered in response to the
Change of Control Offer, (ii) shall pay to each of the holders of the Notes so
accepted the Change of Control Payment for its Notes and (iii) shall deliver to
each holder of Notes that only tendered a portion of its Notes new Notes equal
in aggregate principal amount to the unpurchased portion of the Notes
surrendered, if any, by such holder.
7.3. MANDATORY REDEMPTIONS OF THE NOTES.
(a) Upon receipt by any of the Companies or any of their
respective Subsidiaries of the Net Cash Proceeds from (i) the issuance or
incurrence by such Company or any of its Subsidiaries of any Indebtedness (other
than Indebtedness issued or incurred pursuant to any of Sections 9.3(c) through
9.3(h) and (ii) the sale or issuance by such Company or any of its Subsidiaries
of any shares of its capital stock (or other ownership or profit interests
therein)
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(other than any such sale or issuance arising pursuant to the Warrant Agreements
or those option and incentive plans as in effect on the Purchase Date and set
forth on Part II of Schedule 5.1 attached hereto), any securities convertible
into or exchangeable for shares of its capital stock (or other ownership or
profit interests therein) or any warrants, options or other rights for the
purchase or acquisition of any shares of its capital stock (or other ownership
or profit interests therein), the Companies shall redeem outstanding Notes in an
amount equal to the lesser of (1) 100% of the aggregate principal amount of all
Notes outstanding on the date of such redemption and (2) the amount of such Net
Cash Proceeds, in either case plus all accrued and unpaid interest on the
principal amount of the Notes so redeemed to the date of such redemption and all
fees, expenses and other payments due and payable to the holders of the Notes
under the Note Documents on such date.
(b) Upon receipt by any of the Companies or any of their
respective Subsidiaries of Net Cash Proceeds from any Asset Sale (other than
Asset Sales effected in the ordinary course of the applicable Company's or the
applicable Subsidiary's business consistent with past practice), the Companies
shall redeem outstanding Notes in an amount equal to the lesser of (i) 100% of
the aggregate principal amount of all Notes outstanding on the date of such
redemption and (ii) the amount of such Net Cash Proceeds, in either case plus
all accrued and unpaid interest on the principal amount of the Notes so redeemed
to the date of such redemption and all fees, expenses and other payments due and
payable to the holders of the Notes under the Note Documents on such date.
7.4. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment, repurchase or
redemption of the Notes pursuant to Section 7.1, 7.2 or 7.3, the principal
amount of the Notes to be prepaid, repurchased or redeemed shall be allocated
(in integral multiples of $1,000) among all of the Notes at the time outstanding
in proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment, repurchase or redemption,
with adjustments to the extent practicable to compensate for any prior
prepayments, repurchases or redemptions not made exactly in such proportion.
7.5. MATURITY; SURRENDER, ETC.
In the case of each prepayment, repurchase or redemption of
the Notes pursuant to Section 7.1, 7.2 or 7.3, the principal amount of each Note
to be prepaid, repurchased or redeemed shall mature and become due and payable
on the date fixed for such prepayment, repurchase or redemption, together with
accrued and unpaid interest on such principal amount to such date. From and
after such date, unless the Companies shall fail to pay such principal amount
when so due and payable, together with the accrued and unpaid interest thereon
as aforesaid, interest on such principal amount shall cease to accrue. Any Note
prepaid, redeemed or repurchased in full shall be surrendered to an authorized
representative of the Companies and canceled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid, repurchased or redeemed principal
amount of any Note.
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7.6. PURCHASE OF NOTES.
The Companies will not and will not permit any of their
respective Subsidiaries or Affiliates to purchase, redeem, prepay or otherwise
acquire, directly or indirectly, any of the outstanding Notes except upon the
payment, prepayment or repurchase of the Notes in accordance with the terms of
this Agreement and the Notes. The Companies will promptly cancel all Notes
acquired by it pursuant to any payment, prepayment or purchase of Notes in
accordance with the terms of this Agreement and the Notes, and no Notes may be
issued in substitution or exchange for any such Notes.
8. AFFIRMATIVE COVENANTS.
From the date of this Agreement and, thereafter, so long as
any of the Notes shall be outstanding, each of the Companies will at all times
perform and comply, and will cause each of their respective Subsidiaries to
perform and comply, with each of the following covenants:
8.1. INFORMATION COVENANTS.
The Companies will furnish to each holder of the Notes:
(a) Monthly Reports. As soon as available and in any
event within 25 days after the end of each fiscal month of the
Companies, commencing with the fiscal month ending July 31, 1997, (i)
the consolidated statement of operations of the Companies and their
respective Subsidiaries for each such fiscal month, (ii) cash flow
projections for the Companies and their respective Subsidiaries for the
following 12 months, and (iii) a statement of any acquisition by the
Companies of any dental care practices acquired within such period, in
form and detail reasonably acceptable to the Required Holders.
(b) Quarterly Financial Statements. As soon as available
and in any event within 45 days after the end of each of the first
three fiscal quarters of the Companies in each Fiscal Year, the
consolidated balance sheet of the Companies and their respective
Subsidiaries as at the end of such fiscal quarter and the related
consolidated statements of operations, stockholders' equity and cash
flows of the Companies and their respective Subsidiaries for such
fiscal quarter and for the period commencing at the end of the previous
Fiscal Year and ending with the end of such fiscal quarter, in each
case setting forth in comparative form the consolidated figures for the
corresponding period in the immediately preceding Fiscal Year, all of
the above-described financial statements to be in substantially the
form of the unaudited consolidated financial statements, as applicable,
of the Companies and their respective Subsidiaries for the fiscal
quarter of the Companies ended March 31, 1997 that are referred to in
Section 5.5(a) or otherwise in form and substance reasonably acceptable
to the Required Holders, and duly certified by a Senior Financial
Officer of each of the Companies as (A) fairly presenting, subject to
normal year-end audit adjustments and inclusion of footnotes, the
consolidated financial condition, results of operations and cash flows
of the Companies and their respective Subsidiaries for such fiscal
quarter and (B) having been prepared in accordance with
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generally accepted accounting principles in effect for such fiscal
quarter covered thereby and consistently applied.
(c) Annual Financial Statements. As soon as available and
in any event within 120 days after the close of each Fiscal Year, the
consolidated balance sheet of the Companies and their respective
Subsidiaries as at the end of such Fiscal Year and the related
consolidated statements of operations, stockholders' equity and cash
flows of the Companies and their respective Subsidiaries for such
Fiscal Year, in each case setting forth in comparative form the
consolidated figures for the immediately preceding Fiscal Year, all of
the above-described financial statements to be in substantially the
form of the audited consolidated financial statements of the Companies
and their respective Subsidiaries for the Fiscal Year ended December
31, 1996 that are referred to in Section 5.5(a) or otherwise in form
and substance reasonably acceptable to the Required Holders, and
audited by KPMG Peat Marwick LLP or other independent accountants of
recognized national standing reasonably acceptable to the Required
Holders, together with:
(i) an opinion of KPMG Peat Marwick LLP or such
other accountants, as the case may be, (A) to the effect that
such financial statements have been prepared in accordance
with generally accepted accounting principles in effect for
the Fiscal Year covered thereby and consistently applied and
(B) that is not limited as to the scope of the audit or
qualified as to the status of the Companies and their
respective Subsidiaries as a going concern or otherwise
qualified in any manner not reasonably acceptable to you; and
(ii) management's discussion and analysis of the
important operational and financial developments of the
Companies and their respective Subsidiaries during such Fiscal
Year.
(d) Compliance Certificate. At the time of delivery of
the consolidated financial statements of the Companies and their
respective Subsidiaries provided for in Sections 8.1(b) and 8.1(c), a
compliance certificate of the Companies, in substantially the form of
Exhibit G hereto, duly certified by a Senior Financial Officer thereof,
(i) stating that, to the best of such Senior Financial Officer's
knowledge after due inquiry, no Default or Event of Default has
occurred and is continuing or, if a Default or an Event of Default has
occurred and is continuing, a statement as to the nature thereof and
the action that the Companies have taken and propose to take with
respect thereto, and (ii) setting forth (A) a description in reasonable
detail of all of the changes, if any, from GAAP in the generally
accepted accounting principles applied in the preparation of such
financial statements and (B) a statement of reconciliation if and to
the extent necessary for determining whether any of the changes in the
generally accepted accounting principles applied in the preparation of
such financial statements would affect the calculation of, or
compliance with, the covenant set forth in Section 10, conforming the
financial statements that accompany such compliance certificate to
GAAP.
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(e) Annual Budgets. As soon as practicable and in any
event within 30 days after the end of each Fiscal Year, commencing with
the Fiscal Year ending December 31, 1997, an annual budget of the
Companies and their respective Subsidiaries, in form satisfactory to
the Required Holders, consisting of (i) pro forma financial statements
for the next succeeding Fiscal Year of the Companies, accompanied by
the statement of a Senior Financial Officer of each of the Companies to
the effect that, to the best of his knowledge, the budget is a
reasonable estimate for the period covered thereby and (ii) such other
projections and forecasted information as the Required Holders may from
time to time reasonably request.
(f) Auditor's Reports. Promptly upon receipt thereof,
copies of all "management letters" or other written reports submitted
to any of the Companies or any of their respective Subsidiaries by KPMG
Peat Marwick LLP or any other independent accountants of the Companies
or any of their respective Subsidiaries in connection with each annual,
interim or special audit of its financial statements made by such
accountants (including, without limitation, any comment letter
submitted by such accountants to management of any such Company or any
such Subsidiary in connection with their annual audit and any reports
addressing internal accounting controls of any such Company or any such
Subsidiary submitted by such accountants), and all responses of the
management of any such Company or such Subsidiary thereto.
(g) SEC and Other Reports. Promptly upon transmission or
receipt thereof, (i) copies of any filings and registrations with, and
any reports or notices to or from, the Securities and Exchange
Commission or any successor agency thereto, and copies of all financial
statements, proxy statements, notices and reports that any Company or
any of their Subsidiaries shall send to any holder of Indebtedness owed
by any Company or any of their respective Subsidiaries pursuant to the
terms of the documentation governing such Indebtedness or to any
trustee, agent or other representative therefor and (ii) copies of all
press releases and other statements made available by any Company or
any of their respective Subsidiaries to the public.
(h) Notice of Default, Etc. Promptly, and in any event
within three Business Days after a Responsible Officer obtains
knowledge thereof, notice of the occurrence of (i) each Default or
Event of Default, or any event, development or occurrence that, either
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect, setting forth in reasonable detail the
nature of such Default or Event of Default or event, development or
occurrence and the action that the Companies have taken and propose to
take with respect thereto, (ii) any actual or threatened revocation,
termination, cancellation, denial or impairment of, or refusal to renew
or extend, or modification or other change to, any Governmental
Authorization necessary or desirable for any Company or any of their
respective Subsidiaries to own or lease and operate their respective
property and assets or to conduct their respective businesses as
conducted or as proposed to be conducted and (iii) a Change of Control
or any change in the members of the board of directors of, or any
material change in the management of, any Company or any of their
respective Subsidiaries.
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(i) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigations and
proceedings of the types described in Section 5.8 in any court or
before any arbitrator or by or before any Governmental Authority of any
kind binding upon or affecting any of the Companies or any of their
respective Subsidiaries or any of their respective property or assets.
(j) ERISA Matters. Promptly and in any event within three
Business Days after a Responsible Officer obtains knowledge of any of
the following, a notice setting forth the nature thereof and the
action, if any, that the Companies or any ERISA Affiliate proposes to
take with respect thereto:
(i) any event or condition that constitutes, or
could reasonably be expected to result in, a Termination
Event;
(ii) with respect to any Multiemployer Plan, the
receipt of any notice of any Withdrawal Liability assessed
against any Company or any ERISA Affiliate, or of a
determination that any Multiemployer Plan is in reorganization
or insolvent (both within the meaning of Title IV of ERISA);
(iii) the taking by the PBGC of steps to
institute, or the threatening by the PBGC of the institution
of, proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Plan, or the receipt by any Company or any ERISA Affiliate
of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer
Plan;
(iv) the failure to make payment in full on or
before the due date (including extensions thereof) of all
amounts that any Company or any ERISA Affiliate is required to
contribute to each Plan pursuant to its terms and as required
to meet the minimum funding standard set forth in ERISA and
the Internal Revenue Code with respect thereto;
(v) any funding deficiency with respect to one
or more Plans in excess of $100,000 or any other change in the
funding status of any Plan that, either individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect; or
(vi) any event, transaction or condition not
otherwise described in this subsection (j) that could result
in the incurrence of any liability by any Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Internal Revenue Code relating to
ERISA Plans, or in the imposition of any Lien on any of the
rights, properties or assets of any Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or such penalty
or excise tax provisions, if such liability or Lien, taken
together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect.
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Promptly upon your reasonable request, such additional information
concerning any ERISA Plan as you may have reasonably requested,
including, but not limited to, copies of each annual report/return
(Form 5500 series) and all schedules and attachments thereto required
to be filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA and the Internal Revenue Code, respectively,
for each "plan year" (within the meaning of Section 3(39) of ERISA).
(k) Environmental Matters. Promptly and in any event
within three Business Days after a Responsible Officer of any Company
obtains knowledge thereof, notice of the occurrence of one or more of
the following:
(i) any pending or threatened Environmental
Action against any Company or any of their respective
Subsidiaries or any of the property owned or operated by any
such Company or any such Subsidiary;
(ii) any condition or occurrence on or arising
from any property owned or operated by any Company or any of
their respective Subsidiaries that (A) results or is alleged
to have resulted in noncompliance by such Company or any such
Subsidiary with any applicable Environmental Law or (B) could
reasonably be expected to form the basis of an Environmental
Action against such Company or any such Subsidiary or any of
their respective property; and
(iii) the taking of any removal or remedial action
in response to the actual or alleged presence of any Hazardous
Material on any property owned or operated by any Company or
any of their respective Subsidiaries as required by any
Environmental Law, any Environmental Permit or any
Governmental Authority.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence, removal or remedial action
and such Company's or such Subsidiary's response thereto. In addition,
the Companies will provide you with copies of all reports, notices and
written information to and from the United States Environmental
Protection Agency or any state or local agency responsible for
environmental matters, all communications with any Person (other than
its attorneys) relating to any Environmental Action of which notice is
required to be given pursuant to this subsection (k), and such detailed
reports of any such Environmental Action as the Required Holders may
from time to time reasonably request.
(l) Insurance. As soon as available and in any event
within 30 days after the end of each Fiscal Year, a report summarizing
all insurance coverage maintained by the Companies and their respective
Subsidiaries, specifying therein the type, carrier, amount, deductibles
and co-insurance requirements and expiration date thereof and
containing such additional information as the Required Holders may from
time to time reasonably request.
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(m) Indebtedness Documents. Promptly after the occurrence
thereof or the request therefor, copies of any amendment, waiver or
other modification of the terms of any of the Indebtedness of any
Company or any of their respective Subsidiaries and outstanding in an
aggregate amount of at least $100,000, or any notice of default
delivered thereunder.
(n) Acquisitions. Promptly after the occurrence thereof
and request therefor, copies of all documents executed in connection
with any acquisition of a dental care practice, including, without
limitation, any projections or formal information received by the
Companies or prepared by the Companies in connection with such
acquisition; provided, however, that the Companies shall, without
notice or request therefor, provide the Major Purchaser with such
documents promptly after occurrence thereof.
(o) Requested Information. With reasonable promptness,
such other information and documents relating to the condition
(financial or otherwise), business, operations, results of operations,
performance, property, assets or liabilities of any Company or any of
its Subsidiaries as may from time to time be reasonably requested by
the Required Holders.
8.2. COMPLIANCE WITH LAW.
(a) Each of the Companies will and will cause each of
their respective Subsidiaries to (i) comply with all Requirements of Law to
which each of them and their respective property and assets are subject and all
applicable restrictions imposed on each of them and their property and assets by
any Governmental Authority (including, without limitation, ERISA and all
Environmental Laws), and (ii) except as provided in Section 8.6, obtain and
maintain in effect all Governmental Authorizations that are necessary (A) to own
or lease and operate their respective property and assets and to conduct their
respective businesses as presently conducted, except where and to the extent
that the failure to obtain or maintain in effect any such Governmental
Authorization, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, or (B) for the due execution,
delivery, recordation, filing or performance by any of the Obligors of this
Agreement or any of the other Note Documents to which it is or is to be a party,
or for the consummation of the sale and purchase of the Notes or any of the
other transactions contemplated hereby and thereby, except for such Governmental
Authorizations as are described on Schedule 5.7 attached hereto, all of which
will be obtained or made in accordance with the terms of the Note Documents and,
thereafter, will be in full force and effect.
(b) None of the Companies nor any of their respective
Subsidiaries will generate, use, treat, store, release or dispose of, or permit
the generation, use, treatment, storage, release or disposal of Hazardous
Materials on any property now or hereafter owned or operated by such Company or
any such Subsidiary, or transport or permit the transportation of Hazardous
Materials to or from any such property, except for Hazardous Materials used or
stored at any such property in compliance with all applicable Environmental Laws
and Environmental Permits
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and reasonably required in connection with the operation, use and maintenance of
any such property in the ordinary course of such Company's or any such
Subsidiary's business.
8.3. MAINTENANCE OF INSURANCE.
Each of the Companies will and will cause each of their
respective Subsidiaries to maintain insurance with respect to their respective
properties, assets and businesses with insurers that have, or that have directly
reinsured such insurance with insurers that have, an A.M. Best Company claims
paying ability rating of "A-" (or the then equivalent rating) and against such
casualties and contingencies, of such types, on such terms and in such amounts
(including deductibles, co-insurance and self-insurance, if adequate reserves
are maintained with respect thereto) as is customary in the case of companies of
established reputations engaged in the same or a similar business and similarly
situated, as may otherwise be required by applicable Requirements of Law or by
the Collateral Documents or as may otherwise be reasonably required by the
Required Holders, including, without limitation, workers' compensation
insurance, liability insurance, casualty insurance and business interruption
insurance.
8.4. MAINTENANCE OF PROPERTIES.
Each of the Companies will and will cause each of their
respective Subsidiaries to maintain and keep their respective properties and
assets in good repair, working order and condition (other than as a result of
ordinary wear and tear or casualty and condemnation).
8.5. PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS.
(a) Each of the Companies will and will cause each of
their respective Subsidiaries to pay and discharge all taxes, assessments,
levies, fees and other governmental charges imposed upon them or any of their
properties, assets, income or franchises, to the extent such taxes, assessments,
levies, fees and other governmental charges have become due and payable and
before they have become delinquent, and all claims for which sums have become
due and payable that have resulted or could result in a Lien upon any of the
property or assets of any Company or any of its Subsidiaries; provided, however,
that none of the Companies nor any of their respective Subsidiaries shall be
required to pay or to discharge any such tax, assessment, levy, fee, other
charge or claim the amount, applicability or validity of which is being
contested in good faith and by appropriate proceedings diligently conducted and
with respect to which such Company or such Subsidiary, as the case may be, has
established reserves in accordance with generally accepted accounting principles
in effect from time to time, unless and until any Lien resulting therefrom
attaches to its property and assets and becomes enforceable by its other
creditors, and only for so long as the failure to pay or to discharge any such
tax, assessment, levy, fee, other charge or claim, either individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(b) Each of the Companies will and will cause each of
their respective Subsidiaries to perform all of its obligations under the terms
of each loan or purchase agreement, indenture, mortgage, deed of trust, lease,
instrument, contract and other agreement binding on or
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affecting it, except where the failure to so perform, either individually or in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
8.6. PRESERVATION OF CORPORATE EXISTENCE, ETC.
(a) Each of the Companies will preserve and keep in full
force and effect its corporate existence, good standing and rights in the state
of its organization. Each of the Companies will preserve and keep in full force
and effect the corporate existence and good standing of each of their respective
Subsidiaries and all permits, licenses, approvals, rights, privileges and
franchises of such Company and its respective Subsidiaries; provided, however,
that any of the Companies or their respective Subsidiaries may consummate any
merger, consolidation, liquidation, dissolution or winding up otherwise
permitted under Section 9.6; and provided further, however, that nothing in
Section 8.2 or in this sentence of Section 8.6(a) shall prevent the Companies or
any of their respective Subsidiaries from terminating or failing to preserve and
keep in full force and effect any such permit, license, approval, right,
privilege or franchise if such applicable Company has determined in its good
faith judgment that such termination or failure to preserve, either individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(b) Each of the Companies will and will cause each of
their respective Subsidiaries to duly qualify and to remain duly qualified as a
foreign corporation or other entity, and to be and remain in good standing, in
each jurisdiction in which the ownership, lease or operation of its property and
assets or the conduct of its businesses requires such qualification, except in
any such jurisdiction in which the failure to be so qualified or in good
standing, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
8.7. MAINTENANCE OF BOOKS AND RECORDS; INSPECTION.
(a) Each of the Companies will and will cause each of
their respective Subsidiaries to keep proper records and books of account in
which complete, correct and reasonably detailed entries shall be made of all
financial transactions and of all of the property, assets and businesses of such
Company and each such Subsidiary (including, without limitation, the
establishment and maintenance of adequate and appropriate reserves) in
conformity with generally accepted accounting principles in effect from time to
time and all Requirements of Law. Each of the Companies will mark all of its
books and records relating to the Collateral (including, without limitation, its
share register) in such a manner as to properly evidence the Collateral
Documents and the Liens and security interests created thereunder.
(b) Each of the Companies shall and shall cause each of
their respective Subsidiaries to permit the Major Purchaser, the Collateral
Agent and any of the agents or representatives thereof, upon reasonable notice,
during normal business hours and at the expense of the Companies, at any time
and from time to time to visit and inspect any of the offices or properties of,
and to examine and make copies of and abstracts from the records and books of
account of, the Companies and/or any of their respective Subsidiaries, and to
discuss the affairs, finances and accounts of such Company and/or any such
Subsidiary, as the case may be, with,
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and be advised as to the same by, their officers, directors and independent
accountants (and, by this Subsection (b), the Companies authorize each such
officer, director and independent accountant to discuss the affairs, finances
and accounts of such Company and its Subsidiaries with such Person).
8.8. USE OF PROCEEDS.
The Company will use the proceeds of the sale and purchase of
the Notes solely for the purposes set forth in Section 5.15(a).
8.9. SEARCH REPORTS.
The Companies will, as promptly as practicable after the
Purchase Date but not later than 30 days after the Purchase Date, deliver to the
Collateral Agent completed requests for information listing the financing
statements referred to in Section 3.l(c)(i) and all other effective financing
statements filed in the jurisdictions referred to in Section 3.1(c)(i) that name
any of the Companies or their respective Subsidiaries as debtor, together with
copies of such other financing statements.
8.10. ADDITIONAL SUBSIDIARIES.
Promptly upon any Person becoming a direct or indirect
Subsidiary of either Company after the Purchase Date, such Company shall
immediately provide written notice thereof to the Collateral Agent and the
Required Holders, setting forth with specificity a description of such
Subsidiary and of all material real and personal property owned or leased by it.
The Companies shall also promptly, and in event within ten (10) Business Days of
such Person becoming a Subsidiary, cause such Subsidiary to execute and deliver
to the Collateral Agent a guaranty, in form and substance satisfactory to the
Required Holders, together with such security agreements and other documents as
may be required or appropriate under the law of the jurisdiction in which such
Subsidiary or its property is located, and such assignments, financing
statements and other documents as shall in the sole opinion of the Required
Holders and the Collateral Agent be necessary or advisable in order that such
Subsidiary grant to the Collateral Agent valid and perfected first priority
Liens in all of the personal property of such Subsidiary. The Obligations of
each Subsidiary of the Companies pursuant to a guaranty shall constitute senior
Indebtedness of such Subsidiary and rank pari passu in right of payment with all
unsubordinated Indebtedness of such Subsidiary and senior in right of payment to
any subordinated Indebtedness of such Subsidiary. The Companies or such
Subsidiary shall also deliver one or more opinions of counsel to the Companies
or such Subsidiary (including opinions of local counsel) covering such legal
matters with respect to such agreements and other instruments and documents as
the Required Holders or the Collateral Agent may reasonably request. All of such
agreements, instruments, opinions, certificates as to solvency, where required,
and document shall be reasonably satisfactory in form and substance in all
respects to counsel to the Collateral Agent and the Required Holders.
Except as permitted by this Agreement and the Note Documents,
the Companies shall not sell, transfer or otherwise dispose of any shares of
stock in any of their Subsidiaries, nor
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permit any of their Subsidiaries to issue any shares of stock of any class
whatsoever to any Person (other than to the Companies).
8.11. APPOINTMENT OF DIRECTORS.
First New England will, at all times prior to December 31,
1997, cause no less than one director selected by the Major Purchaser in its
sole discretion to be seated and to remain on the Board of Directors of First
New England and, at such director's sole discretion, be a member of each
committee of such Board of Directors, whether existing on the Purchase Date or
created thereafter; and, thereafter, cause no less than two directors selected
by the Major Purchaser in its sole discretion to be seated and to remain on the
Board of Directors of First New England and, at least one director, at such
director's sole discretion, be a member of each committee of such Board of
Directors, whether existing on the Purchase Date or created thereafter.
8.12. DESIGNATION OF SHARES OF COMMON STOCK.
In the event that First New England engages in an initial
public offering of its Common Stock, First New England agrees that it shall
designate for offer and sale in such offering (including, without limitation,
the registration of such Common Stock under the Securities Act, and the
provisions therefor in the prospectus relating to such offering) to the
Purchasers an aggregate of ten percent (10%) of the number of shares of Common
Stock being sold pursuant to such offering at a purchase price per share equal
to the per share price offered to the public; provided, however, that in the
event that (i) the sole or lead managing underwriter shall reasonably request in
writing that First New England not so designate all or a portion of such shares
of Common Stock, (ii) the designation of all or a portion of such shares of
Common Stock shall violate any laws, or (iii) the designation of all or a
portion of such shares of Common Stock shall prevent the Common Stock from being
listed for trading on the primary exchange selected by First New England, First
New England shall be required to designate such shares as would not cause the
occurrence of one of the events specified in clauses (i), (ii) and (iii).
9. NEGATIVE COVENANTS.
From the date of this Agreement and, thereafter, so long as
any of the Notes shall be outstanding, each of the Companies will perform and
comply, and will cause each of its Subsidiaries to perform and comply, at all
times with each of the following covenants:
9.1. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
Each of the Companies will not and will not permit any of its
Subsidiaries to directly or indirectly enter into, renew, extend or engage in
any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
assets of any kind or the rendering of services of any kind) with any of its
Affiliates, except upon fair and reasonable terms no less favorable to such
Company or such Subsidiary than would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate thereof; provided that the foregoing
restrictions of this Section 9.1 shall not apply to:
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(a) the transactions described on Schedule 9.1 attached
hereto;
(b) any transaction or series of related transactions
solely between or among the Companies (or one or more of the Companies)
and one or more of their respective Subsidiaries or between or among
Subsidiaries of the Companies, to the extent such transactions or
series of related transactions are otherwise permitted under the terms
of the Note Documents;
(c) transactions otherwise permitted under Section 9.5;
and
(d) the payment of reasonable and customary director fees
to directors of First New England that are not employees thereof.
9.2. LIMITATIONS ON LIENS.
(a) Each of the Companies will not and will not permit
any of its Subsidiaries to create, incur, assume or suffer to exist any Lien on
or with respect to any of its property or assets of any character, whether now
owned or hereafter acquired, to file or suffer to exist under the Uniform
Commercial Code or any similar law or statute of any jurisdiction, a financing
statement (or the equivalent thereof) that names such Company or any of its
Subsidiaries as debtor, to sign or suffer to exist any security agreement
authorizing any secured party thereunder to file such financing statement (or
the equivalent thereof), to sell any of its property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable with recourse to such Company
or any of its Subsidiaries), or to assign any accounts or other right to receive
income; excluding, however, from the operation of the foregoing restrictions of
this Section 9.2 the following:
(i) Permitted Liens;
(ii) Liens in favor of the Collateral Agent for the
benefit of the Purchasers created under the Collateral Documents;
(iii) Liens existing on the date of this Agreement and
described in Schedule 9.2 attached hereto;
(iv) purchase money Liens upon or in property or assets
acquired or held by any Company or any of its Subsidiaries in the
ordinary course of business to secure the purchase price of any such
property or asset or to secure Indebtedness incurred solely for the
purpose of financing the acquisition, construction or improvement of
such property or asset to be subject to such Liens, or Liens existing
on any such property or asset at the time of or within 90 days after
the date of its acquisition (other than any such Liens created in
contemplation of such acquisition that do not secure the purchase price
of such property or asset); provided, however, that no such Lien shall
extend to or cover any property or assets other than the property or
asset being so acquired, constructed or improved; and provided,
however, that the aggregate principal amount of Indebtedness secured by
Liens permitted under this clause (iv) shall not exceed the lesser of
(A) the
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cost to the applicable Company or the applicable Subsidiary of the
property or asset to be subject to any such Lien and (B) the amount
otherwise permitted to be incurred therefor under the terms of this
Agreement;
(v) Liens arising in connection with Capitalized Leases
otherwise permitted under Section 9.3(d); provided that no such Lien
shall extend to or cover any property or assets other than the property
and assets subject to such Capitalized Leases;
(vi) Liens upon any property and assets (other than any
shares of capital stock of, or other ownership or profit interests in,
any Person) existing at the time such property or asset is purchased or
otherwise acquired by any Company or any of its Subsidiaries; provided
that, in each case, any such Lien was not created in contemplation of
such purchase or other acquisition and does not extend to or cover any
property or assets other than the property or asset being so purchased
or otherwise acquired; and provided further that any Indebtedness or
other obligations secured by such Liens shall otherwise be permitted
under the terms of the Note Documents;
(vii) deposits to secure the performance of leases of
property (whether real, personal or mixed) of any Company and its
Subsidiaries (excluding Capitalized Leases) in the ordinary course of
business; and
(viii) the replacement, extension or renewal of any Lien
permitted under clause (iv) or (v) of this Section 9.2(a) solely upon
or in the same property and assets theretofore subject thereto;
provided that any Indebtedness secured by such Liens shall otherwise be
permitted under the terms of the Note Documents.
(b) Each of the Companies will not and will not permit
any of its Subsidiaries to enter into, assume or suffer to exist any agreement
prohibiting, conditioning or otherwise restricting the creation or assumption of
any Lien upon any of its property or assets, whether now owned or hereafter
acquired, or requiring the grant of any assignment or security for any
Obligation if an assignment or security is given for any other Obligation, other
than:
(i) any such agreement with the Purchasers;
(ii) any such agreement evidencing or setting forth the
terms of any Indebtedness described in Schedule 5.21 attached hereto,
to the extent such agreement is in effect on the date hereof;
(iii) any such agreement prohibiting other encumbrances on
specific property and assets of any Company or of its Subsidiaries,
which agreement secures the payment of Indebtedness incurred solely to
acquire, construct or improve such property or assets or to finance the
purchase price therefor and which Indebtedness is otherwise permitted
to be incurred under the terms of this Agreement;
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(iv) any agreement setting forth customary restrictions on
the subletting, assignment or transfer of any property or asset that is
a lease, license, conveyance or contract of similar property or assets;
and
(v) any restriction or encumbrance imposed pursuant to an
agreement that has been entered into by any Company or any of its
Subsidiaries for any Asset Sale so long as such Asset Sale is otherwise
permitted under the terms of the Note Documents.
9.3. LIMITATIONS ON INDEBTEDNESS.
Each of the Companies will not and will not permit any of its
Subsidiaries to directly or indirectly create, incur, assume, guarantee or
suffer to exist, or otherwise become or remain directly or indirectly liable
with respect to, any Indebtedness other than:
(a) Indebtedness arising under the Note Documents;
(b) Indebtedness existing on the date of this Agreement
and described in Schedule 5.21 attached hereto;
(c) Indebtedness secured by Liens expressly permitted
under Section 9.2(a)(iv) in an aggregate principal amount that, when
aggregated with the principal amount of all Indebtedness incurred under
this clause (c) and clause (d) of this Section 9.3, does not exceed
$750,000 at any time outstanding;
(d) Indebtedness evidenced by Capitalized Lease
Obligations entered into in order to finance Capital Expenditures made
by any Company or any of its Subsidiaries in accordance with the
provisions of Section 9.13, which Indebtedness, when aggregated with
the principal amount of all Indebtedness incurred under this clause (d)
and clause (c) of this Section 9.3, does not exceed $750,000 at any
time outstanding;
(e) Indebtedness existing at the time that any property
or asset is purchased or otherwise acquired by any Company or any of
its Subsidiaries and is either unsecured or secured solely by such
property or asset; provided that such Indebtedness was not incurred in
contemplation of such purchase or other acquisition;
(f) unsecured Indebtedness of any Company or its
Subsidiaries to selling dentists to finance the acquisition of dental
facilities otherwise permitted under Section 9.6(h) hereof, provided
that such Indebtedness is expressly subordinate in writing, in form and
substance satisfactory to the Required Holders, to the Obligations
under this Agreement, the Notes and the Note Documents;
(g) unsecured Indebtedness of any Company and its
Subsidiaries not otherwise permitted under this Section 9.3 in an
aggregate principal amount not to exceed $250,000 at any time
outstanding; and
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(i) endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
9.4. LIMITATIONS ON SALE-LEASEBACK TRANSACTIONS.
Each of the Companies will not and will not permit any of its
Subsidiaries to directly or indirectly become or remain liable as lessee or as a
guarantor or surety with respect to any lease (including, without limitation,
any Capitalized Lease) of any property (whether real, personal or mixed),
whether now owned or hereafter acquired, that such Company or such Subsidiary,
as the case may be, (a) has sold or transferred or is to sell or transfer in a
transaction with such assumption of liability to any other Person other than a
Company or (b) intends to use for substantially the same purpose as any other
property that has been sold or transferred or is to be sold or transferred by
such Person to any other Person in connection with such lease.
9.5. LIMITATIONS ON RESTRICTED PAYMENTS.
Each of the Companies will not and will not permit any of its
Subsidiaries to directly or indirectly declare, order, make or set apart any sum
for or to pay any Restricted Payment, except for:
(a) Restricted Payments to a Company;
(b) the payment of dividends or the making of other
distributions by any Subsidiary of a Company to a Company; and
(c) the payment of management fees or other fees and
expenses pursuant to the management, consulting and other services
agreements set forth on Schedule 9.5.
9.6. LIMITATIONS ON FUNDAMENTAL CHANGES, ASSET SALES, ACQUISITIONS, ETC.
Each of the Companies will not and will not permit any of its
Subsidiaries to alter the corporate, capital or legal structure of such Company
or any such Subsidiary, to wind up, liquidate or dissolve itself (or suffer any
liquidation or dissolution), to enter into any transaction of merger or
consolidation, or to convey, sell, lease or sublease (as lessor or sublessor),
transfer or otherwise dispose of, whether in one transaction or a series of
related transactions, all or any part of its business, property or assets,
whether now owned or hereafter acquired (or agree to do any of the foregoing at
any future time), or to purchase or otherwise acquire, whether in one
transaction or a series of related transactions, any part of the property,
assets or business of any Person (or agree to do any of the foregoing at any
future time), except that:
(a) any Company may merge or consolidate with or into any
of its Subsidiaries so long as such Company is the surviving
corporation;
(b) any wholly owned Subsidiary of any Company may merge
or consolidate with or into any other Subsidiary of such Company so
long as such wholly owned Subsidiary is the surviving corporation;
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(c) any Company and its Subsidiaries may make Restricted
Payments otherwise permitted to be made under Section 9.5, may make
Investments otherwise permitted to be made under Section 9.7; may sell
shares of its capital stock otherwise permitted to be sold under
Section 9.8 and may make Capital Expenditures otherwise permitted to be
made under Section 9.13;
(d) any Company and its Subsidiaries may sell, lease,
sublease, transfer or otherwise dispose of any obsolete, worn out or
surplus property and assets thereof or any other property and assets
thereof that are no longer useful in the conduct of such Company's or
the applicable Subsidiary's business so long as the aggregate book
value of all of the property and assets of the Companies and their
respective Subsidiaries that are sold, leased, subleased, transferred
or otherwise disposed of pursuant to this subsection (d) does not
exceed $1,000,000 at any time;
(e) any Company and its Subsidiaries may sell, lease,
sublease, transfer or otherwise dispose of any of its property and
assets, to the extent not otherwise permitted under this Section 9.6,
at the fair market value thereof (as determined in good faith by such
Company) and for cash; provided that the gross proceeds thereof do not
exceed $1,000,000 in the aggregate in any Fiscal Year; and provided
further that the Net Cash Proceeds from each such sale, lease,
sublease, transfer or other disposition are applied to the redemption
of the outstanding Notes pursuant to this Agreement and in accordance
with the terms of Sections 7.3;
(f) any Company and its Subsidiaries may purchase or
otherwise acquire inventory, materials, equipment and intangible assets
in the ordinary course of business; and
(g) any Company may acquire all (but not less than all)
of the capital stock of (or other ownership or profit interests in) any
Person and may purchase or otherwise acquire any other property and
assets from any Person so long as the aggregate cash and noncash
purchase price of all such purchases and acquisitions (including,
without limitation, all indemnities to the sellers thereof, all
write-downs of property and assets and reserves for liabilities with
respect thereto and all assumptions of debt, liabilities and other
obligations in connection therewith) do not exceed $15,000,000 at any
time; provided that in the case of any purchase or acquisition made
pursuant to this subsection (g):
(i) any Subsidiary of such Company or any of its
Subsidiaries acquired or created as a result thereof or in
connection therewith shall be a wholly owned Subsidiary
thereof;
(ii) any Subsidiary of such Company or any of its
Subsidiaries acquired or created as a result thereof or in
connection therewith shall not have any material contingent
liabilities other than (i) liabilities acceptable to the Major
Purchaser in its sole discretion and (ii) dental malpractice
claims that are covered by a valid and binding policy of
insurance covering the full payment thereof as
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long as such insurer has been notified of such claim, and has
not disputed the claim made for the payment of, such claim (as
determined in good faith by the board of directors of such
Company);
(iii) any business acquired or invested in shall
be substantially the same line of business as that of the
Companies and their respective Subsidiaries conducted at the
time of such purchase or acquisition in the ordinary course,
or a line of business directly related thereto, thereof or in
connection therewith;
(iv) immediately before and after giving pro
forma effect to such purchase or acquisition, no Default or
Event of Default shall have occurred and be continuing;
(v) at the time of such purchase or acquisition
(A) the Subsidiary acquired or created as a result thereof
shall guaranty all of the Obligations pursuant to Section 8.10
and (B) the Collateral Agent, for the benefit of the
Purchasers, shall be granted a Lien on and security interest
in all assets of the Subsidiary acquired or created as a
result thereof and all acquired assets pursuant to Section
8.10; and
(vi) any Indebtedness of any Company or its
Subsidiaries incurred in connection therewith shall be
permitted pursuant to Section 9.3(f).
9.7. LIMITATIONS ON INVESTMENTS, ETC.
Each of the Companies will not and will not permit any of its
Subsidiaries to directly or indirectly make or commit or agree to make any
advance, loan, guarantee of Obligations, other extension of credit or capital
contributions to, or hold or invest in or commit or agree to hold or invest in,
or purchase or otherwise acquire or commit or agree to purchase or otherwise
acquire any shares of capital stock (or other ownership or profit interests),
bonds, notes, debentures or other securities of, or make or commit or agree to
make any other investment in, any other Person, or purchase or own any futures
contract or otherwise become liable for the purchase or sale of currency or
other commodities at a future date in the nature of a futures contract
(collectively, "INVESTMENTS"), except that the following shall be permitted:
(a) any Company and its Subsidiaries may acquire and hold
accounts receivable owing to any of them;
(b) any Company and its Subsidiaries may acquire and hold
cash and Cash Equivalents;
(c) any Company and its Subsidiaries may maintain and
continue to own the Investments thereof existing on the date of this
Agreement and described on Schedule 9.7 attached hereto;
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(d) any Company and its Subsidiaries may make Restricted
Payments otherwise permitted to be made under Section 9.5;
(e) any Company and its Subsidiaries may acquire all (but
not less than all) of the capital stock of (or other ownership or
profit interests in) any Person and, thereafter, may make capital
contributions therein; provided that, in each case, such acquisition or
capital contribution is otherwise permitted under the terms of the Note
Documents;
(f) Investments not otherwise permitted under this
Section 9.7 in an aggregate amount not to exceed $1,000,000 at any
time; and
(g) Indebtedness of any Company or its Subsidiaries
permitted under Section 9.3(f) and issuance of common stock permitted
by Section 9.8(d) in connection with purchases or acquisitions of
dental care facilities.
9.8. LIMITATION ON ISSUANCE OF CAPITAL STOCK.
Each of the Companies will not issue or sell or enter into any
agreement or arrangement for the issuance and sale of any shares of its capital
stock (or other ownership or profit interests therein), any securities
convertible into or exchangeable for shares of its capital stock (or other
ownership or profit interests therein) or any warrants, options or other rights
for the purchase or acquisition of any shares of its capital stock (or other
ownership or profit interests therein), except for:
(a) transfers and replacements of outstanding shares of
capital stock of the Company;
(b) issuances of shares of common stock pursuant to the
terms of the Warrant Agreements and those stock option and incentive
plans as in effect on the Purchase Date set forth on Part II of
Schedule 5.1 attached hereto;
(c) the issuance and sale of shares of capital stock of
the Company so long as the Net Cash Proceeds thereof will be applied to
repay or redeem the aggregate outstanding principal amount of the
Notes, all accrued and unpaid interest thereon, if any, and all fees,
expenses and other amounts owing under or in respect of the Note
Documents at such time pursuant to Section 7.3; and
(d) the issuance and sale of shares of common stock to
selling dentists as part of the consideration paid for the acquisition
of dental practices permitted under Section 9.6(g).
9.9. LIMITATION ON MODIFICATIONS OF INDEBTEDNESS; MODIFICATIONS OF
CERTIFICATE OF INCORPORATION, BYLAWS AND CERTAIN OTHER AGREEMENTS; ETC.
Each of the Companies will not and will not permit any of its
Subsidiaries (a) to amend, modify or otherwise change (or permit the amendment,
modification or other change in
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any manner of) any of the provisions of any Indebtedness of such Company or any
of its Subsidiaries or of any instrument or agreement (including, without
limitation, any purchase agreement, indenture, loan agreement or security
agreement) relating to any such Indebtedness if such amendment, modification or
change would shorten the final maturity or average life to maturity of, or
require any payment to be made earlier than the date originally scheduled on,
such Indebtedness, would increase the interest rate applicable to such
Indebtedness, or would change the subordination provision, if any, of such
Indebtedness, or would otherwise be adverse to the issuer of such Indebtedness
in any respect, (b) except for the Notes and the other Obligations of the
Companies and their respective Subsidiaries under or in respect of the Note
Documents, to make any voluntary or optional payment, prepayment, redemption or
other acquisition for value of any Indebtedness of any Company or any of its
Subsidiaries (including, without limitation, by way of depositing money or
securities with the trustee therefor before the date required for the purpose of
paying any portion of such Indebtedness when due), or to refund, refinance,
replace or exchange any other Indebtedness for any such Indebtedness, or to make
any prepayment, redemption or repurchase of any outstanding Indebtedness as a
result of any asset sale, change of control, issuance and sale of debt or equity
securities or similar event, or give any notice with respect to any of the
foregoing, or (c) to amend, modify or otherwise change its certificate of
incorporation or bylaws (or other similar organizational documents), including,
without limitation, by the filing or modification of any certificate of
designation, or any agreement or arrangement entered into by it, with respect to
any shares of its capital stock (or other ownership or profit interest therein)
(including any shareholders' agreement), or enter into any new agreement with
respect to any of its shares of capital stock (or other ownership or profit
interest therein).
9.10. LIMITATIONS ON CONDUCT OF BUSINESS.
Each of the Companies will not and will not permit any of its
Subsidiaries to engage in any business or activities other than providing dental
practice management services and related activities in multi-specialty dental
practice settings in the Northeast geographical area.
9.11. LIMITATIONS ON ACCOUNTING CHANGES AND CHANGES IN FISCAL YEAR.
Each of the Companies will not and will not permit any of its
Subsidiaries to make or permit any change in (a) its accounting policies and
reporting practices, except as required by generally accepted accounting
principles in effect from time to time, or (b) its Fiscal Year.
9.12. LIMITATIONS ON SPECULATIVE TRANSACTIONS.
Each of the Companies will not and will not permit any of its
Subsidiaries to engage in any transaction involving commodity options or futures
contracts or any similar speculative transactions (including, without
limitation, take-or-pay contracts).
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9.13. LIMITATIONS ON CAPITAL EXPENDITURES.
Each of the Companies will not and will not permit any of its
Subsidiaries to make any Capital Expenditures (including, without limitation,
installment purchases or Capitalized Leases) that would cause the aggregate
amount of all such Capital Expenditures made by the Companies and their
respective Subsidiaries in any Fiscal Year, commencing with the Fiscal Year
ending December 31, 1997, to exceed $1,500,000.
9.14. LIMITATIONS ON CHANGES TO MANAGEMENT AGREEMENT.
The Companies shall not, without the prior written consent of
the Required Holders, cancel, terminate, amend or modify the Management
Agreement between the Companies.
10. RESERVED.
11. EVENTS OF DEFAULT.
11.1. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing (each, an "EVENT OF
DEFAULT"):
(a) the Companies default in the payment of any principal
of or premium, if any, on any Note when the same becomes due and
payable, whether by scheduled maturity or at a date fixed for
prepayment, redemption or repurchase or by declaration, demand or
otherwise; or
(b) the Companies default in the payment of any interest
on any Note, or any Obligor defaults in the payment of any other amount
owing under or in respect of any of the Note Documents, whether by
scheduled maturity or at a date fixed for prepayment, redemption or
repurchase or by declaration, demand or otherwise; or
(c) (i) any Company fails to perform any of the covenants
contained in Sections 8.1 (other than paragraph (h)), 8.4, 8.7 and 8.9
of this Agreement and such failure shall continue for ten (10) Business
Days; provided, that, such ten (10) Business Day period shall not apply
in the case of any failure to observe any such covenant which is not
capable of being cured at all or within such ten (10) Business Day
period or which has been the subject of a prior failure or (ii) any
Company defaults in the performance of or compliance with any term,
covenant, condition, provision or agreement contained in this Agreement
other than those described in clause (i) of this Section 11.1(c); or
(d) any Company defaults in the performance of or
compliance with any term, covenant or agreement contained in any of the
Note Documents on its part to be performed or complied with that is not
referred to in Section 11.1(a), 11.1(b) or 11.1(c), and such default
shall remain unremedied for at least 20 consecutive days after the
earlier
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of the first date on which (i) a Responsible Officer becomes aware of
such default and (ii) any Company receives written notice of such
default from any holder of a Note; or
(e) any representation or warranty made or deemed made on
the Purchase Date by or on behalf of any Obligor or by any officer of
any Obligor under or pursuant to the terms of this Agreement or any of
the other Note Documents or in any writing furnished to any of the
Purchasers pursuant to the terms of this Agreement or any of the other
Note Documents proves to have been false or incorrect in any material
respect on the date as of which it was made or deemed to have been
made; or
(f) (i) any Company or any of its Subsidiaries shall fail
to pay (A) any principal of, or premium or interest on, Indebtedness
that is outstanding in a principal or notional amount of at least
$100,000 (or the equivalent thereof in one or more other currencies),
either individually or in the aggregate (but excluding Indebtedness
outstanding hereunder), of such Company and its Subsidiaries, taken as
a whole, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, redemption or repurchase, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in any agreement or
instrument relating to such Indebtedness, or (B) any other amount of
Indebtedness greater than $100,000 (or the equivalent thereof in one or
more other currencies), either individually or in the aggregate (but
excluding Indebtedness outstanding hereunder), of such Company and its
Subsidiaries when the same becomes due and payable (whether by
scheduled maturity, required prepayment, redemption or repurchase,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in any agreement
or instrument relating to such Indebtedness; or (ii) any other event
shall occur or condition shall exist under any agreement or instrument
evidencing, securing or otherwise relating to any Indebtedness referred
to in clause (i) of this Section 11.1(f) and shall continue after the
applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate,
or to permit the acceleration of, the maturity of such Indebtedness or
otherwise to cause, or to permit the holder or holders thereof (or a
trustee or agent on behalf of such holders) to cause such Indebtedness
to mature; or (iii) any Indebtedness referred to in clause (i) of this
Section 11.1(f) shall be declared to be due and payable or required to
be prepaid, redeemed or repurchased (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased, or
an offer to prepay, redeem, repurchase, purchase or defease any such
Indebtedness shall be required to be made, in each case prior to the
stated maturity thereof or any date fixed for prepayment, redemption or
repurchase thereunder; or
(g) any Company or any of its Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against any Company or any of its
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under
any law relating to
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bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or for any
substantial part of its property and assets and, in the case of any
such proceeding instituted against it (but not instituted by it) that
is being diligently contested by it in good faith, either such
proceeding shall remain undismissed or unstayed for a period of 30
consecutive days or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or any substantial part of its property and
assets) shall occur; or any Company or any of its Subsidiaries shall
take any action to authorize any of the actions set forth above in this
subsection (g); or
(h) one or more judgments or orders for the payment of
money aggregating $100,000 (or the equivalent thereof in one or more
other currencies) or more are rendered against any Company or any of
its Subsidiaries and remain unsatisfied and either (i) enforcement
proceedings shall have been commenced by any creditor upon any such
judgment or order or (ii) there shall be a period of at least 10
consecutive days after entry thereof during which a stay of enforcement
of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; provided, however, that any such
judgment or order shall not give rise to an Event of Default under this
subsection (h) if and for so long as (A) the amount of such judgment or
order is covered by a valid and binding policy of insurance between the
defendant and the insurer covering full payment thereof and (B) such
insurer has been notified, and has not disputed the claim made for
payment, of the amount of such judgment or order; or
(i) one or more writs or warrants of attachment,
garnishment, execution, distraint or similar process with respect to
Obligations of any Company or any of its Subsidiaries aggregating
$100,000 (or the equivalent thereof in one or more other currencies) or
more have been issued against such Company or such Subsidiary or any of
their respective property or assets and remain unsatisfied and there
shall be a period of at least 10 consecutive days after the issuance
thereof during which a stay of enforcement of any such writ or warrant,
by reason of a pending appeal or otherwise, shall not be in effect; or
(j) any nonmonetary judgment or order shall be rendered
against any Company or any of its Subsidiaries that, either
individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect and there shall be any period of 10
consecutive days after entry thereof during which a stay of enforcement
of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(k) any provision of any of the Note Documents after
delivery thereof pursuant to Sections 3.1 or 3.2 shall for any reason
(other than pursuant to the express terms thereof) cease to be valid
and binding on or enforceable against any of the Obligors intended to
be a party to it or shall cease to give the Purchasers any of the
rights, powers or privileges purported to be created thereunder, or any
such Obligor shall so state any of the foregoing in writing; or
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(1) any Collateral Document after delivery thereof
pursuant to Section 3.1 or 3.2 shall for any reason (other than
pursuant to the express terms thereof) cease to create a valid and
perfected Lien on and security interest in the Collateral purported to
be covered thereby (with the intended priority thereof pursuant to the
terms of the Note Documents); or
(m) any of the following events or conditions shall have
occurred and such event or condition, when aggregated with any and all
other such events or conditions, has resulted or could reasonably be
expected to result in a liability of any Company and/or ERISA
Affiliates in an aggregate amount exceeding $100,000 at any time
outstanding:
(i) any Termination Event shall have occurred
with respect to a Plan;
(ii) such Company or any ERISA Affiliate shall
have been notified by the sponsor of a Multiemployer Plan that
it has incurred Withdrawal Liability to such Multiemployer
Plan;
(iii) such Company or any ERISA Affiliate shall
have been notified by the sponsor of a Multiemployer Plan that
such Multiemployer Plan is in reorganization, is insolvent or
is being terminated, within the meaning of Title IV of ERISA,
and, as a result of such reorganization, insolvency or
termination, the aggregate annual contributions of such
Company and the ERISA Affiliates to all Multiemployer Plans
that are in reorganization or being terminated at such time
have been or will be increased over the amounts contributed to
such Multiemployer Plans for the plan years of such
Multiemployer Plans immediately preceding the plan year in
which such reorganization, insolvency or termination occurs;
(iv) any "accumulated-funding deficiency" (as
defined in Section 302 of ERISA and Section 412 of the
Internal Revenue Code), whether or not waived, shall exist
with respect to one or more Plans, or any Lien shall exist on
the property and assets of such Company or any ERISA Affiliate
in favor of the PBGC or a Plan; or
(v) any prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code) or any breach of fiduciary
responsibility shall occur that may subject such Company or
any ERISA Affiliate to any liability under Section 406, 409,
502(i) or 502(l) of ERISA or Section 4975 of the Internal
Revenue Code, or under any agreement or instrument pursuant to
which such Company or any ERISA Affiliate has agreed or is
required to indemnify any Person against such liability; or
(n) any Governmental Authorization necessary in order to
permit any Company or any of its Subsidiaries to fully own or lease and
operate their respective property and assets or to properly conduct
their respective businesses shall cease to be in effect or such Company
or such Subsidiary shall cease to have the full intended benefit
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thereof or rights thereunder, unless the revocation, termination,
cancellation, denial, impairment or modification of such Governmental
Authorization, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
11.2. ACCELERATION.
(a) If an Event of Default described in Section 11.1(g)
shall occur with respect to any Company, all of the Notes then
outstanding shall become automatically and immediately due and payable.
(b) If any other Event of Default shall occur and be
continuing, the Required Holders may at any time, at their option, by
notice or notices to any Company, declare all of the Notes then
outstanding to be immediately due and payable.
(c) Upon any Note becoming due and payable under this
Section 11.2, whether automatically or by declaration, such Note will
forthwith mature and the entire unpaid principal amount of such Note,
plus all accrued and unpaid interest thereon and all other amounts due
and payable to the holder thereof under the Note Documents, shall be
immediately due and payable, in each and every case without
presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by each Company.
11.3. OTHER REMEDIES.
If one or more Defaults or Events of Default shall occur and
be continuing, and irrespective of whether any of the Notes have become or have
been declared immediately due and payable under Section 11.2, the Required
Holders may proceed to protect and enforce the rights of the holders of the
Notes by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
of the other Note Documents, or for an injunction against a violation of any of
the terms hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by applicable law or otherwise.
11.4. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to Section 11.2(a) or 11.2(b), as the case may be, the Required
Holders, by notice to any Company, may rescind and annul any such declaration
and its consequences if (a) the Companies have paid all overdue interest on the
Notes, all principal of and premium, if any, on the Notes that are due and
payable and are unpaid other than by reason of such declaration, and all
interest on such overdue principal and (to the fullest extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Defaults and Events of Default, other than nonpayment of amounts
that have become due solely by reason of such declaration, have been remedied or
have been waived pursuant to Section 16 and (c) no judgment or decree has been
entered for the payment of any monies due pursuant to the Notes or any of the
other Note
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Documents. No rescission and annulment under this Section 11.4 will extend to or
affect any subsequent Default or Event of Default or impair any right, power or
remedy consequent thereon.
11.5. RESTORATION OF RIGHTS AND REMEDIES.
If any holder of the Notes has instituted any proceeding to
enforce any right or remedy under this Agreement or any of the other Note
Documents and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to such holder, then, and in each such case,
the Obligors and the holders of Notes shall, subject to any determination in
such proceeding, be restored severally to their respective former positions
hereunder and under the other Note Documents and, thereafter, all rights and
remedies of the holders of the Notes shall continue as though no such proceeding
had been instituted.
11.6. NO WAIVERS OR ELECTION OF REMEDIES, ETC.
No course of dealing and no delay on the part of any holder of
the Notes in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or any of the other Note
Documents upon any holder of the Notes shall be exclusive of any other right,
power or remedy referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise.
12. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
12.1. REGISTRATION OF NOTES.
The Companies shall maintain, or cause to be maintained, a
register (the "Register") on which it enters the name of each Purchaser as the
registered owner of each Note held by such Purchaser. A Registered Note may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register (and each Registered Note shall expressly so provide). Any
assignment or sale of all or part of such Registered Note may be effected only
by registration of such assignment or sale on the Register, together with the
surrender of the Registered Note evidencing the same duly endorsed by (or
accompanied by a written instrument of assignment or sale duly executed by) the
holder of such Registered Note, whereupon, at the request of the designated
assignee(s) or transferee(s), one or more new Registered Notes in the same
aggregate principal amount shall be issued to the designated assignee(s) or
transferee(s). Prior to the registration of assignment or sale of any Registered
Note, the Companies shall treat the Person in whose name such Registered Note is
registered as the owner thereof for the purpose of receiving all payments
thereon and for all other purposes, notwithstanding notice to the contrary. Any
foreign Person who purchases or is assigned or participates in any portion of
the Notes shall provide the Companies with a completed Internal Revenue Service
Form W-8 (Certificate of Foreign Status) or a substantially similar form for
such purchaser or any other affiliate who is a holder of beneficial interests in
the Notes.
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12.2. TRANSFER AND EXCHANGE OF NOTES.
(a) Upon surrender of any Note at the principal executive
office of the Companies for registration of transfer or exchange (and,
in the case of a surrender for registration of transfer, duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in
writing and accompanied by the address for notices of each transferee
of such Note or part thereof), the Companies shall execute and deliver,
at the Companies' expense (except as provided below), one or more new
Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as
such holder may request and, subject to subsection (c) of this Section
12.2, shall be in substantially the form of Exhibit A attached hereto.
Each such new Note shall be dated and bear interest from the date to
which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid
thereon. The Companies may require payment of a sum sufficient to cover
any stamp tax or other governmental charge imposed in respect of any
such transfer of Notes. Notes shall not be transferred in denominations
of less than $500,000, provided that, if necessary to enable the
registration of transfer by a holder of its entire holding of Notes,
one Note may be in a denomination of less than $500,000.
Notwithstanding any other provision of this Agreement, the Notes or the
other Note Documents, the initial Purchasers of the Notes may not
assign or sell any Note before June 30, 1998 without the prior written
consent of the Companies.
(b) Any transferee, by its acceptance of a Note
registered in its name (or the name of its nominee), shall be deemed
(i) to have made the representations set forth in Sections 6.1, 6.2 and
6.3 and (ii) to confirm to and agree with the transferor and the other
parties hereto as follows:
(A) other than as provided in any written
instrument of transfer executed by the transferor and such
transferee, such transferor makes no representation or
warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in
connection with this Agreement or any of the other Note
Documents, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any Lien or security interest
created or purported to be created under or in connection with
this Agreement or any of the other Note Documents or any other
instrument or document furnished pursuant hereto or thereto;
(B) such transferor makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of the Companies or any other Obligor or
the performance or observance by any Obligor of any of its
Obligations under this Agreement or any of the other Note
Documents or any other instrument or document furnished
pursuant thereto;
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(C) such transferee confirms that it has
received a copy of this Agreement, together with copies of the
financial statements referred to in Section 8.1 and such other
documents and information as it has deemed appropriate to make
its own credit analysis and decision to purchase the Note or
Notes being purchased thereby;
(D) such transferee will, independently and
without reliance upon the transferor or any other holder of
the Notes and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this
Agreement;
(E) such transferee agrees that it will perform
in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it
as a holder of the Notes; and
(F) such transferee appoints Imprimis Investors
LLC (unless the Required Holders have appointed another Person
to act as Collateral Agent, in which event such transferee
appoints such Person) as the Collateral Agent and agrees to be
bound by all of the terms and provisions relating to the
Collateral Agent's rights, responsibilities and protections as
are set forth in this Agreement and the Note Documents and, if
requested by the Collateral Agent, agrees to enter into
additional documents with the Collateral Agent, the Companies
and the other holders of the Notes setting forth such rights,
responsibilities and protections of the Collateral Agent as
the Collateral Agent may reasonably require.
12.3. REPLACEMENT OF NOTES.
Upon receipt by the Companies of evidence reasonably
satisfactory to it of the ownership and the loss, theft, destruction or
mutilation of any Note, and
(a) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it; provided that, if the holder
of such Note is an original purchaser of any of the Notes, such
Person's own unsecured agreement of indemnity shall be deemed to be
satisfactory, or
(b) in the case of mutilation, upon surrender and
cancellation thereof, the Companies, at their own expense, shall
execute and deliver, in lieu thereof, a new Note, dated and bearing
interest from the date to which interest shall have been paid on such
lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have
been paid thereon.
13. PAYMENTS ON NOTES.
The Companies will pay all sums becoming due on each Note for
principal, premium, if any, and interest by the method and at the address
specified for such purpose below the name of each respective Purchaser on
Schedule I attached hereto, or by such other method or
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at such other address located in the United States of America as each such
Purchaser shall have from time to time specified to the Company for such
purpose, without the presentation or surrender of such Note or the making of any
notation thereon, except that upon the request of the Companies made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, the holder of such Note shall surrender such Note for cancellation,
reasonably promptly after any such request, to the Companies at their principal
executive office or at the place of payment most recently designated by the
Companies in writing to the holder of such Note. Prior to any permitted sale,
transfer or other disposition of any Note held by a Purchaser or its nominee,
such Purchaser will, at its election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid thereon
or surrender such Note to the Companies in exchange for a new Note or Notes
pursuant to Section 12.2.
14. EXPENSES, INCREASED COSTS AND INDEMNIFICATION, ETC.
14.1. TRANSACTION EXPENSES.
Whether or not any of the transactions contemplated hereby are
consummated, the Companies will pay, within 15 days of each demand therefor
(such demand to be accompanied by supporting documentation in reasonable
detail), (a) all of the reasonable costs and expenses incurred by the Collateral
Agent and the Major Purchaser (including, without limitation, reasonable
attorneys' fees of a special counsel for the Collateral Agent and the Major
Purchaser) in connection with the preparation, execution, delivery and
administration of this Agreement, the Notes and the other Note Documents, (b)
all of the reasonable costs and expenses incurred by the Collateral Agent and
the Major Purchaser (including, without limitation, reasonable attorneys' fees
of a special counsel for the Collateral Agent and the Major Purchaser) in
connection with all of the amendments, waivers or consents under or in respect
of this Agreement, the Notes or any of the other Note Documents (whether or not
such amendment, waiver or consent becomes effective), and (c) all of the
reasonable costs and expenses incurred by the Collateral Agent and each of the
Purchasers and each other holder of a Note (including, without, limitation,
reasonable attorneys' fees of a special counsel for the Collateral Agent and
each of the Purchasers) in connection with the enforcement of this Agreement,
the Notes and the other Note Documents, and the custody and preservation of, or
the sale or collection from, or other realization upon, any of the Collateral,
including, without limitation: (i) the reasonable costs and expenses incurred in
enforcing or defending (or determining whether or how to enforce or defend) any
rights under this Agreement, the Notes or any of the other Note Documents or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement, the Notes or any of the other
Note Documents, or by reason of being a holder of the Notes, and (ii) the
reasonable costs and expenses (including, without limitation, financial
advisors' fees) incurred in connection with the insolvency or bankruptcy of any
Obligor or any of its Subsidiaries or in connection with any work-out,
renegotiation or restructuring of any of the transactions contemplated hereby,
by the Notes or by the other Note Documents. The Companies will pay, and will
hold the Collateral Agent, the Purchasers and each holder of the Notes harmless
from, any claim, demand or liability in respect of any fees, costs or expenses,
if any, alleged to have been incurred by brokers, placement agents and finders
in connection with the transactions contemplated by this Agreement or the Note
Documents. The Companies and
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the Purchasers represent and warrant to each other that each has not retained
any broker, placement agent or finder with regard to this Agreement, the Notes
and the Note Documents other than Lazard Freres & Co. LLC, retained by the
Companies, whose fees, costs and expenses shall be paid from the proceeds of the
sale and purchase of the Notes.
14.2. INDEMNITY.
(a) In addition to the payment of costs and expenses
pursuant to Section 14.1, whether or not the transactions contemplated
by this Agreement and the Note Documents shall be consummated, each
Company agrees to indemnify, pay and hold the Collateral Agent, each
Purchaser, each holder of the Notes and each other Person in whose name
or for whose benefit such Person holds or at any time held Notes, and
their affiliates and their respective officers, directors, employees,
attorneys, agents and other advisors (each, an "INDEMNIFIED PARTY"),
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits and claims, and all
reasonable costs, expenses and disbursements, of any kind or nature
whatsoever (including, without limitation, reasonable fees and
disbursements of counsel for such Indemnified Parties) that may be
incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by reason of, or in
connection with the preparation for a defense of, any investigation,
litigation or proceeding arising out of, related to, or in connection
with (i) this Agreement, the Notes, the other Note Documents or any of
the transactions contemplated hereby or thereby and in connection with
any amendments or waivers (whether or not the same become effective),
(ii) or any Purchaser's agreement to purchase Notes, (iii) any use or
intended use of the proceeds of any of the Notes, (iv) any sale or
collection from or other realization upon, or any other remedies
expressed in respect of, any or all of the Collateral, (v) all taxes
(other than taxes determined with respect to income), including any
recording fees and filing fees and documentary stamp and similar taxes
at any time payable in respect of this Agreement, any other Note
Document or the issuance of any of the Notes, or (vi) the actual or
alleged presence of Hazardous Materials on any property of any of the
Companies or any of their respective Subsidiaries or any Environmental
Action relating in any way to any of the Companies or any of their
respective Subsidiaries, in each case whether or not such
investigation, litigation or proceeding is brought by any Company, any
of its Subsidiaries, its directors, shareholders or creditors or an
Indemnified Party or any Indemnified Party is otherwise a party thereto
and whether or not any sale and purchase of the Notes pursuant to this
Agreement is effected (collectively, the "INDEMNIFIED LIABILITIES");
provided that the Companies shall not have any obligation to any
Indemnified Party hereunder with respect to any Indemnified Liabilities
arising from the gross negligence or bad faith of such Indemnified
Party as determined in a final, nonappealable judgment by a court of
competent jurisdiction.
(b) The Companies hereby further agree to indemnify,
exonerate and hold each Indemnified Party free and harmless from and
against any and all actions, causes of action, suits, losses,
liabilities, damages and expenses, including, without limitation,
reasonable attorneys' fees and disbursements, incurred in any capacity
by any of the
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Indemnified Parties as a result of or relating to (i) any transaction
financed or to be financed in whole or in part directly or indirectly
with proceeds from the sale of any of the Notes, or (ii) the execution,
delivery, performance or enforcement of this Agreement (including,
without limitation, any failure by either Company to comply with any of
their respective covenants hereunder), the Note Documents, or any
instrument contemplated hereby or thereby, except for any such
indemnified liabilities arising from any Indemnified Party's gross
negligence or willful misconduct.
(c) Each of the Companies will not, without the prior
written consent of the applicable Indemnified Party, settle,
compromise, consent to the entry of any judgment in or otherwise seek
to terminate any action, claim, suit or proceeding in respect of which
indemnification of such Indemnified Party may be sought under
subsections (a) or (b) of this Section 14.2 (whether or not such
Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes a full and unconditional
release of such Indemnified Party from any and all claims against such
Indemnified Party and any and all liabilities thereof arising out of or
relating to such action, claim, suit or proceeding.
(d) Each of the Companies also agrees not to assert any
claim against the Collateral Agent or any Purchaser or any other holder
of the Notes or any other Person in whose name or for whose benefit
such Person holds or at any time held any Notes, or any of their
Affiliates, or any of their respective officers, directors, employees,
attorneys, agents and other advisors, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or
otherwise relating to (i) this Agreement, the Notes or any of the other
Note Documents, or any of the transactions contemplated hereby or
thereby, (ii) any Purchaser's agreement to purchase the Notes, (iii)
any sale or collection from or other realization upon, or any other
remedies exercised in respect of any or all of the Collateral or (iv)
any use or intended use of the proceeds of any of the Notes.
(e) If and to the extent that the undertaking to
indemnify, pay and hold harmless the Indemnified Parties set forth in
this Section 14.2 is judicially determined to be unavailable to an
Indemnified Party in respect of, or is insufficient with respect to,
any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits or claims referred to herein, then, in lieu of
indemnifying such Indemnified Party hereunder, the Companies shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits or claims (and reasonable costs, expenses and
disbursements relating thereto) (i) in such proportion as is
appropriate to reflect the relative benefits to the Companies and their
respective Subsidiaries, on the one hand, and such Indemnified Party,
on the other hand, from this Agreement and the sale and purchase of the
Notes or (ii) if the allocation provided by clause (i) of this
subsection (e) is not available, in such proportion as is appropriate
to reflect not only the relative benefits referred to in such clause
(i) but also the relative fault of each of the Companies and their
respective Subsidiaries, on the one hand, and such Indemnified Party,
on the other hand, in connection with such liabilities,
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obligations, losses, damages, penalties, actions, judgments, suits or
claims, as well as any other relevant equitable considerations.
14.3. RESERVED.
14.4. SURVIVAL.
The Obligations of the Companies under this Section 14 shall
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement, the Notes or any of the other Note
Documents, and the termination of this Agreement and any commitment to purchase
Notes hereunder and, in respect of any Person who was at any time a Purchaser or
a holder of a Note or in whose name or for whose benefit such Person held any
Note, the date on which such Person no longer holds, or no longer holds in the
name of or for the benefit of any other Person, any Note.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein and in the
other Note Documents, and in any certificate or other instrument delivered by or
on behalf of any Obligor pursuant to this Agreement or any of the other Note
Documents, shall survive the execution and delivery of this Agreement and the
Notes, the purchase or transfer by each of the Purchasers of any Notes or
portion thereof or interest therein and the payment of any Notes, and may be
relied upon by any subsequent holder of the Notes as of the date made or deemed
made, regardless of any investigation made at any time by or on behalf of any
Purchaser or any other holder of the Notes. This Agreement, the Notes and the
other Note Documents embody the entire agreement and understanding between the
Purchaser and the Obligors and supersede all prior agreements and understandings
relating to the subject matter hereof.
16. AMENDMENT AND WAIVER.
16.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with and only with the written consent of the
Companies and the Required Holders, except that no such amendment or waiver
shall, without the written consent of the holder of each Note at the time
outstanding (a) change the percentage of the aggregate principal amount of the
Notes the holders of which constitute the Required Holders or (b) amend this
Section 16.1.
16.2. SOLICITATION OF HOLDERS OF NOTES.
The Companies will provide the Required Holders with
sufficient information, reasonably far in advance of the date a decision is
required, to enable such holders to make an informed and considered decision
with respect to any proposed amendment, waiver or consent in respect of any of
the provisions of this Agreement or any of the other Note
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Documents. The Companies will deliver executed or true and correct copies of
each amendment, waiver or consent effected pursuant to the provisions of this
Section 16 to each holder of outstanding Notes promptly following the date on
which it is executed and delivered by, or receives the consent or approval of,
the Required Holders.
16.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 16 applies equally to all holders of Notes and is binding upon them,
upon each future holder of any Note and upon each Obligor without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right, power or remedy consequent thereon. No course of dealing nor any
delay on the part of any holder of any Note in exercising any right, power or
remedy hereunder or under any of the other Note Documents shall operate as a
waiver of any right, power or remedy of any holder of such Note; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided under this Agreement and the other Note Documents are
cumulative and not exclusive of any rights, powers or remedies provided by
applicable law.
16.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or any of the other Note Documents, or have directed
the taking of any action provided for herein or in any of the other Note
Documents to be taken upon the direction of the holders of a specified
percentage of the aggregate principal amount of Notes then outstanding, Notes
directly or indirectly owned by any of the Companies or any of their Affiliates
shall be deemed not to be outstanding.
17. NOTICES.
(a) All notices and other communications provided for
hereunder shall be in writing and delivered by telecopier or (if
expressly permitted under the applicable provisions hereof) by
telephone, if the sender on the same day sends a confirming copy of
such notice by a recognized overnight delivery service (charges
prepaid), by registered or certified mail with return receipt requested
(postage prepaid) or by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or its nominee, to it at
the address specified for such communications in Schedule I
attached hereto, or at such other address as it shall have
specified to the Company in writing;
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have
specified to the Company in writing; or
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(iii) if to the Companies, to them at the address
set forth on the first page of this Agreement (Telecopier No.
(617) 624-0919) to the attention of Joseph A. Anoli, Senior
Vice President and Chief Financial Officer, with a copy to
Michael L. Blau, Esq., McDermott, Will & Emery, 75 State
Street, Boston, Massachusetts 02109 (Telecopier No. (617)
345-5077) or at such other address as the Company shall have
specified to the holder of each Note in writing.
All notices and other communications provided for under this Section 17 will be
deemed given and effective only when actually received.
(b) If any notice required under this Agreement or any of
the other Note Documents is permitted to be made, and is made, by
telephone, actions taken or omitted to be taken in reliance thereon by
a Purchaser or any other holder of any Note shall be binding upon the
Companies notwithstanding any inconsistency between the notice provided
by telephone and any subsequent writing in confirmation thereof
provided to a Purchaser or any other holder of any Note; provided that
any such action taken or omitted to be taken by a Purchaser or any
other holder of any Note shall have been in good faith and in
accordance with the terms of this Agreement.
18. REPRODUCTION OF DOCUMENTS.
This Agreement, each of the other Note Documents and all other
agreements, certificates and other documents relating thereto, including,
without limitation, (a) amendments, waivers and consents of or to this Agreement
or any other Note Document that may hereafter be executed, (b) documents
received on the Purchase Date (except the Notes themselves) and (c) financial
statements, certificates and other information previously or hereafter furnished
to you, may be reproduced by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process. Each of the
Companies agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section 18 shall not
prohibit the Companies or any other holder of Notes from contesting any such
reproduction to the same extent that it could contest the original or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
19. MISCELLANEOUS.
19.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement
or any of the other Note Documents by or on behalf of any of the parties hereto
bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note), whether or not
so expressed.
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19.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of, or premium, if any, or interest
on, any Note that is due on a date other than a Business Day shall be made on
the next succeeding Business Day without including the additional days elapsed
in the computation of the items payable on such next succeeding Business Day.
19.3. SATISFACTION REQUIREMENT.
Except as otherwise provided herein or in any of the other
Note Documents, if any agreement, certificate or other writing, or any action
taken or to be taken, is by the terms of this Agreement or any of the other Note
Documents required to be satisfactory to the Collateral Agent or to the Required
Holders, the determination of such satisfaction shall be made by the Collateral
Agent or the Required Holders, as the case may be, in the sole and exclusive
judgment (exercised reasonably and in good faith) of the Person or Persons
making such determination.
19.4. SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by applicable law) not
invalidate or render unenforceable such provision in any other jurisdiction.
19.5. CONSTRUCTION; ACCOUNTING TERMS, ETC.
(a) Each covenant contained herein shall be construed
(absent express provision to the contrary) as being independent of each
other covenant contained herein, so that compliance with any one
covenant shall not (absent such an express contrary provision) be
deemed to excuse compliance with any other covenant. Where any
provision herein refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such
Person.
(b) Except as otherwise expressly provided in this
Agreement or any of the other Note Documents, all accounting terms used
herein or therein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be
delivered hereunder shall be prepared, in accordance with GAAP.
19.6. COMPUTATION OF TIME PERIODS.
In this Agreement, in the computation of periods of time from
a specific date to a later specified date, the word "from" means "from and
including", the word "through" means "through and including", and the words "to"
and "until" each mean "to but not excluding".
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19.7. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Agreement.
19.8. GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC.
(a) This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York.
(b) Each of the Companies hereby irrevocably and
unconditionally submits, for itself and its property and assets, to the
nonexclusive jurisdiction of any New York state court or federal court
of the United States of America sitting in New York City, New York, and
any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, the Notes or the other
Note Documents, or for recognition or enforcement of any judgment in
respect thereof, and each of the Companies hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in any such New York state court
or, to the fullest extent permitted by applicable law, in such federal
court. Each of the Companies hereby irrevocably consents to the service
of copies of any summons and complaint and any other process which may
be served in any such action or proceeding by certified mail, return
receipt requested, or by delivering a copy of such process to the
Companies, at their address specified in Section 17, or by any other
method permitted by law. Each of the Companies hereby agrees that a
final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in
any other manner provided by applicable law. Nothing in this Agreement
shall affect any right that any holder of Notes may otherwise have to
bring any action or proceeding relating to this Agreement, the Notes or
the other Note Documents in the courts of any jurisdiction.
(c) Each of the Companies hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have to
the laying of venue of any action or proceeding arising out of or
relating to this Agreement, the Notes or the other Note Documents in
any New York state or federal court. Each of the Companies hereby
irrevocably waives, to the fullest extent permitted by applicable law,
the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
19.9. WAIVER OF JURY TRIAL.
EACH OF THE COMPANIES AND THE HOLDERS OF THE NOTES HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
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OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OF THE
OTHER NOTE DOCUMENTS, ANY DOCUMENT DELIVERED UNDER THE NOTE DOCUMENTS, THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, OR THE ACTIONS OF ANY HOLDER OF THE
NOTES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
20. THE COLLATERAL AGENT.
20.1 APPOINTMENT.
Each Purchaser hereby designates and appoints Imprimis
Investors LLC as the Collateral Agent under this Agreement and the Note
Documents, and each Purchaser hereby irrevocably authorizes the Collateral Agent
to take such action on its behalf under the provisions of this Agreement and the
Note Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably incidental thereto. The
Collateral Agent agrees to act as such on the express conditions contained in
this Article 20. The provisions of this Article 20 are solely for the benefit of
the Collateral Agent and the Purchasers and the Companies shall not have any
rights as a third party beneficiary of any of the provisions hereof (other than
as expressly set forth in Section 20.7). In performing its functions and duties
under this Agreement and the Note Documents, the Collateral Agent shall act
solely as agent of the Purchasers and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for the Companies. The Collateral Agent may perform any of its duties hereunder,
or under the Note Documents, by or through its agents or employees.
20.2 NATURE OF DUTIES.
The Collateral Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Note Documents. The
duties of the Collateral Agent shall be mechanical and administrative in nature.
The Collateral Agent shall not have by reason of this Agreement or any Note
Document a fiduciary relationship in respect of any Purchaser. Nothing in this
Agreement or any Note Document, express or implied, is intended to or shall be
construed to impose upon the Collateral Agent any obligations in respect of this
Agreement or any Note Document except as expressly set forth herein or therein.
Each Purchaser shall make its own independent investigation of the financial
condition and affairs of the Companies in connection with the purchase of Notes
hereunder and shall make its own appraisal of the creditworthiness of the
Companies, and the Collateral Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Purchaser with any credit or
other information with respect thereto, whether coming into its possession
before the Purchase Date or at any time or times thereafter.
20.3 RIGHTS, EXCULPATION, ETC.
Neither the Collateral Agent nor any of its officers,
directors, employees or agents shall be liable to any Purchaser for any action
taken or omitted by them hereunder or under any Note Document, or in connection
herewith or therewith. The Collateral Agent shall not be
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responsible to any Purchaser for any recitals, statements, representations or
warranties herein or in any Note Document or for any execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any Note Document or the transactions contemplated hereby or
thereby, or for the financial condition of the Companies. The Collateral Agent
shall not be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any Note Document or the financial condition of the Companies, or the existence
or possible existence of any Default or Event of Default. The Collateral Agent
may at any time request instructions from the Purchasers with respect to any
actions or approvals which by the terms of this Agreement or any Note Document
the Collateral Agent is permitted or required to take or to grant, and if such
instructions are promptly requested, the Collateral Agent shall be absolutely
entitled to refrain from taking any action or to withhold any approval under
this Agreement or any Note Document until it shall have received such
instructions from the Required Holders. Without limiting the foregoing, no
Purchaser shall have any right of action whatsoever against the Collateral Agent
as a result of the Collateral Agent acting or refraining from acting under this
Agreement or any Note Document in accordance with the instructions of the
Required Holders.
20.4 RELIANCE.
The Collateral Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any Note Document and its duties
hereunder or thereunder, upon advice of counsel selected by it.
20.5 INDEMNIFICATION.
To the extent that the Collateral Agent is not reimbursed and
indemnified by the Companies, the Purchasers will jointly and severally
reimburse and indemnify the Collateral Agent for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, advances or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against the Collateral Agent
in any way relating to or arising out of this Agreement or any Note Document or
any action taken or omitted by the Collateral Agent under this Agreement or any
Note Document; provided, however, that no Purchaser shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements resulting from the
Collateral Agent's gross negligence or willful misconduct. The obligations of
the Purchasers under this Section 20.5 shall survive the payment in full of the
Notes and the termination of this Agreement.
20.6 IMPRIMIS INVESTORS LLC INDIVIDUALLY.
With respect to Notes purchased by Imprimis Investors LLC
hereunder, Imprimis Investors LLC shall have and may exercise the same rights
and powers hereunder and is subject to the same obligations and liabilities as
and to the extent set forth herein for any other Purchaser or holder of a Note.
The terms "Purchasers", "Major Purchaser" or "Required Holders" or any
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similar terms shall, unless the context clearly otherwise indicates, include
Imprimis Investors LLC in its individual capacity as a Purchaser, Major
Purchaser or one of the Required Holders. Imprimis Investors LLC and its
Affiliates may generally engage in any kind of business with the Companies or
any of their Subsidiaries or Affiliates as if it were not acting as Collateral
Agent pursuant hereto without any duty to account to the Purchasers.
20.7 SUCCESSOR COLLATERAL AGENT.
(a) The Collateral Agent may resign from the performance
of all its functions and duties hereunder and under the Note Documents at any
time by giving at least thirty (30) Business Days' prior written notice to the
Companies and each Purchaser. Such resignation shall take effect upon the
acceptance by a successor Collateral Agent of appointment pursuant to clauses
(b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required
Holders shall appoint a successor Collateral Agent who shall be reasonably
satisfactory to the Companies.
(c) If a successor Collateral Agent shall not have been
so appointed within said thirty (30) Business Day period, the retiring
Collateral Agent shall then appoint a successor Collateral Agent who shall serve
as Collateral Agent until such time, if any, as the Required Holders appoint a
successor Collateral Agent as provided above.
20.8 COLLATERAL MATTERS.
(a) The Purchasers hereby irrevocably authorize the
Collateral Agent, at its option and in its discretion, to release any Lien
granted to or held by the Collateral Agent upon any Collateral upon payment and
satisfaction of all Notes and all other Obligations which have matured and which
the Collateral Agent has been notified in writing are then due and payable; or
constituting property being sold or disposed of if the Companies certify to the
Collateral Agent that the sale or disposition is made in compliance with Section
9.6 hereof (and the Collateral Agent may rely conclusively on any such
certificate, without further inquiry); or if approved, authorized or ratified in
writing by the Required Holders. Upon request by the Collateral Agent at any
time, the Purchasers will confirm in writing the Collateral Agent's authority to
release particular types or items of Collateral pursuant to this Section
20.8(a).
(b) Without in any manner limiting the Collateral Agent's
authority to act without any specific or further authorization or consent by the
Required Holders (as set forth in Section 20.8(a)), each Purchaser agrees to
confirm in writing, upon request by the Collateral Agent, the authority to
release Collateral conferred upon the Collateral Agent under Section 20.8(a).
Upon receipt by the Collateral Agent of confirmation from the Required Holders
of its authority to release any particular item or types of Collateral, and upon
at least five (5) Business Days' prior written request by the Companies, the
Collateral Agent shall (and is hereby irrevocably authorized by the Purchasers
to) execute such documents as may be necessary to evidence the release of the
Liens granted to the Collateral Agent for the benefit of the Purchasers upon
such Collateral; provided, however, that (i) the Collateral Agent shall not be
required to execute any such document on terms which, in the Collateral Agent's
opinion, would expose the
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<PAGE> 68
Collateral Agent to liability or create any obligations or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Lien upon (or obligations of the Companies in respect of) all
interests in the Collateral retained by the Companies.
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<PAGE> 69
(c) The Collateral Agent shall have no obligation
whatsoever to any Purchaser to assure that the Collateral exists or is owned by
the Companies or is cared for, protected or insured or has been encumbered or
that the Lien granted to the Collateral Agent pursuant to the Collateral
Documents has been properly or sufficiently or lawfully created, perfected,
protected or enforced or is entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Collateral Agent in this Section 20.8 or in any of
the Note Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, the Collateral Agent
may act in any manner it may deem appropriate, in its sole discretion, given the
Collateral Agent's own interest in the Collateral as one of the Purchasers and
that the Collateral Agent shall have no duty or liability whatsoever to any
other Purchaser.
Very truly yours,
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By
-----------------------------------
Name:
Title:
OSORIO AND WATKIN, D.M.D., P.C.
By
-----------------------------------
Name:
Title:
Solely with respect to Article 20 of the Note Purchase Agreement:
IMPRIMIS INVESTORS LLC, not in its individual capacity but solely as Collateral
Agent
By
--------------------------------
Name:
Title:
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<PAGE> 70
If you are in agreement with the foregoing, please sign in the
appropriate space provided below and return it to the Companies, whereupon the
foregoing shall become a binding agreement between you and the Companies.
IMPRIMIS INVESTORS LLC
BY: ___________________________
Name:
Title:
WEXFORD SPECTRUM INVESTORS LLC
BY: ___________________________
Name:
Title:
BY: ___________________________
JOHN V. DOYLE
BY: ___________________________
MICHAEL S. LISS
BY: ___________________________
HOWARD B. FIFE
BY: ___________________________
ANDREW J. HERENSTEIN
BY: ___________________________
L. JAMES LEWIS
BY: ___________________________
MICHAEL MURPHY
BY: ___________________________
DAVID L. TASHJIAN
BY: ___________________________
MICHAEL A. WEINSTOCK
BY: ___________________________
ROBERT P. KISSEL
BY: ___________________________
DAVID G. MCMILLAN, JR.
<PAGE> 71
SCHEDULE I
INFORMATION RELATING TO THE PURCHASERS
NAME OF PURCHASER: COMMITMENT
NAME(S) FOR REGISTRATION OF NOTES PURCHASED:
MAILING ADDRESS:
TELEPHONE NO.:
TELEPHONE NO.:
WIRE INSTRUCTIONS (INCLUDING ABA NO. AND ACCOUNT NO.)
FOR PAYMENT OF PRINCIPAL AND INTEREST:
To:
In favor of:
Account #:
UNITED STATES TAX IDENTIFICATION NO. (IF ANY):
PHYSICAL DELIVERY INSTRUCTIONS:
<PAGE> 72
SCHEDULE II
DEFINED TERMS
As used in this Agreement, the following terms shall have the
respective meanings set forth below (such meanings to be equally applicable to
both the singular and plural forms of the term defined):
"AFFILIATE" means, with respect to any Person, any other
Person that, directly or indirectly, controls, is controlled by or is
under common control with such Person, or is a director or officer of
such Person or, with respect to any individual, has a relationship with
such individual by blood, marriage or adoption not more remote than
first cousin. For purposes of this definition, the term "control"
(including the terms "controlling" "controlled by" and "under common
control with") of a Person means the possession, direct or indirect, of
the power to vote 5 % or more of the Voting Interest of such Person or
to direct or cause the direction of the management and policies of such
Person, whether through the ownership of Voting Interest, by contract
or otherwise.
"AGREEMENT" means this Note Purchase Agreement, as such
agreement may be amended, supplemented or otherwise modified from time
to time in accordance with the terms of Section 16.
"ASSET SALE" means the conveyance, sale, lease, sublease,
transfer or other disposition (other than solely for security purposes)
by any Company or any of its Subsidiaries to any Person other than a
Company of (a) any of the shares of capital stock of the Company or any
of its Subsidiaries, (b) all or substantially all of the property and
assets of any division or line of business of the Company or any of its
Subsidiaries or (c) any other property or assets (whether tangible or
intangible) of the Company or any of its Subsidiaries.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or any other day on which commercial banks are required or authorized
by law to be closed in New York, New York.
"CAPITAL ASSETS" means, with respect to any Person, all
equipment, fixed assets and real property or improvements of such
Person, or replacements or substitutions therefor or additions thereto,
that have been or should be, in accordance with GAAP, reflected as
additions to property, plant or equipment on the balance sheet of such
Person or that have a useful life of more than one year.
"CAPITAL EXPENDITURES" means, with respect to any Person for
any period, (a) all expenditures made directly or indirectly by such
Person (whether paid in cash or other consideration or accrued as a
liability and including, without limitation, all expenditures for
maintenance and repairs which are required, in accordance with GAAP, to
be capitalized on the books of such Person) during such period for
Capital Assets (other than expenditures for acquisitions of dental
practices permitted by Section 9.6(g) of this Agreement) and (b) solely
to the extent not otherwise included in clause (a) of this definition,
the aggregate principal amount of all Indebtedness (including, without
limitation, Capitalized Lease Obligations) assumed or incurred during
such period in connection with any such expenditures for Capital Assets
(other than Indebtedness permitted by Section 9.2(f) of this
Agreement).
"CAPITALIZED LEASE" means any lease with respect to which the
lessee is required to recognize concurrently the acquisition of
property or an asset and the incurrence of a liability in accordance
with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" means, with respect to any
Person, all lease obligations of such Person which, in accordance with
GAAP, are or will be required to be capitalized on the books of such
Person, in each case valued at the amount thereof accounted for as debt
in accordance with GAAP.
<PAGE> 73
"CAPITAL STOCK" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in
(however designated) the capital of a Person, including, without
limitation, shares of preferred or preference stock, (ii) all
partnership interests (whether general or limited) in any Person which
is a partnership, (iii) all membership interests or limited liability
company interests in any limited liability company, and (iv) all equity
or ownership interests in any Person of any other type.
"CASH EQUIVALENTS" means any of the following types of
Investments, to the extent owned by any of the Companies or any of
their respective Subsidiaries free and clear of all Liens (other than
Liens created under the Collateral Documents):
(a) readily marketable obligations issued or directly
and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof having
maturities of not more than 360 days from the date of
acquisition thereof; provided that the full faith and credit
of the United States of America is pledged in support thereof;
(b) time deposits with, or insured certificates of
deposit or bankers' acceptances of, any commercial bank that
(i) is organized under the laws of the Unite States of
America, any state thereof or the District of Columbia or is
the principal banking subsidiary of a bank holding company
organized under the laws of the United States of America, any
state thereof or the District of Columbia and is a member of
the Federal Reserve System, (ii) issues (or the parent of
which issues) commercial paper rated as described in clause
(c) of this definition and (iii) has combined capital and
surplus of at least $1,000,000,000, in each case with
maturities of not more than 180 days from the date of
acquisition thereof;
(c) commercial paper issued by any Person organized
under the laws of any state of the United States of America
and rated at least "Prime-1" (or the then equivalent grade) by
Moody's Investors Service, Inc. or at least "A-1" (or the then
equivalent grade) by Standard & Poor's Ratings Services, a
Division of The McGraw-Hill Companies, Inc., in each case with
maturities of not more than 270 days from the date of
acquisition thereof;
(d) Investments, classified in accordance with GAAP
as current assets of the Company or any of its Subsidiaries,
in money market investment programs registered under the
Investment Company Act of 1940, as amended, which are
administered by financial institutions that have the highest
rating obtainable from either Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc., and the portfolios of which are
limited solely to Investments of the character and quality
described in clauses (a), (b) and (c) of this definition; and
(e) repurchase agreements entered into by any Company
or any such Subsidiary with a bank or trust company or
recognized securities dealer having combined capital and
surplus of at least $500,000,000 for direct obligations issued
by or fully guaranteed by the United States of America in
which such Company or such Subsidiary shall have a valid and
perfected first priority security interest (subject to no
other Liens); provided that each such repurchase agreement
shall have a fair market value of at least 100% of the amount
of the repurchase obligations thereunder on the date of
purchase thereof.
"CHANGE OF CONTROL" means at any time any "person" or "group"
(within the meaning of Section 13d-3 or 14(d)(2) of the Exchange Act)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of more than 50% of the total
Voting Interests of any Company.
"CHANGE OF CONTROL OFFER" has the meaning specified in Section
7.2(a).
"CHANGE OF CONTROL PAYMENT" has the meaning specified in
Section 7.2(a).
<PAGE> 74
"CHANGE OF CONTROL REPURCHASE DATE" has the meaning specified
in Section 7.2(b).
"COLLATERAL" means all of the "Collateral" referred to in the
Collateral Documents and all other property and assets of the Obligors
and their respective Subsidiaries that are or are intended under the
terms of the Collateral Documents to be subject to Liens in favor of
the Collateral Agent, the Purchasers and the other holders of the
Notes.
"COLLATERAL AGENT" means Imprimis Investors LLC, as collateral
agent for itself and the other Purchasers, or any successor Collateral
Agent appointed by the Required Holders.
"COLLATERAL DOCUMENTS" means, collectively, the security
agreements, mortgages, charges and other similar documents entered into
by any of the Companies or any of their respective Subsidiaries
pursuant to this Agreement and all other agreements that create or
purport to create Liens in favor of the Collateral Agent, the
Purchasers and the other holders of the Notes.
"COMMON STOCK" means the common stock of First New England,
$.01 par value per share.
"COMPANIES" and "COMPANY" each has the meaning specified on
page one of this Agreement.
"CONTINGENT OBLIGATION" means, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation,
(a) the direct or indirect guaranty, endorsement (other than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the
obligation of a primary obligor, (b) the obligation to make take-or-pay
or similar payments, if required, regardless of nonperformance by any
other party or parties to an agreement, (c) any obligation of such
Person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (A) for the purchase or
payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, assets, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the holder of
such primary obligation against loss in respect thereof; provided,
however, that the term "Contingent Obligation" shall not include any
products warranties extended in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made (or, if less, the
maximum amount of such primary obligation for which such Person may be
liable pursuant to the terms of the instrument evidencing such
Contingent Obligation) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder), as determined by such Person
in good faith.
"CURRENT VALUE" has the meaning specified in Section 3 of
ERISA.
"DEFAULT" means any Event of Default or any event or condition
that would constitute an Event of Default but for the requirement that
notice be given or time elapse or both.
"DEFAULT RATE" means 19% per annum.
"EMPLOYEE BENEFIT PLAN" means an "employee benefit plan",
within the meaning of Section 3(3) of ERISA, that is subject to the
provisions of Title I, Subtitle B, Part 4 of ERISA or to Section 4975
of the Internal Revenue Code.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
<PAGE> 75
order or consent agreement, abatement order or other order or directive
(conditional or otherwise) relating in any way to any Environmental
Law, any Environmental Permit or any Hazardous Materials or arising
from alleged injury or threat to health, safety, natural resources or
the environment, including, without limitation, (a) by any Governmental
Authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any Governmental Authority or other
third party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any Requirement of Law, or any
judicial or agency interpretation or other requirement of any
Governmental Authority, relating to (a) the generation, use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials, (b) pollution or protection of the environment,
health, safety or natural resources or (c) occupational safety and
health, industrial hygiene, land use or the protection of human, plant
or animal health or welfare, including the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et
seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section
1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.
S. C. Section 1251 et seq.) , the Clean Air Act (42 U.S.C. Section 7401
et seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601 et
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.), the Oil Pollution Act (33 U.S.C. Section 2701 et
seq.) and the Emergency Planning and Community Right-to-Know Act (42
U.S.C. Section 11001 et seq.), in each case as amended from time to
time, and including the regulations promulgated and the rulings issued
from time to time thereunder.
"ENVIRONMENTAL PERMIT" means any permit, approval, license,
identification number or other authorization required under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
the rulings issued from time to time thereunder.
"ERISA AFFILIATE" means any Person that for purposes of Title
IV of ERISA is a member of the controlled group of any of the Companies
or any of their respective Subsidiaries, or under common control with
any of the Companies or any of their respective Subsidiaries, within
the meaning of Section 414 of the Internal Revenue Code.
"ERISA PLAN" means an "employee benefit plan" (as defined in
Section 3(3) of ERISA) that is or, within the preceding five years, has
been established or maintained, or to which contributions are or,
within the preceding five years, have been made or required to be made,
by any Company or any ERISA Affiliate or with respect to which such
Company or any ERISA Affiliate may have any liability.
"EVENT OF DEFAULT" has the meaning specified in Section 11.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and the regulations promulgated and the
rulings issued from time to time thereunder.
"FISCAL YEAR" means, with respect to the Companies or any of
their respective Subsidiaries, the period commencing on January 1 in
any calendar year and ending on the next succeeding December 31.
"GAAP" means generally accepted accounting principles in
effect in the United States of America, consistently applied.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state, province, city, municipal entity or other political subdivision
thereof, and any governmental, executive, legislative, judicial,
administrative or regulatory agency, department, authority,
instrumentality, commission, board or similar body, whether federal,
state, provincial, territorial, local or foreign.
<PAGE> 76
"GOVERNMENTAL AUTHORIZATION" means any authorization,
approval, consent, franchise, license, covenant, order, ruling, permit,
certification, exemption, notice, declaration or similar right,
undertaking or other action of, to or by, or any filing, qualification
or registration with, any Governmental Authority.
"HAZARDOUS MATERIALS" means: (a) any chemical, material or
substance at any time defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous waste", "acutely hazardous waste", "radioactive
waste", "biohazardous waste", "pollutant", "toxic pollutant",
"contaminant", "restricted hazardous waste", "infectious waste", "toxic
substances", or any other term or expression intended to define, list
or classify substances by reason of properties harmful to health,
safety or the indoor or outdoor environment (including, without
limitation, harmful properties such as ignitability, corrosivity,
reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP
toxicity" or "EP toxicity" or words of similar import under any
applicable Environmental Laws); (b) any oil, petroleum, petroleum
fraction or petroleum derived substance; (c) any drilling fluids,
produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal
resources; (d) any flammable substances or explosives; (e) any
radioactive materials; (f) any asbestos-containing materials; (g) any
urea formaldehyde foam insulation; (h) any electrical equipment which
contains any oil or dielectric fluid containing polychlorinated
biphenyls; (i) any pesticides; (j) any radon gas; and (k) any other
chemical, material or substance designated, classified or regulated as
hazardous or toxic or as a pollutant or contaminant under any
Environmental Law or which could pose a hazard to health, safety or the
environment.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company
pursuant to Section 12.1.
"INDEBTEDNESS" means, with respect to any Person (without
duplication):
(a) all indebtedness of such Person for borrowed
money;
(b) all Obligations of such Person for the deferred
purchase price of property and assets or services (other than
trade payables or other accounts payable incurred in the
ordinary course of such Person's business and not past due for
more than 180 days after the date on which each such trade
payable or account payable was created);
(c) all Obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, or upon
which interest payments are customarily made;
(d) all Obligations of such Person created or arising
under any conditional sale or other title retention agreement
with respect to property or assets acquired by such Person,
even though the rights and remedies of the seller or the
lender under such agreement in the event of default are
limited to repossession or sale of such property or assets;
(e) all Capitalized Lease Obligations of such Person;
(f) all Obligations, contingent or otherwise, of such
Person under acceptance, standby letter of credit or similar
facilities;
(g) all Obligations of such Person to purchase,
redeem, retire, defease or otherwise make any payment in
respect of any shares of capital stock of (or other ownership
or profit interest in) such Person or in any other Person, or
any warrants, rights or options to acquire such shares (or
such other ownership or profit interests);
(h) all Obligations of such Person in respect of
hedge agreements, take-or-pay agreements or other similar
arrangements;
<PAGE> 77
(i) all Contingent Obligations; and
(j) all Obligations referred to in clauses (a)
through (i) of this definition of another Person secured by
(or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on
property or assets (including, without limitation, accounts
and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of
such Indebtedness.
The Indebtedness of any Person shall include (i) all Obligations of the
types described in clauses (a) through (j) above of any partnership in
which such Person is a general partner and (ii) all Obligations of the
types described in clauses (a) through (j) above of such Person to the
extent such Person remains legally liable in respect thereof
notwithstanding that any such Obligation is deemed to be extinguished
under generally accepted accounting principles in effect at any date of
determination.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section
14.2(a).
"INDEMNIFIED PARTY" has the meaning specified in Section
14.2(a).
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
the rulings issued from time to time thereunder.
"INVESTMENT" has the meaning specified in Section 9.7.
"LIEN" means, with respect to any Person, any mortgage, lien
(statutory or other), pledge, hypothecation, security interest, charge
or other preference or encumbrance of any kind (including, without
limitation, any agreement to give any of the foregoing), or any sale of
accounts receivable or chattel paper, or any assignment, deposit
arrangement or lease intended as, or having the effect of, security, or
any other interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale or other
title retention agreement or any Capitalized Lease or upon or with
respect to any property or asset of such Person (including, in the case
of shares of capital stock, stockholder agreements, voting trust
agreements and other similar arrangements).
"MAJOR PURCHASER" means Imprimis Investors LLC.
"MANAGEMENT AGREEMENT" means the Management Agreement between
First New England and O&W dated August 4, 1995.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
results of operations, assets, property, liabilities or prospects of
any Company or any Subsidiary of a Company, (b) the ability of any of
the Obligors to perform its Obligations under this Agreement or any of
the other Note Documents to which it is or is to be a party or (c) the
rights and remedies afforded to the Collateral Agent, the Purchasers or
any of the other holders of the Notes under this Agreement or any of
the other Note Documents.
"MULTIEMPLOYER PLAN" means a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) to which any Company or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan (as
defined in Section 4001(a)(15) of ERISA) that (a) is maintained for
employees of any Company or any ERISA Affiliate and at least one Person
other than such Company and the ERISA Affiliates or (b) was so
maintained and in respect of which any Company or any ERISA Affiliate
could have liability under Section 4064 or 4069 of ERISA in the event
such plan has been or were to be terminated.
<PAGE> 78
"NET CASH PROCEEDS" means, with respect to the issuance or
incurrence of any Indebtedness by any Person, or the sale or issuance
by any Person of any shares of its capital stock (or other ownership or
profit interests therein), any securities convertible into or
exchangeable for shares of its capital stock (or other ownership or
profit interests therein) or any warrants, options or other rights for
the purchase or acquisition of any shares of its capital stock (or
other ownership or profit interests therein), or any Asset Sale, as the
case may be, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person for its own
account in connection with any such transaction, after deducting
therefrom only:
(a) any reasonable brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and
other similar fees and commissions incurred as a result of
such transaction;
(b) the amount of taxes payable in connection with or
as a result of such transaction;
(c) in the case of any Asset Sale, the outstanding
principal amount of, and the premium, if any, and any accrued
and unpaid interest on, any Indebtedness (other than the
Notes) that is secured by a Lien on the property and assets
subject to such Asset Sale and is required to be repaid under
the terms thereof as a result of such Asset Sale; and
(d) in the case of any Asset Sale, the amount
required to be reserved, in accordance with generally accepted
accounting principles in effect on the date on which the Net
Cash Proceeds from such Asset Sale are calculated, and so
reserved against liabilities under indemnification
obligations, liabilities related to environmental matters or
other similar contingent liabilities associated with the
property and assets subject to such Asset Sale that are
required to be so provided for under the terms of the
documentation for such Asset Sale;
in each case to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate of such Person receiving such Net Cash
Proceeds and are properly attributable to such transaction or to the
property or asset that is the subject thereof.
"NOTE DOCUMENTS" means, collectively, this Agreement, the
Notes, the Collateral Documents, the Warrant Agreements, the
Registration Rights Agreements and all other agreements and instruments
evidencing any Obligation of the Companies or any of the other Obligors
secured by the Collateral Documents, in each case as such agreement,
instrument or other document may be amended, supplemented or otherwise
modified hereafter from time to time in accordance with the terms
thereof and Section 16.
"NOTES" has the meaning specified in Section 1.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether
or not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured,
and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 11.1(g). Without
limiting the generality of the foregoing, the Obligations of the
Obligors under the Note Documents include the obligation to pay
principal, interest, premiums, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by any of the
Obligors under any of the Note Documents.
"OBLIGORS" means, collectively, the Companies and each
Subsidiary of any of the Companies that becomes party to any pledge
agreement, security agreement, mortgage, charge or other similar
document or any guarantee after the date of this Agreement pursuant to
the terms of this Agreement or the other Note Documents.
<PAGE> 79
"OFFICER'S CERTIFICATE" means, with respect to any Person, a
certificate executed on behalf of such Person by its chairman of the
board (if an officer), its president or one of its vice presidents or a
Senior Financial Officer thereof (or persons performing similar
functions to the foregoing); provided that each Officer's Certificate
shall include (a) a statement that the officer making or giving such
Officer's Certificate has read the provisions of this Agreement or the
other Note Document requiring the delivery thereof and any definitions
or other provisions contained in this Agreement relating thereto, (b) a
statement that, in the opinion of the signer, he has made or has caused
to be made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such term or
condition has been satisfied or complied with or the certifications
required to be made therein are complete and accurate, (c) a statement
as to whether, in the opinion of the signer, such term or condition has
been satisfied or complied with, and (d) all other statements and
determinations required by the related terms and conditions giving rise
to the delivery of such Officer's Certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA, or any successor thereto.
"PERMITTED LIENS" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or
412(n) of the Internal Revenue Code or by ERISA, any such Lien relating
to or imposed in connection with any Environmental Action and any such
Lien expressly prohibited by the applicable terms of any of the
Collateral Documents), in each case as to which no enforcement,
collection, execution, levy or foreclosure proceeding shall have been
commenced:
(a) Liens for taxes, assessments and governmental
charges or levies the payment of which is not, at the time,
required under Section 8.5(a);
(b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's, storage and repairmen's
Liens and other similar Liens arising in the ordinary course
of business and securing obligations (other than Indebtedness
for borrowed money) (i) that are not overdue for a period of
more than 30 days or (ii) the amount, applicability or
validity of which are being contested in good faith and by
appropriate proceedings diligently conducted and with respect
to which the applicable Company or any of its Subsidiaries, as
the case may be, has established reserves in accordance with
generally accepted accounting principles in effect from time
to time;
(c) pledges or deposits to secure obligations
incurred in the ordinary course of business under workers'
compensation laws, unemployment insurance laws or other
similar social security legislation (other than in respect of
Employee Benefit Plans) or to secure public or statutory
obligations;
(d) Liens securing the performance of, or payment in
respect of, bids, tenders, government contracts (other than
for the repayment of borrowed money), surety and appeal bonds
and other obligations of a similar nature incurred in the
ordinary course of business;
(e) Liens arising solely from precautionary filings
of financing statements (or the equivalent thereof) under the
Uniform Commercial Code (or any similar law or statute) of the
applicable jurisdictions relating to operating leases
otherwise permitted under the terms of the Note Documents; and
(f) easements, rights of way, zoning restrictions and
other encumbrances and similar restrictions on title to, or
the use of, real property that do not, either individually or
in the aggregate, materially and adversely affect either the
use of such real property for its intended purposes or the
conduct of the business of any of the Companies or their
respective Subsidiaries in the ordinary course.
<PAGE> 80
"PERSON" means an individual, partnership, corporation
(including a business trust or professional corporation), limited
liability company, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer
Plan.
"PRESENT VALUE" has the meaning specified in Section 3 of
ERISA.
"PROPERTY" or "PROPERTIES" means, unless otherwise expressly
stated in this Agreement, real or personal property of any kind,
tangible or intangible, choate or inchoate.
"PURCHASE DATE" has the meaning specified in Section 2.2.
"PURCHASERS" has the meaning specified in Section 2.1.
"REGISTRATION RIGHTS AGREEMENTS" has the meaning specified in
Section 3.1(e).
"REQUIRED HOLDERS" means, at any time, the holders of at least
75% of the aggregate principal amount of all of the Notes outstanding
at such time (excluding from any calculation thereof any Notes then
owned or held by any of the Companies or their respective Subsidiaries
or other Affiliates).
"REQUIREMENTS OF LAW" means, with respect to any Person, all
laws, constitutions, statutes, treaties, ordinances, rules and
regulations, all orders, writs, decrees, injunctions, judgments,
determinations or awards of an arbitrator, a court or any other
Governmental Authority, and all Governmental Authorizations, binding
upon or applicable to such Person or to any of its properties, assets
or businesses.
"RESPONSIBLE OFFICER" means, with respect to any Company or
Subsidiary of it, any Senior Financial Officer of such Company or any
other officer of such Company or any of its Subsidiaries responsible
for overseeing the administration of, or reviewing compliance with, all
or any portion of this Agreement or any of the other Note Documents.
"RESTRICTED PAYMENT" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class
of capital stock of (or other ownership or profit interests in) any
Company or any Subsidiary of a Company, now or hereafter outstanding,
(b) any repurchase, redemption, retirement, defeasance, sinking fund or
similar payment, purchase or other acquisition for value, direct or
indirect, of any shares of any class of capital stock of (or other
ownership or profit interests in) any Company or any direct or indirect
parent of any Company, now or hereafter outstanding, (c) any payment
made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights for the purchase or acquisition of
shares of any class of capital stock of (or other ownership or profit
interests in) any Company or any direct or indirect parent of any
Company, now or hereafter outstanding, (d) any return of capital to any
shareholders or other equity holders of any Company or any of its
Subsidiaries, or any other distribution of property, assets, shares of
capital stock (or other ownership or profit interests), warrants,
rights, options, obligations or securities thereto as such or (e) the
payment of any management fees or any other fees or expenses (including
the reimbursement thereof by the Companies or any of their respective
Subsidiaries) pursuant to any management, consulting or other services
agreement to any other Company, any Subsidiary of any Company or any
Affiliates, as the case may be.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR FINANCIAL OFFICER" means, with respect to any Person,
the chief financial officer, the principal accounting officer, the
treasurer or the controller of such Person.
"SEPARATE ACCOUNT" has the meaning specified in Section 3 of
ERISA.
<PAGE> 81
"SINGLE EMPLOYER PLAN" means a single employer plan (as
defined in Section 4001(a)(15) of ERISA) that (a) is maintained for
employees of the Company or any ERISA Affiliate and no Person other
than the Company and the ERISA Affiliates or (b) was so maintained and
in respect of which the Company or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been
or were to he terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on
any date of determination, that, on such date:
(a) the fair value of the property and assets of such
Person is greater than the total amount of liabilities
(including, without limitation, contingent liabilities) of
such Person;
(b) the present fair salable value of the property
and assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person
on its debts as they become absolute and matured;
(c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such
Person's ability to pay such debts and liabilities as they
mature; and
(d) such Person is not engaged in business or in a
transaction, and is not about to engage in business or in a
transaction, for which such Person's property and assets would
constitute an unreasonably small capital.
The amount of contingent liabilities at any time shall be computed as
the amount that, in the light of all of the facts and circumstances
existing at such time, represents the amount that could reasonably be
expected to become an actual or matured liability.
"SUBSIDIARY" means, with respect to any Person at any time,
any corporation, partnership, joint venture, limited liability company,
trust or estate of which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital
stock having ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of
whether at the time shares of capital stock of any other class
or classes of such corporation shall or might have voting
power upon the occurrence of any contingency);
(b) the interest in the capital or profits of such
corporation, professional corporation, partnership, joint
venture or limited liability company; or
(c) the beneficial interest in such trust or estate,
is, at such time, directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries.
"TERMINATION EVENT" means:
(a) (i) the occurrence of a reportable event, within
the meaning of Section 4043(c) of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such
event has been waived by the PBGC or (ii) the requirements of
paragraph (1) of Section 4043(b) of ERISA (without regard to
paragraph (2) of such Section) are met with respect to a
contributing sponsor, as defined in Section 4001(a)(13) of
ERISA, of a Plan, and an event described in paragraph (9),
(10), (11) (12) or (13) of Section 4043(c) of ERISA could
reasonably be expected to occur with respect to such Plan
within the following 30 days;
(b) the application for a minimum funding waiver with
respect to a Plan;
<PAGE> 82
(c) the provision by the administrator of any Plan of
a notice of intent to terminate such Plan pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to
a plan amendment referred to in Section 4041(e) of ERISA);
(d) the cessation of operations at a facility of any
Company or any ERISA Affiliate in the circumstances described
in Section 4062(e) of ERISA;
(e) the withdrawal by any Company or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for
which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA;
(f) the conditions for the imposition of a lien under
Section 302(f) of ERISA shall have been met with respect to
any Plan;
(g) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307
of ERISA; or
(h) the institution by the PBGC of proceedings to
terminate a Plan pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042
of ERISA, that constitutes grounds for the termination of, or
the appointment of a trustee to administer, a Plan.
"VOTING INTERESTS" means shares of capital stock issued by a
corporation, or equivalent interests in any other Person, the holders
of which are ordinarily, in the absence of contingencies, entitled to
vote for the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
"WARRANT AGREEMENTS" has the meaning specified in Section
3.1(d).
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
<PAGE> 1
Exhibit 10.2
FIRST NEW ENGLAND DENTAL CENTERS, INC.
Common Stock Purchase Warrant
Dated as of July 25, 1997
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Exercise of Warrant.............................................................................. 1
1.1. Manner of Exercise........................................................................... 1
1.2. When Exercise Effective..................................................................... 2
1.3. Delivery of Stock Certificates, etc......................................................... 2
2. Adjustment of Common Stock Issuable Upon Exercise................................................ 2
2.1. General; Warrant Quantity.................................................................... 2
2.2. Adjustment of Warrant Quantity.............................................................. 2
2.2.1 Issuance of Additional Shares of Common Stock........................................... 2
2.2.2 Dividends and Distributions............................................................. 3
2.3. Treatment of Option and Convertible Securities.............................................. 3
2.4. Treatment of Stock Dividends, Stock Splits, etc............................................. 5
2.5. Computation of Consideration................................................................ 5
2.6. Adjustments for Combinations, etc........................................................... 6
2.7 Dilution in Case of Other Securities......................................................... 6
2.8 Minimum Adjustment of Warrant Quantity....................................................... 7
2.9 Special Adjustments to Warrant............................................................... 7
2.10 No Duplication of Adjustments............................................................... 7
3. Consolidation, Merger, etc....................................................................... 7
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc.................. 7
3.2. Assumption of Obligations................................................................... 8
4. Other Dilutive Events............................................................................ 8
5. No Dilution or Impairment........................................................................ 9
6. Accountants' Report as to Adjustments............................................................ 9
7. Notices of Corporate Action..................................................................... 11
8. Registration of Common Stock.................................................................... 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
9. Restrictions on Transfer........................................................................ 12
9.1. Restrictive Legends......................................................................... 12
9.2. Transfers to Comply With the Securities Act................................................ 12
9.3. Termination of Restrictions................................................................ 12
10. Reservation of Stock, etc...................................................................... 13
11. Registration and Transfer of Warrants, etc..................................................... 13
11.1. Warrant Register; Ownership of Warrants................................................... 13
11.2. Transfer of Warrants...................................................................... 14
11.3. Replacement of Warrants................................................................... 14
11.4. Adjustments To Warrant Quantity........................................................... 14
12. Definitions.................................................................................... 14
13. Remedies; Specific Performance................................................................. 17
14. No Rights or Liabilities as Stockholder........................................................ 18
15. Notices........................................................................................ 18
16. Amendments..................................................................................... 19
17. Descriptive Headings, Etc...................................................................... 19
18. Governing Law.................................................................................. 19
19. Judicial Proceedings; Waiver of Jury........................................................... 20
20. Registration Rights Agreement.................................................................. 20
21 Determination of Current Market Price or Market Price........................................... 20
</TABLE>
ii
<PAGE> 4
FIRST NEW ENGLAND DENTAL CENTERS, INC.
Common Stock Purchase Warrant
Void After July 25, 2001
No. W-1 July 25, 1997
FIRST NEW ENGLAND DENTAL CENTERS, INC. (the "Company"), a
Delaware corporation, for value received, hereby certifies that ______________,
or registered assigns (the "Holder"), is entitled to purchase from the Company
[_______] duly authorized, validly issued, fully paid and nonassessable shares
of common stock, par value $0.01 per share, of the Company (the "Common Stock")
at the purchase price per share of $0.01, at any time or from time to time
prior to 5:30 PM, New York City time, on July 25, 2001 (the "Expiration Date"),
all subject to the terms, conditions and adjustments set forth below in this
Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants", such term to include any such warrants issued in substitution
therefor) originally issued in connection with the Note Purchase Agreement,
dated as of the date hereof, by and among the Company and the purchasers
indicated therein (as amended or otherwise modified from time to time, the
"Financing Agreement"). The Company hereby represents and warrants that the
Warrants originally so issued evidence the right to purchase a number of shares
of Common Stock equal to seven and one-half percent (7.5%) of the outstanding
Common Stock of the Company on a Fully Diluted Basis immediately before giving
effect to the issuance of the Warrants. The Warrants are subject to adjustment
as provided herein. Certain capitalized terms used in this Warrant are defined
in Section 12; references to an "Exhibit" are, unless otherwise specified, to
one of the Exhibits attached to this Warrant and references to a "Section" are,
unless otherwise specified, to one of the Sections of this Warrant.
1. Exercise of Warrant.
1.1. Manner of Exercise. This Warrant may be exercised by the
Holder, in whole or in part, at any time or from time to time, on or after the
earlier of (i) the one year anniversary of the date hereof, and (ii) the nine
month anniversary of the date on which the Company completes an initial public
offering of it's Common Stock, during normal business hours on any Business Day,
by surrender of this Warrant to the Company at its principal office, accompanied
by the Form of Subscription in substantially the form attached as Exhibit A to
this Warrant (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment, in cash, by certified or official bank check payable to
the order of the Company, or in the manner provided in Section 1.5 or Section
1.6 (or by any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock designated in such Form of
Subscription (adjusted as provided in Sections 2 through 4) by (b) $0.01 and
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities as provided below).
<PAGE> 5
1.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1. At such time the Person or Persons in whose
name or names any certificate or certificates for shares of Common Stock (or
Other Securities) shall be issuable upon such exercise, as provided in Section
1.3, shall be deemed to have become the Holder or holders of record thereof.
1.3. Delivery of Stock Certificates, etc. As soon as
practicable after each exercise of this Warrant, in whole or in part, and in any
event within three Business Days thereafter, the Company at its expense
(including the payment by it of any applicable transfer taxes) will cause to be
issued in the name of and delivered to the Holder hereof or, subject to Section
9, as such Holder (upon payment by such Holder of any applicable transfer taxes)
may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares,
including, if the Company so elects, fractional shares, of Common Stock
(or Other Securities) to which such Holder shall be entitled upon such
exercise plus, at the discretion of the Company, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash
in an amount equal to the same fraction of the Current Market Price per
share on the Business Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment thereof) to the number of such shares called
for on the face of this Warrant minus the number of such shares
designated by the Holder upon such exercise as provided in Section 1.1.
2. Adjustment of Common Stock Issuable Upon Exercise.
2.1. General; Warrant Quantity. This Warrant initially
evidences the right to purchase a number of shares of Common Stock set forth in
the first paragraph of this Warrant (the "Initial Number"), subject to
adjustment as provided in this Section 2, and in Sections 3 and 4. The "Warrant
Price" shall be fixed at $0.01 per share of Common Stock received upon exercise
of this Warrant.
2.2. Adjustment of Warrant Quantity.
2.2.1 Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall issue
or sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 2.3 or 2.4) without consideration
or for a consideration per share less than the Current Market Price in effect
immediately prior to such issue or sale, then, and in each such case, subject to
Section 2.8, the number of shares of Common Stock provided for in the Warrant
shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying such number by a fraction
2
<PAGE> 6
(a) the numerator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided
that, for the purposes of this Section 2.2.1, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued
pursuant to Section 2.3 or 2.4, such Additional Shares shall be deemed
to be outstanding, and (y) treasury shares shall not be deemed to be
outstanding, and
(b) the denominator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or sale
plus (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
such Current Market Price.
2.2.2 Dividends and Distributions. In case the Company at any time or from time
to time after the date hereof shall declare, order, pay or make a dividend or
other distribution (including, without limitation, any distribution of other or
additional stock or other securities or property or Options by way of dividend
or spin-off, reclassification, recapitalization or similar corporate
rearrangement) on the Common Stock other than a dividend payable in Additional
Shares of Common Stock the Holder of this Warrant shall receive the same
dividend per share of Common Stock then issuable upon exercise of this Warrant
based upon the maximum number of shares of Common Stock at the time issuable to
such Holder as the holders of Common Stock.
2.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 2.5) of such shares
would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
which Additional Shares of Common Stock are deemed to be issued
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Warrant Quantity shall be made
upon the subsequent issue or sale of Convertible Securities or shares
of Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, except in the case of any such
3
<PAGE> 7
Options or Convertible Securities which contain provisions requiring an
adjustment, subsequent to the date of the issue or sale thereof, of the
number of Additional Shares of Common Stock issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities by reason of (x) a change of control of the Company, (y) the
acquisition by any Person or group of Persons of any specified number
or percentage of the Voting Securities of the Company or (z) any
similar event or occurrence, each such case to be deemed hereunder to
involve a separate issuance of Additional Shares of Common Stock,
Options or Convertible Securities, as the case may be;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Warrant Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase insofar as it affects such Options,
or the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have
been exercised or the expiration of any rights of conversion or
exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall not
have been exercised, the Warrant Quantity computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading,
as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or
Convertible Securities, the only Additional Shares of Common
Sock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale of all
such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue or sale, grant or assumption of such
4
<PAGE> 8
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 2.5)
upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of decreasing the number of shares issuable upon
exercise of this Warrant by an amount in excess of the amount of the
adjustment thereof originally made in respect of the issue, sale, grant
or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the number of shares issuable upon
exercise of this Warrant shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the
manner provided in subdivision (c) above.
2.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
2.5. Computation of Consideration. For the purposes of this
Section 2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, be computed at
the net amount of cash received by the Company, without
deducting any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a
5
<PAGE> 9
consideration which covers both, be the portion of such
consideration so received, computed as provided in clauses (i)
and (ii) above, allocable to such Additional Shares of Common
Stock, all as determined in good faith by the Board of
Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 2.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration to protect
against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 2.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
2.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the number of shares issuable upon exercise of this Warrant in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
decreased.
2.7 Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 3) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 2, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this Section 2 with respect to the
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number of shares issuable upon exercise of the Warrant shall be made as nearly
as possible in the manner so provided and applied to determine the amount of
Other Securities from time to time receivable upon the exercise of the Warrant,
so as to protect the Holder against the effect of such dilution.
2.8 Minimum Adjustment of Warrant Quantity. If the amount of
any adjustment of the Warrant Quantity required pursuant to this Section 2 would
be less than one tenth (1/10) of one percent (1%) of the number of shares
issuable upon exercise of the Warrant in effect at the time such adjustment is
otherwise so required to be made, such amount shall be carried forward and
adjustment with respect thereto made at the time of and together with any
subsequent adjustment which, together with such amount and any other amount or
amounts so carried forward, shall aggregate at least one tenth (1/10) of one
percent (1%) of such number of shares issuable upon exercise of the Warrant. All
calculations under this Warrant shall be made to the nearest one-hundredth of a
share.
2.9 Special Adjustments To Warrant In the event that on or
prior to December 16, 1997, the Company has not redeemed all of the outstanding
Notes in accordance with the terms and conditions of the Notes and the Financing
Agreement, in full plus all accrued and unpaid interest, the then number of
shares of Common Stock covered by this Warrant shall automatically, without any
further action, be doubled and further adjustment under this Section 2 or
Section 3 or 4 shall be based upon such increased number.
2.10 No Duplication of Adjustments. There shall be no
adjustment of the number of shares of Common Stock issuable upon exercise of
this Warrant in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Warrant. If any action or transaction would require adjustment
of the number of shares of Common Stock issuable upon exercise of this Warrant
pursuant to more than one Section of this Warrant, only one adjustment shall be
made and such adjustment shall be the amount of adjustment that has the highest
absolute value.
3. Consolidation, Merger, etc.
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the number of
shares of Common Stock issuable upon the exercise of this Warrant is provided in
Section 2.2.1 or 2.2.2), then, and in the case of each such transaction, proper
provision shall be made so that, upon the basis and the terms and in the manner
provided in this Warrant, the Holder, upon the exercise hereof at any time after
the consummation of such
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transaction, shall be entitled to receive (at the aggregate Warrant Price in
effect at the time of such consummation for all Common Stock or Other Securities
issuable upon such exercise immediately prior to such consummation), in lieu of
the Common Stock or Other Securities issuable upon such exercise prior to such
consummation, the highest amount of securities, cash or other property to which
such Holder would actually have been entitled as a shareholder upon such
consummation if such Holder had exercised the rights represented by this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 2 through 4, provided that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a notice
given to the Company on or before the date immediately preceding the date of the
consummation of such transaction, the Holder shall be entitled to receive the
highest amount of securities, cash or other property to which such Holder would
actually have been entitled as a shareholder if the Holder had exercised this
Warrant prior to the expiration of such purchase, tender or exchange offer and
accepted such offer, subject to adjustments (from and after the consummation of
such purchase, tender or exchange offer) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything
contained in the Warrant or in the Financing Agreement to the contrary, the
Company will not effect any of the transactions described in clauses (a) through
(d) of Section 3.1 unless, prior to the consummation thereof, each Person (other
than the Company) which may be required to deliver any stock, securities, cash
or property upon the exercise of this Warrant as provided herein shall assume,
by written instrument delivered to, and reasonably satisfactory to, the Holder,
(a) the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), and (b) the obligation to deliver to such
Holder such shares of stock, securities, cash or property as, in accordance with
the foregoing provisions of this Section 3, such Holder may be entitled to
receive, and such Person shall have similarly delivered to such Holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such Holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of this Section 3) shall be applicable to the stock,
securities, cash or property which such Person may be required to deliver upon
any exercise of this Warrant or the exercise of any rights pursuant hereto.
Nothing in this Section 3 shall be deemed to authorize the Company to enter into
any transaction not otherwise permitted by the Financing Agreement.
4. Other Dilutive Events. In case any event shall occur as to
which the provisions of Section 2 or Section 3 are not strictly applicable but
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this
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Warrant. Upon receipt of such opinion, the Company will promptly mail a copy
thereof to the Holder and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock on the exercise of the Warrants from time
to time outstanding, (b) will not take any action which results in any
adjustment of the number of shares of Common Stock issuable upon the exercise of
this Warrant if the total number of shares of Common Stock (or Other Securities)
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock (or Other Securities) then authorized
by the Company's certificate of incorporation and available for the purpose of
issue upon such exercise, and (c) will not issue any capital stock of any class
which is preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary dissolution, liquidation or winding-up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par value or a sum determined by reference to a formula based on a published
index of interest rates, an interest rate publicly announced by a financial
institution or a similar indicator of interest rates in respect of participation
in dividends and to a fixed sum or percentage of par value in any such
distribution of assets.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and cause independent certified public accountants of recognized
national standing (which may be the regular auditors of the Company) selected by
the Company to verify such computation (other than any computation of the fair
value of property as determined in good faith by the Board of Directors of the
Company) and prepare a report setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Warrant Quantity in effect immediately prior to such
issue or sale and as adjusted and readjusted (if required by Section 2) on
account thereof. The Company will forthwith mail a copy of each such report to
each Holder of a Warrant and will, upon the written request at any time of any
Holder of a Warrant, furnish to such Holder a like report setting forth the
number of shares of Common Stock issuable upon the exercise of this Warrant at
the time in effect and showing in reasonable detail how it was calculated. The
Company will also keep copies of all such reports at its principal office and
will cause the same to be available for inspection at such office during normal
business hours by any Holder of a Warrant or any prospective purchaser of a
Warrant designated by the Holder thereof. Notwithstanding the foregoing the
Company shall not be
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required to retain independent certified public accountants to confirm such
information, as provided for in this Section 6, unless the Company is requested
to do so by the Major Purchaser (as defined in the Financing Agreement), or if
the Major Purchaser is no longer a holder of any of the Warrants, then if so
requested by the holders of not less than 25% of the outstanding Warrants.
7. Financial and Business Information
7.1 Quarterly Information. Except during any period when the
Company either (i) is subject to and is in compliance with the reporting
requirements of Section 15(d) of the Exchange Act or (ii) has securities
registered under Section 12(b) or 12(g) of the Exchange Act and is in compliance
with the reporting requirements mandated thereby (such status being referred to
as being a "Public Company"), the Company will deliver to the Holder, as soon as
practicable after the end of each quarterly fiscal period in each fiscal year of
the Company, and in any event within 45 days thereafter, a copy of the unaudited
consolidated balance sheet as at the close of such quarter, and the related
unaudited consolidated statements of income, shareholders' equity and cash flow
of the Company and its subsidiaries for that portion of the fiscal year ending
as of the close of such quarter. Such financial statements shall be prepared by
the Company in accordance with generally accepted accounting principles, applied
on a consistent basis ("GAAP") (except for normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (except for normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
7.2 Annual Information. Except during any period when the
Company is a Public Company, the Company will deliver to the Holder as soon as
practicable after the end of each fiscal year of the Company, and in any event
within 120 days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and
its subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income, shareholders'
equity and cash flow of the Company and its subsidiaries for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
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<PAGE> 14
independent certified public accountants confirming any adjustment made pursuant
to Section 2 during such year.
7.3. Filings. During any period when the Company is a Public
Company, the Company will file on or before the required date all required
regular or periodic reports (pursuant to the Exchange Act) with the Commission
and will deliver to the Holder promptly upon their becoming available one copy
of each report, notice or proxy statement sent by the Company to its
stockholders generally, and of each regular or periodic report (pursuant to the
Exchange Act) and any Registration Statement, prospectus or written
communication (other than transmittal letters) (pursuant to the Securities Act),
filed by the Company with (i) the Commission or (ii) any securities exchange on
which shares of Common Stock are listed.
7.4. Notices of Corporate Action. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a regular
periodic dividend payable in cash out of earned surplus in an amount
not exceeding the amount of the immediately preceding cash dividend for
such period) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and any
other Person or any transfer of all or substantially all the assets of
the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 45 days prior to the date therein specified.
8. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered or approved, as the
case may be. At any such time as Common Stock is listed on any national
securities exchange, the
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Company will, at its expense, obtain promptly and maintain the approval for
listing on each such exchange, upon official notice of issuance, the shares of
Common Stock issuable upon exercise of the then outstanding Warrants and
maintain the listing of such shares after their issuance; and the Company will
also list on such national securities exchange, will register under the Exchange
Act and will maintain such listing of, any Other Securities that at any time are
issuable upon exercise of the Warrants, if and at the time that any securities
of the same class shall be listed on such national securities exchange by the
Company.
9. Restrictions on Transfer.
9.1. Restrictive Legends. Except as otherwise permitted by
this Section 9, each Warrant (including each Warrant issued upon the transfer of
any Warrant) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS.
9.2. Transfer to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws
and the terms and conditions hereof.
9.3. Termination of Restrictions. The restrictions imposed by
this Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular
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Restricted Securities (a) when a registration statement with respect to the sale
of such securities shall have been declared effective under the Securities Act
and such securities shall have been disposed of in accordance with such
registration statement, (b) when such securities are sold pursuant to Rule 144
(or any similar provision then in force) under the Securities Act, or (c) when,
in the opinion of both counsel for the Holder and counsel for the Company, such
restrictions are no longer required or necessary in order to protect the Company
against a violation of the Securities Act upon any sale or other disposition of
such securities without registration thereunder. Whenever such restrictions
shall cease and terminate as to any Restricted Securities, the Holder shall be
entitled to receive from the Company, without expense, new securities of like
tenor not bearing the applicable legends required by Section 9.1.
10. Reservation of Stock, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) issuable upon exercise of any
Warrants shall be duly authorized and, when issued upon such exercise, shall be
validly issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof, and, in the case of all
securities, shall be free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the Common
Stock, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of any of the purchase rights represented by this Warrant, are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized and unissued shares as shall be requisite for
such purpose. The Company shall keep copies of this Warrant on file with the
Transfer Agent for the Common Stock and with every subsequent Transfer Agent for
any shares of the Company's capital stock issuable upon the exercise of the
rights of purchase represented by this Warrant. The Company shall supply such
Transfer Agent with duly executed stock certificates for such purpose. All
Warrant certificates surrendered upon the exercise of the rights thereby
evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. Each Warrant
issued by the Company shall be numbered and shall be registered in a warrant
register (the "Warrant Register") as it is issued and transferred, which Warrant
Register shall be maintained by the Company at its principal office or, at the
Company's election and expense, by a Warrant Agent or the Company's Transfer
Agent. The Company shall be entitled to treat the registered Holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other Person, and shall not be affected by
any notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes. Subject to Section
9, a Warrant, if
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properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section
9, if applicable, this Warrant and all rights hereunder are transferable in
whole or in part, without charge to the Holder hereof, upon surrender of this
Warrant with a properly executed Form of Assignment attached hereto as Exhibit B
at the principal office of the Company. Upon any partial transfer, the Company
shall at its expense issue and deliver to the Holder a new Warrant of like
tenor, in the name of the Holder, which shall be exercisable for such number of
shares of Common Stock with respect to which rights under this Warrant were not
so transferred.
11.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Warrant Quantity. Notwithstanding any
adjustment in the Warrant Quantity or in the number or kind of shares of Common
Stock purchasable upon exercise of this Warrant, any Warrant theretofore or
thereafter issued may continue to express the same number and kind of shares of
Common Stock as are stated in this Warrant, as initially issued.
11.5 Fractional Shares. Notwithstanding any adjustment
pursuant to Section 2 in the number of shares of Common Stock covered by this
Warrant or any other provision of this Warrant, the Company may, but shall not
be required to, issue fractions of shares upon exercise of this Warrant or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, the Company shall make payment to the Holder, at the time of exercise of
this Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Shares of Common Stock: All shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or
2.4, deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable
upon the exercise of the Warrant by reason of adjustments required
pursuant to anti-dilution provisions applicable to the Warrant as in
effect on the date hereof,
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(c) shares, warrants, options and other securities issued at
any time to the Holder or any Affiliate thereof, and
(d) shares issued upon exercise of any options outstanding as
of the date of this Agreement or granted under First New England's 1996
Stock Plan, as described in the Registration Statement on Form S-1 of
First New England filed with the Securities and Exchange Commission on
January 31, 1997.
Affiliate: Any person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the applicable person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Business Day: Any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
Code: As defined in Section 1.7.
Commission: The Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
Common Stock: As defined in the introduction to this Warrant,
such term to include any stock into which such Common Stock shall have been
changed or any stock resulting from any reclassification of such Common Stock,
and all other stock of any class or classes (however designated) of the Company
the holders of which have the right, without limitation as to amount, either to
all or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference or have the right to vote at elections of directors of the Company,
the authorization of any shares of Common Stock or mergers, consolidations or
sales of assets of the Company.
Company: As defined in the introduction to this Warrant, such
term to include any corporation which shall succeed to or assume the obligations
of the Company hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares
of stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
Current Market Price: On any date specified herein, the
average daily Market Price during the period of the most recent 20 days, ending
on such date, on which the national securities exchanges were open for trading,
except that if no Common Stock is then listed or admitted to trading on any
national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Market Price on such date under clause (d) of
the definition thereof.
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Exchange Act: The Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Expiration Date: As defined in the introduction to this
Warrant.
Financing Agreement: As defined in the introduction to this
Warrant.
Fully-Diluted Basis: As of the date of any determination, the
outstanding Common Stock plus the maximum number of shares of Common Stock that
would be issued upon the exercise, conversion or exchange of any outstanding
securities, warrants or options upon the terms thereof, whether or not then
exercisable, convertible, exchangeable or subject to any vesting period, plus
the maximum number of shares of Common Stock issuable pursuant to any agreement
by which the Company is bound whether or not such stock is then required to be
issued.
Holder: As defined in the introduction to this Warrant.
Market Price: On any date specified herein, the amount per
share of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof regular way
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, or (b) if such Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if such Common Stock is not then listed or admitted for trading
on any national exchange or quoted in the over-the-counter market, and (i) if
during the first year following the date of this Warrant, $10 per share, subject
to adjustment as provided in Sections 2, 3, and 4, or (ii) if following the one
year anniversary of the date of this Warrant, the higher of (x) the book value
thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made and (y) the fair value thereof (as of a date which
is within 20 days of the date as of which the determination is to be made)
determined in good faith by the Board of Directors of the Company, which
determination may be challenged by the Holder pursuant to Section 21 within 30
days of receipt of notice thereof.
NASD: The National Association of Securities Dealers, Inc.
Notes: The Notes (as defined in the Financing Agreement),
including any such notes issued in substitution for such Notes.
Options: Rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
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<PAGE> 20
Other Securities: Any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Registration Rights Agreement: The Registration Rights
Agreement, dated the date hereof, by and among the Company and the Initial
Holders specified on the signature page thereof.
Reporting Event: The completion by the Company of an initial
public offering of its Common Stock or any other transaction pursuant to which
the Company becomes subject to the reporting requirements of Section 15(d) of
the Exchange Act.
Restricted Securities: (a) any Warrants bearing the applicable
legend set forth in Section 9.1, (b) any shares of Common Stock (or Other
Securities) issued or issuable upon the exercise of Warrants which are evidenced
by a certificate or certificates bearing the applicable legend set forth in such
Section, and (c) any shares of Common Stock (or Other Securities) issued
subsequent to the exercise of any of the Warrants as a dividend or other
distribution with respect to, or resulting from a subdivision of the outstanding
shares of Common Stock (or other Securities) into a greater number of shares by
reclassification, stock splits or otherwise, or in exchange for or in
replacement of the Common Stock (or Other Securities) issued upon such exercise,
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Voting Securities: Stock of any class or classes (or
equivalent interests), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies, entitled
to vote for the election of the directors (or persons performing similar
functions) of such business entity, even though the right so to vote has been
suspended by the happening of such a contingency.
Warrant: As defined in the introduction to this Warrant.
Warrant Price: As defined in Section 2.1.
Warrant Quantity: At any time, the number of shares of Common
Stock into which the Warrant is exercisable.
13. Remedies; Specific Performance. The Company stipulates
that there would be no adequate remedy at law to the Holder of this Warrant in
the event of any default or
17
<PAGE> 21
threatened default by the Company in the performance of or compliance with any
of the terms of this Warrant and accordingly, the Company agrees that, in
addition to any other remedy to which the Holder may be entitled at law or in
equity, the Holder shall be entitled to seek to compel specific performance of
the obligations of the Company under this Warrant, without the posting of any
bond, in accordance with the terms and conditions of this Warrant in any court
of the United States or any State thereof having jurisdiction, and if any action
should be brought in equity to enforce any of the provisions of this Warrant,
the Company shall not raise the defense that there is an adequate remedy at law.
Except as otherwise provided by law, a delay or omission by the Holder hereto in
exercising any right or remedy accruing upon any such breach shall not impair
the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy shall be exclusive of any other remedy. All available remedies
shall be cumulative.
14. No Rights or Liabilities as Shareholder. Nothing contained
in this Warrant shall be construed as conferring upon the Holder hereof any
rights as a shareholder of the Company or as imposing any obligation on the
Holder to purchase any securities or as imposing any liabilities on the Holder
as a shareholder of the Company, whether such obligation or liabilities are
asserted by the Company or by creditors of the Company.
15. Notices.
(a) All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (i) if to the Company, to the attention of its President at its
principal office located at First New England Dental Centers, Inc., 85
Devonshire Street, Boston, Massachusetts 02109 or such other address as may
hereafter be designated in writing by the Company to the Holder in accordance
with the provisions of this Section, with a copy to McDermott, Will & Emery, 75
State Street, Boston, Massachusetts 02109, Attn: Michael L. Blau, Esq., or (ii)
if to the Holder, at its address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the exercise of any
Warrant shall be effective in the manner provided in Section 1.
(b) If:
(i) the Company shall declare a dividend (or any other
distribution) on the Common Stock; or
(ii) the Company shall authorize the granting to all
holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants; or
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<PAGE> 22
(iii) there shall be any reclassification of the Common
Stock or any consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or a statutory
share exchange, or self tender offer by the Company for all or substantially all
of its outstanding shares of Common Stock or the sale or transfer of all or
substantially all of the assets of the Company as an entity; or
(iv) there shall occur the involuntary or voluntary
liquidation, dissolution or winding up of the Company,
then the Company shall cause to be mailed to the Holders, at the address as
shown on the stock records of the Company, as promptly as possible, but at least
30 Business Days prior to the applicable date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights or warrants are to be determined or (B)
the date on which such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up.
(c) Whenever the number of shares of Common Stock issuable
upon exercise of this Warrant is adjusted as herein provided, the Company shall
prepare a notice of such adjustment setting forth the adjusted number of shares
of Common Stock issuable upon exercise of this Warrant, the basis and the
computation thereof, and the effective date of such adjustment and shall mail
such notice to the Holders at Holders' last address as shown on the stock
records of the Company.
16. Amendments. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the Holders of a majority-in-interest of the
Warrants.
17. Descriptive Headings, Etc. The headings in this Warrant
are for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Warrant shall
refer to this Warrant as a whole and not to any particular provision of this
Warrant, and Section and paragraph references are to the Sections and paragraphs
of this Warrant unless otherwise specified; (4) the word "including" and words
of similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. Governing Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws
19
<PAGE> 23
principles thereof), except to the extent of matters arising hereunder regarding
the corporate governance of the Company which shall be governed by the Delaware
General Corporation Law.
19. Judicial Proceedings; Waiver of Jury. Any legal action,
suit or proceeding brought against the Company with respect to this Warrant may
be brought in any federal court of the Southern District of New York or any
state court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the service of process of any of the aforementioned
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, at its address set forth or
provided for in Section 15 (with copies of such process also being sent to the
Company's counsel referred to in such section), such service to become effective
30 days after such mailing. Nothing herein contained shall be deemed to affect
the right of any party to serve process in any manner permitted by law or
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR
EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
20. Registration Rights Agreement. The shares of Common Stock
(and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any shares of Common Stock issued upon such exercise) shall
constitute Registrable Securities (as such term is defined in the Registration
Rights Agreement). Each holder of this Warrant shall be entitled to all of the
benefits afforded to a holder of any such Registrable Securities under the
Registration Rights Agreement and such holder, by its acceptance of this
Warrant, agrees to be bound by and to comply with the terms and conditions of
the Registration Rights Agreement applicable to such holder as a holder of such
Registrable Securities.
21. Determination of Current Market Price or Market Price.
(a) The determination by the Board of Directors of the
Current Market Price or Market Price shall be final and binding absent manifest
error except that the determination of Market Price under clause (d) of the
definition thereof may be challenged by the Holders of a majority-in-interest of
the Warrants within 30 days after notice of any adjustment in the number of
shares of Common Stock issuable upon the exercise of this Warrant utilizing such
definition as sent to the Holders.
(b) Such notice of objection shall specify an investment
banking firm of national reputation to determine the market value of the Common
Stock as of the date of determination by the Company's Board of Directors. The
Company may reject the firm included in such notice solely based on such firm
being an affiliate of one or more Holders.
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<PAGE> 24
(c) The Company shall enter into a standard agreement
with such firm and shall provide full cooperation to such firm with respect to
its evaluation of the Market Value of the Common Stock. The Company and the
Holders shall each pay one-half of the fees and expenses of such firm; provided,
however, that in the event that the determination by such firm is 110% or more
of the original determination made by the Company's Board of Directors, the
Company shall pay all of the fees and expenses of such firm.
(d) In determining the Market Value of the Common Stock,
such firm may not take into account that the Common Stock at issue does not
control the Company.
(e) The determination by such firm shall be final and
binding on the Company and the Holders.
FIRST NEW ENGLAND DENTAL
CENTERS, INC.
By:_________________________
Name:
Title:
21
<PAGE> 25
Exhibit A
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To: FIRST NEW ENGLAND DENTAL CENTERS, INC.
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ____ shares of Common
Stock of FIRST NEW ENGLAND DENTAL CENTERS, INC. and herewith makes payment of
$ therefor, and requests that the certificates for such shares be issued
in the name of, and delivered to whose address is
Dated: ___________________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of Warrant)
___________________________________________________
(Street Address)
___________________________________________________
(City) (State) Zip Code)
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<PAGE> 26
Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto the right represented by such
Warrant to purchase shares of Common Stock of FIRST NEW ENGLAND DENTAL
CENTERS, INC. to which such Warrant relates, and appoints Attorney to make
such transfer on the books of FIRST NEW ENGLAND DENTAL CENTERS, INC., maintained
for such purpose, with full power of substitution in the premises.
Dated: ___________________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of Warrant)
___________________________________________________
(Street Address)
___________________________________________________
(City) (State) Zip Code)
Signed in the presence of:
__________________________
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<PAGE> 1
Exhibit 10.3
FORM OF SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 25, 1997, made by First
New England Dental Centers, Inc., a Delaware corporation and Osorio & Watkin,
P.C., a Massachusetts professional corporation (each a "Grantor" and
collectively, the "Grantors"), in favor of Imprimis Investors LLC, in its
capacity as Collateral Agent (the "Collateral Agent") for certain Purchasers (as
hereinafter defined).
W I T N E S S E T H :
WHEREAS, certain purchasers (each a "Purchaser" and
collectively, the "Purchasers"), the Grantors and the Collateral Agent are
parties to that certain Note Purchase Agreement, dated as of the date hereof
(such agreement, as amended, restated, supplemented or otherwise modified from
time to time, being hereafter referred to as the "Note Purchase Agreement");
WHEREAS, pursuant to the Note Purchase Agreement, the
Purchasers have agreed to purchase certain debt securities (the "Notes") from
the Grantors, the proceeds of which shall be used (i) to repay existing
indebtedness of the Grantors, (ii) to make acquisitions of dental facilities,
and (iii) to fund working capital of the Grantors;
WHEREAS, it is a condition precedent to the effectiveness of
the Note Purchase Agreement and the Purchasers' purchasing the Notes from the
Grantors that the Grantors shall have executed and delivered to the Collateral
Agent for the benefit of the Purchasers a security agreement providing for the
grant to the Collateral Agent of a security interest in all personal property of
each of the Grantors;
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce the Purchasers to purchase the Notes
from the Grantors pursuant to the Note Purchase Agreement, each of the Grantors
hereby agrees with the Collateral Agent as follows:
SECTION 1. Definitions. Reference is hereby made to the Note
Purchase Agreement for a statement of the terms thereof. All terms used in this
Agreement which are defined in the Note Purchase Agreement or in Article 9 of
the Uniform Commercial Code (the "Code") currently in effect in the State of New
York, and which are not otherwise defined herein, shall have the same meanings
herein as set forth therein.
SECTION 2 Grant of Security Interest. As collateral security
for all of the Obligations (as defined in Section 3 hereof), the Grantors hereby
pledge and assign to the Collateral Agent for the
<PAGE> 2
benefit of the Purchasers, and grant to the Collateral Agent for the benefit of
the Purchasers, a continuing security interest in, all personal property and
fixtures of the Grantors, wherever located and whether now or hereafter existing
and whether now owned or hereafter acquired, of every kind and description,
tangible or intangible (the "Collateral"), including, without limitation, all of
each of the Grantors' right, title and interest in and to the following:
(a) all equipment of any kind (including, without limitation,
all furniture, fixtures, machinery and other like property), wherever located
and whether now or hereafter existing and whether now owned or hereafter
acquired, together with all substitutes, replacements, accessions and additions
thereto, and all tools, parts, accessories and attachments used in connection
therewith (hereinafter collectively referred to as the "Equipment");
(b) all inventory of any kind, wherever located and whether
now or hereafter existing and whether now owned or hereafter acquired
(including, without limitation, all types of inventory, merchandise, goods,
property and other assets, raw, in process and finished, and all other
inventory, merchandise, goods and other tangible personal property that are held
for sale or lease by either of the Grantors), all materials used or consumed in
the business of either of the Grantors, goods returned to or repossessed by
either of the Grantors, and goods in which either of the Grantors has an
interest in mass or in joint or other interest or right of any kind, including
consigned goods or goods being processed, all accessions thereto and products
thereof and all packing and shipping materials (hereinafter collectively
referred to as the "Inventory");
(c) (i) all accounts, contract rights, chattel paper,
instruments, documents, general intangibles and other obligations of any kind,
whether now or hereafter existing and whether now owned or hereafter acquired,
arising out of or in connection with the sale or lease of goods or the rendering
of services or otherwise, including, without limitation, (A) all rights relating
to the performance by or for either of the Grantors of management, advisory,
consulting or other similar services, (B) all rights relating to the sale or
other transfer of property to, or the construction, renovation or other
improvement of property by or for, either of the Grantors or any of their
affiliates, (C) all rights relating to any partnership in which either of the
Grantors has any interest as a general or limited partner or otherwise,
including all moneys due from time to time in respect thereof, and (D) all
rights relating to any lease to which either of the Grantors is a party as
lessee or lessor, including all moneys due from time to time in respect thereof;
and (ii) all rights now or hereafter existing in and to all credit insurance,
guaranties, letters of credit, security agreements, leases and other contracts
now or hereafter existing and securing or otherwise relating to any such
accounts, contract rights, chattel paper, instruments, general intangibles or
obligations (including, without limitation, the contracts described in Schedule
I hereto) (any and all such accounts, contract rights, chattel paper,
instruments, general intangibles and obligations being hereinafter referred to
collectively as the "Receivables", and any and all such credit insurance,
guaranties, letters of credit, security agreements, leases and other contracts
being hereinafter referred to collectively as the "Related Contracts");
(d) (i) all trademarks, service marks, tradenames, business
names, trade styles, designs, logos and other source or business identifiers and
all general intangibles of like nature, now or hereafter owned, adopted,
acquired or used by either of the Grantors (including,
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<PAGE> 3
without limitation, all trademarks, service marks, tradenames, business names,
trade styles, designs, logos and other source or business identifiers described
in Schedules II or V hereto), all applications, registrations and recordings
thereof (including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state thereof or any other country or
any political subdivision thereof), and all reissues, extensions or renewals
thereof, together with all goodwill of the business symbolized by such marks and
all customer lists, formulae and other records of the Grantors relating to the
distribution of products and services in connection with which any of such marks
are used and all income, royalties, damages and payments now or hereafter due
and/or payable under and with respect thereto, including, without limitation,
payments under all licenses entered into in connection therewith and damages and
payments for past and future infringements or dilutions thereof and the right to
sue for past, present and future infringements and dilutions thereof
(hereinafter referred to collectively as the "Trademarks"), and (ii) all
licenses, contracts or other agreements, whether written or oral, naming either
of the Grantors as licensor or licensee and providing for the grant of any right
to use any Trademark, including, without limitation, all trademark licenses
described in Schedule II hereto, together with any goodwill connected with and
symbolized by any such trademark licenses or agreements and the right to prepare
for sale and sell any and all Inventory now or hereafter owned by either of the
Grantors and now or hereafter covered by such licenses (hereinafter referred to
collectively as the "Trademark Licenses");
(e) (i) all letters patent, design patents and utility
patents, and all copyrights, inventions, trade secrets, proprietary information
and technology, know-how, formulae and other general intangibles of like nature,
now existing or hereafter acquired (including, without limitation, all letters
patent, design patents and utility patents described in Schedule III hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States or any other country or any political subdivision thereof), and all
reissues, divisions, continuations, continuations in part and extensions or
renewals thereof (hereinafter referred to collectively as the "Patents"), and
(ii) all licenses, contracts or other agreements, whether written or oral,
naming either of the Grantors as licensee or licensor and providing for the
grant of any right to manufacture, use or sell any invention covered by any
patent (including, without limitation, all patent licenses set forth in Schedule
III hereto) (hereinafter referred to collectively as the "Patent Licenses" and
together with the Trademark Licenses, the "Licenses");
(f) (i) all moneys, securities and other property, and the
proceeds thereof, now or hereafter held or received by, or in transit to, any
Purchaser or the Collateral Agent from or for the Grantors, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all of
the Grantors' claims against any Purchaser or the Collateral Agent at any time
existing; (ii) all rights relating to the sale or other transfer of property to,
or the construction, renovation or other improvement of property by or for,
either of the Grantors; (iii) all rights, interests, choses in action, causes of
action, claims and all other general intangibles of every kind and nature, in
each instance whether now owned or hereafter acquired by either of the Grantors,
including, without limitation, all corporate and other business records, all
loans, royalties, and all
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<PAGE> 4
other forms of obligations receivable whatsoever (other than Receivables); (iv)
all computer programs, software, printouts and other computer materials,
customer lists, credit files, correspondence and advertising materials; (v) all
customer and supplier contracts, sale orders, rights under license and franchise
agreements, and other contracts and contract rights; (vi) all interests in
partnerships and joint ventures, including all moneys due from time to time in
respect thereof; (vii) all federal, state and local tax refunds and federal,
state and local tax refund claims; (viii) all right, title and interest under
leases, subleases, licenses and concessions and other agreements relating to
personal property, including all moneys due from time to time in respect
thereof; (ix) all payments due or made to either of the Grantors in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of any
property by any Person or Governmental Authority or regulatory body; (x) all
deposit accounts (general or special) with any financial institution and all
funds on deposit therein; (xi) all credits with and other claims against third
parties (including carriers and shippers) (other than Receivables); (xii) all
rights to indemnification; (xiii) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual interests in
trusts; (xiv) all letters of credit, guaranties, liens, security interests and
other security held by or granted to either of the Grantors; (xv) all
instruments, files, records, ledger sheets and documents covering or relating to
any of the Collateral; and (xvi) all general intangibles, whether or not similar
to the foregoing in each instance, however and wherever arising;
(g) the books and records of the Grantors relating to any of
the foregoing Collateral, including, without limitation, all customer contracts,
sale orders, minute books, ledgers, records, computer programs, software,
printouts and other computer materials, customer lists, credit files,
correspondence and advertising materials, in each case indicating, summarizing
or evidencing any of the Collateral; and
(h) all cash and non-cash proceeds of any and all of the
foregoing Collateral (including, without limitation, (i) damages and payments
for past or future infringements of the Trademarks or the Patents and (ii) the
right to sue for past, present and future infringements of the Trademarks or the
Patents) and, to the extent not otherwise included, all payments under insurance
(whether or not the Collateral Agent is the loss payee thereof), and any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral.
SECTION 3. Security for Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral security for
all of the following obligations, whether now existing or hereafter incurred
(the "Obligations"):
(a) the prompt payment by the Grantors, as and when due and
payable, of all amounts from time to time owing by the Grantors to the
Purchasers in respect of the Note Purchase Agreement, the Notes and the other
Note Documents, including, without limitation, principal of and interest on the
Notes (including, without limitation, all interest that accrues after the
commencement of any case, proceeding or other action relating to bankruptcy,
insolvency or reorganization of the either of the Grantors whether or not the
payment of such interest is unenforceable or is not allowable due to the
existence of such case, proceeding or other action),
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<PAGE> 5
all fees, commissions, expense reimbursements, indemnifications and all other
amounts due or to become due under the Note Purchase Agreement, the Notes and
any other Note Document; and
(b) the due performance and observance by the Grantors of all
of their other obligations from time to time existing in respect of the Note
Purchase Agreement and all other Note Documents.
SECTION 4. Representations and Warranties. Each of the
Grantors represents and warrants as follows:
(a) There is no pending or threatened action, suit, proceeding
or claim before any court or other Governmental Authority or any arbitrator, or
any order, judgment or award by any court or other Governmental Authority or
arbitrator, that may adversely affect the grants by the Grantors, or the
perfection or priority, of the security interest purported to be created hereby
in the Collateral, or the exercise by the Collateral Agent of any of its rights
or remedies hereunder.
(b) All taxes, assessments and other governmental charges
imposed upon either of the Grantors or any property of either of the Grantors
(including, without limitation, all federal income and social security taxes on
employees' wages) and which have become due and payable on or prior to the date
hereof have been paid, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or lien resulting
from the non-payment thereof and with respect to which adequate reserves in
accordance with GAAP, have been established for the payment thereof.
(c) All Equipment and Inventory of each of the Grantors now
existing is, and all Equipment and Inventory of the Grantors hereafter existing
will be, located at the addresses specified therefor in Schedule IV hereto. The
chief place of business and chief executive office of each of the Grantors, the
place where each of the Grantors keeps its records concerning Receivables and
all originals of all chattel paper and other documents which constitute
Receivables are located at the addresses specified therefor in Schedule IV
hereto. None of the Receivables is evidenced by a promissory note or other
instrument. Set forth in Schedule V hereto is a complete and correct list of
each tradename used by each of the Grantors.
(d) Each of the Grantors has delivered to the Collateral Agent
complete and correct copies of each Related Contract described in Schedule I
hereto, each Trademark License described in Schedule II hereto, and each Patent
License described in Schedule III hereto, including all schedules and exhibits
thereto. Each such Related Contract and License sets forth the entire agreement
and understanding of the parties thereto relating to the subject matter thereof,
and there are no other agreements, arrangements or understandings, written or
oral, relating to the matters covered thereby or the rights of either of the
Grantors in respect thereof. Each Related Contract now existing is, and each
other Related Contract will be, the legal, valid and binding obligation of the
parties thereto, enforceable against such parties in accordance with its terms.
No default thereunder by any such party has occurred, nor does any defense,
offset, deduction or counterclaim exist thereunder in favor of any such party.
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<PAGE> 6
(e) Each of the Grantors owns and controls, or otherwise
possesses adequate rights to use, all of its Trademarks and Patents, which are
the only trademarks and patents necessary to conduct its business in
substantially the same manner as conducted as of the date hereof. Schedule II
hereto sets forth a true and complete list of all Trademarks and Trademark
Licenses owned or used by each of the Grantors as of the date hereof. Schedule
III hereto sets forth a true and complete list of all Patents and Patent
Licenses owned or used by each of the Grantors as of the date hereof. All of
such Patents and Trademarks are subsisting and in full force and effect, have
not been adjudged invalid or unenforceable, are valid and enforceable and have
not been abandoned in whole or in part. Except as set forth in Schedule II or
III hereto, none of such Patents or Trademarks is the subject of any licensing
or franchising agreement. The Grantors have no knowledge of any conflict with
the rights of others to any Trademark or Patent and, to the best knowledge of
the Grantors, neither of the Grantors is now infringing or in conflict with any
such rights of others in any material respect, and, no other Person is now
infringing or in conflict in any material respect with any such properties,
assets and rights owned or used by either of the Grantors.
(f) Each of the Grantors is and will be at all times the sole
and exclusive owner of the Collateral free and clear of any Lien, claim,
security interest, charge or other encumbrance of any kind with full authority
to sell, transfer and grant a security interest in, each item of Collateral,
except for Liens permitted pursuant to the Note Purchase Agreement. No effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording or filing office except such
as may have been filed with respect to the Liens permitted pursuant to the Note
Purchase Agreement.
(g) The exercise by the Collateral Agent of any of its rights
and remedies hereunder will not contravene law or any contractual restriction
binding on or otherwise affecting either of the Grantors or any of its
properties and will not result in or require the creation of any Lien, claim,
security interest, charge or other encumbrance upon or with respect to any of
its properties.
(h) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body,
or any other Person, is required for (i) the grant by each of the Grantors, or
the perfection, of the security interest purported to be created hereby in the
Collateral or (ii) the exercise by the Collateral Agent of any of its rights and
remedies hereunder, except (A) with respect to the perfection of the security
interest created hereby in United States Trademarks and Patents, for the
recording of the Assignment for Security (Trademarks) and Assignment for
Security (Patents) referred to in Section 4(i) hereof in the United States
Patent and Trademark Office and the filing under the Uniform Commercial Code as
in effect in the applicable jurisdiction of the financing statements described
in Schedule VI hereto, all of which financing statements have been duly filed
and are in full force and effect, or (B) with respect to the perfection of the
security interest created hereby in foreign Trademarks and Patents, for
registrations and filings in jurisdictions located outside of the United States
and covering rights in such jurisdictions relating to Patents, Trademarks,
Patent Licenses and Trademark Licenses.
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(i) This Agreement creates valid liens on, and security
interests in, the Collateral, in favor of the Collateral Agent as security for
the Obligations, subject only to the Liens permitted pursuant to the Note
Purchase Agreement. The Collateral Agent's having possession of all instruments
and cash constituting Collateral from time to time, the recording of the
Assignment for Security (Patents) and the Assignment for Security (Trademarks)
executed pursuant hereto in the United States Patent and Trademark Office, the
filing of the financing statements described in Schedule VI hereto and, with
respect to Patents and Trademarks hereafter existing and not covered by such
Assignment for Security (Patents) or such Assignment for Security (Trademarks),
the recording in the United States Patent and Trademark Office of appropriate
instruments of assignment, result in the perfection of such security interests.
Such security interests are, or in the case of Collateral in which either of the
Grantors obtains rights after the date hereof, will be, perfected, first
priority security interests, subject only to (i) the security interests and
other encumbrances permitted pursuant to the terms of the Note Purchase
Agreement, and (ii) the recording of such instruments of assignment. Such
recordings and filings and all other action necessary or desirable to perfect
and protect such security interest have been duly taken, except for the
Collateral Agent's having possession of instruments and cash constituting
Collateral after the date hereof and the other filings and recordations
described in Section 4(h) hereof.
SECTION 5. Covenants as to the Collateral. So long as any of
the Obligations shall remain outstanding, unless the Collateral Agent shall
otherwise consent in writing:
(a) Further Assurances. Each of the Grantors will at its
expense, at any time and from time to time, promptly execute and deliver all
further instruments and documents and take all further action that may be
necessary or desirable or that the Collateral Agent may request in order (i) to
perfect and protect the security interest purported to be created hereby; (ii)
to enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) otherwise to effect the
purposes of this Agreement, including, without limitation: (A) marking
conspicuously each chattel paper included in the Receivables and each License
and Related Contract and, at the request of the Collateral Agent, each of its
records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Collateral Agent, indicating that such chattel paper,
License, Related Contract or Collateral is subject to the security interest
created hereby, (B) if any Receivable shall be evidenced by a promissory note or
other instrument or chattel paper, delivering and pledging to the Collateral
Agent hereunder such note, instrument or chattel paper duly endorsed and
accompanied by executed instruments of transfer or assignment, all in form and
substance satisfactory to the Collateral Agent, (C) executing and filing such
financing or continuation statements, or amendments thereto, as may be necessary
or desirable or that the Collateral Agent may request in order to perfect and
preserve the security interest purported to be created hereby, and (D)
furnishing to the Collateral Agent from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably request,
all in reasonable detail.
(b) Location of Equipment and Inventory. Each of the Grantors
will keep the Equipment and Inventory (other than used Equipment and Inventory
sold in the ordinary
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course of business in accordance with Section 5(g)) at the locations specified
therefor in Section 4(c), or, upon not less than 30 Business Days' prior written
notice to the Collateral Agent accompanied by a new Schedule IV indicating each
new location of the Equipment and Inventory, at such other locations in the
continental United States as either of the Grantors may elect, provided that (i)
all action has been taken to grant the Collateral Agent a perfected, first
priority security interest in such Equipment and Inventory, and (ii) the
Collateral Agent's rights in such Equipment and Inventory, including, without
limitation, the existence, perfection and priority of the security interest
created hereby in such Equipment and Inventory are not adversely affected.
(c) Condition of Equipment. Each of the Grantors will, at its
expense, cause the Equipment to be maintained and preserved in good repair,
working order and condition, ordinary wear and tear excepted, and will
forthwith, or in the case of any loss or damage to any Equipment as quickly as
practicable after the occurrence thereof, make or cause to be made all of the
appropriate repairs, renewals, replacements and other improvements in connection
therewith which are necessary or desirable or which the Collateral Agent may
request to such end. Each of the Grantors will promptly furnish to the
Collateral Agent a statement describing in reasonable detail any loss or damage
in excess of $100,000 to any Equipment or Inventory.
(d) Taxes, Etc. Each of the Grantors will pay promptly when
due all property and other taxes, assessments and governmental charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Equipment and Inventory, except to the extent the
validity thereof is being contested in good faith by proper proceedings which
stay the imposition of any penalty, fine or lien resulting from the non-payment
thereof and with respect to which adequate reserves in accordance with GAAP,
have been set aside for the payment thereof.
(e) Insurance. (i) Each of the Grantors will, at its own
expense, maintain or cause to be maintained with responsible and reputable
insurance companies or associations insurance (including, without limitation,
comprehensive general liability and property insurance) with respect to the
Equipment and Inventory, in such amounts and covering such risks, as is required
by any Governmental Authority or other regulatory body having jurisdiction with
respect thereto and as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated and in such form
and with such insurers as shall be satisfactory to the Collateral Agent. Each
policy covering the Collateral shall provide for all losses to be paid on behalf
of the Collateral Agent and each of the Grantors as their respective interests
may appear, and each policy for property damage insurance shall provide for all
losses (except for losses of less than $100,000 per occurrence) to be adjusted
with, and paid directly to, the Collateral Agent. Each such policy shall in
addition (A) name the Grantor and the Collateral Agent as insured parties
thereunder (without any representation or warranty by or obligation upon the
Collateral Agent) as their interests may appear, (B) in the case of each policy
for property damage insurance, name the Collateral Agent as loss payee
thereunder, (C) contain the agreement by the insurer that any loss thereunder
shall be payable to the Collateral Agent on its own account notwithstanding any
action, inaction or breach of representation or warranty by either of the
Grantors, (D) provide that there shall be no recourse against the Collateral
Agent for
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<PAGE> 9
payment of premiums or other amounts with respect thereto, and (E) provide that
at least 30 days' prior written notice of cancellation or of lapse shall be
given to the Collateral Agent by the insurer. Each of the Grantors will, if so
requested by the Collateral Agent, deliver to the Collateral Agent original or
duplicate policies of such insurance and, as often as the Collateral Agent may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Each of the Grantors will also, at the request of the Collateral
Agent, execute and deliver instruments of assignment of such insurance policies
and cause the respective insurers to acknowledge notice of such assignment.
(ii) Payment under any liability insurance
maintained by either of the Grantors pursuant to this Section 5(e) may be paid
directly to the Person who shall have incurred liability covered by such
insurance. All insurance payments for losses in excess of $100,000 per
occurrence in respect of such Equipment or Inventory, shall be paid to the
Collateral Agent and applied as specified in Section 7(b) hereof.
(f) Provisions Concerning the Receivables, the Related
Contracts and the Licenses.
(i) Each of the Grantors will (A) give the
Collateral Agent at least 30 days' prior written notice of any change in the
Grantor's name, identity or organizational structure, (B) keep its chief place
of business and chief executive office and all originals of all chattel paper
which constitute its Receivables at the location(s) specified therefor in
Schedule IV hereto, and (C) keep adequate records concerning the Receivables and
such chattel paper and permit representatives of the Collateral Agent at
reasonable times and during normal business hours to inspect and make abstracts
from such records and chattel paper in accordance with Section 8.7(b) of the
Note Purchase Agreement.
(ii) Each of the Grantors will duly perform and
observe all of its obligations under each Related Contract and, except as
otherwise provided in this subsection (f), continue to collect, at its own
expense, all amounts due or to become due under the Receivables. In connection
with such collections, the Grantors may (and, at the Collateral Agent's
direction, will) take such action as either of the Grantors or the Collateral
Agent may deem necessary or advisable to enforce collection or performance of
the Receivables; provided, however, that the Collateral Agent shall have the
right at any time, upon the occurrence and during the continuance of an Event of
Default to notify the account debtors or obligors under any such Receivables of
the assignment of such Receivables to the Collateral Agent and to direct such
account debtors or obligors to make payment of all amounts due or to become due
to either of the Grantors thereunder directly to the Collateral Agent or its
designated agent and, upon such notification and at the expense of the Grantors
and to the extent permitted by law, to enforce collection of any such
Receivables and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as either of the Grantors might have
done. After receipt by either of the Grantors of a notice from the Collateral
Agent that the Collateral Agent has notified or intends to notify the account
debtors or obligors under any Receivables as referred to in the proviso to the
immediately preceding sentence, then (A) all amounts and proceeds (including
instruments) received by either of the Grantors in respect of any Receivables
shall be received in
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<PAGE> 10
trust for the benefit of the Collateral Agent hereunder, shall be segregated
from other funds of each of the Grantors and shall be forthwith paid over to the
Collateral Agent in the same form as so received (with any necessary
endorsement) to be applied to the Obligations, and (B) the Grantors will not
adjust, settle or compromise the amount or payment of any Receivable or release
in whole or in part any account debtor or obligor thereof or allow any credit or
discount thereon. In addition, upon the occurrence and during the continuance of
an Event of Default, the Collateral Agent shall have the right to notify the
United States Postal Service authorities to change the address for delivery of
mail addressed to each of the Grantors at such address as the Collateral Agent
may designate and to do all other acts and things necessary or desirable to
effect the purposes of this Agreement.
(iii) Upon the occurrence and during the
continuance of any breach or default under any Related Contract or any License
referred to in Schedule II or III hereto by any party thereto other than either
of the Grantors, the Grantors (A) will, promptly after obtaining knowledge of
such breach or default, give the Collateral Agent written notice of the nature
and duration of such breach or default, specifying what action, if any, it has
taken and proposes to take with respect thereto, (B) will not, without the prior
written consent of the Collateral Agent, declare or waive any such breach or
default or affirmatively consent to the cure thereof or exercise any of its
remedies in respect thereof, and (C) will, upon written instructions from the
Collateral Agent and at the Grantors's expense, take such action as the
Collateral Agent may deem necessary or advisable in respect thereof.
(iv) Each of the Grantors will, at its expense,
promptly deliver to the Collateral Agent a copy of each notice or other
communication received by it by which any other party to any Related Contract or
any License referred to in Schedule II or III hereto purports to exercise any of
its rights or affect any of its obligations thereunder, together with a copy of
any reply by either of the Grantors thereto.
(v) Each of the Grantors will exercise promptly
and diligently each and every right which it may have under each License (other
than any right of termination) and will duly perform and observe in all respects
all of its obligations under each License and will take all action necessary to
maintain the Licenses in full force and effect. The Grantors will not, without
the prior written consent of the Collateral Agent, cancel, terminate, amend or
otherwise modify in any respect, or waive any provision of, any Related Contract
or any License referred to in Schedule II or III hereto.
(vi) If any Receivable includes a charge for any
tax payable to any Governmental Authority, the Collateral Agent is hereby
authorized (but in no event obligated) in its discretion to pay the amount
thereof to the proper taxing authority for the account of either of the Grantors
and to charge the Grantors therefor. Each of the Grantors shall notify the
Collateral Agent if any Receivable includes any taxes due to any Governmental
Authority and, in the absence of such notice, the Collateral Agent shall have
the right to retain any proceeds of such Receivable that the Collateral Agent
receives and shall not be liable for any taxes that may be due from either of
the Grantors by reason of the sale and delivery creating such Receivable.
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(g) Transfers and Other Liens.
(i) The Grantors will not sell, assign (by
operation of law or otherwise), lease, exchange or otherwise transfer or dispose
of any of the Collateral except as provided in Section 9.6 of the Note Purchase
Agreement.
(ii) The Grantors will not create or suffer to
exist any Lien, claim, security interest, charge or other encumbrance upon or
with respect to any Collateral except for the security interests permitted
pursuant to the terms of the Note Purchase Agreement.
(h) Trademarks and Patents.
(i) Each of the Grantors has duly executed and
delivered the Assignment for Security (Trademarks) and the Assignment of
Security (Patents) in the forms attached hereto as Exhibits A and B
respectively. Each of the Grantors (either itself or through licensees) will,
and will cause each licensee thereof to, take all action necessary to maintain
all of its Trademarks and Patents in full force and effect, including, without
limitation, using the proper statutory notices and markings and using such
Trademarks on each applicable trademark class of goods in order to so maintain
such Trademarks in full force free from any claim of abandonment for non-use,
and employing all of its Trademarks and Patents with appropriate notice of
registration, and the Grantors will not (and will not permit any licensee
thereof to) do any act or knowingly omit to do any act whereby any Trademark may
become invalidated; provided, however, that so long as no Event of Default has
occurred and is continuing, neither of the Grantors shall have any obligation to
use or to maintain any Trademark or Patent (A) that relates solely to any
product that has been, or is in the process of being, sold, discontinued,
abandoned or terminated, (B) that is being replaced with a trademark or patent
substantially similar to the Trademark or Patent that may be abandoned or
otherwise become invalid, so long as such replacement Trademark or Patent is
subject to the lien created by this Agreement or (C) that is substantially the
same as another Trademark or Patent that is in full force, so long as such other
Trademark or Patent is subject to the lien created by this Agreement. Each of
the Grantors will cause to be taken all necessary steps in any proceeding before
the United States Patent and Trademark Office to maintain each registration of
its Trademarks and the Patents (other than those Trademarks or Patents described
in the proviso to the immediately preceding sentence), including, without
limitation, filing of renewals, affidavits of use, affidavits of
incontestability and opposition, interference and cancellation proceedings and
payment of taxes. If any Trademark or Patent of either of the Grantors is
infringed, misappropriated or diluted in any material respect by a third party,
the Grantor shall (x) upon learning of such infringement, misappropriation or
dilution, promptly notify the Collateral Agent and (y) to the extent that the
Grantor shall deem appropriate under the circumstances, promptly sue for
infringement, misappropriation or dilution, seek injunctive relief where
appropriate and recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as the Grantor shall
deem appropriate under the circumstances to protect such Trademark or Patent.
Each of the Grantors shall furnish to the Collateral Agent from time to time
(but, unless an Event of Default has occurred and is continuing, no more
frequently than quarterly) statements and schedules further identifying and
describing the Patents and the Trademarks and such other
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reports in connection with the Patents and the Trademarks as the Collateral
Agent may reasonably request, all in reasonable detail, and promptly upon
request of the Collateral Agent, following receipt by the Collateral Agent of
any such statements, schedules or reports, the Grantors shall modify this
Agreement by amending Schedules II or III hereto, as the case may be, to include
any Patent or Trademark which becomes part of the Collateral under this
Agreement. Notwithstanding anything herein to the contrary, upon the occurrence
of an Event of Default or event which, with the giving of notice or the lapse of
time or both, would constitute an Event of Default, the Grantors may not abandon
or otherwise permit a Trademark or Patent to become invalid without the prior
written consent of the Collateral Agent, and if any Trademark or Patent is
infringed, misappropriated or diluted in any material respect by a third party,
each of the Grantors will take such action as the Collateral Agent shall deem
appropriate under the circumstances to protect such Trademark or Patent.
(ii) In no event shall either of the Grantors,
either itself or through any agent, employee, licensee or designee, file an
application for the registration of any trademark or the issuance of any patent
with the United States Patent and Trademark Office, unless it gives the
Collateral Agent prior written notice thereof. Upon request of the Collateral
Agent, each of the Grantors shall execute and deliver any and all assignments,
agreements, instruments, documents and papers as the Collateral Agent may
reasonably request to evidence the Collateral Agent's security interest
hereunder in such trademark or patent and the general intangibles of either of
the Grantors relating thereto or represented thereby, and each of the Grantors
hereby constitutes the Collateral Agent its attorney-in-fact to execute and file
all such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed, and such power (being coupled with an interest)
shall be irrevocable until the repayment of all of the Obligations in full and
the termination of each of the Note Documents.
(iii) If either of the Grantors shall at any time
own, use or possess the right to use any registered copyright, each of the
Grantors shall promptly notify the Collateral Agent thereof and shall execute
such documents (including any assignment for security of copyrights to be filed
with the United States Copyright Office) and do such acts as shall be necessary
or, in the judgment of the Collateral Agent, desirable to subject such
copyrights to the lien of this Agreement.
(i) Inspection and Reporting. Each of the Grantors shall
permit the Collateral Agent, or any agents or representatives of the Collateral
Agent or such professionals or other Persons as the Collateral Agent may
designate (i) to examine and inspect the books and records of either of the
Grantors and take copies and extracts therefrom, (ii) to verify materials,
leases, notes, receivables, deposit accounts and other assets of either of the
Grantors from time to time, and (iii) to conduct physical Inventory appraisals
and/or valuations, provided that, in the absence of a continuing Event of
Default, all such actions described in clauses (i) through (iii) above shall be
conducted at reasonable times and during normal business hours. In addition,
each of the Grantors shall forward to the Collateral Agent copies of any notices
or communications received or made by either of the Grantors with respect to the
Collateral, all in such manner as the Collateral Agent may reasonably require.
The Borrower shall cause to be conducted physical inventory counts at the times
required in the Note Purchase Agreement.
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SECTION 6. Additional Provisions Concerning the Collateral.
(a) Each of the Grantors hereby authorizes the Collateral
Agent to file, without the signature of the Grantor where permitted by law, one
or more financing or continuation statements, and amendments thereto, relating
to the Collateral.
(b) Each of the Grantors hereby irrevocably appoints the
Collateral Agent or its designee on behalf of the Collateral Agent the Grantor's
attorney-in-fact and proxy, with full authority in the place and stead of the
Grantor and in the name of the Grantor or otherwise, from time to time in the
Collateral Agent's discretion, to take any action and to execute any instrument
which the Collateral Agent may deem necessary or advisable to accomplish the
purposes of this Agreement (subject to the rights of each of the Grantors under
Section 5(f)) including, without limitation, (i) to obtain and adjust insurance
required to be paid to the Collateral Agent pursuant to Section 5(e), (ii) upon
the occurrence of an Event of Default, to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any Collateral, (iii) to receive, endorse,
assign and collect any drafts or other instruments, documents and chattel paper
in connection with clause (i) or (ii) above, and (iv) to file any claims or take
any action or institute any proceedings which the Collateral Agent may deem
necessary or desirable for the collection of any Collateral or otherwise to
enforce the rights of the Collateral Agent with respect to any Collateral. All
acts of said attorney or designee are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or commission
(other than acts or omissions constituting gross negligence or willful
misconduct as determined by a final judgment or a court of competent
jurisdiction), nor for any error of judgment or mistake of fact or law. This
power is coupled with an interest and is irrevocable until all of the
Obligations are paid in full and the Note Purchase Agreement is terminated.
(c) For the purpose of enabling the Collateral Agent to
exercise rights and remedies under this Agreement at such time as the Collateral
Agent shall be lawfully entitled to exercise such rights and remedies, and for
no other purpose, each of the Grantors hereby grants to the Collateral Agent, to
the extent assignable, an irrevocable, non-exclusive license (exercisable
without payment of royalty or other compensation to the Grantors) to use,
assign, license or sublicense any of the Patents or Trademarks now owned or
hereafter acquired by either of the Grantors, wherever the same may be located,
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer programs used for
the compilation or printout thereof. Notwithstanding anything contained herein
to the contrary, but subject to the provisions of the Note Purchase Agreement
that limit the right of the Grantors to dispose of their property, and Section
5(h) of this Agreement, so long as no Event of Default shall have occurred and
be continuing, the Grantors may exploit, use, enjoy, protect, license,
sublicense, assign, sell, dispose of or take other actions with respect to the
Patents or Trademarks in the ordinary course of the business of either of the
Grantors. In furtherance of the foregoing, unless an Event of Default shall have
occurred and be continuing the Collateral Agent shall from time to time, upon
the request of either of the Grantors, execute and deliver any instruments,
certificates or other documents, in the form so requested, which either of the
Grantors shall have certified are appropriate (in its judgment) to allow it to
take any
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<PAGE> 14
action permitted above (including relinquishment of the license provided
pursuant to this clause (c) as to any Patents or Trademarks). Further, upon the
payment in full of all of the Obligations, the Collateral Agent (subject to
Section 11(e)) shall transfer to the Grantors all of the Collateral Agent's
right, title and interest in and to the Patents and Trademarks, and the
Licenses, all without recourse, representation and warranty. The exercise of
rights and remedies hereunder by the Collateral Agent shall not terminate the
rights of the holders of any licenses or sublicenses theretofore granted by
either of the Grantors or granted by either of the Grantors in accordance with
the second sentence of this clause (c). Each of the Grantors hereby releases the
Collateral Agent from any claims, causes of action and demands at any time
arising out of or with respect to any actions taken or omitted to be taken by
the Collateral Agent under the powers of attorney granted herein other than
actions taken or omitted to be taken through the Collateral Agent's gross
negligence or willful misconduct, as determined by a final determination of a
court of competent jurisdiction.
(d) If either of the Grantors fails to perform any agreement
contained herein, the Collateral Agent may itself perform, or cause performance
of, such agreement or obligation, in the name of each of the Grantors or the
Collateral Agent, and the expenses of the Collateral Agent incurred in
connection therewith shall be payable by the Grantors pursuant to Section 8.
(e) The powers conferred on the Collateral Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral.
(f) Anything herein to the contrary notwithstanding (i) the
Grantors shall remain liable under the Related Contracts and Licenses and
otherwise with respect to any of the Collateral to the extent set forth therein
to perform all of its obligations thereunder to the same extent as if this
Agreement had not been executed, (ii) the exercise by the Collateral Agent of
any of its rights hereunder shall not release the Grantors from their
obligations under the Related Contracts and Licenses or otherwise in respect of
the Collateral, and (iii) the Collateral Agent shall not have any obligation or
liability by reason of this Agreement under the Related Contracts and Licenses
or with respect to any of the other Collateral, nor shall the Collateral Agent
be obligated to perform any of the obligations or duties of the Grantors
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 7. Remedies Upon Default. If any Event of Default
shall have occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the
Collateral, or any part thereof, in addition to other rights and remedies
provided for herein, in the Note Purchase Agreement, the Notes or in the Note
Documents or otherwise available to it, all of the rights and remedies of a
secured party in default under the Code (whether or not the Code applies to the
affected Collateral), and also may (i) take absolute control of the Collateral,
including without
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limitation transfer into the Collateral Agent's name or into the name of its
nominee or nominees (to the extent the Collateral Agent has not theretofore done
so) and thereafter receive, for the benefit of the Collateral Agent, all
payments made thereon, give all consents, waivers and ratifications in respect
thereof and otherwise act with respect thereto as though it were the outright
owner thereof, (ii) require the Grantors to, and each of the Grantors hereby
agrees that it will at its expense and upon request of the Collateral Agent
forthwith, assemble all or part of the Collateral as directed by the Collateral
Agent and make it available to the Collateral Agent at a place or places to be
designated by the Collateral Agent which is reasonably convenient to both
parties, and the Collateral Agent may enter into and occupy any premises owned
or leased by each of the Grantors where the Collateral of any part thereof is
located or assembled for a reasonable period in order to effectuate the
Collateral Agent's rights and remedies hereunder or under law, without
obligation to the Grantors in respect of such occupation, and (iii) without
notice, except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Collateral Agent's
offices or elsewhere, for cash, on credit or for future delivery, and at such
price or prices and upon such other terms as the Collateral Agent may deem
commercially reasonable. Each of the Grantors agrees that, to the extent notice
of sale shall be required by law, at least 10 days' notice to the Grantors of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Collateral Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. Each of the Grantors hereby waives any claims against the
Collateral Agent arising by reason of the fact that the price at which the
Collateral may have been sold at a private sale was less than the price which
might have been obtained at a public sale or was less than the aggregate amount
of the Obligations, even if the Collateral Agent accepts the first offer
received and does not offer the Collateral to more than one offeree and waives
all rights which the Grantors may have to require that all or any part of the
Collateral be marshalled upon any sale (public or private) thereof. In addition
to the foregoing, (i) upon written notice from the Collateral Agent, the
Grantors shall cease any use of the Trademarks or any mark similar thereto for
any purpose described in such notice; (ii) the Collateral Agent may, at any time
and from time to time, upon 10 days' prior notice to either of the Grantors,
license, whether general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any of the Trademarks and Patents of either of the
Grantors, throughout the world for such term or terms, on such conditions, and
in such manner, as the Collateral Agent shall in its sole discretion determine;
and (iii) the Collateral Agent may, at any time, pursuant to the authority
granted in Section 6, execute and deliver on behalf of either of the Grantors,
one or more instruments of assignment of the Trademarks and Patents (or any
application or registration thereof), in form suitable for filing, recording or
registration in any country.
(b) Any cash held by the Collateral Agent as Collateral and
all proceeds received by the Collateral Agent in respect of any sale or
collection from, or other realization upon, all or any part of the Collateral,
after payment from such proceeds of the Collateral Agent's out-of-pocket costs
and expenses in connection with such sale, including, without limitation
reasonable attorneys' fees and expenses, may, in the discretion of the
Collateral Agent, be held by
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<PAGE> 16
the Collateral Agent as collateral for, and/or then or at any time thereafter
applied in whole or in part by the Collateral Agent against, all or any part of
the Obligations in such manner as the Collateral Agent may elect in its sole
discretion.
(c) In the event that the proceeds of any such sale,
collection or realization are insufficient to pay all amounts to which the
Collateral Agent are legally entitled, the Grantors shall be liable for the
deficiency, together with interest thereon at the Default Rate or such other
rate as shall be fixed by applicable law, together with the costs of collection
and the reasonable fees, costs, expenses and other client charges of any
attorneys employed by the Collateral Agent to collect such deficiency.
(d) The Collateral Agent may employ and maintain in the
premises of the Grantors one or more custodians selected by the Collateral Agent
who shall have full authority to do all acts necessary or desirable to protect
the Collateral Agent's interests hereunder. The Grantors hereby agree to
cooperate with any such custodian and to do whatever the Collateral Agent may
reasonably request to preserve the Collateral. All costs and expenses incurred
by the Collateral Agent, by reason of the employment of the custodian, shall be
payable the Grantors pursuant to Section 8.
SECTION 8. Indemnity and Expenses.
(a) The Grantors agrees to indemnify and hold the Collateral
Agent, its Affiliates and each officer, director and agent of the Collateral
Agent or any of its Affiliates (the "Indemnitees") harmless from and against any
and all claims, damages, losses, liabilities, obligations, penalties, costs or
expenses (including, without limitation, reasonable legal fees, costs, expenses
and other client charges) to the extent that they arise out of or otherwise
result from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from an Indemnitee's gross negligence or willful misconduct as determined by a
final determination of a court of competent jurisdiction.
(b) Without limiting the generality of the foregoing, the
Grantors will upon demand pay to each Indemnitee (i) the amount of any and all
costs and expenses, including the reasonable fees, costs, expenses and other
client charges of counsel for such Indemnitee and of any experts and agents
(including, without limitation, any Person which may act as agent of such
Indemnitee), which such Indemnitee may incur in connection with (A) the
preparation, negotiation, execution, delivery, recordation, administration,
amendment, waiver or other modification or termination of this Agreement, or (B)
the custody, preservation, use or operation of the Collateral and (ii) the
amount of any and all costs and expenses, including the reasonable fees, costs,
expenses and other client charges of counsel for such Indemnitee and of any
experts and agents (including, without limitation, any Person which may act as
agent of such Indemnitee), which such Indemnitee may incur in connection with
(A) the sale of, collection from, or other realization upon, any Collateral, (B)
the exercise or enforcement of any of the rights of such Indemnitee hereunder,
or (C) the failure by either of the Grantors to perform or observe any of the
provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications
provided for
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<PAGE> 17
hereunder shall be in writing and shall be mailed, telecopied or delivered, if
to the Grantors, to them at the addresses specified in the Note Purchase
Agreement; and if to the Collateral Agent, to it at its address specified in the
Note Purchase Agreement; or as to any such Person at such other address as shall
be designated by such Person in a written notice to such other person complying
as to delivery with the terms of this Section 9. All such notices and other
communications shall be effective (i) if mailed, when received or three Business
Days after deposited in the mail, whichever first occurs (ii) if telecopied,
when transmitted and a confirmation is received, or (iii) if delivered, upon
delivery.
SECTION 10. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be
effective unless it is in writing and signed by the Grantors and the Collateral
Agent, and no waiver of any provision of this Agreement, and no consent to any
departure by the Grantors therefrom, shall be effective unless it is in writing
and signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) No failure on the part of the Collateral Agent to
exercise, and no delay in exercising, any right hereunder or under any other
Note Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The rights and remedies of the Collateral Agent
provided herein and in the other Note Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law. The
rights of the Collateral Agent under any Note Document against any party thereto
are not conditional or contingent on any attempt by the Collateral Agent to
exercise any of its rights under any other Note Document against such party or
against any other Person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest
in the Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Obligations and the termination of the Note
Purchase Agreement; and (ii) be binding on the Grantors, their successors and
assigns, except that the Grantors may not assign or transfer any of their rights
hereunder without the prior written consent of the Collateral Agent, and shall
inure, together with all rights and remedies of the Collateral Agent hereunder,
to the benefit of the Collateral Agent and its permitted successors, transferees
and assigns. Without limiting the generality of clause (ii) of the immediately
preceding sentence, without notice to the Grantors, the Collateral Agent may
assign or otherwise transfer its rights under this Agreement and any other Note
Document, to any other Person pursuant to the terms of the Note Purchase
Agreement and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Collateral Agent herein or otherwise.
Upon any such assignment or transfer, all references in this
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<PAGE> 18
Agreement to the Collateral Agent shall mean the assignee of the Collateral
Agent. None of the rights or obligations of the Grantors hereunder may be
assigned or otherwise transferred without the prior written consent of the
Collateral Agent, and any such assignment or transfer shall be null and void.
(e) Upon the satisfaction in full of the Obligations and the
termination of the Note Purchase Agreement, (i) this Agreement and the security
interests created hereby shall terminate and all rights to the Collateral shall
revert to the Grantors and (ii) the Collateral Agent will, upon either of the
Grantor's request and at the requesting Grantor's cost and expense, (A) return
to the Grantor(s) such of the Collateral as shall not have been sold or
otherwise disposed of or applied pursuant to the terms hereof and (B) execute
and deliver to the Grantors such documents as the Grantors shall reasonably
request to evidence such termination, all without any representation, warranty
or recourse whatsoever.
(f) This Agreement shall be governed by and construed in
accordance with the law of the State of New York, except to the extent that the
validity and perfection or the perfection and the effect of perfection or
non-perfection of the security interest created hereby, or remedies hereunder,
in respect of any particular Collateral are governed by the law of a
jurisdiction other than the State of New York.
(g) This Agreement supersedes all prior understandings and
agreements, whether written or oral, among the parties hereto relating to the
transactions provided for herein.
(h) All representations and warranties of the Grantors
contained herein or made in connection herewith shall survive the making of and
shall not be waived by the execution and delivery of this Agreement, the Note
Purchase Agreement, the Notes or any other Note Document, any investigation by
the Collateral Agent or the purchasing of the Notes. All covenants and
agreements of the Grantors contained herein shall continue in full force and
effect from and after the date hereof until the indefeasible payment in full of
the Obligations.
(i) Section headings in this Agreement are included herein for
the convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(j) BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
GRANTORS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS EITHER
OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTE
PURCHASE AGREEMENT, THE NOTES OR ANY OTHER NOTE DOCUMENT, ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE COLLATERAL
AGENT OR EITHER OF THE GRANTORS IN CONNECTION HEREWITH OR THEREWITH. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE COLLATERAL AGENT TO ENTER INTO THIS
AGREEMENT.
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<PAGE> 19
IN WITNESS WHEREOF, the Grantors have caused this Agreement to
be executed and delivered by its officer thereunto duly authorized as of the
date first above written.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: _________________________________
Name:
Title:
OSORIO AND WATKIN, D.M.D., P.C.
By:__________________________________
Name:
Title:
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<PAGE> 20
Accepted and Agreed:
IMPRIMIS INVESTORS LLC, not in its individual capacity but solely as Collateral
Agent
By: ________________________________
Name:
Title:
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<PAGE> 21
Schedule I
RELATED CONTRACTS
<PAGE> 22
Schedule II
TRADEMARKS
AND
TRADEMARK LICENSES
<PAGE> 23
Schedule III
PATENTS AND PATENT LICENSES
<PAGE> 24
Schedule IV
ADDRESSES OF GRANTORS
Chief Place of Business,
Chief Executive Office
A. and Location of Records
B. Locations of
Equipment and Inventory
<PAGE> 25
Schedule V
TRADENAMES
<PAGE> 26
Schedule VI
UCC-1 FINANCING STATEMENTS
<PAGE> 27
EXHIBIT A
ASSIGNMENT FOR SECURITY
(TRADEMARKS)
WHEREAS, _____________________ (the "Assignor") holds all
right, title and interest in the trademarks listed on the annexed Schedule 1A,
which trademarks are issued or applied for in the United States Patent and
Trademark Office (the "Trademarks");
WHEREAS, the Assignor has entered into a Security Agreement
dated July 24, 1997 (the "Security Agreement") in favor of Imprimis Investors
LLC (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has
assigned to the Assignee and granted to the Assignee a security interest in all
right, title and interest of the Assignor in, to and under the Trademarks and
the applications and registrations thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, the Assignor does hereby convey, sell, assign,
transfer and set over unto the Assignee and grants to the Assignee a security
interest in the Collateral to secure the prompt payment, performance and
observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that
the rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to
be duly executed by its officer thereunto duly authorized as of July 24, 1997.
NAME OF COMPANY
By: _____________________________
Name:________________________
Title:_______________________
<PAGE> 28
STATE OF ___________
ss.:
COUNTY OF _________
On this 24th day of July, 1997 before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of _________________________, a ________ corporation, and that
he executed the foregoing instrument in the name of
________________________________, and that he had authority to sign the same,
and he acknowledged to me that he executed the same as the act and deed of said
company for the uses and purposes therein mentioned.
___________________________________
<PAGE> 29
EXHIBIT B
ASSIGNMENT FOR SECURITY
(PATENTS)
WHEREAS, _____________________ (the "Assignor") holds all
right, title and interest in the letter patents, design patents and utility
patents listed on the annexed Schedule 1A, which patents are issued or applied
for in the United States Patent and Trademark Office (the "Patents");
WHEREAS, the Assignor has entered into a Security Agreement
dated July 24, 1997 (the "Security Agreement") in favor of Imprimis Investors
LLC (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has
assigned to the Assignee and granted to the Assignee a security interest in all
right, title and interest of the Assignor in, to and under the Patents and the
applications and registrations thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, the Assignor does hereby convey, sell, assign,
transfer and set over unto the Assignee and grants to the Assignee a security
interest in the Collateral to secure the prompt payment, performance and
observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that
the rights and remedies of the Assignee with respect to the Collateral are more
fully set forth in the Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to
be duly executed by its officer thereunto duly authorized as of July 24, 1997.
NAME OF COMPANY
By: ______________________________
Name:_________________________
Title:________________________
<PAGE> 30
STATE OF ___________
ss.:
COUNTY OF _________
On this 24th day of July, 1997 before me personally came
________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of _________________________, a ________ corporation, and that
he executed the foregoing instrument in the name of
________________________________, and that he had authority to sign the same,
and he acknowledged to me that he executed the same as the act and deed of said
company for the uses and purposes therein mentioned.
_____________________________________
<PAGE> 31
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(PATENTS AND PATENT APPLICATIONS)
<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
by and among
FIRST NEW ENGLAND DENTAL CENTERS, INC.
and
THE INITIAL HOLDERS SPECIFIED ON
THE SIGNATURE PAGE HEREOF
Dated as of July 25, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
1. DEFINITIONS...............................................................1
2. REGISTRATION UNDER THE SECURITIES ACT.....................................5
2.1 DEMAND REGISTRATION.............................................5
2.2 INCIDENTAL REGISTRATION.........................................8
2.3 SHELF REGISTRATION.............................................10
2.4 EXPENSES.......................................................10
2.5 UNDERWRITTEN OFFERINGS.........................................11
2.6 CONVERSIONS; EXERCISES.........................................11
2.7 POSTPONEMENTS..................................................11
3. HOLDBACK ARRANGEMENTS....................................................13
3.1 RESTRICTIONS ON SALE BY HOLDERS OF REGISTRABLE SECURITIES......13
3.2 RESTRICTIONS ON SALE BY THE COMPANY AND OTHERS.................13
4. REGISTRATION PROCEDURES..................................................13
4.1 OBLIGATIONS OF THE COMPANY.....................................13
4.2 SELLER INFORMATION.............................................18
4.3 NOTICE TO DISCONTINUE..........................................18
5. INDEMNIFICATION; CONTRIBUTION............................................19
5.1 INDEMNIFICATION BY THE COMPANY.................................19
5.2 INDEMNIFICATION BY HOLDERS.....................................19
5.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS.........................20
5.4 CONTRIBUTION...................................................21
5.5 OTHER INDEMNIFICATION..........................................21
5.6 INDEMNIFICATION PAYMENTS.......................................21
6. GENERAL..................................................................22
6.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES...................22
6.2 REGISTRATION RIGHTS TO OTHERS..................................22
6.3 AVAILABILITY OF INFORMATION; RULE 144; RULE 144A; OTHER
EXEMPTIONS.....................................................22
6.4 AMENDMENTS AND WAIVERS.........................................23
6.5 NOTICES........................................................23
6.6 SUCCESSORS AND ASSIGNS.........................................24
6.7 COUNTERPARTS...................................................24
6.8 DESCRIPTIVE HEADINGS, ETC......................................24
6.9 SEVERABILITY...................................................25
6.10 GOVERNING LAW..................................................25
<PAGE> 3
Page
6.11 REMEDIES; SPECIFIC PERFORMANCE.................................25
6.12 ENTIRE AGREEMENT...............................................25
6.13 NOMINEES FOR BENEFICIAL OWNERS.................................25
6.14 CONSENT TO JURISDICTION; WAIVER OF JURY........................26
6.15 FURTHER ASSURANCES.............................................26
6.16 NO INCONSISTENT AGREEMENTS.....................................26
6.17 CONSTRUCTION...................................................26
-ii-
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT (this or the "Agreement") dated
as of July 25, 1997, by and among First New England Dental Centers, Inc., a
Delaware corporation (the "Company"), and the Initial Holders specified on the
signature pages to this Agreement.
W I T N E S S E T H :
WHEREAS, simultaneously herewith, the Company and the Initial
Holders are entering into a Note Purchase Agreement (the "Subscription
Agreement"), pursuant to which the Company is issuing, and the Initial Holders
are purchasing, certain securities of the Company; and
WHEREAS, in order to induce the Initial Holders to enter into
the Subscription Agreement, the Company has agreed to provide certain
registration rights on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
"Affiliate" shall mean (i) with respect to any Person, any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such Person, and (ii) with respect to any
individual, shall also mean the spouse, sibling, child, step-child, grandchild,
niece, nephew or parent of such Person, or the spouse thereof.
"Blackout Period" shall have the meaning set forth in Section
2.7.
"Common Shares" shall mean shares of common stock, par value
$.01 per share, of the Company.
"Company" shall have the meaning set forth in the preamble.
"Demand Registration" shall mean a registration required to be
effected by the Company pursuant to Section 2.1.
"Demand Registration Statement" shall mean a registration
statement of the Company which covers the Registrable Securities requested to be
included therein pursuant to the provisions of Section 2.1 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
similar or successor statute.
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<PAGE> 5
"Holders" shall mean the Initial Holders for so long as they
own any Registrable Securities and such of its respective heirs, successors and
permitted assigns (including any permitted transferees of Registrable
Securities) who acquire or are otherwise the transferee of Registrable
Securities, directly or indirectly, from such Initial Holders (or any subsequent
Holder), for so long as such heirs, successors and permitted assigns own any
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a Holder whenever such Person holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities,
whether or not such purchase, conversion, exercise or exchange has actually been
effected and disregarding any legal restrictions upon the exercise of such
rights. Registrable Securities issuable upon exercise of an option or upon
conversion, exchange or exercise of another security shall be deemed outstanding
for the purposes of this Agreement.
"Holders' Counsel" shall mean one firm of counsel (per
registration) to the Holders of Registrable Securities participating in such
registration, which counsel shall be selected (i) in the case of a Demand
Registration, by the Initiating Holders holding a majority of the Registrable
Securities for which registration was requested in the Request, and (ii) in all
other cases, by the Majority Holders participating in the Registration.
"Incidental Registration" shall mean a registration required
to be effected by the Company pursuant to Section 2.2.
"Incidental Registration Statement" shall mean a registration
statement of the Company which covers the Registrable Securities requested to be
included therein pursuant to the provisions of Section 2.2 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Initial Holders" shall mean the Persons specified as such on
the signature pages to this Agreement on the date hereof.
"Initial Public Offering" shall mean the first public offering
of any class of securities of the Company pursuant to a registration statement
filed with and declared effective by the SEC.
"Initiating Holders" shall mean, with respect to a particular
registration, the Holders who initiated the Request for such registration.
"Inspectors" shall have the meaning set forth in Section
4.1(g).
"Majority Holders" shall mean one or more Holders of
Registrable Securities who at such time hold a majority of the Registrable
Securities then outstanding.
"Majority Holders of the Registration" shall mean, with
respect to a particular registration, one or more Holders of Registrable
Securities who would hold a majority of the Registrable Securities to be
included in such registration.
"NASD" shall mean the National Association of Securities
Dealers, Inc.
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<PAGE> 6
"Notes" shall mean the Senior Secured Fixed Rate Notes due
July __, 1998, issued to the Initial Holders pursuant to the Subscription
Agreement.
"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
"Prospectus" shall mean the prospectus included in a
Registration Statement (including, without limitation, any preliminary
prospectus and any prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), and any such
Prospectus as amended or supplemented by any prospectus supplement, and all
other amendments and supplements to such Prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
(or deemed to be incorporated by reference) therein.
"Registrable Securities" shall mean (i) any Warrant Shares
issued or issuable upon exercise of the Warrants issued to the Initial Holders
pursuant to the Subscription Agreement, (ii) securities of the Company acquired
by the Initial Holders or their assignees in any transaction contemplated by the
Subscription Agreement, and (iii) any other securities of the Company (or any
successor or assign of the Company, whether by merger, consolidation, sale of
assets or otherwise) which may be issued or issuable with respect to, in
exchange for, or in substitution of, Registrable Securities referenced in
clauses (i) or (ii) above by reason of any dividend or stock split, combination
of shares, merger, consolidation, recapitalization, reclassification,
reorganization, sale of assets or similar transaction. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (A) a registration statement with respect to the sale of such securities
shall have been declared effective under the Securities Act and such securities
shall have been disposed of in accordance with such registration statement, (B)
such securities are sold pursuant to Rule 144 (or any similar provisions then in
force) under the Securities Act, (C) such securities have been otherwise
transferred, a new certificate or other evidence of ownership for them not
bearing the legend restricting further transfer shall have been delivered by the
Company and subsequent public distribution of them shall not require
registration under the Securities Act, or (D) such securities shall have ceased
to be outstanding; provided, however, that clauses (A) and (C) shall not apply
if the Holder may be deemed to be an affiliate of the Company.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance with this Agreement by the Company and
its subsidiaries, including, without limitation (i) all SEC, stock exchange,
NASD and other registration, listing and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
and compliance with the rules of any stock exchange (including fees and
disbursements of counsel in connection with such compliance and the preparation
of a blue sky memorandum and legal investment survey), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing,
distributing, mailing and delivering any Registration Statement, any Prospectus,
any underwriting agreements, transmittal letters, securities sales agreements,
securities
-3-
<PAGE> 7
certificates and other documents relating to the performance of or compliance
with this Agreement, (iv) the fees and disbursements of counsel for the Company,
(v) the fees and disbursements of Holders' Counsel, (vi) the fees and
disbursements of all independent public accountants (including the expenses of
any audit and/or "cold comfort" letters) and the fees and expenses of other
Persons, including experts, retained by the Company, (vii) the expenses incurred
in connection with making road show presentations and holding meetings with
potential investors to facilitate the distribution and sale of Registrable
Securities which are customarily borne by the issuer, (viii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, and (ix) premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Registrable Securities
being registered; provided, however, Registration Expenses shall not include
discounts and commissions payable to underwriters, selling brokers, dealer
managers or other similar Persons engaged in the distribution of any of the
Registrable Securities; and provided further, that in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of Company personnel or general overhead expenses of the
Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business or which the Company would have
incurred in any event; and provided, further, that in the event the Company
shall, in accordance with Section 2.2 or Section 2.6 hereof, not register any
securities with respect to which it had given written notice of its intention to
register to Holders, notwithstanding anything to the contrary in the foregoing,
all of the costs incurred by the Holders in connection with such registration
shall be deemed to be Registration Expenses.
"Registration Statement" shall mean any registration statement
of the Company which covers any Registrable Securities and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Request" shall have the meaning set forth in Section 2.1(a).
"SEC" shall mean the Securities and Exchange Commission, or
any successor agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or any
similar or successor statute.
"Shelf Registration" shall have the meaning set forth in
Section 2.1(a).
"Subscription Agreement" shall have the meaning set forth in
the preamble.
"Underwriters" shall mean the underwriters, if any, of the
offering being registered under the Securities Act.
"Underwritten Offering" shall mean a sale of securities of the
Company to an Underwriter or Underwriters for reoffering to the public.
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<PAGE> 8
"Warrant Shares" shall mean the Common Shares or other equity
securities issued or issuable upon the exercise of the Warrants.
"Warrants" shall mean the warrants issued to the Initial
Holders pursuant to the Subscription Agreement, together with any additional
warrants issued in accordance with the terms thereof.
"Withdrawn Demand Registration" shall have the meaning set
forth in Section 2.1(a).
"Withdrawn Request" shall have the meaning set forth in
Section 2.1(a).
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 Demand Registration.
(a) Right to Demand Registration. Subject to Section 2.1(c),
at any time or from time to time the Majority Holders shall have the right to
request in writing that the Company register all or part of such Holders'
Registrable Securities (a "Request") (which Request shall specify the amount of
Registrable Securities intended to be disposed of by such Holders and the
intended method of disposition thereof) by filing with the SEC a Demand
Registration Statement. As promptly as practicable, but no later than 10 days
after receipt of a Request, the Company shall give written notice of such
requested registration to all Holders of Registrable Securities. Subject to
Section 2.1(b), the Company shall include in a Demand Registration (i) the
Registrable Securities intended to be disposed of by the Initiating Holders and
(ii) the Registrable Securities intended to be disposed of by any other Holder
which shall have made a written request (which request shall specify the amount
of Registrable Securities to be registered and the intended method of
disposition thereof) to the Company for inclusion thereof in such registration
within 20 days after the receipt of such written notice from the Company. The
Company shall, as expeditiously as possible following a Request, use its best
efforts to cause to be filed with the SEC a Demand Registration Statement
providing for the registration under the Securities Act of the Registrable
Securities which the Company has been so requested to register by all such
Holders, to the extent necessary to permit the disposition of such Registrable
Securities so to be registered in accordance with the intended methods of
disposition thereof specified in such Request or further requests (including,
without limitation, by means of a shelf registration pursuant to Rule 415 under
the Securities Act (a "Shelf Registration") if so requested and if the Company
is then eligible to use such a registration). The Company shall use its best
efforts to have such Demand Registration Statement declared effective by the SEC
as soon as practicable thereafter and to keep such Demand Registration Statement
continuously effective for the period specified in Section 4.1(b).
A Request may be withdrawn prior to the filing of the Demand
Registration Statement by the Majority Holders of the Registration (a "Withdrawn
Request") and a Demand Registration Statement may be withdrawn prior to the
effectiveness thereof by the Majority Holders of the Registration (a "Withdrawn
Demand Registration"), and such withdrawals shall be treated as a Demand
Registration which shall have been effected pursuant to this Section 2.1, unless
the Holders of Registrable Securities to be included in such Registration
Statement reimburse the Company for its
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<PAGE> 9
reasonable out-of-pocket Registration Expenses relating to the preparation and
filing of such Demand Registration Statement (to the extent actually incurred);
provided; however, that if a Withdrawn Request or Withdrawn Registration
Statement is made (A) because of a material adverse change in the business,
financial condition or prospects of the Company, or (B) because the sole or lead
managing Underwriter advises that the amount of Registrable Securities to be
sold in such offering be reduced pursuant to Section 2.1(b) by more than 10% of
the Registrable Securities to be included in such Registration Statement, or (C)
because of a postponement of such registration pursuant to Section 2.7, then
such withdrawal shall not be treated as a Demand Registration effected pursuant
to this Section 2.1 (and shall not be counted toward the number of Demand
Registrations), and the Company shall pay all Registration Expenses in
connection therewith. Any Holder requesting inclusion in a Demand Registration
may, at any time prior to the effective date of the Demand Registration
Statement (and for any reason) revoke such request by delivering written notice
to the Company revoking such requested inclusion.
The registration rights granted pursuant to the provisions of
this Section 2.1 shall be in addition to the registration rights granted
pursuant to the other provisions of Section 2 hereof.
(b) Priority in Demand Registrations. If a Demand Registration
involves an Underwritten Offering, and the sole or lead managing Underwriter, as
the case may be, of such Underwritten Offering shall advise the Company in
writing (with a copy to each Holder requesting registration) on or before the
date five days prior to the date then scheduled for such offering that, in its
opinion, the amount of Registrable Securities requested to be included in such
Demand Registration exceeds the number which can be sold in such offering within
a price range acceptable to the Majority Holders of the Registration (such
writing to state the basis of such opinion and the approximate number of
Registrable Securities which may be included in such offering), the Company
shall include in such Demand Registration, to the extent of the number which the
Company is so advised may be included in such offering, the Registrable
Securities requested to be included in the Demand Registration by the Holders
allocated pro rata in proportion to the number of Registrable Securities
requested to be included in such Demand Registration by each of them. In the
event the Company shall not, by virtue of this Section 2.1(b), include in any
Demand Registration all of the Registrable Securities of any Holder requesting
to be included in such Demand Registration, such Holder may, upon written notice
to the Company given within five days of the time such Holder first is notified
of such matter, reduce the amount of Registrable Securities it desires to have
included in such Demand Registration, whereupon only the Registrable Securities,
if any, it desires to have included will be so included and the Holders not so
reducing shall be entitled to a corresponding increase in the amount of
Registrable Securities to be included in such Demand Registration.
(c) Limitations on Registrations. The rights of Holders of
Registrable Securities to request Demand Registrations pursuant to Section
2.1(a) are subject to the following limitations: (i) in no event shall the
Company be required to effect a Demand Registration until after the earlier of
(A) nine months following an Initial Public Offering, and (B) the one year
anniversary of the date hereof, and (ii) in no event shall the Company be
required to pay Registration Expenses of more than two Demand Registrations if
the number of Warrant Shares has not been doubled under Section 2.9(b)
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of the Warrant and three Demand Registrations if they have been so doubled;
provided, however, that such number shall be increased to the extent the Company
does not include in what would otherwise be the final registration for which the
Company is required to pay Registration Expenses the number of Registrable
Securities requested to be registered by the Holders by reason of Section
2.1(b); and provided, further, that the Registration Expenses in connection with
each other Demand Registration shall be allocated pro rata among all Persons on
whose behalf securities of the Company are included in such registration, on the
basis of the respective amounts of the securities then being registered on their
behalf.
(d) Underwriting; Selection of Underwriters. Notwithstanding
anything to the contrary contained in Section 2.1(a), if the Initiating Holders
holding a majority of the Registrable Securities for which registration was
requested in the Request so elect, the Company shall use its best efforts to
ensure that the offering of such Registrable Securities pursuant to such Demand
Registration shall be in the form of a firm commitment Underwritten Offering;
and such Initiating Holders may require that all Persons (including other
Holders) participating in such registration sell their Registrable Securities to
the Underwriters at the same price and on the same terms of underwriting
applicable to the Initiating Holders. If any Demand Registration involves an
Underwritten Offering, the sole or managing Underwriters and any additional
investment bankers and managers to be used in connection with such registration
shall be selected by the Initiating Holders holding a majority of the
Registrable Securities for which registration was requested in the Request,
subject to the approval of the Company (such approval not to be unreasonably
withheld).
(e) Registration of Other Securities. Whenever the Company
shall effect a Demand Registration, no securities other than the Registrable
Securities shall be covered by such registration unless the Majority Holders of
the Registration shall have consented in writing to the inclusion of such other
securities, such consent not to be unreasonably withheld.
(f) Effective Registration Statement; Suspension. A Demand
Registration Statement shall not be deemed to have become effective (and the
related registration will not be deemed to have been effected) (i) unless it has
been declared effective by the SEC and remains effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Demand Registration Statement for the
time period specified in Section 4.1(b), (ii) if the offering of any Registrable
Securities pursuant to such Demand Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, or (iii) if, in the case of an Underwritten
Offering, the conditions to closing specified in an underwriting agreement to
which the Company is a party are not satisfied other than by the sole reason of
any breach or failure by the Holders of Registrable Securities or are not
otherwise waived.
(g) Other Registrations. During the period (i) beginning on
the date of a Request and (ii) ending on the date that is 90 days after the date
that a Demand Registration Statement filed pursuant to such Request has been
declared effective by the SEC or, if the Holders shall withdraw such Request or
such Demand Registration Statement, on the date of such Withdrawn Request or
such Withdrawn Registration
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<PAGE> 11
Statement, the Company shall not, without the consent of the Majority Holders of
the Registration, file a registration statement pertaining to any other
securities of the Company.
(h) Registration Statement Form. Registrations under this
Section 2.1 shall be on such appropriate registration form of the SEC (i) as
shall be selected by the Initiating Holders holding a majority of the
Registrable Securities for which registration was requested in the Request, and
(ii) which shall be available for the sale of Registrable Securities in
accordance with the intended method or methods of disposition specified in the
requests for registration; provided, however, that the Company shall not be
required to use a long-form registration statement if the Company is legally
permitted to use a short-form registration statement for the requested purpose.
The Company agrees to include in any such Registration Statement all information
which any selling Holder, upon advice of counsel, shall reasonably request.
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at
any time or from time to time proposes to register any of its securities under
the Securities Act (other than in a registration on Form S-4 or S-8 or any
successor form to such forms and other than pursuant to Section 2.1 or 2.3)
whether or not pursuant to registration rights granted to other holders of its
securities and whether or not for sale for its own account, the Company shall
deliver prompt written notice (which notice shall be given at least 30 days
prior to such proposed registration) to all Holders of Registrable Securities of
its intention to undertake such registration, describing in reasonable detail
the proposed registration and distribution (including the anticipated range of
the proposed offering price, the class and number of securities proposed to be
registered and the distribution arrangements) and of such Holders' right to
participate in such registration under this Section 2.2 as hereinafter provided.
Subject to the other provisions of this paragraph (a) and Section 2.2(b), upon
the written request of any Holder made within 20 days after the receipt of such
written notice (which request shall specify the amount of Registrable Securities
to be registered and the intended method of disposition thereof), the Company
shall effect the registration under the Securities Act of all Registrable
Securities requested by Holders to be so registered (an "Incidental
Registration"), to the extent requisite to permit the disposition (in accordance
with the intended methods thereof as aforesaid) of the Registrable Securities so
to be registered, by inclusion of such Registrable Securities in the
Registration Statement which covers the securities which the Company proposes to
register and shall cause such Registration Statement to become and remain
effective with respect to such Registrable Securities in accordance with the
registration procedures set forth in Section 4. If an Incidental Registration
involves an Underwritten Offering, immediately upon notification to the Company
from the Underwriter of the price at which such securities are to be sold, the
Company shall so advise each participating Holder. The Holders requesting
inclusion in an Incidental Registration may, at any time prior to the effective
date of the Incidental Registration Statement (and for any reason), revoke such
request by delivering written notice to the Company revoking such requested
inclusion.
If at any time after giving written notice of its intention to
register any securities and prior to the effective date of the Incidental
Registration Statement filed in
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connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to each Holder of
Registrable Securities and, thereupon, (A) in the case of a determination not to
register, the Company shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses incurred in connection therewith),
without prejudice, however, to the rights of Holders to cause such registration
to be effected as a registration under Section 2.1, and (B) in the case of a
determination to delay such registration, the Company shall be permitted to
delay the registration of such Registrable Securities for the same period as the
delay in registering such other securities; provided, however, that if such
delay shall extend beyond 120 days from the date the Company received a request
to include Registrable Securities in such Incidental Registration, then the
Company shall again give all Holders the opportunity to participate therein and
shall follow the notification procedures set forth in the preceding paragraph.
There is no limitation on the number of such Incidental Registrations pursuant
to this Section 2.2 which the Company is obligated to effect.
The registration rights granted pursuant to the provisions of
this Section 2.2 shall be in addition to the registration rights granted
pursuant to the other provisions of Section 2 hereof.
(b) Priority in Incidental Registration. If an Incidental
Registration involves an Underwritten Offering (on a firm commitment basis), and
the sole or the lead managing Underwriter, as the case may be, of such
Underwritten Offering shall advise the Company in writing (with a copy to each
Holder requesting registration) on or before the date five days prior to the
date then scheduled for such offering that, in its opinion, the amount of
securities (including Registrable Securities) requested to be included in such
registration exceeds the amount which can be sold in such offering without
materially interfering with the successful marketing of the securities being
offered (such writing to state the basis of such opinion and the approximate
number of such securities which may be included in such offering without such
effect), the Company shall include in such registration, to the extent of the
number which the Company is so advised may be included in such offering without
such effect, (i) in the case of a registration initiated by the Company, (A)
first, the securities that the Company proposes to register for its own account,
(B) second, the Registrable Securities requested to be included in such
registration by the Holders and the securities requested to be included in such
registration pursuant to an agreement set forth on Schedule 6.2 hereto,
allocated pro rata in proportion to the number of securities requested to be
included in such registration by each of them, and (C) third, other securities
of the Company to be registered on behalf of any other Person, and (ii) in the
case of a registration initiated by a Person other than the Company, (A) first,
securities of the Company requested to be included by such Persons initiating
such registration, (B) second, the Registrable Securities requested to be
included in such registration by the Holders and any securities requested to be
included in such registration pursuant to an agreement set forth on Schedule 6.2
hereto, allocated pro rata in proportion to the number of securities requested
to be included in such registration by each of them, (C) third, the securities
that the Company proposes to register for its own account, and (D) fourth, other
securities of the Company to be registered on behalf of any other Person;
provided, however, that in the event the Company will not, by virtue of this
Section 2.2(b), include in any such registration all of the Registrable
Securities of any
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<PAGE> 13
Holder requested to be included in such registration, such Holder may, upon
written notice to the Company given within three days of the time such Holder
first is notified of such matter, reduce the amount of Registrable Securities it
desires to have included in such registration, whereupon only the Registrable
Securities, if any, it desires to have included will be so included and the
Holders not so reducing shall be entitled to a corresponding increase in the
amount of Registrable Securities to be included in such registration.
(c) Selection of Underwriters. If any Incidental Registration
involves an Underwritten Offering, the sole or managing Underwriter(s) and any
additional investment bankers and managers to be used in connection with such
registration shall be subject to the approval of the Majority Holders of the
Registration (such approval not to be unreasonably withheld).
2.3 Shelf Registration. If a request made pursuant to Section 2.1
is for a Shelf Registration, the Company shall use its best efforts to keep the
Shelf Registration continuously effective through the date on which all of the
Registrable Securities covered by such Shelf Registration may be sold pursuant
to Rule 144(k) under the Securities Act (or any successor provision having
similar effect); provided, however, that prior to the termination of such Shelf
Registration, the Company shall first furnish to each Holder of Registrable
Securities participating in such Shelf Registration (i) an opinion, in form and
substance reasonably satisfactory to the Majority Holders of the Registration,
of counsel for the Company reasonably satisfactory to the Majority Holders of
the Registration stating that such Registrable Securities are freely saleable
pursuant to Rule 144(k) under the Securities Act (or any successor provision
having similar effect) or (ii) a "No-Action Letter" from the staff of the SEC
stating that the SEC would not recommend enforcement action if the Registrable
Securities included in such Shelf Registration were sold in a public sale other
than pursuant to an effective registration statement.
2.4 Expenses. The Company shall pay all Registration Expenses in
connection with any Demand Registration, Incidental Registration or Shelf
Registration, whether or not such registration shall become effective and
whether or not all Registrable Securities originally requested to be included in
such registration are withdrawn or otherwise ultimately not included in such
registration, except as otherwise provided with respect to a Withdrawn Request
and a Withdrawn Demand Registration in Section 2.1(a). Each Holder shall pay all
discounts and commissions payable to underwriters, selling brokers, managers or
other similar Persons engaged in the distribution of such Holder's Registrable
Securities pursuant to any registration pursuant to this Section 2.
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<PAGE> 14
2.5 Underwritten Offerings.
(a) Demand Underwritten Offerings. If requested by the sole or
lead managing Underwriter for any Underwritten Offering effected pursuant to a
Demand Registration, the Company shall enter into a customary underwriting
agreement with the Underwriters for such offering, such agreement to be
reasonably satisfactory in substance and form to each Holder of Registrable
Securities participating in such offering and to contain such representations
and warranties by the Company and such other terms as are generally prevailing
in agreements of that type, including, without limitation, indemnification and
contribution to the effect and to the extent provided in Section 5.
(b) Holders of Registrable Securities to be Parties to
Underwriting Agreement. The Holders of Registrable Securities to be distributed
by Underwriters in an Underwritten Offering contemplated by Section 2 shall be
parties to the underwriting agreement between the Company and such Underwriters
and may, at such Holders' option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such Underwriters shall also be made to and for the benefit
of such Holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such Underwriters under such underwriting
agreement be conditions precedent to the obligations of such Holders of
Registrable Securities; provided, however, that the Company shall not be
required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
Registration Statement. No Holder shall be required to make any representations
or warranties to, or agreements with, the Company or the Underwriters other than
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of disposition.
(c) Participation in Underwritten Registration.
Notwithstanding anything herein to the contrary, no Person may participate in
any underwritten registration hereunder unless such Person (i) agrees to sell
its securities on the same terms and conditions provided in any underwritten
arrangements approved by the Persons entitled hereunder to approve such
arrangement and (ii) accurately completes and executes in a timely manner all
questionnaires, powers of attorney, indemnities, custody agreements,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
2.6 Conversions; Exercises. Notwithstanding anything to the
contrary herein, in order for any Registrable Securities that are issuable upon
the exercise of conversion rights, options or warrants to be included in any
registration pursuant to Section 2 hereof, the exercise of such conversion
rights, options or warrants must be effected no later than immediately prior to
the closing of any sales under the Registration Statement pursuant to which such
Registrable Securities are to be sold.
2.7 Postponements. The Company shall be entitled to postpone a
Demand Registration and to require the Holders of Registrable Securities to
discontinue the disposition of their securities covered by a Shelf Registration
during any Blackout Period (as defined below) (i) if the Board of Directors of
the Company determines in good faith that effecting such a registration or
continuing such disposition at such time
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<PAGE> 15
would have a material adverse effect upon a proposed sale of all (or
substantially all) of the assets of the Company or a merger, reorganization,
recapitalization or similar current transaction materially affecting the capital
structure or equity ownership of the Company, or (ii) if the Company has
delivered a notice pursuant to Section 2.2 that it is undertaking an
underwritten offering in which the Holders will be entitled to exercise their
incidental registration rights; provided, however, that the Company may only
delay a Demand Registration pursuant to this Section 2.7 by delivery of a
Blackout Notice (as defined below) within 30 days of delivery of the request for
such Registration under Section 2.1, as applicable, and may delay a Demand
Registration and require the Holders of Registrable Securities to discontinue
the disposition of their securities covered by a Shelf Registration only for a
reasonable period of time not to exceed 90 days (or such earlier time as such
transaction is consummated or no longer proposed or the material information has
been made public) (the "Blackout Period"). There shall not be more than one
Blackout Period in any 12 month period. The Company shall promptly notify the
Holders in writing (a "Blackout Notice") of any decision to postpone a Demand
Registration or to discontinue sales of Registrable Securities covered by a
Shelf Registration pursuant to this Section 2.7 and shall include a general
statement of the reason for such postponement, an approximation of the
anticipated delay and an undertaking by the Company promptly to notify the
Holders as soon as a Demand Registration may be effected or sales of Registrable
Securities covered by a Shelf Registration may resume. In making any such
determination to initiate or terminate a Blackout Period, the Company shall not
be required to consult with or obtain the consent of any Holder, and any such
determination shall be the Company's sole responsibility. Each Holder shall
treat all notices received from the Company pursuant to this Section 2.7 in the
strictest confidence and shall not disseminate such information. If the Company
shall postpone the filing of a Demand Registration Statement, the Majority
Holders of Registrable Securities who were to participate therein shall have the
right to withdraw the request for registration. Any such withdrawal shall be
made by giving written notice to the Company within 30 days after receipt of the
Blackout Notice. Such withdrawn registration request shall not be treated as a
Demand Registration effected pursuant to Section 2.1 (and shall not be counted
towards the number of Demand Registrations effected), and the Company shall pay
all Registration Expenses in connection therewith.
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3. HOLDBACK ARRANGEMENTS.
3.1 Restrictions on Sale by Holders of Registrable Securities.
Each Holder of Registrable Securities agrees, by acquisition of such Registrable
Securities, if timely requested in writing by the sole or lead managing
Underwriter in an Underwritten Offering of any Registrable Securities, not to
make any short sale of, loan, grant any option for the purchase of or effect any
public sale or distribution, including a sale pursuant to Rule 144 (or any
successor provision having similar effect) under the Securities Act of any
Registrable Securities or any other security of the Company (or any security
convertible into or exchangeable or exercisable for any security of the Company)
(except as part of such underwritten registration), during the nine business
days (as such term is used in Rule 10b-6 under the Exchange Act) prior to, and
during the time period reasonably requested by the sole or lead managing
Underwriter not to exceed 90 days, beginning on the effective date of the
applicable Registration Statement.
3.2 Restrictions on Sale by the Company and Others. The Company
agrees that (i) if timely requested in writing by the sole or lead managing
Underwriter in an Underwritten Offering of any Registrable Securities, not to
make any short sale of, loan, grant any option for the purchase of or effect any
public sale or distribution of any of the Company's securities (or any security
convertible into or exchangeable or exercisable for any of the Company's
securities) during the nine business days (as such term is used in Rule 10b-6
under the Exchange Act) prior to, and during the time period reasonably
requested by the sole or lead managing Underwriter not to exceed 90 days (or
such longer period to the extent such sole or lead managing Underwriter shall so
reasonably request), beginning on the effective date of the applicable
Registration Statement (except as part of such underwritten registration or
pursuant to registrations on Forms S-4 or S-8 or any successor form to such
forms), and (ii) it will cause each holder of securities (or any security
convertible into or exchangeable or exercisable for any of its securities) of
the Company purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to so agree.
4. REGISTRATION PROCEDURES.
4.1 Obligations of the Company. Whenever the Company is required
to effect the registration of Registrable Securities under the Securities Act
pursuant to Section 2 of this Agreement, the Company shall, as expeditiously as
possible:
(a) prepare and file with the SEC (promptly, and in any event
within 45 days after receipt of a request to register Registrable Securities)
the requisite Registration Statement to effect such registration, which
Registration Statement shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith, and the Company shall use its best
efforts to cause such Registration Statement to become effective (provided, that
the Company may discontinue any registration of its securities that are not
Registrable Securities, and, under the circumstances specified in Section 2.2,
its securities that are Registrable Securities); provided, however, that before
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, or comparable statements under securities or blue sky laws of any
jurisdiction, the Company shall (i) provide Holders' Counsel and any other
Inspector with an adequate and
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<PAGE> 17
appropriate opportunity to participate in the preparation of such Registration
Statement and each Prospectus included therein (and each amendment or supplement
thereto or comparable statement) to be filed with the SEC, which documents shall
be subject to the review and comment of Holders' Counsel, and (ii) not file any
such Registration Statement or Prospectus (or amendment or supplement thereto or
comparable statement) with the SEC to which Holder's Counsel, any selling Holder
or any other Inspector shall have reasonably objected on the grounds that such
filing does not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in connection
therewith as may be necessary (i) to keep such Registration Statement effective,
and (ii) to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such Registration
Statement, in each case until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller(s) thereof set forth in such Registration Statement; provided, that
except with respect to any Shelf Registration, such period need not extend
beyond nine months after the effective date of the Registration Statement; and
provided further, that with respect to any Shelf Registration, such period need
not extend beyond the time period provided in Section 2.3, and which periods, in
any event, shall terminate when all Registrable Securities covered by such
Registration Statement have been sold (but not before the expiration of the 90
day period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable);
(c) furnish, without charge, to each selling Holder of such
Registrable Securities and each Underwriter, if any, of the securities covered
by such Registration Statement, such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits), and the Prospectus included in such Registration Statement (including
each preliminary Prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such selling Holder and Underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such selling Holder (the Company hereby
consenting to the use in accordance with applicable law of each such
Registration Statement (or amendment or post-effective amendment thereto) and
each such Prospectus (or preliminary prospectus or supplement thereto) by each
such selling Holder of Registrable Securities and the Underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Registration Statement or Prospectus);
(d) prior to any public offering of Registrable Securities,
use its best efforts to register or qualify all Registrable Securities and other
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as any selling Holder of Registrable
Securities covered by such Registration Statement or the sole or lead managing
Underwriter, if any, may reasonably request to enable such selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such selling Holder and to continue such registration or qualification
in effect in each such jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments or renewals), and
do any and all other acts and things which may be necessary or advisable to
enable any such
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<PAGE> 18
selling Holder to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such selling Holder; provided, however, that the
Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 4.1(d), (ii) subject itself to taxation in any such jurisdiction, or
(iii) consent to general service of process in any such jurisdiction;
(e) use its best efforts to obtain all other approvals,
consents, exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the selling Holders of such
Registrable Securities to consummate the disposition of such Registrable
Securities;
(f) promptly notify Holders' Counsel, each Holder of
Registrable Securities covered by such Registration Statement and the sole or
lead managing Underwriter, if any: (i) when the Registration Statement, any
pre-effective amendment, the Prospectus or any prospectus supplement related
thereto or post-effective amendment to the Registration Statement has been filed
and, with respect to the Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements to the
Registration Statement or the Prospectus related thereto or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or the happening of any
event which results in (A) the Registration Statement containing an untrue
statement of a material fact or omitting to state a material fact required to be
stated therein or necessary to make any statements therein not misleading, or
(B) the Prospectus included in such Registration Statement containing an untrue
statement of a material fact or omitting to state a material fact required to be
stated therein or necessary to make any statements therein, in the light of the
circumstances under which they were made, not misleading, (vi) if at any time
the representations and warranties contemplated by Section 2.5(b) cease to be
true and correct in all material respects, and (vii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate or that there exists circumstances not yet disclosed to the
public which make further sales under such Registration Statement inadvisable
pending such disclosure and post-effective amendment; and, if the notification
relates to an event described in any of the clauses (ii) through (vii) of this
Section 4.1(f), the Company shall promptly prepare a supplement or
post-effective amendment to such Registration Statement or related Prospectus or
any document incorporated therein by reference or file any other required
document so that (1) such Registration Statement shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(2) as thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein in the light of the circumstances
under which they were made not misleading (and shall furnish to each such Holder
and each Underwriter, if any, a reasonable number of copies
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<PAGE> 19
of such Prospectus so supplemented or amended); and if the notification relates
to an event described in clause (iii) of this Section 4.1(f), the Company shall
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
(g) make available for inspection by any selling Holder of
Registrable Securities, any sole or lead managing Underwriter participating in
any disposition pursuant to such Registration Statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
Underwriter (each, an "Inspector" and, collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company and any subsidiaries thereof as may be in existence at such time
(collectively, the "Records") as shall be necessary, in the opinion of such
Holders' and such Underwriters' respective counsel, to enable them to exercise
their due diligence responsibility and to conduct a reasonable investigation
within the meaning of the Securities Act, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspectors in connection with such Registration Statement;
(h) obtain an opinion from the Company's counsel and a "cold
comfort" letter from the Company's independent public accountants who have
certified the Company's financial statements included or incorporated by
reference in such Registration Statement, in each case dated the effective date
of such Registration Statement (and if such registration involves an
Underwritten Offering, dated the date of the closing under the underwriting
agreement), in customary form and covering such matters as are customarily
covered by such opinions and "cold comfort" letters delivered to underwriters in
underwritten public offerings, which opinion and letter shall be reasonably
satisfactory to the sole or lead managing Underwriter, if any, and to the
Majority Holders of the Registration, and furnish to each Holder participating
in the offering and to each Underwriter, if any, a copy of such opinion and
letter addressed to such Holder (in the case of the opinion) and Underwriter (in
the case of the opinion and the "cold comfort" letter);
(i) provide a CUSIP number for all Registrable Securities and
provide and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC and any other governmental agency or
authority having jurisdiction over the offering, and make available to its
security holders, as soon as reasonably practicable but no later than 90 days
after the end of any 12-month period, an earnings statement (i) commencing at
the end of any month in which Registrable Securities are sold to Underwriters in
an Underwritten Offering and (ii) commencing with the first day of the Company's
calendar month next succeeding each sale of Registrable Securities after the
effective date of a Registration Statement, which statement shall cover such
12-month periods, in a manner which satisfies the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
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<PAGE> 20
(k) if so requested by the Majority Holders of the
Registration, use its best efforts to cause all such Registrable Securities to
be listed (i) on each national securities exchange on which the Company's
securities are then listed or (ii) if securities of the Company are not at the
time listed on any national securities exchange (or if the listing of
Registrable Securities is not permitted under the rules of each national
securities exchange on which the Company's securities are then listed), on a
national securities exchange designated by the Majority Holders of the
Registration;
(l) keep each selling Holder of Registrable Securities advised
in writing as to the initiation and progress of any registration under Section 2
hereunder;
(m) enter into and perform customary agreements (including, if
applicable, an underwriting agreement in customary form) and provide officers'
certificates and other customary closing documents;
(n) cooperate with each selling Holder of Registrable
Securities and each Underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD and make reasonably available its
employees and personnel and otherwise provide reasonable assistance to the
Underwriters (taking into account the needs of the Company's businesses and the
requirements of the marketing process) in the marketing of Registrable
Securities in any Underwritten Offering;
(o) furnish to each Holder participating in the offering and
the sole or lead managing Underwriter, if any, without charge, at least one
manually-signed copy of the Registration Statement and any post-effective
amendments thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those deemed to be
incorporated by reference);
(p) cooperate with the selling Holders of Registrable
Securities and the sole or lead managing Underwriter, if any, to facilitate the
timely preparation and delivery of certificates not bearing any restrictive
legends representing the Registrable Securities to be sold, and cause such
Registrable Securities to be issued in such denominations and registered in such
names in accordance with the underwriting agreement prior to any sale of
Registrable Securities to the Underwriters or, if not an Underwritten Offering,
in accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities;
(q) if requested by the sole or lead managing Underwriter or
any selling Holder of Registrable Securities, immediately incorporate in a
prospectus supplement or post-effective amendment such information concerning
such Holder of Registrable Securities, the Underwriters or the intended method
of distribution as the sole or lead managing Underwriter or the selling Holder
of Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to the Underwriters, the purchase price being paid
therefor by such Underwriters and with respect to any other terms of the
Underwritten Offering of the Registrable Securities to be sold in such offering;
make all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the
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<PAGE> 21
matters to be incorporated in such Prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration Statement if
requested by the sole or lead managing Underwriter of such Registrable
Securities;
(r) use its best efforts to take all other steps necessary to
expedite or facilitate the registration and disposition of the Registrable
Securities contemplated hereby; and
(s) use its best efforts to cause the Registrable Securities
to be rated with the appropriate rating agencies, if so requested by the
Majority Holders of the Registration or the sole or lead managing Underwriter,
if any.
4.2 Seller Information. The Company may require each selling
Holder of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of disposition as the
Company may from time to time reasonably request in writing; provided that such
information shall be used only in connection with such registration.
If any Registration Statement or comparable statement under
"blue sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require (i)
the insertion therein of language, in form and substance satisfactory to such
Holder and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, and (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
4.3 Notice to Discontinue. Each Holder of Registrable Securities
agrees by acquisition of such Registrable Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4.1(f)(ii) through (vii), such Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 4.1(f) and, if
so directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the Prospectus covering such Registrable Securities which
is current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 4.1(b)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 4.1(f) to and including the date when the Holder shall have
received the copies of the supplemented or amended prospectus contemplated by
and meeting the requirements of Section 4.1(f).
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<PAGE> 22
5. INDEMNIFICATION; CONTRIBUTION.
5.1 Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each Holder
of Registrable Securities, its officers, directors, partners, members,
shareholders, employees, Affiliates and agents (collectively, "Agents") and each
Person who controls such Holder (within the meaning of the Securities Act) and
its Agents with respect to each registration which has been effected pursuant to
this Agreement, against any and all losses, claims, damages or liabilities,
joint or several, actions or proceedings (whether commenced or threatened) in
respect thereof, and expenses (as incurred or suffered and including, but not
limited to, any and all expenses incurred in investigating, preparing or
defending any litigation or proceeding, whether commenced or threatened, and the
reasonable fees, disbursements and other charges of legal counsel) in respect
thereof (collectively, "Claims"), insofar as such Claims arise out of or are
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to any such
registration or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration, or
any qualification or compliance incident thereto; provided, however, that the
Company will not be liable in any such case to the extent that any such Claims
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact so made in
reliance upon and in conformity with written information furnished to the
Company specifically for use therein. The Company shall also indemnify any
Underwriters of the Registrable Securities, their Agents and each Person who
controls any such Underwriter (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the Holders
of Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Person who may be
entitled to indemnification pursuant to this Section 5 and shall survive the
transfer of securities by such Holder or Underwriter.
5.2 Indemnification by Holders. Each Holder, if Registrable
Securities held by it are included in the securities as to which a registration
is being effected, agrees to, severally and not jointly, indemnify and hold
harmless, to the fullest extent permitted by law, the Company, its directors and
officers, each other Person who participates as an Underwriter in the offering
or sale of such securities and its Agents and each Person who controls the
Company or any such Underwriter (within the meaning of the Securities Act) and
its Agents against any and all Claims, insofar as such Claims arise out of or
are based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement or Prospectus (including any
preliminary, final or summary prospectus and any amendment or supplement
thereto) related to such registration, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company specifically for use therein; provided, however, that
the
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<PAGE> 23
aggregate amount which any such Holder shall be required to pay pursuant to this
Section 5.2 shall in no event be greater than the amount of the net proceeds
received by such Holder upon the sale of the Registrable Securities pursuant to
the Registration Statement giving rise to such Claims less all amounts
previously paid by such Holder with respect to any such Claims. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such indemnified party and shall survive the transfer of such
securities by such Holder or Underwriter.
5.3 Conduct of Indemnification Proceedings. Promptly after receipt
by an indemnified party of notice of any Claim or the commencement of any action
or proceeding involving a Claim under this Section 5, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party pursuant to Section 5, (i) notify the indemnifying party in writing of the
Claim or the commencement of such action or proceeding; provided, that the
failure of any indemnified party to provide such notice shall not relieve the
indemnifying party of its obligations under this Section 5, except to the extent
the indemnifying party is materially and actually prejudiced thereby and shall
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 5, and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any indemnified
party shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (A) the indemnifying party has agreed
in writing to pay such fees and expenses, (B) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such indemnified party within 10 days after receiving notice
from such indemnified party that the indemnified party believes it has failed to
do so, (C) in the reasonable judgment of any such indemnified party, based upon
advice of counsel, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claims (in which case, if
the indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying party and reasonably shall have concluded that there may be one or
more legal defenses available to such indemnified party which are not available
to the indemnifying party. No indemnifying party shall be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. In addition, without the
consent of the indemnified party (which consent shall not be unreasonably
withheld), no indemnifying party shall be permitted to consent to entry of any
judgment with respect to, or to effect the settlement or compromise of any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim), unless such settlement,
compromise or judgment (1) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim, (2) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party, and (3) does not provide for any
action on the part of any party other than the payment of money damages which is
to be paid in full by the indemnifying party.
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<PAGE> 24
5.4 Contribution. If the indemnification provided for in Section
5.1 or 5.2 from the indemnifying party for any reason is unavailable to (other
than by reason of exceptions provided therein), or is insufficient to hold
harmless, an indemnified party hereunder in respect of any Claim, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Claim in such proportion as is appropriate to reflect the relative fault
of the indemnifying party, on the one hand, and the indemnified party, on the
other hand, in connection with the actions which resulted in such Claim, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. If, however, the foregoing allocation is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative faults but also the relative benefits of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5.4 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by a party as a result of any Claim
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in Section 5.3, any legal or other fees,
costs or expenses reasonably incurred by such party in connection with any
investigation or proceeding. Notwithstanding anything in this Section 5.4 to the
contrary, no indemnifying party (other than the Company) shall be required
pursuant to this Section 5.4 to contribute any amount in excess of the net
proceeds received by such indemnifying party from the sale of the Registrable
Securities pursuant to the Registration Statement giving rise to such Claims,
less all amounts previously paid by such indemnifying party with respect to such
Claims. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
5.5 Other Indemnification. Indemnification similar to that
specified in the preceding Sections 5.1 and 5.2 (with appropriate modifications)
shall be given by the Company and each selling Holder of Registrable Securities
with respect to any required registration or other qualification of securities
under any Federal or state law or regulation of any governmental authority,
other than the Securities Act. The indemnity agreements contained herein shall
be in addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract.
5.6 Indemnification Payments. The indemnification and contribution
required by this Section 5 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills are
received or any expense, loss, damage or liability is incurred.
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6. GENERAL.
6.1 Adjustments Affecting Registrable Securities. The Company
agrees that it shall not effect or permit to occur any combination or
subdivision of shares which would adversely affect the ability of the Holder of
any Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
6.2 Registration Rights to Others. Other than pursuant to the
Subscription Agreements listed on Schedule 6.2 hereto, the Company has not
previously entered into an agreement with respect to its securities granting any
registration rights to any Person. If the Company shall at any time hereafter
provide to any holder of any securities of the Company rights with respect to
the registration of such securities under the Securities Act, (i) such rights
shall not be in conflict with or adversely affect any of the rights provided in
this Agreement to the Holders and (ii) if such rights are provided on terms or
conditions more favorable to such holder than the terms and conditions provided
in this Agreement, the Company shall provide (by way of amendment to this
Agreement or otherwise) such more favorable terms or conditions to the Holders.
6.3 Availability of Information; Rule 144; Rule 144A; Other
Exemptions. So long as the Company shall not have filed a registration statement
pursuant to Section 12 of the Exchange Act or a registration statement pursuant
to the requirements of the Securities Act, the Company shall, at any time and
from time to time, upon the request of any Holder of Registrable Securities and
upon the request of any Person designated by such Holder as a prospective
purchaser of any Registrable Securities, furnish in writing to such Holder or
such prospective purchaser, as the case may be, a statement as of a date not
earlier than 12 months prior to the date of such request of the nature of the
business of the Company and the products and services it offers and copies of
the Company's most recent balance sheet and profit and loss and retained
earnings statements, together with similar financial statements for such part of
the two preceding fiscal years as the Company shall have been in operation, all
such financial statements to be audited to the extent audited statements are
reasonable available, provided that, in any event the most recent financial
statements so furnished shall include a balance sheet as of a date less than 16
months prior to the date of such request, statements of profit and loss and
retained earnings for the 12 months preceding the date of such balance sheet,
and, if such balance sheet is not as of a date less than 6 months prior to the
date of such request, additional statements of profit and loss and retained
earnings for the period from the date of such balance sheet to a date less than
6 months prior to the date of such request. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company covenants that it shall timely file any reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 under the Securities
Act), and that it shall take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 and Rule 144A under the Securities Act, as such rules may be amended from
time to time, or (ii) any other rule or regulation now existing or hereafter
adopted by the SEC.
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Upon the request of any Holder of Registrable Securities, the Company shall
deliver to such Holder a written statement as to whether it has complied with
such requirements.
6.4 Amendments and Waivers. The provisions of this Agreement may
not be amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of the Company and the Holders of not less than 50% of the Registrable
Securities then outstanding; provided, however, that no such amendment,
modification, supplement, waiver or consent to departure shall reduce the
aforesaid percentage of Registrable Securities without the written consent of
all of the Holders of Registrable Securities; and provided further, that nothing
herein shall prohibit any amendment, modification, supplement, termination,
waiver or consent to departure the effect of which is limited only to those
Holders who have agreed to such amendment, modification, supplement,
termination, waiver or consent to departure.
6.5 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, telecopier, any
courier guaranteeing overnight delivery or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to the applicable
party at the address set forth below or such other address as may hereafter be
designated in writing by such party to the other parties in accordance with the
provisions of this Section:
(i) If to the Company, to:
First New England Dental Centers, Inc.
85 Devonshire Street
Boston, Massachusetts 02109
Attn: President
Telecopy: (617) 624-0919
Telephone: (617) 742-4750
With a copy to:
McDermott, Will & Emery
75 State Street
Boston, Massachusetts 02109
Attn: Michael L. Blau, Esq.
Telecopy: (617) 345-5077
Telephone: (617) 345-5000
(ii) If to the Initial Holders, to:
Wexford Management LLC
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attn: Ken Rubin
Telecopy: (203) 862-7490
Telephone: (203) 862-7400
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<PAGE> 27
With a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attn: Andre Weiss, Esq.
Telecopy: (212) 593-5955
Telephone: (212) 756-2000
(iii) If to any subsequent Holder, to the address of such
Person set forth in the records of the Company.
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; when
receipt is acknowledged, if telecopied; on the next business day, if timely
delivered to a courier guaranteeing overnight delivery; and five days after
being deposited in the mail, if sent first class or certified mail, return
receipt requested, postage prepaid.
6.6 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
successors and permitted assigns (including any permitted transferee of
Registrable Securities). Any Holder may assign to any permitted (as determined
under the Subscription Agreement) transferee of its Registrable Securities
(other than a transferee that acquires such Registrable Securities in a
registered public offering or pursuant to a sale under Rule 144 of the
Securities Act (or any successor rule)), its rights and obligations under this
Agreement; provided, however, if any permitted transferee shall take and hold
Registrable Securities, such transferee shall promptly notify the Company and by
taking and holding such Registrable Securities such permitted transferee shall
automatically be entitled to receive the benefits of and be conclusively deemed
to have agreed to be bound by and to perform all of the terms and provisions of
this Agreement as if it were a party hereto (and shall, for all purposes, be
deemed a Holder under this Agreement). If the Company shall so request, any
heir, successor or permitted assign (including any permitted transferee) shall
agree in writing to acquire and hold the Registrable Securities subject to all
of the terms hereof. For purposes of this Agreement, "successor" for any entity
other than a natural person shall mean a successor to such entity as a result of
such entity's merger, consolidation, liquidation, dissolution, sale of
substantially all of its assets, or similar transaction. Except as provided
above or otherwise permitted by this Agreement, neither this Agreement nor any
right, remedy, obligation or liability arising hereunder or by reason hereof
shall be assignable by any Holder or by the Company without the consent of the
other parties hereto.
6.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original, but all of which counterparts, taken together, shall constitute
one and the same instrument.
6.8 Descriptive Headings, Etc. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of
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<PAGE> 28
any gender shall be deemed to include each other gender; (2) words using the
singular or plural number shall also include the plural or singular number,
respectively; (3) the words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section and
paragraph references are to the Sections and paragraphs of this Agreement unless
otherwise specified; (4) the word "including" and words of similar import when
used in this Agreement shall mean "including, without limitation," unless
otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to
successive events and transactions.
6.9 Severability. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
6.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws principles thereof).
6.11 Remedies; Specific Performance. The parties hereto acknowledge
that money damages would not be an adequate remedy at law if any party fails to
perform in any material respect any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to seek to compel
specific performance of the obligations of any other party under this Agreement,
without the posting of any bond, in accordance with the terms and conditions of
this Agreement in any court of the United States or any State thereof having
jurisdiction, and if any action should be brought in equity to enforce any of
the provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law. Except as otherwise provided by
law, a delay or omission by a party hereto in exercising any right or remedy
accruing upon any such breach shall not impair the right or remedy or constitute
a waiver of or acquiescence in any such breach. No remedy shall be exclusive of
any other remedy. All available remedies shall be cumulative.
6.12 Entire Agreement. This Agreement is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises or undertakings, other than those set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings between the Company
and the other parties to this Agreement with respect to such subject matter.
6.13 Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder
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<PAGE> 29
of such Registrable Securities for purposes of any request or other action by
any holder or holders of Registrable Securities pursuant to this Agreement or
any determination of any number or percentage of shares of Registrable
Securities held by any holder or holders of Registrable Securities contemplated
by this Agreement. If the beneficial owner of any Registrable Securities so
elects, the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.
6.14 Consent to Jurisdiction; Waiver of Jury. Each party to this
Agreement hereby irrevocably and unconditionally agrees that any legal action,
suit or proceeding arising out of or relating to this Agreement or any
agreements or transactions contemplated hereby may be brought in any federal
court of the Southern District of New York or any state court located in New
York County, State of New York, and hereby irrevocably and unconditionally
expressly submits to the personal jurisdiction and venue of such courts for the
purposes thereof and hereby irrevocably and unconditionally waives any claim (by
way of motion, as a defense or otherwise) of improper venue, that it is not
subject personally to the jurisdiction of such court, that such courts are an
inconvenient forum or that this Agreement or the subject matter may not be
enforced in or by such court. Each party hereby irrevocably and unconditionally
consents to the service of process of any of the aforementioned courts in any
such action, suit or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to the address set forth or provided for in
Section 6.5 of this Agreement, such service to become effective 10 days after
such mailing. Nothing herein contained shall be deemed to affect the right of
any party to serve process in any manner permitted by law or commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or proceeding
brought pursuant to this Section. EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY,
BROUGHT BY ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
6.15 Further Assurances. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
6.16 No Inconsistent Agreements. The Company will not hereafter
enter into any agreement which is inconsistent with the rights granted to the
Holders in this Agreement.
6.17 Construction. The Company and the Initial Holders acknowledge
that each of them has had the benefit of legal counsel of its own choice and has
been afforded an opportunity to review this Agreement with its legal counsel and
that this Agreement shall be construed as if jointly drafted by the Company and
the Holders.
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
FIRST NEW ENGLAND INITIAL HOLDERS
DENTAL CENTERS, INC.
___________________________ BY: IMPRIMIS INVESTORS LLC
Name:
Title: _________________________
Name:
Title:
BY: WEXFORD SPECTRUM
INVESTORS LLC
___________________________
Name:
Title:
BY: ___________________________
JOHN V. DOYLE
BY: ___________________________
MICHAEL S. LISS
BY: ___________________________
HOWARD B. FIFE
BY: ___________________________
ANDREW J. HERENSTEIN
BY: ___________________________
L. JAMES LEWIS
BY: ___________________________
MICHAEL MURPHY
BY: ___________________________
DAVID L. TASHJIAN
BY: ___________________________
MICHAEL A. WEINSTOCK
BY: ___________________________
ROBERT P. KISSEL
BY: ___________________________
DAVID G. MCMILLAN, JR.
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<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED BY-LAWS OF
OSORIO AND WATKIN, D.M.D., P.C.
Adopted December 11, 1996
<PAGE> 2
AMENDED AND RESTATED BY-LAWS
OF
OSORIO AND WATKIN, D.M.D., P.C.
ARTICLE I
OFFICES
SECTION 1.1. PRINCIPAL OFFICE. The initial principal office of the
Corporation shall be as indicated in the Articles of Organization of the
Corporation. The Corporation may have such other offices, either within or
without the Commonwealth of Massachusetts, as it may require from time to time.
SECTION 1.2. CHANGE IN PRINCIPAL OFFICE. The Board of Directors of the
Corporation may at any time and from time to time, change the principal office
of the Corporation in the Commonwealth, provided that no such change shall be
effective until a certificate of such change, specifying the post-office address
of its new principal office in the Commonwealth, signed under the penalties of
perjury by the Clerk or an Assistant Clerk of the Corporation, has been filed
with the Massachusetts Secretary of State.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors shall be held at the offices of the Corporation or
elsewhere in the United States as the Board of Directors may designate. Meetings
of stockholders for any other purpose may be held at such place in the United
States as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2.2. ANNUAL MEETINGS. An annual meeting of the stockholders,
commencing with the year 1995, shall be held on the second Tuesday in May in
each year, but if a legal holiday, then on the next business day following, at
10:00 a.m., at which the stockholders shall elect directors and transact such
business as may properly be brought before such meeting. In the event that an
annual meeting has not been held on the date fixed in these By-Laws, a special
meeting in lieu of the annual meeting may be held with all the force and effect
of an annual meeting.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President or by the directors, and shall be called by the Clerk,
or in case of the death, absence, incapacity or refusal of the Clerk, by any
other officer, upon written application of one (1) or more stockholders who hold
<PAGE> 3
at least one-tenth part in interest of the capital stock entitled to vote
thereat. In case none of the officers is able and willing to call a special
meeting, the Supreme Judicial or Superior Court, upon application of at least
one-tenth part in interest of the capital stock entitled to vote thereat, shall
have jurisdiction in equity to authorize one (1) or more of such stockholders to
call a meeting by giving such notice as is required by law.
SECTION 2.4. NOTICE OF MEETINGS. A written notice of the place, date and
hour of all meetings of stockholders stating the purposes of the meeting shall
be given by the Clerk or an Assistant Clerk (or other person authorized by these
By-Laws or empowered pursuant to Section 2.3) at least seven days before the
meeting to each stockholder entitled to vote thereat and to each stockholder
who, under the Articles of Organization or under the By-Laws, is entitled to
such notice, by leaving such notice with him or at his residence or usual place
of business, or by mailing it, postage prepaid, and addressed to such
stockholder at his address as it appears in the records of the Corporation.
SECTION 2.5. WAIVER OF NOTICE. Whenever notice of a meeting is required to
be given a stockholder under any provision of law or of the Articles of
Organization or these By-Laws, a written waiver thereof, executed before or
after the meeting by such stockholder or his attorney thereunto authorized and
filed with the records of meeting, shall be deemed equivalent to such notice.
SECTION 2.6. CLOSING OF TRANSFER BOOKS AND FIXING OF RECORD DATE. The
directors may fix in advance a time, which, unless a shorter period is provided
in the Articles of Organization, shall be not more than sixty days before the
date of any meeting of stockholders or the date for the payment of any dividend
or the making of any distribution to stockholders or the last day on which the
consent or dissent of stockholders may be effectively expressed for any purpose,
as the record date for determining the stockholders having the right to notice
of and to vote at such meeting and any adjournment thereof or the right to
receive such dividend or distribution or the right to give such consent or
dissent, and in such case only stockholders of record on such record date shall
have such right, notwithstanding any transfer of stock on the books of the
Corporation after the record date; or without fixing such record date the
directors may for any of such purposes close the transfer books for all or any
part of such period. If no record date is fixed and the transfer books are not
closed, the record date for determining stockholders having the right to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors acts with respect thereto. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in
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<PAGE> 4
this Section, such determination shall apply to any adjournment of the meeting.
SECTION 2.7. QUORUM. A majority of the shares of the Corporation issued,
outstanding and entitled to vote at a meeting represented in person or by proxy
shall constitute a quorum at any meeting of stockholders, provided that, if less
than a majority of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time to time
without further notice.
SECTION 2.8. MANNER OF ACTING. If a quorum is present, the affirmative vote
of the majority of the shares represented at the meeting shall be the act of the
stockholders, unless the vote of a greater number or voting by classes is
required by law, the Articles of Organization or these By-Laws.
SECTION 2.9. PROXIES. Stockholders may vote in person or by proxy provided,
however, that a proxy may only be given to a Qualified Person (as defined in
Section 6.5 hereof). No proxy dated more than six months before the meeting
named therein shall be valid and no proxy shall be valid after the final
adjournment of such meeting. Notwithstanding the provisions of the prior
sentence, a proxy coupled with an interest sufficient in law to support an
irrevocable power, including, without limitation, an interest in the shares
relating to the proxy or in the Corporation generally, may be made irrevocable
if it so provides, need not specify the meeting to which it relates, and shall
be valid and enforceable until the interest terminates, or for such shorter
period as may be specified in the proxy. A proxy with respect to stock held in
the name of two or more persons shall be valid if executed by any one of them
unless at or prior to exercise of the proxy the Corporation receives a specific
written notice to the contrary from any one of them. Proxies shall be filed with
the Clerk of the Corporation before or at the time of the meeting. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed valid
unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger.
SECTION 2.10. VOTING OF SHARES. Stockholders entitled to vote shall have
one vote for each share of stock owned by them and a proportionate vote for a
fractional share, unless otherwise provided by the Articles of Organization.
SECTION 2.11. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at any meeting of the stockholders may be taken without a
meeting if all stockholders entitled to vote on the matter consent to the action
in writing and the written consents are filed with the records of the meeting of
stockholders. Such consent shall be treated for all purposes as a vote at a
meeting.
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<PAGE> 5
SECTION 2.12. VOTING AGREEMENTS. An agreement between two or more
stockholders or between one or more stockholders and one or more other persons,
if in writing and signed by the parties thereto, whether or not such parties
include all of the stockholders of the Corporation, may provide that the shares
held by such stockholders shall be voted under procedures set forth in said
agreement.
ARTICLE III
DIRECTORS
SECTION 3.1. GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by a Board of Directors. In the management and
control of the property, business and affairs of the Corporation, the Board of
Directors may exercise all of the powers of the Corporation except such as are
conferred by law or these By-Laws or the Articles of Organization upon the
stockholders.
SECTION 3.2. NUMBER, ELECTION AND TERM OF OFFICE. The Board of Directors
shall consist of the stockholder(s) of the Corporation and one person nominated
by First New England Dental Centers, Inc. (the "First Dental Director") and
elected by the stockholder(s). The directors shall be elected at the annual
meeting of the stockholders by such stockholders as have the right to vote
thereon, and each such stockholder voting at said meeting shall vote for each
other stockholder, and for the persons nominated by First New England Dental
Centers, Inc., to be directors. Each director shall hold office until the next
annual election of directors and until his successor is chosen and qualified or
until the director sooner dies, resigns, is removed or becomes disqualified to
serve as a director. Any election of directors by stockholders shall be by
ballot if so requested by any stockholder entitled to vote thereon.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this By-Law, immediately after, and at
the same place as, the annual meeting of stockholders. The Board of Directors
may provide, by resolution, the time and place, either within or without the
Commonwealth of Massachusetts, for the holding of additional regular meetings in
which case no other notice need be given.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the First Dental Director. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the Commonwealth of Massachusetts, as the
place for holding any special meeting of the Board of Directors.
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<PAGE> 6
SECTION 3.5. NOTICE; WAIVER OF NOTICE. Written notice of any special
meeting of directors shall be given at least two (2) days before the meeting as
follows:
(i) by leaving such notice with him/her at his/her residence or usual place
of business; (ii) by mailing such notice, postage prepaid, and addressed to
such person at his address as it appears in the records of the Corporation;
(iii) by facsimile transmission of such notice to such person's usual place
of business; or (iv) by hand delivery or telegram to such person at his/her
usual place of business or, in the event such notice is given on a
Saturday, Sunday or holiday, to such person at his residence. If notice is
given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to the telegraph company. If mailed, such notice
shall be deemed to be delivered two (2) business days following the date
deposited in the United States mail properly addressed, with postage
thereon prepaid.
Notice of a meeting need not be given to any director, if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
SECTION 3.6. QUORUM. The number of directors required to constitute a
quorum shall be a majority of the directors then in office, provided that the
First Dental Director is present at the meeting in person or by proxy. If a
quorum is present, a majority of the directors present may take any action on
behalf of the board, except to the extent that a larger number is required by
law or the Articles of Organization or these By-Laws, and provided that the
First Dental Director votes in favor of the action. If less than a quorum of
such directors are present at said meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice.
SECTION 3.7. MEETINGS BY TELECOMMUNICATIONS. Unless the Articles of
Organization otherwise provide, members of the Board of Directors or any
committee designated thereby may participate in a meeting of such board or
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other
at the same time and participation by such means shall constitute presence in
person at a meeting.
SECTION 3.8. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless
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<PAGE> 7
his dissent is entered in the minutes of the meeting or unless he files his
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment of the meeting or forwards such dissent by
registered mail to the Clerk of the Corporation immediately after the
adjournment of the meeting. Such right to dissent does not apply to a director
who voted in favor of such action.
SECTION 3.9. COMMITTEES OF DIRECTORS. The Corporation may provide for an
executive committee or other committees to be elected from and by the Board of
Directors, and the directors may, to the extent permitted by law, delegate to
any such committee or committees some or all of their powers. The foregoing
notwithstanding, the Board of Directors may not delegate its power or authority
with respect to any of the following actions:
(a) change the principal office of the Corporation;
(b) amend By-Laws;
(c) elect officers and to fill vacancies in any such offices;
(d) change the number of the Board of Directors and to fill vacancies
in the Board of Directors;
(e) remove officers or directors from office;
(f) authorize the payment of any dividend or distribution to
shareholders;
(g) authorize the reacquisition for value of stock of the
Corporation; or
(h) authorize a merger.
Except as otherwise provided in the Articles of Organization, the directors
may determine the manner of conducting committee business, whether at a meeting
or otherwise, and the number of members required to take specified types of
action. The designation of any such committee and the delegation of any
authority thereto shall not operate to relieve the directors from any
responsibility imposed upon them by law.
SECTION 3.10. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee,
if any, may be taken without a meeting, if all the directors entitled to vote
consent to the action in writing and the written consents are filed with the
records of the meetings. Such consents shall be treated for all purposes as a
vote at a meeting.
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<PAGE> 8
SECTION 3.11. REMOVAL OF DIRECTORS. Any director, other than the First
Dental Director, may be removed from his/her office with cause if a majority of
the directors agree to call a special meeting of the Board of Directors to
consider removal and sixty seven percent (67%) of the directors then in office,
other than the affected director, vote in favor of removal at such meeting;
provided, however, that the director to be removed shall be given reasonable
notice of the reasons for the proposed removal and an opportunity to be heard by
the Board of Directors before a removal vote is taken. The director to be
removed shall have no right to participate in the deliberations of the Board of
Directors with respect to the removal vote. Voting by the Board of Directors
with respect to removal of a director shall be by closed ballot. The First
Dental Director may be removed, at any time, with or without cause, by written
notice from the President of First New England Dental Centers, Inc.
SECTION 3.12. RESIGNATION. Any director of the Corporation may resign from
office by delivering or causing to be delivered to any officer of the
Corporation, or to the Board of Directors, a written resignation, which shall
only take effect upon acceptance by the Board of Directors.
SECTION 3.13. VACANCIES. Any vacancy occurring in the Board of Directors
and any directorship to be filled by reason of an increase in the number of
directors may be filled by election at a meeting of the stockholders by such
stockholders as have the right to vote thereon; provided, however, that in the
event of a vacancy created by the death, disqualification, resignation or
removal of the First Dental Director, such stockholders shall vote for the
person nominated to replace the First Dental Director as nominated by First New
England Dental Centers, Inc. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
ARTICLE IV
OFFICERS
SECTION 4.1. NUMBER. The principal officers of the Corporation shall be a
President, a Treasurer and a Clerk, each of whom shall be elected by the Board
of Directors. The Board of Directors may appoint such other officers as they
deem necessary who shall have such authority and shall perform such duties as
from time to time may be prescribed by the Board of Directors. Any person may
simultaneously hold more than one office of the Corporation.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the first regular meeting
of the Board of Directors held after each annual meeting of stockholders. If the
election
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<PAGE> 9
of officers is not held at that meeting, the election shall be held as soon
thereafter as practicable. Each officer shall hold office until the first
regular meeting of the Board of Directors following the next annual meeting of
the stockholders or any meeting held in lieu thereof, and until his successor
shall have been duly elected and shall have qualified, or until he sooner dies,
resigns, is removed or becomes disqualified to hold such office. The President
and any Vice President of the Corporation shall be a shareholder and director of
the Corporation. Other officers of the Corporation need not be shareholders or
directors of the Corporation.
SECTION 4.3. REMOVAL. Any officer of the Corporation may be removed if at
least sixty seven percent (67%) of the directors vote at a special or regular
meeting in favor of removal; provided, however, that the officer to be removed
shall be given reasonable notice of the reasons for the proposed removal and an
opportunity to be heard by the Board of Directors before a vote on removal is
taken. The officer to be removed shall have no right to participate in the
deliberations of the Board of Directors with respect to the removal vote. Voting
by the Board of Directors with respect to removal of an officer shall be by
closed ballot.
SECTION 4.4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term. Vacancies or new offices may
be filled at any meeting of the Board of Directors.
SECTION 4.5. BONDS. If the Board of Directors by resolution shall so
require, any officer or agent of the Corporation shall give bond to the
Corporation in such amount and with such surety as the Board of Directors may
deem sufficient, conditioned upon the faithful performance of their respective
duties and offices.
SECTION 4.6. PRESIDENT. Unless another officer is so designated by the
Board of Directors, the President shall be the chief executive officer of the
Corporation and shall in general supervise and control all of the daily business
and affairs of the Corporation. He may sign, with the Treasurer, or another
director of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation, any deeds, mortgages, bonds, notes,
checks, drafts, contracts or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
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<PAGE> 10
SECTION 4.7. VICE PRESIDENTS. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or, in the event
there is more than one Vice President, Vice Presidents in the order designated,
or in the absence of any designation, then in the order of their election), if
any, shall perform the duties of the President. Any Vice President may sign,
with the Clerk or an Assistant Clerk, certificates for shares of the
Corporation, and shall perform those other duties which from time to time may be
assigned to him by the Board of Directors or by the President.
SECTION 4.8. TREASURER. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article V of these By-Laws; (b) sign checks or drafts on
the accounts of the Corporation up to amounts authorized from time to time by
the Board of Directors; (c) sign checks or drafts on the accounts of the
Corporation in amounts authorized from time to time by the Board of Directors;
(d) sign, with the President or a Vice President, certificates for shares of the
Corporation, the issue of which shall have been authorized by resolution of the
Board of Directors; (e) prepare or cause to be prepared monthly unaudited
financial statements; and (f) in general, perform all duties incident to the
office of Treasurer and all other duties as from time to time may be assigned to
him by the Board of Directors or the President.
SECTION 4.9. CLERK. The Clerk shall: (a) keep the minutes of the
stockholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these By-Laws or as required by law; (c) be custodian of
the corporate records and, if the Corporation has a corporate seal, of the seal
of the Corporation and see that the seal of the Corporation is affixed to all
certificates for shares prior to the issue thereof and to all documents, the
execution of which on behalf of the Corporation under its seal is duly
authorized in accordance with the provisions of these By-Laws; (d) keep a
register of the post office address of each stockholder which shall be furnished
to the Clerk by such stockholder; (e) have general charge of the share transfer
books of the Corporation; (f) in general, perform all duties incident to the
office of Clerk and all other duties as from time to time may be assigned to him
by the Board of Directors or the President; and (g) be a resident of the
Commonwealth of Massachusetts unless the Corporation has appointed a resident
agent to receive service of process.
SECTION 4.10. ASSISTANT TREASURERS AND ASSISTANT CLERKS. The Assistant
Treasurers as thereunto authorized by the Board of
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<PAGE> 11
Directors may sign with the President or a Vice President certificates for
shares of the Corporation, the issue of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Treasurers and Assistant
Clerks, in general, shall perform such duties as shall be assigned to them by
the Treasurer or the Clerk, respectively, or by the Board of Directors or the
President.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
SECTION 5.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances. No loans shall be made by the
Corporation secured by its shares.
SECTION 5.3. CHECKS, DRAFTS, ETC. All checks, drafts or other order for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation and in the manner which shall from time to time be determined by
resolution of the Board of Directors.
SECTION 5.4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in banks,
trust companies or other depositories which the Board of Directors may select.
ARTICLE VI
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
SECTION 6.1. ISSUANCE AND REGULATION. The Board of Directors may make such
rules and regulations as it may deem expedient concerning the transfer and
registration of certificates for shares of the Corporation, including the
appointment of transfer agents and registrars. The Board of Directors shall,
upon the affirmative vote of sixty-seven percent (67%) of all directors, have
the authority, without first offering the same or any part of the same to any
present or future stockholders for subscription, to issue the whole or any part
of any unissued capital stock from time to time authorized under the Articles of
Organization of this Corporation to any Qualified Person (as
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<PAGE> 12
defined in Section 6.5), in such manner and amounts and for such consideration
and upon such terms and conditions as the directors may determine from time to
time in their discretion. No stock shall be issued unless the cash, so far as
due, or the property, services or expenses for which it was authorized to be
issued, has been actually received or incurred by, or conveyed or rendered to,
the Corporation, or is in its possession as surplus. No stockholders shall have
any preemptive rights to acquire capital stock of the Corporation.
SECTION 6.2. CERTIFICATES FOR SHARES. Each stockholder shall be entitled to
a certificate stating the number and the class and the designation of the
series, if any, of the shares held by him. Such certificate shall be signed by
the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimiles if the certificate is signed by a
transfer agent, or by a registrar, other than a director, officer or employee of
the Corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the time of its issue. Every certificate
issued for shares of stock at a time when such shares are subject to any
restriction on transfer pursuant to the Articles of Organization, these By-Laws
or any agreement to which the Corporation is a party shall have the restriction
noted conspicuously on the certificate and shall also set forth on the face or
back of the certificate either the full text of the restriction, or a statement
of the existence of such restriction and a statement that the Corporation will
furnish a copy thereof to the holder of such certificate upon written request
and without charge. Every stock certificate issued at a time when the
Corporation is authorized to issue more than one class or series of stock shall
set forth upon the face or back of the certificate either the full text of the
preferences, voting powers, qualifications and special and relative rights and
privileges of the shares of each class and series, if any, authorized to be
issued, as set forth in the Articles of Organization, or a statement of the
existence of such preferences, powers, qualifications and rights and privileges,
and a statement that the Corporation will furnish a copy thereof to the holder
of such certificate upon written request and without charge.
Each certificate representing shares shall also state the name of the
Corporation, the date of issue, that the Corporation is organized under the laws
of the Commonwealth of Massachusetts, the name of the person to whom it is
issued, and the par value of each share represented by the certificate or a
statement that the shares are without par value. Each certificate shall be
otherwise in such form as may be prescribed by the Board of Directors and shall
conform to the rules of any Stock Exchange on which the shares may be listed.
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<PAGE> 13
SECTION 6.3. CANCELLATION OF CERTIFICATES. All certificates surrendered to
the Corporation for transfer shall be cancelled and no new certificates shall be
issued in lieu thereof until the former certificate for a like number of shares
shall have been surrendered and cancelled, except as herein provided with
respect to lost, stolen or destroyed certificates, and except that the President
or a Vice President and the Treasurer or an Assistant Treasurer, by executing
and placing in the stock and transfer records of the Corporation a certificate
to such effect, may cancel any certificate notwithstanding that such certificate
has not been surrendered to the Corporation or any of its agents, if such shares
have been redeemed or deemed to have been redeemed by the Corporation pursuant
to the Articles of Organization, these By-Laws or an agreement with the
Corporation.
SECTION 6.4. LOST, STOLEN OR DESTROYED CERTIFICATES. Subject to Section
8-405 of the Massachusetts Uniform Commercial Code, as amended form time to
time, the Board of Directors shall determine the conditions upon which a new
certificate of stock may be issued in place of any certificate alleged to have
been lost, mutilated or destroyed. They may, in their discretion, require the
owner of a lost, mutilated or destroyed certificate, or his legal
representative, to give a bond, sufficient in their opinion, with or without
surety, to indemnify the Corporation against any loss or claim or expense which
may arise by reason of the issue of a certificate in place of such lost,
mutilated or destroyed stock certificate.
SECTION 6.5. QUALIFICATIONS OF STOCKHOLDERS. The Corporation shall issue
shares of its capital stock only to "Qualified Persons". Qualified Persons shall
mean (1) natural persons who are duly licensed and registered, and in good
standing, under the laws of the Commonwealth of Massachusetts, or under the laws
of any other state or territory of the United States or the District of
Columbia, to render any service permitted by the Articles of Organization of the
Corporation, (2) general partnerships in which all persons are natural persons
described in subparagraph (1) of this Section, or (3) professional corporations
authorized by law to render any professional service permitted by the Articles
of Organization of the Corporation.
SECTION 6.6. TRANSFER RESTRICTIONS. No disposition, sale, assignment,
pledge, hypothecation or other transfer of all or any part of the shares of the
capital stock of the Corporation, whether voluntarily, involuntarily, by
operation of law or otherwise, shall be made by any stockholder, or by any heir,
executor, legal representative, devisee, testamentary beneficiary, trustee in
bankruptcy, successor or assign of any stockholder, other than in accordance
with any Stockholders Agreement then in effect among the Stockholders of the
Corporation.
SECTION 6.7. MISCELLANEOUS. No person who transfers, holds, or purports to
exercise any rights or privileges with respect to
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any shares of capital stock of the Corporation in violation of the rights,
restrictions and provisions set forth under this Article VI, shall have the
right to vote, to receive dividends or to enjoy or exercise any other rights or
privileges as a holder of any shares of capital stock with respect to which any
such violation or default shall exist.
SECTION 6.8. LEGEND. 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, these By-laws of the Corporation and a certain
Stock Transfer Restriction Agreement among the Stockholders."
SECTION 6.9. TRANSFER OF SHARES. Subject to the terms of this Article VI,
shares of the Corporation shall be transferable on the books of the Corporation
by the holder thereof, in person or by his duly authorized attorney, upon the
surrender and cancellation of a certificate or certificates for a like number of
shares. Upon presentation and surrender of a certificate for shares properly
endorsed and payment of all required taxes, if any, the transferee shall be
entitled to a new certificate or certificates in lieu thereof. As against the
Corporation, a transfer of shares can be made only on the books of the
Corporation and in the manner hereinabove provided, and the Corporation shall be
entitled to treat the holder of record of any share as the owner thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by the statutes of the
Commonwealth of Massachusetts.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of
December in each calendar year.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Articles of Organization.
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<PAGE> 15
ARTICLE IX
SEAL
The Board of Directors may provide a corporate seal which shall be in
the form of a circle and shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal, Massachusetts," or shall be in such
other form as the Board of Directors may from time to time determine.
ARTICLE X
INDEMNIFICATION
The Corporation shall, to the maximum extent legally permissible,
indemnify all directors, officers, employees and other agents of the
Corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its request
in any capacity with respect to any employee benefit plan, against all liability
and expenses, including counsel fees, reasonably incurred by or imposed upon
such person in connection with any proceeding in which he may become involved by
reason of his serving or having served in such capacity (other than a proceeding
voluntarily initiated by such person unless he is successful on the merits, the
proceeding was authorized by a majority of the Board of Directors or the
proceeding seeks a declaratory judgment regarding his own conduct). Such
indemnification shall include payment by the Corporation of expenses incurred in
defending a civil or criminal action or proceeding in advance of the final
disposition of such action or proceeding, upon receipt of an undertaking by the
person indemnified to repay such payment if he shall be adjudicated to be not
entitled to indemnification under this Article. Any such indemnification shall
be provided although the person to be indemnified is no longer an officer,
director, employee or agent of the Corporation or of such other organization or
no longer serves with respect to any such employee benefit plan.
No indemnification shall be provided for any person with respect to
any matter as to which he shall have been adjudicated in any proceeding not to
have acted in good faith in the reasonable belief that his action was in the
best interests of the Corporation or to the extent that such matter relates to
service with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan. The Board of
Directors shall have power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or other agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or other agent of another organization or with
respect to any employee benefit plan, against any liability incurred by him
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<PAGE> 16
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability.
ARTICLE XI
CONFLICT OF INTEREST
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other organization
of which one or more of its directors or officers are directors, trustees or
officers, or in which any of them has any financial or other interest, shall be
void or voidable, or in any way affected, solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies the contract or transaction, or solely because his or their votes are
counted for such purposes, if:
(i) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the
Board of Directors or the committee which authorizes, approves
or ratifies the contract or transaction, and the board or
committee in good faith authorizes, approves or ratifies the
contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested
directors be less than a quorum; or
(ii) The material facts as to his 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 authorized, approved or ratified in
good faith by vote of the stockholders; or
(iii) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof which
authorizes, approves or ratifies the contract or transaction. No director or
officer of the corporation shall be liable or accountable to the corporation or
to any of its stockholders or creditors or to any other person, either for any
loss to the corporation or to any other person or for any gains or profits
realized by such director or officer, by reason of any contract or transaction
as to which clauses (i), (ii) or (iii) above are applicable.
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<PAGE> 17
ARTICLE XII
CORPORATE RECORDS
The original, or attested copies, of the Articles of Organization,
By-Laws, and records of all meetings of the incorporators and stockholders, and
the stock and transfer records, which shall contain the names of all
stockholders and the record address and the amount of stock held by each, shall
be kept in the Commonwealth for inspection by the stockholders at the
Corporation's principal office or an office of the Clerk, or of the transfer
agent or the Resident Agent, if any. Said copies and records need not all be
kept in the same office.
ARTICLE XIII
AMENDMENTS
To the extent permitted by law, these By-Laws may be altered, amended
or repealed and new By-Laws may be adopted by the unanimous vote of all of the
directors; except with respect to any provision thereof which by law or the
Articles of Organization require action by the stockholders.
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<PAGE> 18
CERTIFICATE
The undersigned Clerk of Osorio and Watkin, D.M.D., P.C. (the "Company"),
hereby certifies that attached hereto is a true and accurate copy of the By-Laws
of the Company duly adopted by the Board of Directors of the Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as an
instrument under seal as of the 11th day of December, 1996.
---------------------------------
Julian Osorio, D.M.D., Clerk
<PAGE> 1
EXHIBIT 10.18
STOCK PURCHASE AGREEMENT
BY AND AMONG
FIRST NEW ENGLAND DENTAL CENTERS, INC.,
AND
SAUL HERMAN, D.D.S.
AND
ROBERT ARMENTO, D.D.S.,
THE OWNERS OF THE ISSUED AND OUTSTANDING
CAPITAL 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. AND
DOCTOR'S DENTURE SERVICE, P.A.,
Dated as of August __, 1997
<PAGE> 2
SCHEDULES AND EXHIBITS
Schedules
<TABLE>
<S> <C>
Schedule 1.1 Allocation of Purchase Price
Schedule 2.1(d) FNEDC Required Consents
Schedule 2.1(f) FNEDC Litigation
Schedule 2.2(d) Capitalization
Schedule 2.2(e) Debts, Liabilities or Obligations
Schedule 2.2(f) Unfunded Liabilities
Schedule 2.2(g) Title Exceptions and Leases
Schedule 2.2(h) Compensation
Schedule 2.2(i) Tax Deficiencies and/or Claims
Schedule 2.2(j) Permits
Schedule 2.2(k) Insurance
Schedule 2.2(l) Employees and Compensation
Schedule 2.2(m) Employee Benefits
Schedule 2.2(n) Material Contracts
Schedule 2.2(o) Books and Records
Schedule 2.2(p) Banking Relationships
Schedule 2.2(q) Companies' Required Consents
Schedule 2.2(r) Bad Debt Reserve
Schedule 2.2(s) Company Litigation
Schedule 2.3(f) Litigation (Shareholders)
Schedule 2.3(h) Outside Practices (Shareholders)
Schedule 3.4 Automobile Leases
Schedule 3.5 Equipment Leases
Schedule 3.6 Armento Agreement
Schedule 3.7 Consulting Arrangement with Saul Herman
</TABLE>
Exhibits
<TABLE>
<S> <C>
Exhibit A Escrow Agreement
Exhibit B Amended Certificates of Incorporation
Exhibit C Mark Herman Employment Agreement
Exhibit D Assignment and Assumption Agreement
Exhibit E Herman Leases
Exhibit F Legal Opinion of Cole, Schotz, Meisel, Forman
and Leonard, P.C.
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I
PURCHASE AND SALE.................................................................... 2
1.1. Purchase Price......................................................... 2
1.2. Purchase Price Adjustment Option....................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES....................................................... 7
2.1. Representations and Warranties of FNEDC................................ 7
(a) Organization, Power and Standing.............................. 7
(b) Power and Authority Relative
to Transaction................................................ 7
(c) Valid and Binding Obligation.................................. 7
(d) Required Consents............................................. 8
(e) No Brokers.................................................... 8
(f) Litigation.................................................... 8
(g) Solvency...................................................... 8
(h) Compliance with Laws.......................................... 8
(i) Disclosure.................................................... 8
2.2. Representations and Warranties Concerning
the Companies.......................................................... 9
(a) Organization, Power and Standing.............................. 9
(b) Qualification to do Business.................................. 9
(c) Subsidiaries and Interest in
Other Entities................................................ 9
(d) Capitalization................................................ 9
(e) Certain Outstanding Liabilities............................... 10
(g) Title to Properties, Etc...................................... 10
(h) Conduct of Business; Absence of
Material Adverse Changes...................................... 11
(i) Tax Returns and Payments...................................... 14
(j) Compliance with Laws.......................................... 14
(k) Insurance..................................................... 15
(l) Employees and Compensation.................................... 16
(m) Employee Benefits............................................. 16
(n) Material Contracts............................................ 18
(o) Books and Records............................................. 20
(p) Banking Relationships......................................... 20
(q) Required Consents, Etc........................................ 20
(r) Accounts Receivable........................................... 20
(s) Litigation.................................................... 21
(t) No Medicare Payment Program Providers......................... 21
(u) No Brokers.................................................... 21
(v) Disclosure.................................................... 21
(w) No Offer...................................................... 21
2.3. Representations and Warranties
Concerning the Shareholders............................................ 22
(a) Title......................................................... 22
(b) Due Issuance.................................................. 22
(c) Power and Authority Relative to Transaction................... 22
(d) Valid and Binding Obligation.................................. 22
(e) Required Consents............................................. 22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
(f) Litigation.................................................... 23
(g) No Brokers.................................................... 23
(h) Dental Practice............................................... 23
(i) No Offer...................................................... 23
(j) Disclosure.................................................... 23
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS.................................................. 24
3.1. FNEDC's Access to Information.......................................... 24
3.2. Notices and Consents; Governmental Approvals........................... 24
3.3. Assignment of Intellectual Property
and Other Documents.................................................... 25
3.4. Assumption of Certain Automobile
Leases by Saul Herman.................................................. 25
3.5. Indemnification of Mark Herman by the
P.C. With Respect to Certain Equipment
Leases Assumed by the P.C.............................................. 25
3.6. Space Arrangement with Armento......................................... 25
3.7. Consulting Arrangement with Saul Herman................................ 26
3.8. Operation of Business.................................................. 26
3.9. Preservation of Business............................................... 26
3.10. Notice of Developments................................................. 26
3.11. Insurance.............................................................. 26
3.12. Further Assurances..................................................... 27
3.13. Survival of Covenants.................................................. 27
3.14. Break-Up Fee........................................................... 27
3.15. Subchapter S Elections................................................. 28
ARTICLE IV
CONDITIONS TO CLOSING................................................................ 28
4.1. Conditions Precedent to FNEDC's Obligations............................ 28
(a) Representations and Warranties True;
Obligations Performed......................................... 28
(b) Delivery of Certificates...................................... 28
(c) Filing of Amended Certificates of
Incorporation................................................. 28
(d) Escrow Agreement.............................................. 29
(e) Employment Agreement with Mark Herman......................... 29
(f) Leases........................................................ 29
(g) Herman Leases................................................. 29
(h) Equipment Leases.............................................. 29
(i) Legal Opinion from Counsel for
the Shareholders.............................................. 29
(j) Delivery of Other Instruments................................. 29
(k) Termination of Plans.......................................... 30
(l) Required Consents............................................. 30
(m) DPO Stock Purchase Agreement.................................. 30
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
4.2. Conditions Precedent to the Obligations
of the Shareholders.................................................... 30
(a) Representations and Warranties
True; Obligations Performed................................... 30
(b) Deposit....................................................... 30
(c) Required Consents............................................. 30
(d) Escrow Agreement.............................................. 30
(e) Employment Agreement with Dr. Mark Herman..................... 31
(f) Assumption Agreements......................................... 31
(g) Equipment Lease Assignments................................... 31
(h) Herman Leases................................................. 31
(i) Legal Opinion from Counsel to FNEDC........................... 31
(j) DPO Stock Purchase Agreement.................................. 31
(k) Delivery of Financial Statements.............................. 31
ARTICLE V
CLOSING AND DELIVERIES............................................................... 31
5.1. Date and Place of Closing.............................................. 31
5.2. Deliveries at Closing by the Shareholders.............................. 31
5.3. Deliveries by FNEDC.................................................... 32
ARTICLE VI
POST-CLOSING MATTERS................................................................. 33
6.1. Further Assurances..................................................... 33
6.2. Employment and Benefits-Related Matters................................ 33
6.3. Access to Records...................................................... 34
ARTICLE VII
NON-COMPETITION AGREEMENT AND NON-SOLICITATION
AGREEMENT............................................................................ 34
7.1. Non-Solicitation....................................................... 34
7.2. Non-Compete............................................................ 34
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION......................................... 35
8.1. Survival............................................................... 35
8.2. Indemnification of FNEDC............................................... 35
8.3. Indemnification of the Shareholders.................................... 36
8.4. Procedure for Indemnification.......................................... 37
8.5. Limitations on Indemnity Obligations................................... 37
8.6. Exclusive Remedy for Certain Indemnity Claims. ....................... 38
8.7. Indemnity Payments by the Shareholders
to be Treated as Purchase Price Adjustments............................ 38
ARTICLE IX
TERMINATION OF AGREEMENT............................................................. 38
ARTICLE X
CONFIDENTIAL INFORMATION............................................................. 39
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XI
MISCELLANEOUS........................................................................ 40
11.1. Notices................................................................ 40
11.2. No Waiver.............................................................. 41
11.3. Amendments and Waivers................................................. 41
11.4. Governing Law; Headings................................................ 41
11.5. No Assignment.......................................................... 41
11.6. Binding Effect and Benefits; Assigns................................... 41
11.7. Entire Agreement....................................................... 41
11.8. Counterparts........................................................... 41
11.9. Transfer Taxes......................................................... 42
11.10. Submission to Jurisdiction............................................. 42
</TABLE>
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EXHIBIT B
Amended Certificates of Incorporation
To be provided under separate cover.
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<PAGE> 8
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of August ___,
1997, by and among FIRST NEW ENGLAND DENTAL CENTERS, INC., a Delaware
corporation ("FNEDC"), and SAUL HERMAN, D.D.S. ("Saul Herman"), and ROBERT
ARMENTO, D.D.S. ("Armento"), the undersigned shareholders (singularly, a
"Shareholder" or collectively, the "Shareholders") of all of the issued and
outstanding shares of capital 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., and Doctor's Denture Service, P.A.
(singularly, a "Company" or collectively, the "Companies"). FNEDC and the
Shareholders are sometimes hereinafter referred to each as a "Party" and
collectively as the "Parties". For purposes of Article VIII hereof only, on the
Closing Date (defined in Section 5.1), each of FNEDC of New Jersey, Inc., a New
Jersey corporation ("FNEDC of NJ") and a to-be-formed New Jersey professional
association potentially named First Dental Associates, P.A. (the "P.C."), shall
join as parties to this Agreement.
W I T N E S S E T H:
WHEREAS, the Companies are engaged in the business of providing dental
services (the "Business");
WHEREAS, FNEDC intends to acquire all of the issued and outstanding
capital stock of the Companies at the Closing (defined in Section 5.1);
WHEREAS, immediately prior to the Closing, each Company intends to
amend its respective Certificate of Incorporation to become a general business
corporation under the New Jersey Business Corporation Act;
WHEREAS, simultaneously with and subject to the execution of this
Agreement, FNEDC of NJ, and the Shareholders, as shareholders of all of the
issued and outstanding shares of capital stock of Group Dental Health
Administrators, Inc., a New Jersey corporation that is licensed to operate a
dental plan organization in the State of New Jersey ("GHA"), are entering into a
Stock Purchase Agreement dated of even date herewith (the "DPO Stock Purchase
Agreement");
NOW THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE> 9
ARTICLE I
PURCHASE AND SALE
1.1. Purchase Price. Subject to Section 1.2 below and the conditions
precedent set forth in Sections 4.1 and 4.2 below, based upon the
representations and warranties made herein, and in full consideration of the
Shareholders' performance of this Agreement and the sale, assignment, transfer,
conveyance and delivery to FNEDC of each share of the issued and outstanding
capital stock of the Companies (collectively, the "Stock"), FNEDC shall perform
its obligations hereunder and shall deliver and pay to the Shareholders Four
Million Two Hundred Thousand Dollars ($4,200,000) (the "Purchase Price") or the
Adjusted Purchase Price (defined in Section 1.1(e) or (f)), if applicable. The
Parties agree that the Purchase Price (or the Adjusted Purchase Price, if
applicable) shall be allocated in the manner set forth in the attached Schedule
1.1 and that each Party shall report this transaction on all applicable federal
and state income tax returns in accordance with such allocation. The Purchase
Price shall be due and payable at Closing (except as otherwise described in
Section 1.1 (a) below) by wire transfer of immediately available funds as
follows:
(a) A "non-refundable" deposit (which deposit shall be subject
to return in the limited circumstances described hereinafter) of One Hundred
Seventy-Five Thousand Dollars ($175,000) to be delivered to one or more accounts
designated by the Shareholders upon the execution and delivery of this Agreement
and the DPO Stock Purchase Agreement (the "Deposit");
In the event (i) FNEDC terminates this Agreement
in accordance with Article IX hereof or FNEDC of NJ terminates the DPO Stock
Purchase Agreement in accordance with Article IX thereof and the Shareholders
are unable to terminate either this Agreement in accordance with Article IX
hereof or the Stock Purchase Agreement in accordance with Article IX thereof, or
(ii) the Shareholders fail to make good faith commercially reasonable efforts to
fulfill the closing conditions set forth in Section 4.1 hereof by the Closing
Date (defined below in Section 5.1) and FNEDC delivers a written notice to the
Shareholders certifying that they are otherwise ready and able to close and
stating its election to terminate this Agreement, then the Shareholders shall
return the Deposit to FNEDC in accordance with Article IX hereof;
In the event (i) the Shareholders terminate this
Agreement in accordance with Article IX hereof or terminate the DPO Stock
Purchase Agreement in accordance with Article IX thereof, or (ii) FNEDC is
unable to, or elects not to, fulfill the closing conditions set forth in Section
4.2 hereof by the Closing Date and the Shareholders deliver a written notice to
FNEDC stating their election to terminate this Agreement, then the Shareholders
shall be entitled to retain the Deposit;
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<PAGE> 10
(b) Five Hundred Thousand Dollars ($500,000), together with
the Five Hundred Thousand Dollars ($500,000) to be delivered by FNEDC of NJ
pursuant to Section 1.1(b) of the DPO Stock Purchase Agreement (collectively,
the "Escrowed Funds," which funds shall not be divisible but rather handled as
one source of funds under the terms of the Escrow Agreement (defined in this
Section below)) to Fleet Bank, N.A., the Escrow Agent, in accordance with the
escrow agreement dated the date hereof, attached hereto as Exhibit A, by and
among FNEDC, FNEDC of NJ, the Shareholders and the Escrow Agent (the "Escrow
Agreement"); and
(c) Three Million Five Hundred Twenty-Five Thousand Dollars
($3,525,000), or the balance of the Adjusted Purchase Price, if applicable, to
one or more accounts designated by the Shareholders.
The Escrowed Funds will be released to the Shareholders in accordance with the
terms and conditions of the Escrow Agreement.
1.2. Purchase Price Adjustment Option. The Purchase Price set forth in
Section 1.1 shall be subject to adjustment as follows:
(a) No earlier than thirty (30) days nor later than twenty
(20) days prior to the Closing Date, FNEDC's independent accountants shall
prepare and deliver to the Shareholders a statement of revenues of the Companies
and GHA for the period commencing January 1, 1997 and ending on the date thirty
(30) days prior to the Closing Date (the "Draft Statement of Revenues"). It is
agreed that FNEDC's independent accountants shall prepare the Draft Statement of
Revenues in accordance with generally accepted accounting principles; provided
however, that FNEDC's independent accountants will not consolidate the revenues
of the Companies and GHA in the Draft Statement of Revenues. It is further
agreed that the comparable statement of revenues for the Companies and GHA, as
prepared in accordance with generally accepted accounting principles, for
calendar year 1996 was Five Million Seven Hundred Thousand Dollars ($5,700,000).
(b) The Shareholders shall deliver to FNEDC within ten (10)
days after receiving the Draft Statement of Revenues a detailed statement
describing their objections (setting forth in detail the revenue amount proposed
as an adjustment thereto and the basis for such objection), if any, thereto.
Failure of the Shareholders so to object to the Draft Statement of Revenues
shall constitute acceptance thereof, whereupon the Draft Statement of Revenues
shall be deemed to be the "Closing Statement of Revenues". FNEDC and the
Shareholders shall use reasonable efforts to resolve any such objections, but if
they do not reach a final resolution within ten (10) days after the Shareholders
have delivered their statement of objections, FNEDC and the Shareholders shall
settle the disagreement by submitting
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<PAGE> 11
the dispute within fourteen (14) days after the expiration of the ten (10) day
period established above to resolve any objections, to a panel of three (3)
arbitrators in New York, New York that are experienced in professional financial
audits of this nature, such arbitration to be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect on the date of the Shareholders' statement of objections. The arbitrators
shall, within thirty (30) days after the dispute is submitted for arbitration,
determine and report to the Parties a statement of revenues included in the
Draft Statement of Revenues, the revenue amount proposed as an adjustment and
the revenue amount determined by the arbitrators. The Draft Statement of
Revenues then shall be adjusted with respect to the items identified in the
Shareholders' statement of objections or by the arbitrators (and any
corresponding items requiring adjustment as a result) to the extent not
presented consistently with generally accepted accounting principles as
determined by the arbitrators and, as so adjusted, shall be the Closing
Statement of Revenues. Any decision by arbitrators appointed and acting pursuant
to this Section 1.2(b) shall be final and binding upon the Parties, absent fraud
or manifest error, and judgment may be entered thereon, upon the application of
any Party, by any court having competent jurisdiction.
(c) During the period of any dispute referred to above, the
Shareholders shall, and shall cause the Companies and GHA to, give FNEDC, its
accountants and the arbitrators full access to books, records, facilities and
employees of the Companies and GHA; provided, however, that any such access
shall be allowed only in such manner as not to interfere unreasonably with the
operation of the business of the Companies and GHA.
(d) Each Party shall bear the cost of preparing and presenting
its case, with the cost of arbitration to be shared equally by the Parties.
(e) If the aggregate revenues of the Companies and GHA
presented in the Closing Statement of Revenues, projected on an annualized basis
assuming a 365-day calendar year (which calculation will be made by multiplying
the revenues presented in the Closing Statement of Revenues by the quotient of
365 divided by the number of calendar days elapsed during the period commencing
January 1, 1997 and ending on the date thirty (30) days prior to the Closing
Date (the "1997 Annualized Revenues")), are less than Five Million Dollars
($5,000,000)("Initial Sales Trigger"), the Parties may elect to consummate the
transactions contemplated in this Agreement at an adjusted Purchase Price equal
to the excess of (i) the Purchase Price over (ii) the amount (the "Proportionate
Deficit Amount") resulting from the product of (A) the sum of the Deficiency (as
defined in the Escrow Agreement) and the excess of Five Million Seven Hundred
Thousand Dollars ($5,700,000) over the 1997 Annualized Revenues,
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and (B) a fraction whose numerator is the Purchase Price and whose denominator
is Five Million Seven Hundred Thousand Dollars ($5,700,000), (the "Adjusted
Purchase Price") as follows:
ADJUSTED PURCHASE PRICE =
PURCHASE PRICE - PROPORTIONATE DEFICIT AMOUNT ("PDA")
WHERE PDA = [DEFICIENCY + ($5.7M - 1997 ANN. REV.)]
X (PURCHASE PRICE/$5.7)
No later than ten (10) days following the determination of the Closing
Statement of Revenues, FNEDC may deliver written notice to the Shareholders
stating its desire to consummate the transactions contemplated in this
Agreement, all in accordance with the terms and conditions set forth herein with
the exception of the reduction of the Purchase Price to the Adjusted Purchase
Price and the extension of the Closing Date as described below ("FNEDC's
Offer"). The Shareholders shall have five (5) days following the day in which
they received FNEDC's Offer ("Response Period") to accept FNEDC's Offer.
In the event the Shareholders accept FNEDC's Offer, FNEDC will have the
right to close the transactions contemplated by this Agreement no later than
thirty (30) days following the date on which FNEDC receives written notice of
the Shareholders' acceptance of FNEDC's Offer (the "Option Period"). In the
event the Shareholders accept FNEDC's Offer, but FNEDC shall be unable to, or
elects not to, fulfill the closing conditions set forth in Section 4.2 hereof
within the Option Period, then the Shareholders shall be entitled to retain the
One Hundred Seventy-Five Thousand Dollars ($175,000) Deposit; provided, however,
that if (i) FNEDC terminates this Agreement in accordance with Article IX hereof
or FNEDC of NJ terminates the DPO Stock Purchase Agreement in accordance with
Article IX thereof, or (ii) the Shareholders shall be unable to, or elect not
to, fulfill their closing conditions set forth in Section 4.1 hereof within the
Option Period, then the Shareholders shall return promptly the One Hundred
Seventy-Five Thousand Dollars ($175,000) Deposit to FNEDC by wire transfer of
immediately available funds; provided, that an appropriate officer of FNEDC will
certify to the Shareholders that FNEDC was timely ready and able to close.
In the event the Shareholders (i) deliver written notice to FNEDC
within the Response Period stating their election not to accept FNEDC's Offer,
or (ii) fail to deliver written notice to FNEDC in response to FNEDC's Offer
within the Response Period, then the Shareholders shall be entitled to retain
Thirty-Seven Thousand Five Hundred Dollars ($37,500) of the Deposit but shall
promptly return One Hundred Thirty-Seven Thousand Five Hundred Dollars
($137,500) of the Deposit to FNEDC by wire transfer of
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immediately available funds; provided, that an appropriate officer of FNEDC will
certify to the Shareholders that FNEDC was timely ready and able to close.
In the event FNEDC (i) fails to deliver written notice to the
Shareholders within ten (10) days following the date on which FNEDC receives the
Closing Statement of Revenues or (ii) delivers written notice to the
Shareholders within such period stating its decision not to consummate the
transactions contemplated herein, and the Shareholders deliver written notice to
FNEDC within the Response Period stating their desire to consummate the
transactions contemplated herein at the Adjusted Purchase Price no later than
thirty (30) days following the date on which FNEDC receives such written notice
(the "Shareholders' Offer"), then the Shareholders shall be entitled to retain
Eighty-Seven Thousand Five Hundred Dollars ($87,500) of the Deposit but shall
promptly return Eighty-Seven Thousand Five Hundred Dollars ($87,500) of the
Deposit to FNEDC by wire transfer of immediately available funds; provided, that
an appropriate officer of FNEDC will certify to the Shareholders that FNEDC was
timely ready and able to close.
In the event FNEDC (i) fails to deliver written notice to the
Shareholders within ten (10) days following the date on which FNEDC receives the
Closing Statement of Revenues, or (ii) delivers written notice to the
Shareholders within such period stating its decision not to consummate the
transactions contemplated herein, and the Shareholders (i) deliver written
notice to FNEDC within the Response Period stating their election not to accept
FNEDC's Offer, or (ii) fail to deliver written notice to FNEDC in response to
FNEDC's Offer within the Response Period, then the Shareholders shall be
entitled to retain Thirty-Seven Thousand Five Hundred Dollars ($37,500) of the
Deposit but shall promptly return One Hundred Thirty-Seven Thousand Five Hundred
Dollars ($137,500) of the Deposit to FNEDC by wire transfer of immediately
available funds; provided, that an appropriate officer of FNEDC will certify to
the Shareholders that FNEDC was timely ready and able to close.
Any adjustment to the Purchase Price in this Section 1.2 shall
not be deemed to be a loss for purposes of Article VIII hereof. For purposes of
calculating the Proportionate Deficit Amount as of the Closing Date, the
Deficiency shall be deemed to be zero.
(f) When and if a Deficiency is determined pursuant to the terms of the
Escrow Agreement, the Proportionate Deficit Amount and the Adjusted Purchase
Price shall be redetermined. In the event that there is not an Initial Sales
Trigger (i.e., 1997 Annualized Revenues are not less than $5 million) and a
Deficiency is determined pursuant to the Escrow Agreement, the purchase price of
the Stock shall be the Adjusted Purchase Price; provided, however, for purposes
of the calculation of the
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<PAGE> 14
Proportionate Deficit Amount, the 1997 Annualized Revenues shall be deemed to be
equal to Five Million Seven Hundred Thousand Dollars ($5,700,000). In the event
that the determination of a Deficiency causes the Purchase Price or the Adjusted
Purchase Price, as the case may be, to be reduced from the Purchase Price or the
Adjusted Purchase Price calculated at the Closing Date, the Shareholders shall
be deemed to have repaid, such excess consideration by the distribution of the
Deficiency to FNEDC pursuant to the Escrow Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of FNEDC.
FNEDC hereby represents and warrants to the Shareholders that each of
the statements contained in this Section 2.1 is true and correct in all respects
as of the date hereof and will be true and correct at and as of the Closing.
(a) Organization, Power and Standing. FNEDC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with all requisite power to own and operate its properties and
to carry on its business as such business is now conducted. FNEDC is duly
qualified to do business as a foreign corporation in the State of New Jersey and
in all jurisdictions in which failure to so qualify would have a material
adverse effect on FNEDC.
(b) Power and Authority Relative to Transaction. FNEDC has
full corporate power and authority and has taken all required action necessary
to permit it to execute and deliver this Agreement and to perform all of the
obligations contained herein, and to execute, deliver and perform all of the
obligations contained in all other instruments or agreements required hereby or
incident or collateral hereto (collectively with this Agreement, the "Operative
Documents"), and none of such actions conflicts with or violates any provision
of law known to FNEDC or of the Certificate of Incorporation or Bylaws of FNEDC,
or violates or constitutes a default under or will result in any breach of any
agreement, indenture, deed of trust, mortgage, instrument, lease, order,
judgment, writ, injunction, decree, license or permit of any court or
governmental or regulatory body applicable to FNEDC or by which FNEDC or its
assets may be bound.
(c) Valid and Binding Obligation. The Operative Documents
constitute valid and legally binding obligations of FNEDC, enforceable against
it in accordance with their respective terms, subject to applicable bankruptcy,
insolvency and other general laws affecting the rights and remedies of
creditors,
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<PAGE> 15
except that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(d) Required Consents. Except as set forth on Schedule 2.1(d)
hereto, no consent, order, approval, authorization, declaration or filing
including, without limitation, any consent, approval or authorization of or
declaration or filing with any governmental authority, is required on the part
of FNEDC for or in connection with the execution and delivery of the Operative
Documents.
(e) No Brokers. FNEDC has not dealt with any broker, finder or
similar agent with respect to the transactions contemplated by this Agreement
and FNEDC is not under any obligation to pay any broker's fee, finder's fee or
commission in connection with the transactions contemplated by this Agreement.
(f) Litigation. Schedule 2.1(f) sets forth each instance in
which FNEDC (i) is subject to any outstanding injunction, judgment, order,
decree, ruling or charge, or (ii) is a party or, to the knowledge of FNEDC and
any directors and officers (and employees with responsibility for litigation
matters) of FNEDC, is threatened to be made a party, to any action, suit,
proceeding, hearing or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator, which in each case would materially
adversely affect FNEDC's ability to perform its obligations under the Operative
Documents.
(g) Solvency. FNEDC is financially solvent and, subject to
receiving the net proceeds from its proposed initial public offering, FNEDC will
have the financial ability to close the transaction contemplated herein in
accordance with the terms and conditions hereof. Upon such Closing, FNEDC will
have the financial ability at all times through the expiration of the escrow
term (as defined in the Escrow Agreement) to continue the operation of the
Business of the Companies and GHA.
(h) Compliance with Laws. To its best knowledge, FNEDC holds
all permits, registrations, orders and authorizations of governmental
authorities necessary or appropriate to consummate the transactions contemplated
hereby.
(i) Disclosure. Neither the representations and warranties of
FNEDC contained in this Agreement, nor the other information included in the
Schedules hereto, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein complete and not misleading as of the dates thereof in light of the
circumstances in which they were made.
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<PAGE> 16
2.2. Representations and Warranties Concerning the Companies.
Each of the Shareholders hereby jointly and severally
represents and warrants to FNEDC, each Shareholder with respect to only those
Companies in which he owns or has previously owned, directly or indirectly, or
has the power to vote or dispose of, any shares of capital stock of such
Company, that each of the statements contained in this Section 2.2 (including
the Schedules hereto) is true and correct as of the date of this Agreement and
will be true and correct at and as of the Closing.
(a) Organization, Power and Standing. Each Company is a
corporation duly organized, validly existing and in good corporate and tax
standing under the laws of the State of New Jersey. Each Company has the power
and authority to own its properties and engage in the business in which it is
currently engaged (except that immediately prior to the Closing, upon conversion
to a general business corporation under the New Jersey Business Corporation Act
(the "Business Corporation Act"), each Company shall no longer be authorized to
engage in the practice of dentistry). The copy of each Company's Certificate of
Incorporation and Bylaws, each as amended through the date hereof, that has been
delivered to FNEDC by each Company is complete and correct as of the date of
this Agreement and will continue in effect without further amendment (except to
convert such Company to a general business corporation under the Business
Corporation Act) through the Closing.
(b) Qualification to do Business. Each Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction where the failure to so qualify would have a
material adverse effect on such Company.
(c) Subsidiaries and Interest in Other Entities. No Company
has any subsidiary nor does it, directly or indirectly, own or have the right to
acquire any equity interest in any other corporation, partnership, joint venture
or other business organization, except as provided herein. No Company has made
any investment in or advance of cash or other extension of credit to any
company, entity or individual. Other than the Shareholders, there is no entity
and/or individual controlling, controlled by or under control with any Company,
nor is there any entity or person which on or prior to the Closing Date is or
was a member of the same controlled group or affiliated service group or was
under common control with any Company within the respective meanings of Sections
414(b), (m) and (c) of the Internal Revenue Code of 1986, as amended (the
"Code").
(d) Capitalization. The number of authorized shares of capital
stock, the number of shares of capital stock presently issued and outstanding,
the par value per share of capital stock
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<PAGE> 17
and the beneficial owners of such issued and outstanding shares of capital stock
of each Company are set forth in Schedule 2.2(d). All of the outstanding shares
of capital stock of each Company have been issued in full compliance with all
applicable securities laws. No Company has any outstanding options, warrants,
conversion rights, exchange privileges or other commitments to issue or to
acquire any shares of its capital stock or any securities or obligations
convertible or exchangeable into shares of its capital stock except as set forth
in Schedule 2.2(d).
(e) Certain Outstanding Liabilities. Except as set forth on
Schedule 2.2(e), no Shareholder has any debts, liabilities or obligations of any
nature whatsoever which are related to the Business or the assets of the
Companies. To each Shareholder's best knowledge, no Company has any debts,
liabilities or obligations which have arisen after December 31, 1996 outside of
such Company's ordinary course of business (and to the Shareholders' best
knowledge, there is no present basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand against
any Company giving rise to any liability), except as set forth on Schedule
2.2(e).
(f) Unfunded Liabilities. Without in any way limiting the
representation and warranty set forth in Section 2.2(e) above, no Company has
any unfunded liabilities in connection with any workers' compensation,
employers' liability, or group health plan except as described in Schedule
2.2(f). The matters described in Schedule 2.2(f) will not, individually or in
the aggregate, have any material adverse effect upon the business or operations
of any Company or FNEDC.
(g) Title to Properties, Etc.. Except as listed on Schedule
2.2(g), each Company is the sole owner of, and has good, valid and marketable
title to, all of its properties and assets, real and personal, and all
trademarks, copyrights, and service marks used in connection with the Business.
None of such properties is subject to any mortgage, pledge, lien, conditional
sale agreement, security interest, encumbrance or other charge except:
(i) liens, encumbrances and leases incurred or made in the
ordinary course of business which do not materially impair the
usefulness of such properties and assets in the conduct of the business
of each Company (but excluding liens securing payment of indebtedness);
(ii) liens from nondelinquent taxes, assessments or
governmental charges or levies; and
(iii) as specifically set forth on Schedule 2.2(g).
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<PAGE> 18
Each Company enjoys peaceful and undisturbed possession under the leases set
forth on Schedule 2.2(g). All such leases are valid, subsisting and in full
force and effect, and there are no uncured defaults of any Company under such
leases. The assets and properties of each Company, including those obtained
pursuant to said leases, are adequate to conduct the operations currently
conducted and presently proposed to be conducted by each Company. Except as
otherwise specifically provided, the Shareholders make no representation or
warranty concerning or relating to the condition, repair or maintenance of the
machinery and equipment of each Company. Except as set forth in Schedule 2.2(g),
however, no Company and none of the Shareholders has received any written notice
from any federal, state or local governmental agency that any machinery,
equipment or other assets of each Company fails to conform in all material
respects to all applicable ordinances, regulations and zoning or other laws.
There is no pending or, to the best of the Shareholders' knowledge, threatened
condemnation of any such property. Except as set forth in Schedule 2.2(g), the
leasehold or other interest of each Company in such real property is not subject
or subordinate to any recorded security interest, lien or mortgage, except with
respect to liens described in Subsections 2.2(g)(i) and (ii) above, and the
Shareholders are not aware of any security interest, lien, mortgage or other
encumbrance whatsoever on the Companies' leasehold or other interests. Except as
set forth in Schedule 2.2(g), the lease for each Company's premises has not been
amended (except for those leases between Saul Herman and the P.C. (as identified
in Section 3.3 hereof) that may be amended as contemplated by Section 4.1(g)
hereof) and neither the landlord, to each Shareholder's best knowledge, nor any
Company is in default thereunder. No Company and neither of the Shareholders has
received any written notice from any federal, state or local government agency
and that the use of each Company's premises by such Company and the occupancy
and operation thereof by such Company fails to comply in all material respects
with all applicable federal, state and local laws, ordinances and regulations,
including without limitation federal and state safety, health, environmental
protection and hazardous waste laws, regulations, standards and ordinances.
(h) Conduct of Business; Absence of Material Adverse Changes.
Since December 31, 1996, except as otherwise required pursuant to this
Agreement, the Business has been conducted only in the usual and ordinary
course, and there has been (i) no sale, transfer or other disposition of any of
the material assets or capital stock of any Company; (ii) no encumbrance placed
upon any Company's assets or stock; (iii) no other event or condition known to
the Shareholders which materially and adversely affects, or which is reasonably
likely to materially and adversely affect, the Business or the condition
(financial or other), prospects, assets or liabilities of any Company; and (iv)
no free service, premium or gift offered as an inducement to existing or
prospective patients (other than charitable care provided in
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accordance with any Company's policy regarding uncompensated care) that
materially and adversely affects, or which is reasonably likely to materially
and adversely affect, the Business or the condition (financial or other),
prospects, assets or liabilities of any Company.
In particular, and without limiting the generality of the foregoing,
since December 31, 1996, the Shareholders have not permitted any Company to do
any of the following, except as otherwise contemplated herein:
(i) change its method of management or operations;
(ii) amend its Certificate of Incorporation or Bylaws;
(iii) terminate the services of any employee, consultant or
agent of such Company;
(iv) increase the compensation payable or to become payable to
any officer, director, employee or agent of such 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 such Company, except as
disclosed in Schedule 2.2(h) or in connection with the transactions
contemplated hereunder;
(v) make any loan to, or enter into any other transaction
with, any of its directors, officers and employees outside of the
Company's ordinary course of business;
(vi) adopt, amend, modify or terminate any bonus,
profit-sharing, incentive, severance or other plan, contract or
commitment for the benefit of any of its directors, officers and
employees (or take any such action with respect to any of its employee
benefit plans);
(vii) directly or indirectly redeem, purchase or otherwise
acquire or dispose of any properties or assets except in the ordinary
course of business;
(viii) subject any of its properties or assets to any
mortgage, pledge, security interest or lien;
(ix) directly or indirectly redeem, purchase or otherwise
acquire any of its outstanding capital stock;
(x) 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,
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<PAGE> 20
firm or corporation, except in the ordinary course of business;
(xi) 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;
(xii) make any material change in the accounting methods or
practices employed by such Company as at the date hereof in respect of
the business of such Company;
(xiii) delay or postpone the payment of its accounts payable
and other liabilities outside its ordinary course of business;
(xiv) enter into any contract or commitment involving in any
instance aggregate payment by such Company of more than $10,000 or
extending beyond the Closing Date, except in connection with the
transactions contemplated hereby or in the usual and ordinary course of
business consistent with past practice;
(xv) declare or pay any dividend or distribution in respect of
its capital stock, either in cash, in kind or in shares of stock (other
than dividends or distributions that are consistent in nature and
amount with each Company's past dividends or distributions during such
Company's last five (5) fiscal years; provided, however, that subject
to the final sentence of this Section 2.2(h), the Shareholders may
cause the Companies to distribute to the Shareholders all cash in the
Companies' respective bank accounts on or before the Closing Date), 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 stock;
(xvi) take any other action which would materially adversely
affect or detract from the value of such Company or the capital stock
of such Company, including without limitation cancelling any debts or
claims;
(xvii) waive any rights of material value or modify, amend,
alter or terminate any Material Contract (defined in 2.2(n) below);
(xviii) grant any license or sublicense of any of its rights
under or with respect to any of its intellectual property; and/or
(xix) directly or indirectly offer, solicit or entertain
offers for or take any other action with a view to
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<PAGE> 21
the sale of all or any substantial part of the assets, capital stock or
business of such Company.
Furthermore, the Shareholders have permitted the Companies and GHA to
continue to pay any liabilities which are outstanding and due, consistent with
past practice and within forty-five (45) days of receipt of evidence that each
such outstanding liability is due and payable.
(i) Tax Returns and Payments. Each Company has prepared in
good faith and filed when due, or timely obtained extensions of time for filing,
all tax returns required by law to be filed, and has paid when due all taxes,
assessments and other governmental charges (whether or not shown on any tax
return), including without limitation all estimated tax payments imposed upon
any of its properties, assets or income. To the best of the Shareholders'
knowledge, no Company has any liability for any federal, state or local taxes
not yet paid which relate to prior taxable years, except the portion of the 1997
tax year preceding the Closing. To the best of the Shareholders' knowledge, all
such tax returns are correct and complete in all material respects and no income
tax return nor any corporation excise tax return of any Company has ever been
audited except as otherwise set forth on Schedule 2.2(i), which schedule sets
forth in reasonable detail the nature and scope of each disclosed audit. No
Company has ever filed a consent under Section 341(f) of the Code. No Company
has executed any waiver or consent that would have the effect of extending any
applicable statute of limitations in respect of any of its tax liabilities. To
the best of the Shareholders' knowledge, the charges, accruals and reserves on
the books of each Company in respect of taxes for all fiscal periods are
adequate, and there is no unpaid assessment or any basis for the assessment of
any material amount of additional taxes for any period or partial period
preceding Closing. Except as set forth on Schedule 2.2(i), neither the Internal
Revenue Service nor any other taxing authority has asserted or threatened to
assert, or is now asserting or threatening to assert, against any Company any
deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith. Each Company has withheld from its employees or its other
payees gross compensation and has paid over to appropriate governmental
authorities all tax and other withholdings required by applicable law. If any
Company has any liability arising from or related to any taxes for any period
prior to the Closing, the Shareholders shall be fully and solely responsible for
the payment of such tax liabilities. Each Shareholder agrees to indemnify FNEDC
in accordance with Section 8.2 hereof for any liability of any Company relating
to or arising from any taxes for any period prior to the Closing; provided that
it is agreed and acknowledged that any indemnity claim made by FNEDC hereunder
shall neither be subject to the basket nor be included in the cap as set forth
in Section 8.5 hereof.
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<PAGE> 22
(j) Compliance with Laws. Except as set forth on Schedule
2.2(j) hereto, to each Shareholder's best knowledge, each Company presently
holds all permits, licenses, consents, certificates, approvals, qualifications,
registrations, orders and authorizations of governmental authorities
(collectively, "Permits") necessary or appropriate for the conduct of the
Business and the consummation of the transactions contemplated hereby, and all
such Permits are listed on Schedule 2.2(j). To the best of the Shareholders'
knowledge, the Permits constitute all such permits, licenses, consents,
certificates, approvals, qualifications, registrations, orders and
authorizations of governmental authorities required for the conduct of the
Business, and no suspension or cancellation of any Permit is threatened. To the
best of the Shareholders' knowledge, all of the Permits are in full force and
effect and are valid and enforceable in accordance with their terms. To the best
of the Shareholders' knowledge, there exists no fact or circumstance which
constitutes, or with the passage of time or giving of notice or both would
constitute, a default under any Permit or allow any governmental or other
authority to cancel or terminate any Permit. No Company and none of the
Shareholders has received any notice from any federal, state or local
governmental agency, and no Company and none of the Shareholders has any
knowledge or reason to believe that any Company's operation of the Business
violates any federal, state or local law, regulation, order or restriction that
materially and adversely affects or which is reasonably likely to materially and
adversely affect, the Business, or the condition (financial or other),
prospects, assets or liabilities of any Company. Except as set forth on Schedule
2.2(j) hereto, to each Shareholder's best knowledge, each Company has operated
the Business in full compliance with all applicable laws, including all laws and
regulations relating to payment and claims for health care services, employment,
occupational safety and health, and environmental matters. Except as set forth
on Schedule 2.2(j) hereto, to each Shareholder's best knowledge, at all times
prior to the filing contemplated by Section 4.1(c) hereof, no Company is in
material violation of any federal, state or local statute, ordinance, judgment,
decree, order or governmental rule, regulation, policy or guideline applicable
to such Company in a manner which could materially and adversely affect its
condition (financial or otherwise), the transactions contemplated by this
Agreement or the Business.
(k) Insurance. Each Company has continuously maintained for
the entire period of time the Business has been in existence, and continues to
maintain, property, general liability, professional liability and workers'
compensation insurance covering the operations of the Business through the
current insurance policies listed in Schedule 2.2(k) hereto or through
comparable insurance policies previously in effect. All such current policies
are in full force and effect, all premiums due thereon have been paid, and at
all times prior to the filing
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<PAGE> 23
contemplated by Section 4.1(c) hereof, each Company has complied in all material
respects with the provisions of such policies. Each Company and each
dentist-employee of each Company currently maintains in full force and effect an
individual professional liability insurance policy with liability limits of at
least $1 million per occurrence and $3 million aggregate except as provided on
Schedule 2.2(k). Except as otherwise indicated on Schedule 2.2(k), all liability
insurance policies are on an "occurrence" basis. The insurance listed in
Schedule 2.2(k) is in amounts adequate to cover losses on physical assets.
(l) Employees and Compensation.
(i) To each Shareholder's best knowledge, no Company is in
violation of any applicable federal, state or local laws or regulations
with respect to employment, employment practices, or the terms and
conditions of employment, wages and hours in a manner which could
materially and adversely affect its condition (financial or otherwise).
None of any Company's employees is represented by any union, and there
is no labor strike, slowdown, stoppage, organizational effort, dispute
or proceeding by or with any employee or former employee of any Company
or any labor union pending or threatened against any Company.
(ii) To each Shareholder's best knowledge, there are no
employment or consulting contracts or arrangements (other than those
terminable at will) with any employees or consultants of or associated
with any Company, except as described on Schedule 2.2(l) hereto.
Schedule 2.2(l) also sets forth a true and complete list of all
employees of and consultants to each Company, showing date of hire,
hourly rate or salary or other basis of compensation, each bonus,
hourly rate increase and/or salary increase granted since December 31,
1996 (or committed to be granted in connection with the transactions
contemplated hereunder), and job function.
(m) Employee Benefits. Schedule 2.2(m) contains a complete and accurate
list of each plan, arrangement, understanding, practice or commitment, formal or
informal, firm or contingent, written or oral, currently sponsored, maintained
or contributed to by any Company which covers, or which at any time prior to the
Closing covered, any of the current or former officers, employees or independent
contractors of such Company or its predecessors and providing any of the
following benefits: bonus, stock bonus, profit sharing, pension, retirement,
life insurance, medical, hospitalization, dental, vision, disability, vacation,
workers' compensation, deferred or incentive compensation, severance benefits
and including, without limitation, each "employee pension benefit plan" (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended (hereinafter "ERISA")) and "employee welfare benefit plan"
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<PAGE> 24
(within the meaning of Section 3(1) of ERISA) (collectively, the "Plans").
Except as disclosed on Schedule 2.2(m):
(i) No Company and no Shareholder has engaged in any
transactions which would, directly or indirectly, subject any Plan, its
related trust or any Company to a tax or penalty imposed under Section
4975 of the Code or Section 502(i) of ERISA;
(ii) Each Company and each Shareholder has performed all its
or his respective material obligations under the Plans and has not
violated the provisions of any of the Plans and, to the best knowledge
of each Company and each Shareholder, no other party is in violation
thereof;
(iii) Each Plan is in compliance in all material respects with
all applicable requirements prescribed by all statutes (including,
without limitation, ERISA and the Code), orders, governmental rules and
regulations;
(iv) All payments required to be made to each Plan as of the
Closing have been timely and completely made;
(v) There is no suit, action, dispute, claim, arbitration or
legal, administrative or other proceeding or governmental investigation
pending, or to the best knowledge of any Company or either Shareholder,
is threatened, alleging any breach of the terms of any Plan or of any
fiduciary duties thereunder or violation of any applicable law with
respect to any Plan;
(vi) Subject to applicable requirements of ERISA, neither any
provision of any Plan nor any agreement with any employee nor any
representation or course of conduct by or on behalf of any Company
would prevent the amendment or termination after the Closing of any
Plan without liability to such Company;
(vii) There are no benefits or severance obligations of any
Company that will arise as a result of the transactions contemplated
hereunder;
(viii) No Plan which is an "employee welfare benefit plan"
provides for continuing benefits or coverage, including but not limited
to medical, health or life insurance, to any employee or former
employee following termination of employment with any Company other
than that either required by Section 4980B of the Code and Sections 601
through 609 of ERISA (or similar provisions of state law), or provided
in accordance with the conversion feature of the Plan.
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<PAGE> 25
(ix) Each Plan which is a "group health plan" (within the
meaning of Section 4980(B)(a)(2) of the Code) is in material compliance
with the applicable requirements under Section 4980B of the Code and
Sections 601 through 609 of ERISA;
(x) No Plan is, or forms part of, a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of
ERISA) or a "voluntary employees' beneficiary association" (within the
meaning of Section 501(c)(9) of the Code);
(xi) With respect to each Plan which is a self-insured
"employee welfare benefit plan," no claims have been made pursuant to
any such Plan that have not yet been paid and, to the best knowledge of
each Company and the Shareholders, no injury, sickness or other medical
condition has been incurred with respect to which claims may be made
pursuant to any such Plan; and
(xii) All reports, forms and other documents with respect to
any Plan required to be filed with any government entity or to be
disclosed to Plan participants and their beneficiaries have been timely
filed or disclosed, as the case may be, and are accurate in all
material respects.
(n) Material Contracts. Schedule 2.2(n) hereto sets forth a complete
and accurate list and compilation of all material:
(i) Contracts with respect to the provision of health
care services, including all contracts between third
party payors and any Company or any Shareholder;
(ii) Licenses, leases, contracts and other arrangements
with respect to any material property of any Company;
(iii) Contracts (written or unwritten) with respect to
which any Company has any liability or obligation,
contingent or otherwise, involving more than $10,000
or which may otherwise have any continuing effect
after the Closing, or which place any material
limitation on the method of conducting or the scope
of the Business;
(iv) Contracts of any Company with directors, officers,
employees, agents and/or consultants of the Company
or the spouses or relatives of such persons;
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<PAGE> 26
(v) Compensation arrangements for all employees and
consultants including rates of pay and other
benefits and the amounts of compensation and other
benefits accrued as of a recent date;
(vi) Agreements, contracts or instruments relating to
the borrowing of money, or the guaranty of any
obligation for the borrowing of money;
(vii) Contracts between officers, directors or employees of
any Company and any other person or entity which
purport to restrict any Company's business activities
or use of information in the Business, including
without limitation any covenant not to compete;
(viii) All agreements relating to any securities of any
Company or rights in connection therewith; and
(ix) Any contracts, leases or other agreements referred to
in any other Schedule hereunder, and any other
material contracts, instruments, commitments, plans
or arrangements of any Company.
All the foregoing are herein called "Material Contracts." Schedule 2.2(n)
includes with respect to each Material Contract the names of the parties, the
date thereof, its title or other general description. Copies of all written
Material Contracts have been delivered to FNEDC or its counsel or accountants.
Each Material Contract sets forth the entire arrangement and understanding
between the respective Company and the respective third parties with respect to
the subject matter thereof and, except as indicated in such Schedule, there have
been no amendments or side or supplemental arrangements to or in respect of any
Material Contract. Each Company has furnished to FNEDC true and correct copies
of all Material Contracts as currently in effect, and will furnish any further
information that FNEDC may reasonably request in connection therewith. Each
Material Contract is valid and in full force and effect, and each Company has
performed all material obligations required to be performed by it thereunder.
Prior to the filing contemplated by Section 4.1(c) hereof, no Company was at any
time or is in material default under or in material breach or material violation
of (a) its Certificate of Incorporation or Bylaws, or (b) to each Shareholder's
best knowledge, any Material Contract, or (c) any other agreement, indenture,
deed of trust, mortgage, instrument, lease, order, judgment, writ, injunction,
decree, license, permit, statute, rule or regulation of any court or
governmental or regulatory body applicable to it in a manner which would
materially and adversely affect its condition, the transactions contemplated by
this Agreement or the Business, and the execution and delivery of the Operative
Documents and the consummation of the transactions contemplated thereby will not
result in the
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<PAGE> 27
violation of any law, decree or order known to such Company or in any default,
breach or violation of such Company's Certificate of Incorporation or Bylaws, or
any Material Contract to which such Company is a party or by which it is bound.
Except as set forth on Schedule 2.2(n) and the filings contemplated by Section
4.1(c) hereof, to the best of the Shareholders' knowledge, there is no event
which has occurred or existing condition which constitutes, or with notice or
lapse of time or both, would constitute a default under any Material Contract or
would cause the acceleration of any obligation of any party thereto, or give
rise to any right of termination or cancellation or cause the creation of any
lien or encumbrance on any asset of any Company. To the best of the
Shareholders' knowledge, no third party is in default under any material
provision of any Material Contract. None of the Shareholders has any knowledge
that the parties to any Material Contract will not fulfill their obligations
thereunder in all material respects. There is no term of any Material Contract
that materially adversely affects the Business or the business, operations,
affairs, prospects or conditions of any Company.
(o) Books and Records. As of the Closing Date, all past
actions and authorizations of each Company's board of directors and shareholders
since the date of each Company's respective incorporation have been fully and
validly ratified. Except as detailed in Schedule 2.2(o) hereto, the general
ledgers and books of each Company and all of such Company's other books,
accounts and records are identified on Schedule 2.2(o), constitute all such
ledgers, books, accounts and records of each Company, are complete and correct
in all material respects.
(p) Banking Relationships. All of the arrangements which any
Company has with any banking institution are completely and accurately described
in Schedule 2.2(p), indicating with respect to each such arrangement the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereto. No
Company has any outstanding powers of attorney of any kind.
(q) Required Consents, Etc. Except as described in Schedule
2.2(q) hereto, to the best of the Shareholders' knowledge, no consent, approval,
authorization, declaration or filing, including without limitation any consent,
approval or authorization of or declaration or filing with any governmental
authority, is required on the part of any Company in connection with the
execution and delivery of the Operative Documents.
(r) Accounts Receivable. To the best of the Shareholders'
knowledge, all notes and accounts receivable of each Company are reflected
properly on its books and records. Except as set forth on Schedule 2.2(r), no
Company has any accounts or loans receivable from any person, firm or
corporation
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<PAGE> 28
which is affiliated with such Company or from any director, officer or employee
of such Company. All accounts receivable of each Company arose out of bona fide
transactions in its ordinary course of business.
(s) Litigation. Except as set forth on Schedule 2.2(s), there
is no litigation, proceeding or investigation pending or, to the best of the
Shareholders' knowledge, threatened (nor, to the best of the Shareholders'
knowledge, is there any basis therefor) against any Company or affecting any of
its properties, rights or assets or against any officer or employee which
relates to the affairs of any Company or the right of any officer or employee to
participate in the business of any Company and which is reasonably likely to
result in any material adverse change in the Business or in the business or
condition (financial or otherwise), prospects, assets or liabilities of any
Company or which relates to the Stock or the transactions contemplated by this
Agreement, in any court or before any authority or governmental entity
including, without limitation, actions, proceedings or investigations with
respect to any alleged violation by any Company of any law, statute, ordinance,
regulation, order, policy or guideline of any governmental entity.
(t) No Medicare Payment Program Providers. None of the
dentists rendering services to patients of the Companies at the Companies'
locations are participating providers in the Medicare payment program.
(u) No Brokers. No Company has dealt with any broker, finder
or similar agent with respect to the transactions contemplated by the Agreement
and no Company is under any obligation to pay any broker's fee, finder's fee or
commission in connection with the transactions contemplated by this Agreement.
(v) Disclosure. Neither the representations and warranties of
each Company and each Shareholder contained in this Agreement nor the financial
or other information included in the Schedules hereto contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein complete and not
misleading as of the dates thereof in light of the circumstances in which they
were made. There is no fact presently known to the Shareholders which will (so
far as the Shareholders or any Company can now reasonably foresee) materially
adversely affect the Business or the operations and/or affairs of any Company.
(w) No Offer. During the periods (i) commencing on January 15,
1997 and continuing through July 15, 1997, and (ii) commencing on the execution
date of this Agreement and continuing through the earlier of December 15, 1997
or the Closing Date, no Company has, directly or indirectly, through any
officer, director, agent or otherwise, (i) solicited, initiated or
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<PAGE> 29
encouraged submission of proposals or offers from any person other than FNEDC
relating to any acquisition or purchase of any of the stock and/or the assets of
any Company, or any equity interest in any Company or any equity investment,
merger, consolidation or business combination with any Company, or (ii)
participated in any discussions or negotiations regarding, or furnished to any
other person, any non-public information with respect to, or otherwise
cooperated in any way with, or assisted or participated, facilitated or
encouraged, any effort or attempt by any other person to do or seek any of the
foregoing.
2.3. Representations and Warranties Concerning the
Shareholders.
Each Shareholder hereby severally, but not jointly, represents
and warrants to FNEDC that each of the statements contained in this Section 2.3
is true and correct as to himself as of the date of this Agreement and will be
true and correct at and as of the Closing:
(a) Title. Such Shareholder has good, marketable and
unencumbered title to, and full right, power and authority to sell, transfer,
assign and deliver the Stock; and FNEDC will on the Closing Date, acquire good
and marketable title to such Stock, free and clear of any liens, encumbrances,
restrictions on transfer, charges or claims.
(b) Due Issuance. The shares of Stock owned by such
Shareholder are validly issued, fully paid and nonassessable.
(c) Power and Authority Relative to Transaction. Such
Shareholder has full power and authority and has taken all required action
necessary to permit him to execute and deliver the Operative Documents, and none
of such actions conflicts with or violates any provision of law known to him or
violates or constitutes a default under or will result in any breach of any
agreement, indenture, deed of trust, mortgage, instrument, lease, order,
judgment, writ, injunction, decree, license or permit of any court or
governmental or regulatory body applicable to him.
(d) Valid and Binding Obligations. The Operative Documents
constitute the valid and legally binding obligations of such Shareholder,
enforceable against him in accordance with their respective terms, subject to
applicable bankruptcy, insolvency and other general laws affecting the rights
and remedies of creditors, except that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(e) Required Consents. No consent, order, approval,
authorization, declaration or filing including, without limitation, any consent,
approval or authorization of or
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<PAGE> 30
declaration or filing with any governmental authority, is required on the part
of such Shareholder for or in connection with the execution and delivery of the
Operative Documents.
(f) Litigation. Schedule 2.3(f) sets forth each instance in
which such Shareholder (i) is subject to any outstanding injunction, judgment,
order, decree, ruling or charge or (ii) is a party or, to the knowledge of such
Shareholder, is threatened to be made a party to any action, suit, proceeding,
hearing or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator, which in each case would materially adversely affect the
Shareholder's ability to perform his obligations under the Operative Documents.
(g) No Brokers. Such Shareholder has not dealt with any
broker, finder or similar agent with respect to the transactions contemplated by
the Agreement and such Shareholder is not under any obligation to pay any
broker's fee, finder's fee or commission in connection with the transactions
contemplated by this Agreement.
(h) Dental Practice. Except as set forth in Schedule 2.3(h),
such Shareholder conducts his dental practice exclusively through the Companies,
and the Companies have good, marketable and, subject to any exceptions set forth
in Section 2.2(h), unencumbered title to all assets used by such Shareholder in
connection with his dental practice.
(i) No Offer. During the periods (i) commencing on January 15,
1997 and through July 15, 1997, and (ii) commencing on the execution date of
this Agreement and through the earlier of December 15, 1997 or the Closing Date,
no Shareholder has, directly or indirectly, offered, solicited offers for or
sold, assigned, pledged or otherwise transferred any of the Stock prior to the
Closing. No Shareholder has, directly or indirectly, through any agent or
otherwise, (i) solicited, initiated or encouraged submission of proposals or
offers from any person other than FNEDC relating to any acquisition or purchase
of any of the stock and/or the assets of any Company, or any equity interest in
any Company or any equity investment, merger, consolidation or business
combination with any Company, or (ii) participated in any discussions or
negotiations regarding, or furnished to any other person, any non-public
information with respect to, or otherwise cooperated in any way with, or
assisted or participated, facilitated or encouraged, any effort or attempt by
any other person to do or seek any of the foregoing.
(j) Disclosure. Neither the representations and warranties of
such Shareholder contained in this Agreement, nor the other information included
in the Schedules hereto contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained
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<PAGE> 31
herein and therein complete and not misleading as of the dates thereof in light
of the circumstances in which they were made.
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS
3.1. FNEDC's Access to Information. The Shareholders shall cause each
Company to permit FNEDC and its counsel, accountants and other representatives
full and free access, upon reasonable notice and during normal business hours
without interference to business operations, throughout the period prior to the
Closing, to all of the properties, books, contracts, commitments, records
(including financial and tax records for fiscal years 1993 through and including
1996 and any 1997 interim period prior to Closing), officers and personnel of
each Company and shall furnish to FNEDC during such period all such information
concerning the business activities of each Company as FNEDC or its counsel,
accountants or other representatives may reasonably request. FNEDC agrees to pay
the reasonable out-of-pocket expenses incurred in providing this information.
FNEDC further agrees that it will not communicate with employees of the
Companies or GHA without the prior approval of Saul Herman. If the transactions
contemplated by this Agreement are not consummated, all confidential or
proprietary information furnished by the Shareholders or any Company shall be
kept in strict confidence in accordance with Article X hereof and shall not be
used or disclosed by any recipient, and FNEDC shall cause each such recipient to
return to such Company all copies of documents or records furnished hereunder.
No investigation or findings of FNEDC shall diminish or affect the
representations and warranties of the Shareholders in this Agreement or relieve
the Shareholders of any of their obligations hereunder; provided, however, that
FNEDC shall promptly disclose to the Shareholders the results of any
investigation by FNEDC which reveals information that is likely to materially
adversely affect the Shareholders.
3.2. Notices and Consents; Governmental Approvals. The Shareholders
shall use their good faith commercially reasonable efforts to obtain, and shall
cooperate with FNEDC to obtain, all governmental and regulatory approvals and
actions necessary to consummate the transactions contemplated hereby which are
required to be obtained by applicable law or regulations. The Shareholders will
cause each Company to give any notices to third parties, and will use their good
faith commercially reasonable efforts to obtain any third party consents that
FNEDC reasonably may request in connection with the matters referred to in
Section 2.1(d) above and/or to effect transfers of the contracts and agreements
described in Schedule 2.2(n); provided however, that during the Escrow Period
(as defined in the Escrow Agreement) the Shareholders shall not be required to
give any notice or obtain
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<PAGE> 32
any consent to transfer from any employer which is a party to any dental plan
contract with the Company as of the closing. Each of the Parties will give any
required notices, make any filings with, and use its or his, as the case may be,
good faith commercially reasonable efforts to obtain any governmental approvals
in connection with the matters referred to in Sections 2.1(d), 2.2(j) and 2.3(e)
above.
3.3. Assignment of Intellectual Property and Other Documents. In the
event that any Shareholder has ownership rights, title or interest in any
intellectual property, or is a party in his individual capacity to any
contracts, agreements, or other documents ("Other Documents") intended to be
transferred to FNEDC or the P.C., pursuant to the Closing, such Shareholder
hereby conveys, transfers and assigns any and all of such right, title and
interest in and to said intellectual property and Other Documents and will take
whatever action necessary for FNEDC or the P.C. to effect transfer or assignment
of the same as of the Closing or as soon as possible thereafter.
3.4. Assumption of Certain Automobile Leases by Saul Herman. Prior to
the Closing, the Shareholders shall cause Dr. S. Herman Group Dental Associates,
P.A. to convey, transfer and assign to Saul Herman any and all of their
respective right, title and interest in and to the Automobile Leases described
on the attached Schedule 3.4 (the "Automobile Leases"). The Shareholders will
take whatever action is necessary to effect the transfer or assignment of the
Automobile Leases to Saul Herman prior to the Closing.
3.5. Indemnification of Mark Herman by the P.C. With Respect to Certain
Equipment Leases Assumed by the P.C. Schedule 3.5 attached hereto sets forth
certain leases for equipment used by the Companies in the Business ("Equipment
Leases") for which Mark Herman, the son of Saul Herman and a dentist employed by
one or more of the Companies ("Mark Herman"), is liable as a party to the lease
or as a guarantor. Upon Closing, the Shareholders shall use their best efforts
to cause Mark Herman and each Company that is a party to an Equipment Lease
(each a "Lessee") to take whatever action is necessary to effect the transfer or
assignment of such Equipment Lease to the P.C. and to obtain the approval or
consent of the lessor to convey, transfer and assign to the P.C. any and all of
such Lessee's right, title and interest in and to such Equipment Lease. The P.C.
hereby agrees to indemnify, defend and hold harmless Mark Herman in accordance
with the terms and conditions of the Mark Herman Employment Agreement as defined
in Section 4.1(e) hereof.
3.6. Space Arrangement with Armento. The Parties' agreement with
Armento is set forth on the attached Schedule 3.6 (the "Armento Space
Agreement").
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<PAGE> 33
3.7. Consulting Arrangement with Saul Herman. The Parties' agreement
with Saul Herman is set forth on the attached Schedule 3.7.
3.8. Operation of Business. No Shareholder will permit any Company to
engage in any practice, take any action, or enter into any transaction outside
of its ordinary course of business. Without limiting the generality of the
foregoing, the Shareholders will ensure that no Company will, at any time prior
to Closing, (i) declare, set aside or pay any dividend or make any distribution
with respect to its capital stock (other than dividends and distributions that
are consistent in nature and amount with such Company's last five (5) fiscal
years; provided, however, that subject to the final sentence of Section 2.2(h),
the Shareholders may cause the Companies to distribute to the Shareholders all
cash in the Companies' respective bank accounts on or before the Closing Date),
or redeem, purchase or otherwise acquire any of its capital stock, or (ii)
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 2.2(h) above.
3.9. Preservation of Business. Prior to Closing, the Shareholders will
use their good faith commercially reasonable efforts to ensure that each Company
will keep the Business and properties substantially intact, including its
present operations, physical facilities, working conditions and relationships
with lessors, licensors, suppliers, customers and employees.
3.10. Notice of Developments. The Shareholders on one hand, and FNEDC,
on the other, will give prompt written notice to the other of any material
adverse development prior to Closing which causes or is likely to cause a breach
of any of their, his or its own, as the case may be, representations and
warranties in Sections 2.1, 2.2 and 2.3 above. No disclosure by any Party
pursuant to this Section 3.10, however, shall be deemed to amend or supplement
the Schedules or to prevent or cure any misrepresentation, breach of warranty or
breach of covenant.
3.11. Insurance. Each Shareholder will use his good faith commercially
reasonable efforts to ensure that at all times prior to the Closing Date each
Company and each dentist-employee of each Company will continue to maintain in
full force and effect an individual professional liability insurance policy with
liability limits of at least $1 million per occurrence and $3 million aggregate.
If any of the foregoing insurance is on a "claims-made" basis, each Shareholder
will use his good faith commercially reasonable efforts to ensure that each
Company will prior to Closing obtain, at its expense, malpractice tail
insurance, in form and substance acceptable to FNEDC, to insure against general,
professional and directors and officers liability claims made on or after
Closing resulting from or arising out of events occurring in the Business prior
to Closing.
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<PAGE> 34
Such tail policies shall name FNEDC as a named insured thereunder.
3.12. Further Assurances. The Shareholders on one hand, and FNEDC, on
the other, both before and after the Closing, upon the request from time to time
of the other, and without further consideration, will do each and every act and
thing as may be necessary or reasonably requested to consummate the transactions
contemplated hereby (including, without limitation, the orderly transfer to
FNEDC of the Stock), including without limitation by executing, acknowledging
and delivering assurances, assignments and other documents and instruments,
furnishing information and copies of documents, books and records (including
without limitation tax records); filing reports, returns, applications, filings
and other documents and instruments with governmental authorities; and
cooperating with the other in exercising any right or pursuing any claim,
whether by litigation or otherwise, other than rights and claims running against
the party from whom or which such cooperation is requested.
3.13. Survival of Covenants. The covenants contained in Sections 3.5,
3.6, 3.7, 3.12 and 3.13 shall survive the Closing.
3.14. Break-Up Fee. Each Shareholder hereby agrees that, during the
applicable Break-Up Fee Period as defined below, in the event of a sale, merger,
consolidation or other disposition of all or a majority of the assets or stock
of any Company or GHA, to, with or into a third party other than an affiliate of
FNEDC, another Company, GHA or a Shareholder, or in the event any Company
otherwise combines or forms a partnership with a third party other than an
affiliate of FNEDC, another Company, GHA or a Shareholder, then FNEDC would be
irreparably harmed. Accordingly, in the event of any such sale, merger,
consolidation or other combination (a "Transaction"), within the applicable
Break-Up Fee Period set forth below, each Shareholder hereby agrees that he
shall be jointly and severally liable to FNEDC for liquidated damages in the
aggregate amount of One Million Dollars ($1,000,000) under this Agreement and
the DPO Stock Purchase Agreement, which liquidated damages shall be due and
payable to FNEDC immediately upon the consummation of any such sale, merger,
consolidation or other combination.
In the event (i) FNEDC terminates this Agreement in accordance
with Article IX hereof or FNEDC of NJ terminates the DPO Stock Purchase
Agreement in accordance with Article IX thereof and the Shareholders are unable
to terminate either this Agreement in accordance with Article IX hereof or the
Stock Purchase Agreement in accordance with Article IX thereof, or (ii) the
Shareholders fail to make good faith commercially reasonable efforts to fulfill
the closing conditions set forth in Section 4.1 hereof by the Closing Date and
FNEDC delivers a written notice to the Shareholders stating its election to
terminate this Agreement, then the Break-Up Fee Period shall commence as of the
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Closing Date and expire no earlier than six (6) months from such date.
In the event (i) the Shareholders terminate this Agreement in
accordance with Article IX hereof, or (ii) FNEDC is unable to, or elects not to,
fulfill the closing conditions set forth in Section 4.2 hereof by the Closing
Date and the Shareholders deliver a written notice to FNEDC stating their
election to terminate this Agreement, then the Break-Up Fee Period shall
terminate as of the date of such notice.
3.15. Subchapter S Elections. FNEDC agrees to use commercially
reasonable efforts to make a Section 1377(a)(2) election in a timely manner for
each Company that exists as of the Closing Date for federal income tax purposes
as a Subchapter S corporation in order to close the books of such Company as of
the Closing Date. Each Shareholder hereby agrees to provide reasonable
assistance, upon and in accordance with the reasonable request of FNEDC, to
effect FNEDC's filing of the Subchapter S elections described herein above.
ARTICLE IV
CONDITIONS TO CLOSING
4.1. Conditions Precedent to FNEDC's Obligations. The obligation of
FNEDC to consummate the transactions contemplated by this Agreement is expressly
subject to the fulfillment or express written waiver of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations and warranties contained in Sections 2.2,
2.3 and 2.4 of this Agreement shall be true and correct in all material respects
at and as of the Closing Date, except as otherwise specifically provided for
herein. The Shareholders shall have performed, on or before the Closing Date,
all obligations under this Agreement which by the terms hereof are to be
performed respectively by each Shareholder on or before the Closing Date.
(b) Delivery of Certificates. The Shareholders shall have
delivered to FNEDC certificates representing the Stock, duly endorsed for
transfer or with duly executed stock powers attached.
(c) Filing of Amended Certificates of Incorporation. The
Shareholders shall have caused each Company to file an Amended Certificate of
Incorporation in the form attached hereto as Exhibit B.
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(d) Escrow Agreement. The Shareholders shall have executed and
delivered the Escrow Agreement.
(e) Employment Agreement with Mark Herman. The Shareholders
shall have caused the execution and delivery of an employment agreement among
Mark Herman, the P.C. and GHA (the "Mark Herman Employment Agreement") attached
hereto as Exhibit C.
(f) Leases. The Shareholders shall have caused each Company to
deliver a fully executed Assignment and Assumption Agreement in the form
attached hereto as Exhibit D with respect to each lease set forth on Schedule
2.2(g) for which consent to transfer is required, dated as of the Closing Date,
by and among such Company, the P.C. and the respective landlord (collectively,
the "Assumption Agreements").
(g) Herman Leases. Saul Herman shall have executed and
delivered a lease by and between Saul Herman and the P.C. for the premises
located at (i) 182 Ferry Street, Newark, New Jersey, (ii) 214 Kearny Avenue,
Kearny, New Jersey, and (iii) 236 East Westfield Avenue, Roselle Park, New
Jersey, in the form attached hereto as Exhibit E ((i)-(iii), collectively, the
"Herman Leases").
(h) Equipment Leases. The Shareholders shall have caused each
Company and the respective lessor to deliver: (i) a fully executed assignment of
each equipment lease described in Section 2.2(n) hereof, including but not
limited to those equipment leases listed on Schedule 3.5 for which Mark Herman
is liable as a party to the lease or as a guarantor, in a form reasonably
acceptable to FNEDC and dated as of the Closing Date, by and among such Company,
the P.C. and the respective lessor (collectively, the "Equipment Lease
Assignments"); and (ii) an executed consent to transfer from any lessors in form
and substance reasonably satisfactory to FNEDC with respect to each lease in
which the Companies are not lessees; provided, however, that failure by the
Shareholders to obtain and deliver any such executed Equipment Lease Assignments
and/or consents to transfer after good faith commercially reasonable efforts to
do so shall not affect the Shareholders' rights, if any, to retain all or any
portion of the Deposit.
(i) Legal Opinion from Counsel for the Shareholders. FNEDC
shall have received the written opinion of Cole, Schotz, Meisel, Forman and
Leonard, P.C., counsel for the Shareholders, Mark Herman and the Companies,
dated the Closing Date and substantially in the form attached hereto as Exhibit
F.
(j) Delivery of Other Instruments. The Shareholders shall have
delivered instruments of conveyance for the Other Documents and such other
certificates, consents, instruments or agreements as may be reasonably requested
by FNEDC or its counsel.
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(k) Termination of Plans. The Shareholders shall have caused
the Companies to terminate the Plans listed in Schedule 2.2(m) effective on or
before the Closing Date.
(l) Required Consents. All consents and waivers (except for
consents from lessors for assignment to the P.C. of certain equipment leases
described in Section 2.2(n) hereof, including but not limited to those equipment
leases listed on Schedule 3.5, that are not obtained as of the Closing Date;
provided that the Shareholders have used their best efforts to obtain such
consents), in form and substance satisfactory to FNEDC and its counsel,
necessary or appropriate to (1) consummate the Closing and the other
transactions contemplated hereby, and (2) for the continued operation of the
Business of each Company on substantially the same basis as operating currently
and without the imposition of materially adverse conditions on such Business
shall have been obtained by the Shareholders.
(m) DPO Stock Purchase Agreement. The DPO Stock Purchase
Agreement shall have been executed and delivered by the Shareholders.
4.2. Conditions Precedent to the Obligations of the Shareholders. The
obligation of each Shareholder to consummate the transactions contemplated by
this Agreement is expressly subject to the fulfillment or written waiver of the
following conditions on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations and warranties of FNEDC contained in
Section 2.1 shall be true and correct in all material respects at and as of the
Closing, except as otherwise specifically provided for herein. FNEDC shall have
performed, on or before the Closing Date, all obligations under this Agreement
which by the terms hereof are to be performed by FNEDC on or before the Closing
Date.
(b) Deposit. FNEDC shall have delivered the Deposit in
accordance with Section 1.1(a) hereof.
(c) Required Consents. All consents and waivers, in form and
substance satisfactory to the Shareholders and their counsel, necessary to
consummate the Closing and the other transactions contemplated hereby, shall
have been obtained by FNEDC.
(d) Escrow Agreement. FNEDC and FNEDC of NJ shall have
executed and delivered the Escrow Agreement.
(e) Employment Agreement with Dr. Mark Herman. FNEDC shall
have caused the P.C. to execute and deliver the Mark Herman Employment
Agreement.
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(f) Assumption Agreements. FNEDC shall have caused the P.C. to
execute and deliver the Assumption Agreements.
(g) Equipment Lease Assignments. FNEDC shall have caused the
P.C. to execute and deliver the Equipment Lease Assignments.
(h) Herman Leases. FNEDC shall have caused the P.C. to execute
and deliver the Herman Leases.
(i) Legal Opinion from Counsel to FNEDC. The Shareholders
shall have received the written opinion of McDermott, Will and Emery, counsel to
FNEDC, dated the Closing Date and in a form reasonably satisfactory to
Shareholders' counsel.
(j) DPO Stock Purchase Agreement. The DPO Stock Purchase
Agreement shall have been closed by FNEDC of NJ. FNEDC shall cause each of FNEDC
of NJ and the P.C. on the date of closing to have signed counterpart signature
pages to this Agreement and the DPO Stock Purchase Agreement.
(k) Delivery of Financial Statements. FNEDC shall have
delivered to the Shareholders copies of the financial statements prepared
according to generally accepted accounting principals by FNEDC's independent
accountants for the Companies and GHA.
ARTICLE V
CLOSING AND DELIVERIES
5.1. Date and Place of Closing. Subject to Section 1.2, to the extent
applicable, if at all, the consummation of the transactions contemplated hereby
(the "Closing") shall be held at the offices of McDermott, Will & Emery, 50
Rockefeller Plaza, 11th Floor, New York City, New York at 10:00 a.m. on the
earlier of (i) the tenth (10th) day after the closing date of FNEDC's proposed
initial public offering, or (ii) December 15, 1997, or at such other time and
place as the parties may mutually agree in writing (the "Closing Date").
5.2. Deliveries at Closing by the Shareholders. At the Closing,
provided FNEDC has duly performed its obligations hereunder, the Shareholders
shall deliver or cause to be delivered to FNEDC the following:
(a) Certificates representing the Stock, duly endorsed for
transfer or with duly executed stock powers attached, and free of any liens,
encumbrances, restrictions on transfer, charges or claims;
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(b) Certified copies of resolutions duly adopted by each
Company's (i) Board of Directors, and (ii) shareholders, approving and
authorizing the transactions provided for in the Operative Documents, the
execution thereof and the performance of all acts required to be performed by
each Company thereunder, accompanied by an appropriate certificate of
incumbency;
(c) Certified copies of resolutions duly adopted by each
Company's (i) Board of Directors, and (ii) shareholders, ratifying all actions
and authorizations of each Company's board of directors and shareholders since
the date of each Company's respective incorporation, accompanied by an
appropriate certificate of incumbency;
(d) A copy of each Company's (i) Certificate of Incorporation,
and (ii) Bylaws, each as amended as of the Closing Date and certified by the
Secretary of such Company, a Certificate of Good Standing of each Company issued
as of a recent date by the Secretary of State of the State of New Jersey and a
Tax Clearance Certificate of each Company issued as of a recent date by the New
Jersey Department of Taxation;
(e) Instruments of transfer, in form reasonably satisfactory
to FNEDC and its counsel, to convey all of the Shareholders' right, title and
interest in and to any trademarks and Other Documents; and
(f) All consents of any person or entity, whether or not a
party to this Agreement, which are necessary to effectuate the transfer of the
Stock, the assignment of the Other Documents, and the consummation of the
transactions contemplated by this Agreement.
5.3. Deliveries by FNEDC. At the Closing, provided each Shareholder and
each Company has fully performed all of his or its respective obligations
hereunder, FNEDC shall deliver or cause to be delivered to or on behalf of the
Shareholders the following:
(a) The Purchase Price minus the Deposit;
(b) A certified copy of resolutions duly adopted by FNEDC's
Board of Directors approving and authorizing the transactions provided for in
the Operative Documents, the execution thereof and the performance of all acts
required to be performed by FNEDC thereunder, accompanied by an appropriate
certificate of incumbency; and
(c) A copy of FNEDC's (i) Certificate of Incorporation, and
(ii) Bylaws, each as amended as of the Closing Date and certified by the
Secretary of FNEDC, and a Certificate of Good Standing of FNEDC issued as of a
recent date by the Secretary of State of the State of Delaware.
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(d) All consents of any person or any entity, whether or not a
party to this Agreement, which are necessary to effectuate the consummation of
the transactions contemplated by this Agreement.
(e) Counterpart signature pages to this Agreement and the DPO
Stock Purchase Agreement by each of FNEDC of NJ and the P.C.
ARTICLE VI
POST-CLOSING MATTERS
6.1. Further Assurances. Following the Closing Date, the Shareholders
will execute and deliver to FNEDC such documents and take such other actions, at
the Shareholders' expense, as FNEDC may reasonably request in order to vest in
FNEDC good, valid and marketable title to the Stock.
6.2. Employment and Benefits-Related Matters.
(a) FNEDC shall retain the right to amend in any respect or to
terminate in whole or in part any Plan in accordance with the provisions of such
Plan and applicable law.
(b) Nothing contained in this Agreement shall obligate or commit FNEDC
to continue any Plan with respect to services after the Closing Date or to
maintain in effect any such Plan or any similar plan or any level or type of
benefit except as may be provided to the contrary in this Section 6.2.
(c) The Shareholders shall cooperate and remain responsible financially
for fulfilling all reporting, disclosure and other administrative duties of any
Shareholder or any Company for the Plans that relate to periods prior to the
Closing Date. Any failure by the Shareholders to fulfill these duties shall be
subject to the indemnification provisions under Section 8.2(b) below.
(d) The Shareholders shall provide to FNEDC copies of any
correspondence relating to the Plans and shall inform FNEDC of any
communications with a government agency, including but not limited to the
Internal Revenue Service and the U.S. Department of Labor, regarding the Plans.
(e) Upon the Closing, FNEDC and the P.C. will make offers of employment
to all employees of the Companies upon such terms and conditions as FNEDC or the
P.C., as the case may be, may determine. Employees of each Company who are not
dentists shall become employees of FNEDC and employees of each Company who are
dentists and who accept offers of employment shall become employees of the P.C.
Such employees shall receive standard FNEDC or P.C. employee benefits, as the
case may be. FNEDC and
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the P.C. shall be entitled in the ordinary course of their respective businesses
to prospectively alter the compensation, and benefit programs they offer to
their respective employees. The terms and conditions of the employment of
dentists with separate written employment contracts with the P.C. shall be
governed by the provisions of such contracts.
6.3. Access to Records. The Shareholders and FNEDC shall each cooperate
with the other after the Closing Date by providing without additional
consideration (except as set forth below) and promptly upon request, copies of
such records and other information regarding the Business and the assets of the
Companies and GHA as may reasonably be requested from time to time by the other
Parties as necessary for the preparation or audit of federal, state and local
income and other tax returns, third party reimbursement filings, audits
(including those by third party payors), third party disputes, refund claims and
other valid business purposes. All such requests for information shall be made
upon reasonable notice, and such information shall be made available during
normal business hours (unless otherwise agreed to by the Parties) and in such
manner as to avoid unnecessary disruption of the Party providing the
information. The Party requesting such information shall pay the reasonable
out-of-pocket expenses of the Party providing such information.
ARTICLE VII
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT
7.1. Non-Solicitation. Subject to the provisions set forth in Article
IX hereof, for a period of three (3) years following the Closing Date, neither
Saul Herman nor Armento (related to orthodontic work only) shall, without the
express written consent of FNEDC:
(a) solicit any persons who are at any time patients of the
Business, nor suggest, request or direct that any such patients request that
medical records be copied or otherwise removed or transferred from FNEDC's
office, nor remove or copy any medical records or patient or mailing lists; or
(b) hire, seek to hire or assist in hiring any employee, agent
or independent contractor of the Business or FNEDC or induce or seek to induce,
or take action which results in the termination of employment or other
arrangements between the Business or FNEDC and such employee, agent or
independent contractor or otherwise interferes with such employment or
arrangements; provided that Armento may continue to employ his two (2)
assistants as of the execution date hereof.
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7.2. Non-Compete. Subject to the provisions set forth in Article IX
hereof, Saul Herman shall be bound by the following non-competition covenants:
(a) For a period of three (3) years following the Closing
Date, Saul Herman shall not, without the express written consent of the FNEDC
(i) engage in any dental practice or activity within a fifteen (15) mile radius
("Non-Compete Area") of any present locations of any Company ("the Locations")
that competes with FNEDC; or (ii) directly or indirectly own, manage, operate,
control or participate either directly or indirectly in the ownership,
management, operation or control of (A) any dental practice or specialty dental
care facility, however organized, within the Non-Compete Area, (B) any dental
plan organization or similar health maintenance organization within the State of
New Jersey, and (C) any laboratory or other facility within the State of New
Jersey that provides any services or manufacturers any products that compete,
directly or indirectly, with the products and/or services manufactured or
provided by Doctor's Denture Service, P.A.
(b) If any part of this Section 7.2 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.
(c) Notwithstanding Section 7.2(a) above, during the three (3)
year period following the Closing, Saul Herman will be free to pursue whatever
activities he desires, provided that such other activities do not (i) materially
interfere with his obligations to provide consulting services to FNEDC as set
forth in Schedule 3.7, or violate the provisions of this Section 7.2.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
8.1. Survival. The Shareholders and FNEDC agree that (i) the covenants,
representations and warranties contained in this Agreement shall survive for a
period of two (2) years from the Closing Date, except that the representations,
warranties and covenants contained in Section 2.2(i) shall survive until the
applicable tax statutes of limitations relating thereto shall have run, (ii) the
representations, warranties and covenants contained in Section 2.2(m) shall
survive indefinitely, (iii) the provisions of Article VII shall survive the
Closing Date for the period specified therein; and (iv) the provisions of this
Article VIII shall survive the Closing Date for an indefinite period.
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8.2. Indemnification of FNEDC. (a) Each Shareholder agrees to jointly
and severally indemnify and hold FNEDC and its affiliates and their respective
directors, officers and employees (collectively, "FNEDC Indemnitees") from and
against (a) any and all payments, damages, claims, demands, losses, expenses,
costs, obligations and liabilities, including reasonable attorneys' fees, which
may be asserted against or sustained or incurred by the FNEDC Indemnitees in
connection with, arising out of or related to: (i) any inaccuracy in,
misrepresentation or breach of any of the representations, warranties,
agreements, commitments, obligations, covenants or conditions made by any
Company or any Shareholder under this Agreement, including the Schedules hereto
other than Schedule 3.6; (ii) any actions of the Shareholders, any Company or
its employees or agents taken prior to the Closing Date (with the exception of
liabilities of any Company incurred by such Company in the ordinary course of
business); (iii) the establishment or administration of any Plan prior to the
Closing Date; (iv) the Shareholders' failure to fulfill their post-Closing
duties under Section 6.2 above; (v) any audit of a Plan performed by any
governmental unit, including but not limited to the Internal Revenue Service and
the U.S. Department of Labor, relating to periods prior to the Closing Date; or
(vi) the failure of the transfer and assignment of the Stock, the trademarks and
the Other Documents from the Shareholders to FNEDC to cause FNEDC to acquire
good and marketable title to the Stock, the trademarks and the Other Documents,
free and clear of any liens, encumbrances, restrictions on transfer, charges or
claims unless such failure is caused by the action of FNEDC or its affiliates
and agents; and (b) any and all costs and expenses (including, but not limited
to, reasonable legal expenses) incurred by the FNEDC Indemnitees in connection
with the enforcement of their respective rights hereunder.
8.3. Indemnification of the Shareholders. FNEDC and, from and after the
Closing Date, each of FNEDC of NJ and the P.C., jointly and severally agree to
indemnify and hold the Shareholders, their employees and agents and, with
respect to clause (a)(ii) below, Marcia Herman, and with respect to clause
(a)(iii) below, Mark Herman (collectively, "Shareholder Indemnitees"), from and
against (a) any and all payments, damages, claims, demands, losses, expenses,
costs, obligations and liabilities, including reasonable attorneys' fees, which
may be asserted against or sustained or incurred by the Shareholder Indemnitees:
(i) in connection with, arising out of or related to any inaccuracy in,
misrepresentation or breach of any of the representations, warranties,
agreements, commitments, obligations, covenants or conditions made by FNEDC
under this Agreement, including the Schedules hereto other than Schedule 3.6;
(ii) any financial obligation arising post-Closing out of Marcia Herman's
guaranty of the obligations of any Company or GHA under any real estate or
equipment lease assumed by or assigned to FNEDC, FNEDC of NJ or the P.C.; (iii)
any financial obligation
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arising post-Closing out of leases where Mark Herman is guarantor or lessor
under any equipment lease as provided in Section 11 of the Mark Herman
Employment Agreement; (iv) arising or resulting from any actions of FNEDC
(including acts or omissions by any Shareholder that are committed at the
direction of FNEDC and/or the P.C. or are required pursuant to such
Shareholder's respective arrangement with FNEDC) taken after the Closing Date;
or (v) any liability arising from the filing of the Amended Certificates of
Incorporation pursuant to Section 4.1(c); and (b) any and all costs and expenses
(including, but not limited to, reasonable legal expenses) incurred by the
Shareholder Indemnitees in connection with the enforcement of their respective
rights hereunder.
8.4. Procedure for Indemnification. Any party making a claim for
indemnification hereunder (the "Indemnitee") shall notify the indemnifying party
(the "Indemnifying Party") of the claim in writing, describing the claim, the
amount thereof, and the basis therefor. The Indemnifying Party shall respond to
each such claim within 30 days of receipt of such notice. No action shall be
taken pursuant to the provisions of this Agreement or otherwise by the
Indemnitee until the later of (a) the expiration of the 30-day response period
(unless reasonably necessary to protect the rights of the Indemnitee), or (b) 30
days following the receipt of a response within such 30-day period by the
Indemnitee requesting an opportunity to cure the matter giving rise to
indemnification (and, in such event, the amount of such claim for
indemnification shall be reduced to the extent so cured within such 30-day cure
period). If such demand is based on a claim by a third party, the Indemnifying
Party shall have the right to assume the entire control of the defense,
compromise or settlement thereof, including at its own expense, employment of
counsel reasonably satisfactory to the Indemnitee, and, in connection therewith,
the Indemnitee shall cooperate fully to make available to the Indemnifying Party
all pertinent information under its control. No claim for indemnification
resulting from the breach or falsity or any of the representations or warranties
set forth herein or in any certificate or other instrument delivered pursuant
hereto shall be made after a date on which such representation, warranty or
agreement shall have expired under the provisions of Section 10.1 hereof.
8.5. Limitations on Indemnity Obligations. The Indemnifying Party shall
have no obligation to pay any claim for indemnification hereunder unless and
until the aggregate amount of all such claims arising under both this Agreement
and the DPO Stock Purchase Agreement exceeds Fifty Thousand Dollars ($50,000)
(the "Threshold Indemnity Amount"). In the event the aggregate amount of all
claims for which an Indemnified Party seeks indemnification hereunder exceeds
the Threshold Indemnity Amount, the Indemnifying Party shall be liable for the
entire indemnity amount with respect to such aggregated claims, including the
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Threshold Indemnity Amount. Notwithstanding any other provision of this Article
VIII, the maximum aggregate amount that either FNEDC, on one hand, or the
Shareholders, on the other hand, shall be obligated to pay as indemnity under
this Agreement and the DPO Stock Purchase Agreement shall be the product of Four
Million Dollars ($4,000,000) and a fraction the numerator of which is the sum of
the Purchase Price or the Adjusted Purchase Price, if any, for each of this
Agreement and the DPO Stock Purchase Agreement and the denominator of which is
Five Million Seven Hundred Thousand Dollars ($5,700,000).
8.6. Exclusive Remedy for Certain Indemnity Claims. Each Party
acknowledges and agrees that its sole and exclusive remedy with respect to any
and all claims relating to the subject matter of this Agreement, including the
Schedules hereto other than Schedule 3.6, shall be pursuant to the
indemnification provisions set forth in this Article VIII; provided, however,
that the Shareholders acknowledge and agree that FNEDC shall be entitled to
obtain injunctive relief with respect to the enforcement of the non-competition
and non-solicitation covenants set forth in Article VII; and further provided
that nothing in this Article VIII shall prevent the Parties from obtaining any
remedy specifically provided for in this Agreement including arbitration of
purchase price adjustments, refund or partial refund of the Deposit,
indemnification by the Shareholders for any tax liability of the Companies as
set forth in Section 2.2(i), liquidated damages during the Break-Up Fee Period,
certain provisions as set forth in Article IX below, and certain provisions as
set forth in Sections 9 and 11 of Schedule 3.6 attached hereto.
8.7. Indemnity Payments by the Shareholders to be Treated as Purchase
Price Adjustments. The Parties agree that indemnity payments made by the
Shareholders in respect of their indemnity obligations under this Article VIII,
if any, shall be treated as proportional purchase price adjustments under this
Agreement and the DPO Stock Purchase Agreement.
ARTICLE IX
TERMINATION OF AGREEMENT
Notwithstanding anything in this Agreement to the contrary, this
Agreement and the obligations of the parties hereunder may be terminated
immediately upon written notice given on or prior to Closing Date as follows:
(a) by written consent of FNEDC and the Shareholders;
(b) by FNEDC if (i) any Shareholder has breached or violated
any material provision of this Agreement or failed to
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perform any material covenant or agreement to be performed by such Shareholder
under this Agreement, and (ii) FNEDC has given such Shareholder reasonably
specific written notice of such breach or violation, and (iii) such Shareholder
has failed to cure such breach or violation within a reasonable period time (not
to exceed 30 days) after the giving of notice;
(c) by the Shareholders if (i) FNEDC has breached or violated
any material provision of this Agreement or failed to perform any material
covenant or agreement to be performed by FNEDC under the terms of this
Agreement, and (ii) the Shareholders have given FNEDC reasonably specific
written notice of such breach or violation, and (iii) FNEDC has failed to cure
such breach or violation within a reasonable period of time (not to exceed 30
days) after the giving of notice; and
(d) by either Party if this Agreement and the DPO Stock
Purchase Agreement do not both close by December 15, 1997.
In the event this Agreement shall be terminated pursuant to the
provisions of this Article IX, all rights and obligations of the Parties
hereunder shall terminate without any liability of the Shareholders, on one
hand, and FNEDC, on the other, except for (i) any liability of any party then in
breach, (ii) the respective obligations of the parties pursuant to Article X
herein, (iii) in accordance with the provisions of Section 1.2 hereof, the
Shareholders may be required to return all or a portion of the Deposit to FNEDC,
and (iv) in the event that the Shareholders shall be required to deliver the
Deposit to FNEDC by wire transfer of immediately available funds no later than
ten (10) days following the date of notice of termination and the Shareholders'
obligations pursuant to Sections 3.14 and 3.15 hereof shall survive.
ARTICLE X
CONFIDENTIAL INFORMATION
The Parties hereby acknowledge the confidential nature of this
Agreement and the transactions contemplated hereby. Neither any Shareholder on
the one hand, nor FNEDC, on the other hand, shall at any time from and after the
execution of this Agreement, directly or indirectly, without the prior written
consent of the Shareholders or FNEDC, as the case may be, disclose or use, in
any way harmful to the business, operations, assets, prospects or condition of
the Companies or FNEDC, as the case may be, or any of their affiliates, or
otherwise contrary to the interests of such other party or their affiliates, any
confidential information involving or relating to the Companies or FNEDC, as the
case may be, or any of their affiliates or any business, venture or other
activity of the Companies or FNEDC, as the case may be, past, present or future,
actual or prospective; provided,
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however, that such confidential information shall not include any information
which (A) is already in a party's possession, or (B) becomes generally available
to the public other than as a result of disclosure in violation hereof by the
receiving party or its directors, officers, employees, agents or advisors; or
(C) becomes available to a party on a non-confidential basis from a source other
than another party or its affiliates, directors, officers, employees or agents;
and provided, further, that the provisions of this Article X shall not prohibit
any disclosure required by law in connection with any Governmental Approval or
judicial or administrative proceeding or inquiry, pursuant to any applicable
regulatory requirements including disclosure required by any statute, rule or
regulation, by generally accepted accounting principles, or for purposes of
correcting any information contained in any public medium. This Article X shall
survive the Closing or termination of this Agreement for any reason whatsoever,
as applicable, for an unlimited period of time.
ARTICLE XI
MISCELLANEOUS
11.1. Notices. All notices to a Party hereunder shall be deemed to have
been adequately given if delivered in person or mailed, certified mail, return
receipt requested, to such Party at its address set forth below (or such other
address as it may from time to time designate in writing to the other parties
hereto):
To the Shareholders: Saul Herman, D.D.S.
35 Vanderbilt Drive
Livingston, NJ 07039
Robert Armento, D.D.S.
31 Oak Place
North Caldwell, NJ 07006
with a copy to: Cole, Schotz, Meisel, Forman,
Leonard, P.C.
Court Plaza North, 25 Main Street
P.O. Box 800
Hackensack, NJ 07602-0800
Attention: Alan Rubin, Esq.
To FNEDC: First New England Dental Centers,
Inc.
85 Devonshire Street, 2nd Floor
Boston, MA 02109
Attention: President
- 40 -
<PAGE> 48
with a copy to: Michael L. Blau, Esq.
McDermott, Will & Emery
75 State Street, 17th Floor
Boston, MA 02109
11.2. No Waiver. No failure to exercise and no delay in exercising, on
the part of FNEDC or the Shareholders, any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The rights provided
are cumulative and not exclusive of any rights provided by law.
11.3. Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by each Party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the Party
waiving such term or provision.
11.4. Governing Law; Headings. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to the conflict of law principles thereof. The
descriptive headings of the several Articles and Sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
11.5. No Assignment. None of the parties hereto may assign this
Agreement or any of their respective rights or obligations hereunder without
first obtaining the prior written consent of the other parties hereto; provided,
however, that FNEDC may (i) assign any or all of its rights and interests
hereunder to one or more of its affiliates, including FNEDC of NJ, or to the
P.C., and (ii) designate one or more of its affiliates or the P.C. to perform
its obligations hereunder.
11.6. Binding Effect and Benefits; Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
heirs, successors and assigns. FNEDC agrees to cause any entity that acquires
all or substantially all of FNEDC's assets to assume FNEDC's obligations
hereunder, unless assumption of such obligations is expressly waived in writing
by the Shareholders, and further agrees that in the event of a merger,
consolidation or change of control between FNEDC and a third party FNEDC will
not exclude its obligations hereunder from such merger, consolidation or change
of control.
11.7. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior
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<PAGE> 49
discussions, understandings and agreements concerning the matters covered
hereby.
11.8. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.9. Transfer Taxes. All stock transfer taxes, if any, incident to the
sale of the Stock shall be paid by the Shareholders.
11.10. Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of New Jersey in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on the other Party by sending or delivering a copy of the
process to the Party to be served at the address for the giving of notices in
Section 11.1 above. Nothing in this Section 11.10, however, shall affect the
right of any Party to serve legal process in any other manner permitted by law
or in equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or in equity.
*
*
*
*
*
*
*
*
*
*
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<PAGE> 50
IN WITNESS WHEREOF, the undersigned have set their hands and seals as
of the date first set forth above.
FIRST NEW ENGLAND DENTAL CENTERS,
INC.
By: ____________________________
Jerald R. Robbins
Executive Vice President
____________________________
Saul H. Herman, D.D.S.
____________________________
Robert Armento, D.D.S.
<PAGE> 1
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
BY AND AMONG
FNEDC OF NEW JERSEY, INC.,
AND
SAUL HERMAN, D.D.S.
AND
ROBERT ARMENTO, D.D.S.,
THE OWNERS OF THE ISSUED AND OUTSTANDING
CAPITAL STOCK OF
GROUP DENTAL HEALTH ADMINISTRATORS, INC.
Dated as of August 29, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
PURCHASE AND SALE.............................................................................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES................................................................................. 7
2.1. Representations and Warranties of FNEDC........................................................... 7
(a) Organization, Power and Standing.......................................................... 7
(b) Power and Authority Relative to Transaction............................................... 7
(c) Valid and Binding Obligation.............................................................. 7
(d) Required Consents......................................................................... 8
(e) No Brokers................................................................................ 8
(f) Litigation................................................................................ 8
(i) Disclosure................................................................................ 8
2.2. Representations and Warranties Concerning the Company............................................. 9
(a) Organization, Power and Standing.......................................................... 9
(b) Qualification to do Business.............................................................. 9
(c) Subsidiaries and Interest in Other Entities............................................... 9
(d) Capitalization............................................................................ 9
(e) Certain Outstanding Liabilities........................................................... 10
(g) Title to Properties, Etc.................................................................. 10
(h) Conduct of Business; Absence of Material Adverse Changes.................................. 11
(i) Tax Returns and Payments.................................................................. 14
(j) Compliance with Laws...................................................................... 14
(k) Insurance................................................................................. 15
(l) Employees and Compensation................................................................ 16
(m) Employee Benefits......................................................................... 16
(n) Material Contracts........................................................................ 18
(o) Books and Records......................................................................... 20
(p) Banking Relationships..................................................................... 20
(q) Required Consents, Etc.................................................................... 20
(r) Accounts Receivable....................................................................... 20
(s) Litigation................................................................................ 20
(t) No Medicare Payment Program Providers..................................................... 21
(u) No Brokers................................................................................ 21
(v) Disclosure................................................................................ 21
(w) No Offer.................................................................................. 21
2.3. Representations and Warranties Concerning the Shareholders........................................ 22
(a) Title..................................................................................... 22
(b) Due Issuance.............................................................................. 22
(c) Power and Authority Relative to Transaction............................................... 22
(d) Valid and Binding Obligation.............................................................. 22
(e) Required Consents......................................................................... 22
(f) Litigation................................................................................ 22
(g) No Brokers................................................................................ 23
(h) No Offer...................................................................................23
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS..................................................................................... 23
3.1. FNEDC's Access to Information..................................................................... 23
3.2. Notices and Consents; Governmental Approvals...................................................... 24
3.3. Assignment of Intellectual Property and Other Documents........................................... 24
3.4. Operation of Business............................................................................. 25
3.5. Preservation of Business.......................................................................... 25
3.6. Notice of Developments............................................................................ 25
3.7. Insurance......................................................................................... 25
3.8. Further Assurances................................................................................ 26
3.9. Survival of Covenants............................................................................. 26
3.11. Assumption of Certain Automobile Leases by Saul Herman............................................ 27
ARTICLE IV
CONDITIONS TO CLOSING................................................................................................... 27
4.1. Conditions Precedent to FNEDC's Obligations....................................................... 27
(a) Representations and Warranties True; Obligations Performed................................ 27
(b) Delivery of Certificates.................................................................. 27
(c) Escrow Agreement.......................................................................... 27
(d) Legal Opinion from Counsel for the Shareholders........................................... 27
(e) Delivery of Other Instruments............................................................. 28
(f) Termination of Plans...................................................................... 28
(g) Required Consents......................................................................... 28
(h) Stock Purchase Agreement.................................................................. 28
(a) Representations and Warranties True; Obligations Performed................................ 28
(b) Deposit................................................................................... 28
(c) Required Consents......................................................................... 28
(d) Escrow Agreement.......................................................................... 28
(e) Legal Opinion from Counsel to FNEDC....................................................... 29
(f) Stock Purchase Agreement.................................................................. 29
ARTICLE V
CLOSING AND DELIVERIES.................................................................................................. 29
5.1. Date and Place of Closing......................................................................... 29
5.2. Deliveries at Closing by the Shareholders......................................................... 29
5.3. Deliveries by FNEDC............................................................................... 30
ARTICLE VI
POST-CLOSING MATTERS.................................................................................................... 30
6.1. Further Assurances................................................................................ 30
6.2. Employment and Benefits-Related Matters........................................................... 31
6.3. Access to Records................................................................................. 31
ARTICLE VII
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT................................................................ 32
7.1. Non-Solicitation.................................................................................. 32
7.2. Non-Compete....................................................................................... 32
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VIII
<S> <C>
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION............................................................................ 33
8.1. Survival.......................................................................................... 33
8.2. Indemnification of FNEDC.......................................................................... 33
8.3. Indemnification of the Shareholders............................................................... 34
8.4. Procedure for Indemnification..................................................................... 34
8.7. Indemnity Payments by the Shareholders to be Treated as Purchase Price Adjustments................ 35
ARTICLE IX
TERMINATION OF AGREEMENT................................................................................................ 36
ARTICLE X
CONFIDENTIAL INFORMATION................................................................................................ 37
ARTICLE XI
MISCELLANEOUS........................................................................................................... 37
11.1. Notices........................................................................................... 37
11.2. No Waiver......................................................................................... 38
11.3. Amendments and Waivers............................................................................ 38
11.4. Governing Law; Headings........................................................................... 38
11.5. No Assignment..................................................................................... 38
11.6. Binding Effect and Benefits; Assigns.............................................................. 39
11.7. Entire Agreement.................................................................................. 39
11.8. Counterparts...................................................................................... 39
11.9. Transfer Taxes.................................................................................... 39
11.10. Submission to Jurisdiction........................................................................ 39
</TABLE>
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of August __,
1997, by and among FNEDC OF NEW JERSEY, INC., a New Jersey corporation
("FNEDC"), and SAUL HERMAN, D.D.S. ("Saul Herman"), and ROBERT ARMENTO, D.D.S.
("Armento"), the undersigned shareholders (singularly, a "Shareholder" or
collectively, the "Shareholders") of all of the issued and outstanding shares of
capital stock of Group Dental Health Administrators, Inc., a New Jersey
corporation licensed to operate a dental plan organization in the State of New
Jersey (the "Company"). FNEDC and the Shareholders are sometimes hereinafter
referred to each as a "Party" and collectively as the "Parties". For purposes of
Article VIII hereof only, on the Closing Date (defined in Section 5.1), each of
First New England Dental Centers, Inc., a Delaware corporation ("First Dental")
and a to-be-formed New Jersey professional association potentially named First
Dental Associates, P.A. (the "P.C."), shall join as parties to this Agreement.
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of administering
certain dental plans and contracting with dentists to service such plans (the
"Business");
WHEREAS, FNEDC intends to acquire all of the issued and outstanding
capital stock of the Company at the Closing (defined in Section 5.1); and
WHEREAS, simultaneously with and subject to the execution of this
Agreement, First Dental, Saul Herman and Armento, as stockholders 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., and Doctor's
Denture Service, P.A. (collectively, the "Professional Associations"), and Mark
Herman, D.D.S., are entering into a Stock Purchase Agreement dated of even date
herewith (the "Stock Purchase Agreement").
NOW THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE> 6
ARTICLE I
PURCHASE AND SALE
I.1. Purchase Price. Subject to the conditions precedent set forth in
Sections 4.1 and 4.2 below, based upon the representations and warranties made
herein, and in full consideration of Shareholders' performance of this Agreement
and the sale, assignment, transfer, conveyance and delivery to FNEDC of each
share of issued and outstanding capital stock of the Company (collectively, the
"Stock"), FNEDC shall perform its obligations hereunder and shall deliver and
pay to Shareholders One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Purchase Price"). The Parties agree that the Purchase Price shall be allocated
in the manner set forth in the attached Schedule 1.1 and that each Party shall
report this transaction on all applicable federal and state income tax returns
in accordance with such allocation. The Purchase Price shall be due and payable
at Closing (except as otherwise described in Section 1.1(a) below) by wire
transfer of immediately available funds as follows:
(a) A "non-refundable" deposit (which deposit shall be subject
to return in the limited circumstances described hereinafter) of One Hundred
Seventy-Five Thousand Dollars ($175,000) to be delivered to one or more accounts
designated by the Shareholders upon the execution and delivery of this Agreement
and the Stock Purchase Agreement (the "Deposit");
In the event (i) FNEDC terminates this Agreement in accordance with
Article IX hereof or First Dental terminates the Stock Purchase Agreement in
accordance with Article IX thereof and the Shareholders are unable to terminate
either this Agreement in accordance with Article IX hereof or the Stock Purchase
Agreement in accordance with Article IX thereof, or (ii) the Shareholders fail
to make good faith commercially reasonable efforts to fulfill the closing
conditions set forth in Section 4.1 hereof by the Closing Date (defined below in
Section 5.1) and FNEDC delivers a written notice to the Shareholders certifying
that they are otherwise ready and able to close and stating its election to
terminate this Agreement, then the Shareholders shall return the Deposit to
FNEDC in accordance with Article IX hereof;
In the event (i) the Shareholders terminate this Agreement in
accordance with Article IX hereof or terminate the DPO Stock Purchase Agreement
in accordance with Article IX thereof, or (ii) FNEDC is unable to, or elects not
to, fulfill the closing conditions set forth in Section 4.2 hereof by the
Closing Date and the Shareholders deliver a written notice to FNEDC stating
their election to terminate this Agreement, then the Shareholders shall be
entitled to retain the Deposit;
(b) Five Hundred Thousand Dollars ($500,000), together with
the Five Hundred Thousand Dollars ($500,000) to be delivered by First Dental
pursuant to Section 1.1(b) of the Stock Purchase
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<PAGE> 7
Agreement (collectively, the "Escrowed Funds," which funds shall not be
divisible but rather handled as one source of funds under the terms of the
Escrow Agreement (defined in this Section below)) to Fleet Bank, N.A., the
Escrow Agent, in accordance with the escrow agreement dated the date hereof,
attached hereto as Exhibit A, by and among FNEDC, First Dental, the Shareholders
and the Escrow Agent (the "Escrow Agreement"), and
(c) Eight Hundred Twenty-Five Thousand Dollars ($825,000) to
one or more accounts designated by the Shareholders.
The Escrowed Funds will be released to the Shareholders in accordance with the
terms and conditions of the Escrow Agreement.
I.2. Purchase Price Adjustment Option. The Purchase Price set
forth in Section 1.1 shall be subject to adjustment as follows:
(a) No earlier than thirty (30) days nor later than twenty
(20) days prior to the Closing Date, FNEDC's independent accountants shall
prepare and deliver to the Shareholders a statement of revenues of the Company
and the Professional Associations for the period commencing January 1, 1997 and
ending on the date thirty (30) days prior to the Closing Date (the "Draft
Statement of Revenues"). It is agreed that FNEDC's independent accountants shall
prepare the Draft Statement of Revenues in accordance with generally accepted
accounting principles; provided however, that FNEDC's independent accountants
will not consolidate the revenues of the Company and the Professional
Associations in the Draft Statement of Revenues. It is further agreed that the
comparable statement of revenues for the Company and the Professional
Associations, as prepared in accordance with generally accepted accounting
principles, for calendar year 1996 was Five Million Seven Hundred Thousand
Dollars ($5,700,000).
(b) The Shareholders shall deliver to FNEDC within ten (10)
days after receiving the Draft Statement of Revenues a detailed statement
describing their objections (setting forth in detail the revenue amount proposed
as an adjustment thereto and the basis for such objection), if any, thereto.
Failure of the Shareholders so to object to the Draft Statement of Revenues
shall constitute acceptance thereof, whereupon the Draft Statement of Revenues
shall be deemed to be the "Closing Statement of Revenues". FNEDC and the
Shareholders shall use reasonable efforts to resolve any such objections, but if
they do not reach a final resolution within ten (10) days after the Shareholders
have delivered their statement of objections, FNEDC and the Shareholders shall
settle the disagreement by submitting the dispute within fourteen (14) days
after the expiration of the ten (10) day period established above to resolve any
objections, to a panel of three (3) arbitrators in New York, New York that are
experienced in professional financial audits of this nature, such arbitration to
be conducted in accordance with the
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<PAGE> 8
Commercial Arbitration Rules of the American Arbitration Association then in
effect on the date of the Shareholders' statement of objections. The arbitrators
shall, within thirty (30) days after the dispute is submitted for arbitration,
determine and report to the Parties a statement of revenues included in the
Draft Statement of Revenues, the revenue amount proposed as an adjustment and
the revenue amount determined by the arbitrators. The Draft Statement of
Revenues then shall be adjusted with respect to the items identified in the
Shareholders' statement of objections or by the arbitrators (and any
corresponding items requiring adjustment as a result) to the extent not
presented consistently with generally accepted accounting principles as
determined by the arbitrators and, as so adjusted, shall be the Closing
Statement of Revenues. Any decision by arbitrators appointed and acting pursuant
to this Section 1.2(b) shall be final and binding upon the Parties, absent fraud
or manifest error, and judgment may be entered thereon, upon the application of
any Party, by any court having competent jurisdiction.
(c) During the period of any dispute referred to above, the
Shareholders shall, and shall cause the Company and the Professional
Associations to, give FNEDC, its accountants and the arbitrators full access to
books, records, facilities and employees of the Company and the Professional
Associations; provided, however, that any such access shall be allowed only in
such manner as not to interfere unreasonably with the operation of the business
of the Company and the Professional Associations.
(d) Each Party shall bear the cost of preparing and presenting
its case, with the cost of arbitration to be shared equally by the Parties.
(e) If the aggregate revenues of the Company and the
Professional Associations presented in the Closing Statement of Revenues,
projected on an annualized basis assuming a 365-day calendar year (which
calculation will be made by multiplying the revenues presented in the Closing
Statement of Revenues by the quotient of 365 divided by the number of calendar
days elapsed during the period commencing January 1, 1997 and ending on the date
thirty (30) days prior to the Closing Date (the "1997 Annualized Revenues")),
are less than Five Million Dollars ($5,000,000)("Initial Sales Trigger"), the
Parties may elect to consummate the transactions contemplated in this Agreement
at an adjusted Purchase Price equal to the excess of (i) the Purchase Price over
(ii) the amount (the "Proportionate Deficit Amount") resulting from the product
of (A) the sum of the Deficiency (as defined in the Escrow Agreement) and the
excess of Five Million Seven Hundred Thousand Dollars ($5,700,000) over the 1997
Annualized Revenues, and (B) a fraction whose numerator is the Purchase Price
and whose denominator is Five Million Seven Hundred Thousand Dollars
($5,700,000), (the "Adjusted Purchase Price") as follows:
-4-
<PAGE> 9
ADJUSTED PURCHASE PRICE =
PURCHASE PRICE - PROPORTIONATE DEFICIT AMOUNT ("PDA")
WHERE PDA = [DEFICIENCY +_ ($5.7M - 1997 ANN. REV.)]
X (PURCHASE PRICE/$5.7)
No later than ten (10) days following the determination of the Closing
Statement of Revenues, FNEDC may deliver written notice to the Shareholders
stating its desire to consummate the transactions contemplated in this
Agreement, all in accordance with the terms and conditions set forth herein with
the exception of the reduction of the Purchase Price to the Adjusted Purchase
Price and the extension of the Closing Date as described below ("FNEDC's
Offer"). The Shareholders shall have five (5) days following the day in which
they received FNEDC's Offer ("Response Period") to accept FNEDC's Offer.
In the event the Shareholders accept FNEDC's Offer, FNEDC will have the
right to close the transactions contemplated by this Agreement no later than
thirty (30) days following the date on which FNEDC receives written notice of
the Shareholders' acceptance of FNEDC's Offer (the "Option Period"). In the
event the Shareholders accept FNEDC's Offer, but FNEDC shall be unable to, or
elects not to, fulfill the closing conditions set forth in Section 4.2 hereof
within the Option Period, then the Shareholders shall be entitled to retain the
One Hundred Seventy-Five Thousand Dollars ($175,000) Deposit; provided, however,
that if (i) FNEDC terminates this Agreement in accordance with Article IX hereof
or FNEDC of NJ terminates the Stock Purchase Agreement in accordance with
Article IX thereof, or (ii) the Shareholders shall be unable to, or elect not
to, fulfill their closing conditions set forth in Section 4.1 hereof within the
Option Period, then the Shareholders shall return promptly the One Hundred
Seventy-Five Thousand Dollars ($175,000) Deposit to FNEDC by wire transfer of
immediately available funds; provided, that an appropriate officer of FNEDC will
certify to the Shareholders that FNEDC was timely ready and able to close.
In the event the Shareholders (i) deliver written notice to FNEDC
within the Response Period stating their election not to accept FNEDC's Offer,
or (ii) fail to deliver written notice to FNEDC in response to FNEDC's Offer
within the Response Period, then the Shareholders shall be entitled to retain
Thirty-Seven Thousand Five Hundred Dollars ($37,500) of the Deposit but shall
promptly return One Hundred Thirty-Seven Thousand Five Hundred Dollars
($137,500) of the Deposit to FNEDC by wire transfer of immediately available
funds; provided, that an appropriate officer of FNEDC will certify to the
Shareholders that FNEDC was timely ready and able to close.
In the event FNEDC (i) fails to deliver written notice to the
Shareholders within ten (10) days following the date on which
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<PAGE> 10
FNEDC receives the Closing Statement of Revenues or (ii) delivers written notice
to the Shareholders within such period stating its decision not to consummate
the transactions contemplated herein, and the Shareholders deliver written
notice to FNEDC within the Response Period stating their desire to consummate
the transactions contemplated herein at the Adjusted Purchase Price no later
than thirty (30) days following the date on which FNEDC receives such written
notice (the "Shareholders' Offer"), then the Shareholders shall be entitled to
retain Eighty-Seven Thousand Five Hundred Dollars ($87,500) of the Deposit but
shall promptly return Eighty-Seven Thousand Five Hundred Dollars ($87,500) of
the Deposit to FNEDC by wire transfer of immediately available funds; provided,
that an appropriate officer of FNEDC will certify to the Shareholders that FNEDC
was timely ready and able to close.
In the event FNEDC (i) fails to deliver written notice to the
Shareholders within ten (10) days following the date on which FNEDC receives the
Closing Statement of Revenues, or (ii) delivers written notice to the
Shareholders within such period stating its decision not to consummate the
transactions contemplated herein, and the Shareholders (i) deliver written
notice to FNEDC within the Response Period stating their election not to accept
FNEDC's Offer, or (ii) fail to deliver written notice to FNEDC in response to
FNEDC's Offer within the Response Period, then the Shareholders shall be
entitled to retain Thirty-Seven Thousand Five Hundred Dollars ($37,500) of the
Deposit but shall promptly return One Hundred Thirty-Seven Thousand Five Hundred
Dollars ($137,500) of the Deposit to FNEDC by wire transfer of immediately
available funds; provided, that an appropriate officer of FNEDC will certify to
the Shareholders that FNEDC was timely ready and able to close.
Any adjustment to the Purchase Price in this Section 1.2 shall
not be deemed to be a loss for purposes of Article VIII hereof. For purposes of
calculating the Proportionate Deficit Amount as of the Closing Date, the
Deficiency shall be deemed to be zero.
(f) When and if a Deficiency is determined pursuant to the terms of the
Escrow Agreement, the Proportionate Deficit Amount and the Adjusted Purchase
Price shall be redetermined. In the event that there is not an Initial Sales
Trigger (i.e., 1997 Annualized Revenues are not less than $5 million) and a
Deficiency is determined pursuant to the Escrow Agreement, the purchase price of
the Stock shall be the Adjusted Purchase Price; provided, however, for purposes
of the calculation of the Proportionate Deficit Amount, the 1997 Annualized
Revenues shall be deemed to be equal to Five Million Seven Hundred Thousand
Dollars ($5,700,000). In the event that the determination of a Deficiency causes
the Purchase Price or the Adjusted Purchase Price, as the case may be, to be
reduced from the Purchase Price or the Adjusted Purchase Price calculated at the
Closing Date, the Shareholders shall be deemed to have repaid, such excess
consideration by the distribution of the Deficiency to FNEDC
-6-
<PAGE> 11
pursuant to the Escrow Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
II.1. Representations and Warranties of FNEDC.
FNEDC hereby represents and warrants to the Shareholders that each of
the statements contained in this Section 2.1 is true and correct in all respects
as of the date hereof and will be true and correct at and as of the Closing.
(a) Organization, Power and Standing. FNEDC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey with all requisite power to own and operate its properties
and to carry on its business as such business is now conducted. FNEDC is not
qualified to do business as a foreign corporation in any jurisdiction.
(b) Power and Authority Relative to Transaction. FNEDC has
full corporate power and authority and has taken all required action necessary
to permit it to execute and deliver this Agreement and to perform all of the
obligations contained herein, and to execute, deliver and perform all of the
obligations contained in all other instruments or agreements required hereby or
incident or collateral hereto (collectively with this Agreement, the "Operative
Documents"), and none of such actions conflicts with or violates any provision
of law known to FNEDC or of the Certificate of Incorporation or Bylaws of FNEDC,
or violates or constitutes a default under or will result in any breach of any
agreement, indenture, deed of trust, mortgage, instrument, lease, order,
judgment, writ, injunction, decree, license or permit of any court or
governmental or regulatory body applicable to FNEDC or by which FNEDC or its
assets may be bound.
(c) Valid and Binding Obligation. The Operative Documents
constitute valid and legally binding obligations of FNEDC, enforceable against
it in accordance with their respective terms, subject to applicable bankruptcy,
insolvency and other general laws affecting the rights and remedies of
creditors, except that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(d) Required Consents. Except as set forth on Schedule 2.1(d)
hereto, no consent, order, approval, authorization, declaration or filing
including, without limitation, any consent, approval or authorization of or
declaration or filing with any governmental authority, is required on the part
of FNEDC for or in connection with the
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<PAGE> 12
execution and delivery of the Operative Documents.
(e) No Brokers. FNEDC has not dealt with any broker, finder
or similar agent with respect to the transactions contemplated by this Agreement
and FNEDC is not under any obligation to pay any broker's fee, finder's fee or
commission in connection with the transactions contemplated by this Agreement.
(f) Litigation. Schedule 2.1(f) sets forth each instance in
which FNEDC (i) is subject to any outstanding injunction, judgment, order,
decree, ruling or charge, or (ii) is a party or, to the knowledge of FNEDC and
any directors and officers (and employees with responsibility for litigation
matters) of FNEDC, is threatened to be made a party, to any action, suit,
proceeding, hearing or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator, which in each case would materially
adversely affect FNEDC's ability to perform its obligations under the Operative
Documents.
(g) Solvency. FNEDC is financially solvent and, subject to
receiving the net proceeds from its proposed initial public offering, FNEDC will
have the financial ability to close the transaction contemplated herein in
accordance with the terms and conditions hereof. Upon such Closing, FNEDC will
have the financial ability at all times through the expiration of the escrow
term (as defined in the Escrow Agreement) to continue the operation of the
Business of the Company and the Professional Associations.
(h) Compliance with Laws. Except as set forth on Schedule
2.1(h), to its best knowledge, FNEDC holds all permits, registrations, orders
and authorizations of governmental authorities necessary or appropriate to
consummate the transactions contemplated hereby.
(i) Disclosure. Neither the representations and warranties of
FNEDC contained in this Agreement, nor the other information included in the
Schedules hereto, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein complete and not misleading as of the dates thereof in light of the
circumstances in which they were made.
II.2. Representations and Warranties Concerning the Company.
Each of the Shareholders hereby jointly and severally
represents and warrants to FNEDC that each of the statements contained in this
Section 2.2 (including the Schedules hereto) is true and correct as of the date
of this Agreement and will be true and correct at and as of the Closing.
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<PAGE> 13
(a) Organization, Power and Standing. The Company is a
corporation duly organized, validly existing and in good corporate and tax
standing under the laws of the State of New Jersey. The Company has the power
and authority to own its properties and engage in the business in which it is
currently engaged. The copy of the Company's Certificate of Incorporation and
Bylaws, each as amended through the date hereof, that has been delivered to
FNEDC by the Company is complete and correct as of the date of this Agreement
and will continue in effect without further amendment through the Closing.
(b) Qualification to do Business. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction where the failure to so qualify would have a
material adverse effect on the Company.
(c) Subsidiaries and Interest in Other Entities. The Company
has no subsidiaries nor does it, directly or indirectly, own or have the right
to acquire any equity interest in any other corporation, partnership, joint
venture or other business organization, except as provided herein. The Company
has not made any investment in or advance of cash or other extension of credit
to any company, entity or individual. Other than the Shareholders, there is no
entity and/or individual controlling, controlled by or under control with the
Company, nor is there any entity or person which on or prior to the Closing Date
is or was a member of the same controlled group or affiliated service group or
was under common control with the Company within the respective meanings of
Sections 414(b), (m) and (c) of the Internal Revenue Code of 1986, as amended
(the "Code").
(d) Capitalization. The number of authorized shares of
capital stock, the number of shares of capital stock presently issued and
outstanding, the par value per share of capital stock and the beneficial owners
of such issued and outstanding shares of capital stock of the Company are set
forth in Schedule 2.2(d). All of the outstanding shares of capital stock of the
Company have been issued in full compliance with all applicable securities laws.
The Company has no outstanding option warrants, conversion rights, exchange
privileges or other commitments to issue or to acquire any shares of its capital
stock or any securities or obligations convertible or exchangeable into shares
of its capital stock except as set forth in Schedule 2.2(d).
(e) Certain Outstanding Liabilities. Except as set forth on
Schedule 2.2(e), no Shareholder has any debts, liabilities or obligations of any
nature whatsoever which are related to the Business or the assets of the
Company. To each Shareholder's best knowledge, the Company has no debts,
liabilities or obligations which have arisen after December 31, 1996 outside of
such Company's ordinary course of business (and to the Shareholders' best
knowledge, there is no present basis for any present or future action, suit,
proceeding, hearing,
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<PAGE> 14
investigation, charge, complaint, claim or demand against any Company giving
rise to any liability), except as set forth on Schedule 2.2(e).
(f) Unfunded Liabilities. Without in any way limiting the
representation and warranty set forth in Section 2.2(e) above, the Company has
no unfunded liabilities in connection with any workers' compensation, employers'
liability, or group health plan except as described in Schedule 2.2(f). The
matters described in Schedule 2.2(f) will not, individually or in the aggregate,
have any material adverse effect upon the business or operations of the Company
or FNEDC.
(g) Title to Properties, Etc.. Except as listed on Schedule
2.2(g), the Company is the sole owner of, and has good, valid and marketable
title to, all of its properties and assets, real and personal, and all
trademarks, copyrights, and service marks used in connection with the Business.
None of such properties is subject to any mortgage, pledge, lien, conditional
sale agreement, security interest, encumbrance or other charge except:
(i) liens, encumbrances and leases incurred or made in the
ordinary course of business which do not materially impair the usefulness of
such properties and assets in the conduct of the business of the Company (but
excluding liens securing payment of indebtedness);
(ii) liens from nondelinquent taxes, assessments or
governmental charges or levies; and
(iii) as specifically set forth on Schedule 2.2(g).
The Company enjoys peaceful and undisturbed possession under the leases set
forth on Schedule 2.2(g). All such leases are valid, subsisting and in full
force and effect, and there are no uncured defaults of the Company under such
leases. The assets and properties of the Company, including those obtained
pursuant to said leases, are adequate to conduct the operations currently
conducted and presently proposed to be conducted by the Company. Except as
otherwise specifically provided, the Shareholders make no representation or
warranty concerning or relating to the condition, repair or maintenance of the
machinery and equipment of the Company. Except as set forth in Schedule 2.2(g),
however, the Company and none of the Shareholders have received any written
notice from any federal, state or local governmental agency that any machinery,
equipment or other assets of the Company fails to conform in all material
respects to all applicable ordinances, regulations and zoning or other laws.
There is no pending or, to the best of the Shareholders' knowledge, threatened
condemnation of any such property. Except as set forth in Schedule 2.2(g), the
leasehold or other interest of the Company in such real property is not subject
or subordinate to any recorded security interest, lien or mortgage, except with
respect to liens described in Subsections 2.2(g)(i)
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<PAGE> 15
and (ii) above, and the Shareholders are not aware of any security interest,
lien, mortgage or other encumbrance whatsoever on the Company's leasehold or
other interests. Except as set forth in Schedule 2.2(g), the lease for the
Company's premises has not been amended and neither the landlord, to each
Shareholder's best knowledge, nor the Company is in default thereunder. Neither
the Company nor any of the Shareholders has received any written notice from any
federal, state or local government agency, and that the use of the Company's
premises by the Company and the occupancy and operation thereof by the Company
fails to comply in all material respects with all applicable federal, state and
local laws, ordinances and regulations, including without limitation federal and
state safety, health, environmental protection and hazardous waste laws,
regulations, standards and ordinances.
(h) Conduct of Business; Absence of Material Adverse Changes.
Since December 31, 1996, except as otherwise required pursuant to this
Agreement, the Business has been conducted only in the usual and ordinary
course, and there has been (i) no sale, transfer or other disposition of any of
the material assets or capital stock of the Company; (ii) no encumbrance placed
upon the Company's assets or stock; (iii) no other event or condition known to
the Shareholders which materially and adversely affects, or which is reasonably
likely to materially and adversely affect, the Business or the condition
(financial or other), prospects, assets or liabilities of the Company; and (iv)
no free service, premium or gift offered as an inducement to existing or
prospective patients (other than charitable care provided in accordance with the
Company's policy regarding uncompensated care) that materially and adversely
affects, or which is reasonably likely to materially and adversely affect, the
Business or the condition (financial or other), prospects, assets or liabilities
of the Company.
In particular, and without limiting the generality of the foregoing,
since December 31, 1996, the Shareholders have not permitted the Company to do
any of the following, except as otherwise contemplated herein:
(i) change its method of management or operations;
(ii) amend its Certificate of Incorporation or Bylaws;
(iii) terminate the services of any employee, consultant or
agent of the Company;
(iv) 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, except as
disclosed in Schedule 2.2(h) or in connection with the transactions
contemplated hereunder;
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<PAGE> 16
(v) make any loan to, or enter into any other transaction
with, any of its directors, officers and employees outside of the
Company's ordinary course of business;
(vi) adopt, amend, modify or terminate any bonus,
profit-sharing, incentive, severance or other plan, contract or
commitment for the benefit of any of its directors, officers and
employees (or take any such action with respect to any of its employee
benefit plans);
(vii) directly or indirectly redeem, purchase or otherwise
acquire or dispose of any properties or assets except in the ordinary
course of business;
(viii) subject any of its properties or assets to any
mortgage, pledge, security interest or lien;
(ix) directly or indirectly redeem, purchase or otherwise
acquire any of its outstanding capital stock;
(x) 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;
(xi) 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;
(xii) 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;
(xiii) delay or postpone the payment of its accounts payable
and other liabilities outside its ordinary course of business;
(xiv) enter into any contract or commitment involving in any
instance aggregate payment by the Company of more than $10,000 or
extending beyond the Closing Date, except in connection with the
transactions contemplated hereby or in the usual and ordinary course of
business consistent with past practice;
(xv) declare or pay any dividend or distribution in respect of
its capital stock, either in cash, in kind or in shares of stock (other
than dividends or distributions that are consistent in nature and
amount with the Company's past dividends or distributions during the
Company's last five (5) fiscal years; provided, however, that subject
to the
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<PAGE> 17
final sentence of this Section 2.2(h), the Shareholders may cause the
Company to distribute to the Shareholders all cash in the Company'
respective bank accounts on or before the Closing Date), 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 stock;
(xvi) take any other action which would materially adversely
affect or detract from the value of the Company or the capital stock of
the Company, including without limitation cancelling any debts or
claims;
(xvii) waive any rights of material value or modify, amend,
alter or terminate any Material Contract (defined in 2.2(n) below);
(xviii) grant any license or sublicense of any of its rights
under or with respect to any of its intellectual property; and/or
(xix) directly or indirectly offer, solicit or entertain
offers for or take any other action with a view to the sale of all or
any substantial part of the assets, capital stock or business of the
Company.
Furthermore, the Shareholders have permitted the Company and the
Professional Associations to continue to pay any liabilities which are
outstanding and due, consistent with past practice and within forty-five (45)
days of receipt of evidence that each such outstanding liability is due and
payable.
(i) Tax Returns and Payments. The Company has prepared in good
faith and filed when due, or timely obtained extensions of time for filing, all
tax returns required by law to be filed, and has paid when due all taxes,
assessments and other governmental charges (whether or not shown on any tax
return), including without limitation all estimated tax payments imposed upon
any of its properties, assets or income. To the best of the Shareholders'
knowledge, the Company has no liability for any federal, state or local taxes
not yet paid which relate to prior taxable years, except the portion of the 1997
tax year preceding the Closing. To the best of the Shareholders' knowledge, all
such tax returns are correct and complete in all material respects and no income
tax return nor any corporation excise tax return of the Company has ever been
audited except as otherwise set forth on Schedule 2.2(i), which schedule sets
forth in reasonable detail the nature and scope of each disclosed audit. The
Company has never filed a consent under Section 341(f) of the Code. The Company
has not executed any waiver or consent that would have the effect of extending
any applicable statute of limitations in respect of any of its tax liabilities.
To the best of the Shareholders' knowledge, the charges, accruals and reserves
on the books of the Company in respect of taxes for all fiscal periods are
adequate, and there is no unpaid assessment or
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<PAGE> 18
any basis for the assessment of any material amount of additional taxes for any
period or partial period preceding Closing. Except as set forth on Schedule
2.2(i), neither the Internal Revenue Service nor any other taxing authority has
asserted or threatened to assert, or is now asserting or threatening to assert,
against the Company any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith. The Company has withheld from its
employees or its other payees gross compensation and has paid over to
appropriate governmental authorities all tax and other withholdings required by
applicable law. If the Company has any liability arising from or related to any
taxes for any period prior to the Closing, the Shareholders shall be fully and
solely responsible for the payment of such tax liabilities. Each Shareholder
agrees to indemnify FNEDC in accordance with Section 8.2 hereof for any
liability of the Company relating to or arising from any taxes for any period
prior to the Closing; provided that it is agreed and acknowledged that any
indemnity claim made by FNEDC hereunder shall neither be subject to the basket
nor be included in the cap as set forth in Section 8.5 hereof.
(j) Compliance with Laws. Except as set forth on Schedule
2.2(j) hereto, to each Shareholder's best knowledge, the Company presently holds
all permits, licenses, consents, certificates, approvals, qualifications,
registrations, orders and authorizations of governmental authorities
(collectively, "Permits") necessary or appropriate for the conduct of the
Business and the consummation of the transactions contemplated hereby, and all
such Permits are listed on Schedule 2.2(j). To the best of the Shareholders'
knowledge, the Permits constitute all such permits, licenses, consents,
certificates, approvals, qualifications, registrations, orders and
authorizations of governmental authorities required for the conduct of the
Business, and no suspension or cancellation of any Permit is threatened. To the
best of the Shareholders' knowledge, all of the Permits are in full force and
effect and are valid and enforceable in accordance with their terms. To the best
of the Shareholders' knowledge, there exists no fact or circumstance which
constitutes, or with the passage of time or giving of notice or both would
constitute, a default under any Permit or allow any governmental or other
authority to cancel or terminate any Permit. Neither the Company nor any
Shareholder has received any notice from any federal, state or local
governmental agency, and neither the Company and nor any Shareholder has any
knowledge or reason to believe that the Company's operation of the Business
violates any federal, state or local law, regulation, order or restriction that
materially and adversely affects or which is reasonably likely to materially and
adversely affect, the Business, or the condition (financial or other),
prospects, assets or liabilities of the Company. Except as set forth on Schedule
2.2(j) hereto, to each Shareholder's best knowledge, the Company has operated
the Business in full compliance with all applicable laws, including all laws and
regulations relating to payment and claims for health care services, employment,
occupational safety and health, and environmental matters.
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<PAGE> 19
Except as set forth on Schedule 2.2(j) hereto, to each Shareholder's best
knowledge, the Company is not in material violation of any federal, state or
local statute, ordinance, judgment, decree, order or governmental rule,
regulation, policy or guideline applicable to the Company in a manner which
could materially and adversely affect its condition (financial or otherwise),
the transactions contemplated by this Agreement or the Business.
(k) Insurance. The Company has continuously maintained for the
entire period of time the Business has been in existence, and continues to
maintain, property, general liability, professional liability and workers'
compensation insurance covering the operations of the Business through the
current insurance policies listed in Schedule 2.2(k) hereto or through
comparable insurance policies previously in effect. All such current policies
are in full force and effect, all premiums due thereon have been paid and the
Company has complied in all material respects with the provisions of such
policies. The Company and each dentist-employee of the Company currently
maintains in full force and effect an individual professional liability
insurance policy with liability limits of at least $1 million per occurrence and
$3 million aggregate except as provided on Schedule 2.2(k). Except as otherwise
indicated on Schedule 2.2(k), all liability insurance policies are on an
"occurrence" basis. The insurance listed in Schedule 2.2(k) is in amounts
adequate to cover losses on physical assets.
(l) Employees and Compensation.
(i) To each Shareholder's best knowledge, the Company is not
in violation of any applicable federal, state or local laws or
regulations with respect to employment, employment practices, or the
terms and conditions of employment, wages and hours in a manner which
could materially and adversely affect its condition (financial or
otherwise). None of the Company's employees is represented by any
union, and there is no labor strike, slowdown, stoppage, organizational
effort, dispute or proceeding by or with any employee or former
employee of the Company or any labor union pending or threatened
against the Company.
(ii) To each Shareholder's best knowledge, there are no
employment or consulting contracts or arrangements (other than those
terminable at will) with any employees or consultants of or associated
with the Company, except as described on Schedule 2.2(l) hereto.
Schedule 2.2(l) also sets forth a true and complete list of all
employees of and consultants to the Company, showing date of hire,
hourly rate or salary or other basis of compensation, each bonus,
hourly rate increase and/or salary increase granted since December 31,
1996 (or committed to be granted in connection with the transactions
contemplated hereunder), and job function.
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<PAGE> 20
(m) Employee Benefits. Schedule 2.2(m) contains a complete and
accurate list of each plan, arrangement, understanding, practice or commitment,
formal or informal, firm or contingent, written or oral, currently sponsored,
maintained or contributed to by the Company which covers, or which at any time
prior to the Closing covered, any of the current or former officers, employees
or independent contractors of the Company or its predecessors and providing any
of the following benefits: bonus, stock bonus, profit sharing, pension,
retirement, life insurance, medical, hospitalization, dental, vision,
disability, vacation, workers' compensation, deferred or incentive compensation,
severance benefits and including, without limitation, each "employee pension
benefit plan" (within the meaning of Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended (hereinafter "ERISA")) and "employee
welfare benefit plan" (within the meaning of Section 3(1) of ERISA)
(collectively, the "Plans"). Except as disclosed on Schedule 2.2(m):
(i) Neither the Company nor any Shareholder has engaged in any
transactions which would, directly or indirectly, subject any Plan, its
related trust or any Company to a tax or penalty imposed under Section
4975 of the Code or Section 502(i) of ERISA;
(ii) The Company and each Shareholder have performed all their
respective material obligations under the Plans and have not violated
the provisions of any of the Plans and, to the best knowledge of the
Company and each Shareholder, no other party is in violation thereof;
(iii) The Plan is in compliance in all material respects with
all applicable requirements prescribed by all statutes (including,
without limitation, ERISA and the Code), orders, governmental rules and
regulations;
(iv) All payments required to be made to each Plan as of the
Closing have been timely and completely made;
(v) There is no suit, action, dispute, claim, arbitration or
legal, administrative or other proceeding or governmental investigation
pending, or to the best knowledge of the Company or any Shareholder, is
threatened, alleging any breach of the terms of any Plan or of any
fiduciary duties thereunder or violation of any applicable law with
respect to any Plan;
(vi) Subject to applicable requirements of ERISA, neither any
provision of any Plan nor any agreement with any employee nor any
representation or course of conduct by or on behalf of the Company
would prevent the amendment or termination after the Closing of any
Plan without liability to the Company;
(vii) There are no benefits or severance
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<PAGE> 21
obligations of the Company that will arise as a result of the
transactions contemplated hereunder;
(viii) No Plan which is an "employee welfare benefit plan"
provides for continuing benefits or coverage, including but not limited
to medical, health or life insurance, to any employee or former
employee following termination of employment with the Company other
than that either required by Section 4980B of the Code and Sections 601
through 609 of ERISA (or similar provisions of state law), or provided
in accordance with the conversion feature of the Plan.
(ix) Each Plan which is a "group health plan" (within the
meaning of Section 4980(B)(a)(2) of the Code) is in material compliance
with the applicable requirements under Section 4980B of the Code and
Sections 601 through 609 of ERISA;
(x) No Plan is, or forms part of, a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of
ERISA) or a "voluntary employees' beneficiary association" (within the
meaning of Section 501(c)(9) of the Code);
(xi) With respect to each Plan which is a self-insured
"employee welfare benefit plan," no claims have been made pursuant to
any such Plan that have not yet been paid and, to the best knowledge of
the Company and the Shareholders, no injury, sickness or other medical
condition has been incurred with respect to which claims may be made
pursuant to any such Plan; and
(xii) All reports, forms and other documents with respect to
any Plan required to be filed with any government entity or to be
disclosed to Plan participants and their beneficiaries have been timely
filed or disclosed, as the case may be, and are accurate in all
material respects.
(n) Material Contracts. Schedule 2.2(n) hereto sets forth a
complete and accurate list and compilation of all material:
(i) Contracts with respect to the provision of health care
services, including all contracts between third party payors and the
Company or any Shareholder;
(ii) Licenses, leases, contracts and other arrangements with
respect to any material property of the Company;
(iii) Contracts (written or unwritten) with respect to which
the Company has any liability or obligation, contingent or otherwise,
involving more than $10,000 or
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which may otherwise have any continuing effect after the Closing, or
which place any material limitation on the method of conducting or the
scope of the Business;
(iv) Contracts of the Company with directors, officers,
employees, agents and/or consultants of the Company or the spouses or
relatives of such persons;
(v) Compensation arrangements for all employees and
consultants including rates of pay and other benefits and the amounts
of compensation and other benefits accrued as of a recent date;
(vi) Agreements, contracts or instruments relating to the
borrowing of money, or the guaranty of any obligation for the borrowing
of money;
(vii) Contracts between officers, directors or employees of
the Company and any other person or entity which purport to restrict
the Company's business activities or use of information in the
Business, including without limitation any covenant not to compete;
(viii) All agreements relating to any securities of the
Company or rights in connection therewith; and
(ix) Any contracts, leases or other agreements referred to in
any other Schedule hereunder, and any other material contracts,
instruments, commitments, plans or arrangements of the Company.
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<PAGE> 23
All the foregoing are herein called "Material Contracts." Schedule 2.2(n)
includes with respect to each Material Contract the names of the parties, the
date thereof, its title or other general description. Copies of all written
Material Contracts have been delivered to FNEDC or its counsel or accountants.
Each Material Contract sets forth the entire arrangement and understanding
between the Company and the respective third parties with respect to the subject
matter thereof and, except as indicated in such Schedule, there have been no
amendments or side or supplemental arrangements to or in respect of any Material
Contract. The Company has furnished to FNEDC true and correct copies of all
Material Contracts as currently in effect, and will furnish any further
information that FNEDC may reasonably request in connection therewith. Each
Material Contract is valid and in full force and effect, and the Company has
performed all material obligations required to be performed by it thereunder.
The Company is not in material default under or in material breach or material
violation of (a) its Certificate of Incorporation or Bylaws, or (b) to each
Shareholder's best knowledge, any Material Contract, or (c) any other agreement,
indenture, deed of trust, mortgage, instrument, lease, order, judgment, writ,
injunction, decree, license, permit, statute, rule or regulation of any court or
governmental or regulatory body applicable to it in a manner which would
materially and adversely affect its condition, the transactions contemplated by
this Agreement or the Business, and the execution and delivery of the Operative
Documents and the consummation of the transactions contemplated thereby will not
result in the violation of any law, decree or order known to the Company or in
any default, breach or violation of the Company's Certificate of Incorporation
or Bylaws, or any Material Contract to which the Company is a party or by which
it is bound. Except as set forth on Schedule 2.2(n), to the best of the
Shareholders' knowledge, there is no event which has occurred or existing
condition which constitutes, or with notice or lapse of time or both, would
constitute a default under any Material Contract or would cause the acceleration
of any obligation of any party thereto, or give rise to any right of termination
or cancellation or cause the creation of any lien or encumbrance on any asset of
any Company. To the best of the Shareholders' knowledge, no third party is in
default under any material provision of any Material Contract. None of the
Shareholders has any knowledge that the parties to any Material Contract will
not fulfill their obligations thereunder in all material respects. There is no
term of any Material Contract that materially adversely affects the Business or
the business, operations, affairs, prospects or conditions of the Company.
(o) Books and Records. As of the Closing Date, all past actions and
authorizations of the Company's board of directors and shareholders since the
date of the Company's incorporation have been fully and validly ratified. Except
as detailed in Schedule 2.2(o) hereto, the general ledgers and books of the
Company and all of the Company's other books, accounts and records are
identified on Schedule 2.2(o), constitute all such ledgers, books, accounts and
records of the Company, are complete
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and correct in all material respects.
(p) Banking Relationships. All of the arrangements which the Company
has with any banking institution are completely and accurately described in
Schedule 2.2(p), indicating with respect to each such arrangement the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereto. The
Company has no outstanding powers of attorney of any kind.
(q) Required Consents, Etc. Except as described in Schedule 2.2(q)
hereto, to the best of the Shareholders' knowledge, no consent, approval,
authorization, declaration or filing, including without limitation any consent,
approval or authorization of or declaration or filing with any governmental
authority, is required on the part of the Company in connection with the
execution and delivery of the Operative Documents.
(r) Accounts Receivable. To the best of the Shareholders' knowledge,
the notes and accounts receivable of the Company are reflected properly on its
books and records. Except as set forth on Schedule 2.2(r), the Company has no
accounts or loans receivable from any person, firm or corporation which is
affiliated with the Company or from any director, officer or employee of the
Company. All accounts receivable of the Company arose out of bona fide
transactions in its ordinary course of business.
(s) Litigation. Except as set forth on Schedule 2.2(s), there is no
litigation, proceeding or investigation pending or, to the best of the
Shareholders' knowledge, threatened (nor, to the best of the Shareholders'
knowledge, is there any basis therefor) against the Company or affecting any of
its properties, rights or assets or against any officer or employee which
relates to the affairs of the Company or the right of any officer or employee to
participate in the business of the Company and which is reasonably likely to
result in any material adverse change in the Business or in the business or
condition (financial or otherwise), prospects, assets or liabilities of the
Company or which relates to the Stock or the transactions contemplated by this
Agreement, in any court or before any authority or governmental entity
including, without limitation, actions, proceedings or investigations with
respect to any alleged violation by the Company of any law, statute, ordinance,
regulation, order, policy or guideline of any governmental entity.
(t) No Medicare Payment Program Providers. None of the dentists
rendering services to patients of the Company at the Company's location are
participating providers in the Medicare payment program.
(u) No Brokers. The Company has not dealt with any broker, finder or
similar agent with respect to the transactions
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<PAGE> 25
contemplated by the Agreement and the Company is under no obligation to pay any
broker's fee, finder's fee or commission in connection with the transactions
contemplated by this Agreement.
(v) Disclosure. Neither the representations and warranties of the
Company and each Shareholder contained in this Agreement nor the financial or
other information included in the Schedules hereto contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein complete and not misleading as of
the dates thereof in light of the circumstances in which they were made. There
is no fact presently known to the Shareholders which will (so far as the
Shareholders or the Company can now reasonably foresee) materially adversely
affect the Business or the operations and/or affairs of the Company.
(w) No Offer. During the period (i) commencing on January 15, 1997 and
continuing through July 15, 1997, and (ii) commencing on the execution date of
this Agreement and continuing through the earlier of December 15, 1997 or the
Closing Date, the Company has not, directly or indirectly, through any officer,
director, agent or otherwise, (i) solicited, initiated or encouraged submission
of proposals or offers from any person other than FNEDC relating to any
acquisition or purchase of any of the stock and/or the assets of the Company, or
any equity interest in the Company or any equity investment, merger,
consolidation or business combination with the Company, or (ii) participated in
any discussions or negotiations regarding, or furnished to any other person, any
non-public information with respect to, or otherwise cooperated in any way with,
or assisted or participated, facilitated or encouraged, any effort or attempt by
any other person to do or seek any of the foregoing.
II.3. Representations and Warranties Concerning the Shareholders.
Each Shareholder hereby jointly and severally represents and warrants
to FNEDC that each of the statements contained in this Section 2.3 is true and
correct as to himself as of the date of this Agreement and will be true and
correct at and as of the Closing:
(a) Title. Such Shareholder has good, marketable and unencumbered title
to, and full right, power and authority to sell, transfer, assign and deliver
the Stock; and FNEDC will on the Closing Date, acquire good and marketable title
to such Stock, free and clear of any liens, encumbrances, restrictions on
transfer, charges or claims.
(b) Due Issuance. The shares of Stock owned by such Shareholder are
validly issued, fully paid and nonassessable.
(c) Power and Authority Relative to Transaction. Such Shareholder has
full power and authority and has taken all required action necessary to permit
him to execute and deliver
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the Operative Documents, and none of such actions conflicts with or violates any
provision of law known to him or violates or constitutes a default under or will
result in any breach of any agreement, indenture, deed of trust, mortgage,
instrument, lease, order, judgment, writ, injunction, decree, license or permit
of any court or governmental or regulatory body applicable to him.
(d) Valid and Binding Obligations. The Operative Documents constitute
the valid and legally binding obligations of such Shareholder, enforceable
against him in accordance with their respective terms, subject to applicable
bankruptcy, insolvency and other general laws affecting the rights and remedies
of creditors, except that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(e) Required Consents. No consent, order, approval, authorization,
declaration or filing including, without limitation, any consent, approval or
authorization of or declaration or filing with any governmental authority, is
required on the part of such Shareholder for or in connection with the execution
and delivery of the Operative Documents.
(f) Litigation. Schedule 2.3(f) sets forth each instance in which such
Shareholder (i) is subject to any outstanding injunction, judgment, order,
decree, ruling or charge or (ii) is a party or, to the knowledge of such
Shareholder, is threatened to be made a party to any action, suit, proceeding,
hearing or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator, which in each case would materially adversely affect the
Shareholder's ability to perform his obligations under the Operative Documents.
(g) No Brokers. Such Shareholder has not dealt with any broker, finder
or similar agent with respect to the transactions contemplated by the Agreement
and such Shareholder is not under any obligation to pay any broker's fee,
finder's fee or commission in connection with the transactions contemplated by
this Agreement.
(h) No Offer. During the periods (i) commencing on January 15, 1997 and
continuing through July 15, 1997, and (ii) commencing on the execution date of
this Agreement and continuing through the earlier of December 15, 1997 or the
Closing Date, no Shareholder has, directly or indirectly, offered, solicited
offers for or sold, assigned, pledged or otherwise transferred any of the Stock
prior to the Closing. No Shareholder has, directly or indirectly, through any
agent or otherwise, (i) solicited, initiated or encouraged submission of
proposals or offers from any person other than FNEDC relating to any acquisition
or purchase of any of the stock and/or the assets of the Company, or any equity
interest in the Company or any equity investment, merger, consolidation or
business combination with
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the Company, or (ii) participated in any discussions or negotiations regarding,
or furnished to any other person, any non-public information with respect to, or
otherwise cooperated in any way with, or assisted or participated, facilitated
or encouraged, any effort or attempt by any other person to do or seek any of
the foregoing.
(i) Disclosure. Neither the representations and warranties of
such Shareholder contained in this Agreement, nor the other information
included in the Schedules hereto contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein and therein complete and not misleading as of the
dates thereof in light of the circumstances in which they were made.
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS
III.1. FNEDC's Access to Information. The Shareholders shall cause the
Company to permit FNEDC and its counsel, accountants and other representatives
full and free access, upon reasonable notice and during normal business hours
without interference to business operations, throughout the period prior to the
Closing, to all of the properties, books, contracts, commitments, records
(including financial and tax records for fiscal years 1993 through and including
1996 and any 1997 interim period prior to Closing), officers and personnel of
the Company and shall furnish to FNEDC during such period all such information
concerning the business activities of the Company as FNEDC or its counsel,
accountants or other representatives may reasonably request. FNEDC agrees to pay
the reasonable out-of-pocket expenses incurred in providing this information.
FNEDC further agrees that it will not communicate with Company employees or with
any employer which is a party to any dental plan contract with the Company as of
the closing, without the prior approval of Saul Herman. If the transactions
contemplated by this Agreement are not consummated, all confidential or
proprietary information furnished by the Shareholders or the Company shall be
kept in strict confidence in accordance with Article X hereof and shall not be
used or disclosed by any recipient, and FNEDC shall cause each such recipient to
return to the Company all copies of documents or records furnished hereunder. No
investigation or findings of FNEDC shall diminish or affect the representations
and warranties of the Shareholders in this Agreement or relieve the Shareholders
of any of their obligations hereunder; provided, however, that FNEDC shall
promptly disclose to the Shareholders the results of any investigation by FNEDC
which reveals information that is likely to materially adversely affect the
Shareholders.
III.2. Notices and Consents; Governmental Approvals. The Shareholders
shall use their good faith commercially reasonable efforts to obtain, and shall
cooperate with FNEDC to obtain, all
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governmental and regulatory approvals and actions necessary to consummate the
transactions contemplated hereby which are required to be obtained by applicable
law or regulations. The Shareholders will cause the Company to give any notices
to third parties, and will use their good faith commercially reasonable efforts
to obtain any third party consents, that FNEDC reasonably may request in
connection with the matters referred to in Section 2.1(d) above and/or to effect
transfers of the contracts and agreements described in Schedule 2.2(n); provided
however, that during the Escrow Period (as defined in the Escrow Agreement) the
Shareholders shall not be required to give any notice or obtain any consent to
transfer from any employer which is a party to any dental plan contract with the
Company as of the closing. Each of the Parties will give any required notices,
make any filings with, and use its or his, as the case may be, good faith
commercially reasonable efforts to obtain any governmental approvals in
connection with the matters referred to in Sections 2.1(d), 2.2(j) and 2.3(e)
above.
III.3. Assignment of Intellectual Property and Other Documents. In the
event that any Shareholder has ownership rights, title or interest in any
intellectual property, or is a party in his individual capacity to any
contracts, agreements, or other documents ("Other Documents") intended to be
transferred to FNEDC or the P.C., pursuant to the Closing, such Shareholder
hereby conveys, transfers and assigns any and all of such right, title and
interest in and to said intellectual property and Other Documents and will take
whatever action necessary for FNEDC or the P.C. to effect transfer or assignment
of the same as of the Closing or as soon as possible thereafter.
III.4. Operation of Business. Neither Shareholder will permit the
Company to engage in any practice, take any action, or enter into any
transaction outside of its ordinary course of business. Without limiting the
generality of the foregoing, the Shareholders will ensure that the Company will
not, at any time prior to Closing, (i) declare, set aside or pay any dividend or
make any distribution with respect to its capital stock (other than dividends
and distributions that are consistent in nature and amount with the Company's
last five (5) fiscal years; provided, however, that subject to the final
sentence of Section 2.2(h), the Shareholders may cause the Company to distribute
to the Shareholders all cash in the Company's respective bank accounts on or
before the Closing Date), or redeem, purchase or otherwise acquire any of its
capital stock, or (ii) otherwise engage in any practice, take any action, or
enter into any transaction of the sort described in Section 2.2(h) above.
III.5. Preservation of Business. Prior to Closing, the Shareholders
will use their good faith commercially reasonable efforts to ensure that the
Company will keep the Business and properties substantially intact, including
its present operations, physical facilities, working conditions and
relationships with lessors, licensors, suppliers, customers and
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employees.
III.6. Notice of Developments. The Shareholders on one hand, and FNEDC,
on the other, will give prompt written notice to the other Party of any material
adverse development prior to Closing which causes or is likely to cause a breach
of any of their, his or its own, as the case may be, representations and
warranties in Sections 2.1, 2.2 and 2.3 above. No disclosure by any Party
pursuant to this Section 3.6, however, shall be deemed to amend or supplement
the Schedules or to prevent or cure any misrepresentation, breach of warranty or
breach of covenant.
III.7. Insurance. Each Shareholder will use his good faith commercially
reasonable efforts to ensure that at all time prior to the Closing Date the
Company and each dentist-employee of the Company will continue to maintain in
full force and effect an individual professional liability insurance policy with
liability limits of at least $1 million per occurrence and $3 million aggregate.
If any of the foregoing insurance is on a "claims-made" basis, each Shareholder
will use his good faith commercially reasonable efforts to ensure that the
Company will prior to Closing obtain, at its expense, malpractice tail
insurance, in form and substance acceptable to FNEDC, to insure against general,
professional and directors and officers liability claims made on or after
Closing resulting from or arising out of events occurring in the Business prior
to Closing. Such tail policies shall name FNEDC as a named insured thereunder.
III.8. Further Assurances. The Shareholders on one hand, and FNEDC, on
the other, both before and after the Closing, upon the request from time to time
of the other, and without further consideration, will do each and every act and
thing as may be necessary or reasonably requested to consummate the transactions
contemplated hereby (including, without limitation, the orderly transfer to
FNEDC of the Stock), including without limitation by executing, acknowledging
and delivering assurances, assignments and other documents and instruments,
furnishing information and copies of documents, books and records (including
without limitation tax records); filing reports, returns, applications, filings
and other documents and instruments with governmental authorities; and
cooperating with the other in exercising any right or pursuing any claim,
whether by litigation or otherwise, other than rights and claims running against
the party from whom or which such cooperation is requested.
III.9. Survival of Covenants. The covenants contained in Sections 3.8
and 3.9 shall survive the Closing.
III.10. Break-Up Fee. Each Shareholder hereby agrees that, during the
Break-Up Fee Period as defined below, in the event of a sale, merger,
consolidation or other disposition of all or a majority of the assets or stock
of the Company or Professional Associations, to, with, or into a third party
other than an affiliate of FNEDC, another Professional Association, the
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Company or a Shareholder, or in the event the Company Professional Associations
otherwise combines or forms a partnership with a third party other than an
affiliate of FNEDC, another Professional Association, the Company or a
Shareholder, then FNEDC would be irreparably harmed. Accordingly, in the event
of any such sale, merger, consolidation or other combination (a "Transaction"),
within the Break-Up Fee Period as set forth below, each Shareholder hereby
agrees that he shall be jointly and severally liable to FNEDC for liquidated
damages in the aggregate amount of One Million Dollars ($1,000,000) under this
Agreement and the Stock Purchase Agreement, which liquidated damages shall be
due and payable to FNEDC immediately upon the consummation of any such sale,
merger, consolidation or other combination.
In the event that (i) FNEDC terminates this Agreement in accordance
with Article IX hereof or First Dental terminates the Stock Purchase Agreement
in accordance with Article IX thereof and the Shareholders are unable to
terminate either this Agreement in accordance with Article IX hereof or the
Stock Purchase Agreement in accordance with Article IX thereof, or (ii) the
Shareholders fail to make good faith commercially reasonable efforts to fulfill
the closing conditions set forth in Section 4.1 hereof by the Closing Date and
FNEDC delivers a written notice to the Shareholders stating its election to
terminate this Agreement, then the Break-Up Fee Period shall commence as of the
Closing Date and expire no earlier than six (6) months from such date.
In the event that (i) the Shareholders terminate this Agreement in
accordance with Article IX hereof, or (ii) FNEDC is unable to, or elects not to,
fulfill the closing conditions set forth as Section 4.1 hereof by the Closing
Date and the Shareholders deliver a written notice to FNEDC stating their
election to terminate this Agreement, then the Break-Up Fee Period shall
terminate as of the date of such notice.
III.11. Assumption of Certain Automobile Leases by Saul Herman. Prior
to the Closing, the Shareholders shall cause the Company, to convey, transfer
and assign to Saul Herman any and all of their respective right, title and
interest in and to the Automobile Leases described on the attached Schedule 3.11
(the "Automobile Leases"). The Shareholders will take whatever action is
necessary to effect the transfer or assignment of the Automobile Leases to Saul
Herman prior to the Closing.
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ARTICLE IV
CONDITIONS TO CLOSING
IV.1. Conditions Precedent to FNEDC's Obligations. The obligation of
FNEDC to consummate the transactions contemplated by this Agreement is expressly
subject to the fulfillment or express written waiver of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations Performed. Each
of the representations and warranties contained in Sections 2.2, 2.3 and 2.4 of
this Agreement shall be true and correct in all material respects at and as of
the Closing Date, except as otherwise specifically provided for herein. The
Shareholders shall have performed, on or before the Closing Date, all
obligations under this Agreement which by the terms hereof are to be performed
respectively by each Shareholder on or before the Closing Date.
(b) Delivery of Certificates. The Shareholders shall have delivered
to FNEDC certificates representing the Stock, duly endorsed for transfer or with
duly executed stock powers attached.
(c) Escrow Agreement. The Shareholders shall have executed and
delivered the Escrow Agreement.
(d) Legal Opinion from Counsel for the Shareholders. FNEDC shall have
received the written opinion of Cole, Schotz, Meisel, Forman and Leonard, P.C.,
counsel for the Shareholders and the Company, dated the Closing Date and
substantially in the form attached hereto as Exhibit B.
(e) Delivery of Other Instruments. The Shareholders shall have
delivered instruments of conveyance for the Other Documents and such other
certificates, consents, instruments or agreements as may be reasonably requested
by FNEDC or its counsel.
(f) Termination of Plans. The Shareholders shall have caused the
Company to terminate the Plans listed in Schedule 2.2(m) effective on or before
the Closing Date.
(g) Required Consents. All consents and waivers in form and substance
satisfactory to FNEDC and its counsel, necessary or appropriate to (1)
consummate the Closing and the other transactions contemplated hereby, and (2)
for the continued operation of the Business of the Company on substantially the
same basis as operating currently and without the imposition of materially
adverse conditions on such Business shall have been obtained by the
Shareholders.
(h) Stock Purchase Agreement. The Stock Purchase Agreement shall have
been executed and delivered by the
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Shareholders.
IV.2. Conditions Precedent to the Obligations of the Shareholders. The
obligation of each Shareholder to consummate the transactions contemplated by
this Agreement is expressly subject to the fulfillment or written waiver of the
following conditions on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations Performed. Each
of the representations and warranties of FNEDC contained in Section 2.1 shall be
true and correct in all material respects at and as of the Closing, except as
otherwise specifically provided for herein. FNEDC shall have performed, on or
before the Closing Date, all obligations under this Agreement which by the terms
hereof are to be performed by FNEDC on or before the Closing Date.
(b) Deposit. FNEDC shall have delivered the Deposit in accordance
with Section 1.1(a) hereof.
(c) Required Consents. All consents and waivers, in form and
substance satisfactory to the Shareholders and their counsel, necessary to
consummate the Closing and the other transactions contemplated hereby, shall
have been obtained by FNEDC.
(d) Escrow Agreement. First Dental shall have executed and delivered
the Escrow Agreement.
(e) Legal Opinion from Counsel to FNEDC. The Shareholders shall have
received the written opinion of McDermott, Will and Emery, counsel to FNEDC,
dated the Closing Date and in a form reasonably satisfactory to Shareholders'
counsel.
(f) Stock Purchase Agreement. The Stock Purchase Agreement shall have
been closed by First Dental. FNEDC shall cause each of First Dental and the P.C.
on the date of closing to have signed counterpart signature pages to this
Agreement and the Stock Purchase Agreement.
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ARTICLE V
CLOSING AND DELIVERIES
V.1. Date and Place of Closing. Subject to Section 1.2, to the extent
applicable, if at all, the consummation of the transactions contemplated hereby
(the "Closing") shall be held at the offices of McDermott, Will & Emery, 50
Rockefeller Plaza, 11th Floor, New York City, New York at 10:00 a.m. on the
earlier of (i) the tenth (10th) day after the closing date of FNEDC's proposed
initial public offering, or (ii) December 15, 1997, or at such other time and
place as the parties may mutually agree in writing (the "Closing Date").
V.2. Deliveries at Closing by the Shareholders. At the Closing,
provided FNEDC has duly performed its obligations hereunder, the Shareholders
shall deliver or cause to be delivered to FNEDC the following:
(a) Certificates representing the Stock, duly endorsed for
transfer or with duly executed stock powers attached, and free of any liens,
encumbrances, restrictions on transfer, charges or claims;
(b) Certified copies of resolutions duly adopted by: the Company's
(i) Board of Directors and (ii) shareholders approving and authorizing the
transactions provided for in the Operative Documents, the execution thereof and
the performance of all acts required to be performed by the Company thereunder,
accompanied by an appropriate certificate of incumbency.
(c) Certified copies of resolutions duly adopted by the Company's
(i) Board of Directors and (ii) shareholders, ratifying all actions and
authorizations of the Company's board of directors and shareholders since the
date of the Company's incorporation, accompanied by an appropriate certificate
of incumbency;
(d) A copy of the Company's (i) Certificate of Incorporation, and
(ii) Bylaws, each as amended as of the Closing Date and certified by the
Secretary of the Company, a Certificate of Good Standing of the Company issued
as of a recent date by the Secretary of State of the State of New Jersey and a
Tax Clearance Certificate of the Company issued as of a recent date by the New
Jersey Department of Taxation.
(e) Instruments of transfer, in form reasonably satisfactory to
FNEDC and its counsel, to convey all of the Shareholders' right, title and
interest in and to any trademarks and Other Documents; and
(f) All consents of any person or entity, whether or not a party
to this Agreement, which are necessary to effectuate the transfer of the Stock,
the assignment of the Other Documents, and the consummation of the transactions
contemplated by this
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Agreement.
V.3. Deliveries by FNEDC. At the Closing, provided each Shareholder and
the Company has fully performed all of his or its respective obligations
hereunder, FNEDC shall deliver or cause to be delivered to or on behalf of the
Shareholders the following:
(a) The Purchase Price minus the Deposit;
(b) A certified copy of resolutions duly adopted by FNEDC's Board
of Directors approving and authorizing the transactions provided for in the
Operative Documents, the execution thereof and the performance of all acts
required to be performed by FNEDC thereunder, accompanied by an appropriate
certificate of incumbency; and
(c) A copy of FNEDC's (i) Certificate of Incorporation, and (ii)
Bylaws, each as amended as of the Closing Date and certified by the Secretary of
FNEDC, and a Certificate of Good Standing of FNEDC issued as of a recent date by
the Secretary of State of the State of Delaware.
(d) All consents of any person or any entity, whether or not a
party to this Agreement, which are necessary to effectuate the consummation of
the transactions contemplated by this Agreement.
(e) Counterpart signature pages to this Agreement and the Stock
Purchase Agreement by each of First Dental and the P.C.
ARTICLE VI
POST-CLOSING MATTERS
VI.1. Further Assurances. Following the Closing Date, the Shareholders
will execute and deliver to FNEDC such documents and take such other actions, at
the Shareholders' expense, as FNEDC may reasonably request in order to vest in
FNEDC good, valid and marketable title to the Stock.
VI.2. Employment and Benefits-Related Matters.
(a) FNEDC shall retain the right to amend in any respect or to
terminate in whole or in part any Plan in accordance with the provisions of such
Plan and applicable law.
(b) Nothing contained in this Agreement shall obligate or commit
FNEDC to continue any Plan with respect to services after the Closing Date or to
maintain in effect any such Plan or any similar plan or any level or type of
benefit except as may be provided to the contrary in this Section 6.2.
(c) The Shareholders shall cooperate and remain responsible
financially for fulfilling all reporting, disclosure and other
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administrative duties of any Shareholder or the Company for the Plans that
relate to periods prior to the Closing Date. Any failure by the Shareholders to
fulfill these duties shall be subject to the indemnification provisions under
Section 8.2(b) below.
(d) The Shareholders shall provide to FNEDC copies of any
correspondence relating to the Plans and shall inform FNEDC of any
communications with a government agency, including but not limited to the
Internal Revenue Service and the U.S. Department of Labor, regarding the Plans.
(e) Upon the Closing, FNEDC and the P.C. will make offers of employment
to all employees of the Company upon such terms and conditions as FNEDC or the
P.C., as the case may be, may determine. Employees of the Company who are not
dentists shall become employees of FNEDC and employees of the Company who are
dentists and who accept offers of employment shall become employees of the P.C.
Such employees shall receive standard FNEDC or P.C. employee benefits, as the
case may be. FNEDC and the P.C. shall be entitled in the ordinary course of
their respective businesses to prospectively alter the compensation, and benefit
programs they offer to their respective employees. The terms and conditions of
the employment of dentists with separate written employment contracts with the
P.C. shall be governed by the provisions of such contracts.
VI.3. Access to Records. The Shareholders and FNEDC shall each
cooperate with the other after the Closing Date by providing without additional
consideration (except as set forth below) and promptly upon request, copies of
such records and other information regarding the Business and the assets of the
Company as may reasonably be requested from time to time by the other Parties as
necessary for the preparation or audit of federal, state and local income and
other tax returns, third party reimbursement filings, audits (including those by
third party payors), third party disputes, refund claims and other valid
business purposes. All such requests for information shall be made upon
reasonable notice, and such information shall be made available during normal
business hours (unless otherwise agreed to by the Parties) and in such manner as
to avoid unnecessary disruption of the Party providing the information. The
Party requesting such information shall pay the reasonable out-of-pocket
expenses of the Party providing such information.
ARTICLE VII
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT
VII.1. Non-Solicitation. Subject to the provisions set forth in Article
IX hereof, for a period of three (3) years following the Closing Date, neither
Saul Herman nor Armento (related to orthodontic work only) shall, without the
express written consent of FNEDC:
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(a) solicit any persons who are at any time patients of the
Business, nor suggest, request or direct that any such patients request that
medical records be copied or otherwise removed or transferred from FNEDC's
office, nor remove or copy any medical records or patient or mailing lists; or
(b) hire, seek to hire or assist in hiring any employee, agent
or independent contractor of the Business or FNEDC or induce or seek to induce,
or take action which results in the termination of employment or other
arrangements between the Business or FNEDC and such employee, agent or
independent contractor or otherwise interferes with such employment or
arrangements; provided that Armento may continue to employ his two (2)
assistants as of the execution date hereof.
VII.2. Non-Compete. Subject to the provisions set forth in Article IX
hereof, Saul Herman shall be bound by the following non-competition covenants:
(a) For a period of three (3) years following the Closing Date,
Saul Herman shall not, without the express written consent of the FNEDC (i)
engage in any dental practice or activity within a fifteen (15) mile radius
("Non-Compete Area") of any present locations of any Company ("the Locations")
that competes with FNEDC; or (ii) directly or indirectly own, manage, operate,
control or participate either directly or indirectly in the ownership,
management, operation or control of (A) any dental practice or specialty dental
care facility, however organized, within the Non-Compete Area, (B) any dental
plan organization or similar health maintenance organization within the State of
New Jersey, and (C) any laboratory or other facility within the State of New
Jersey that provides any services or manufacturers any products that compete,
directly or indirectly, with the products and/or services manufactured or
provided by FNEDC or Doctor's Denture Service, P.A.
(b) If any part of this Section 7.2 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.
(c) Notwithstanding Section 7.2(a) above, during the three (3)
year period following the Closing, Saul Herman will be free to pursue whatever
activities he desires, provided that such other activities do not (i) materially
interfere with his obligations to provide consulting services to FNEDC as set
forth in Schedule 3.7 of the Stock Purchase Agreement, or violate the provisions
of this Section 7.2.
ARTICLE VIII
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SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
VIII.1. Survival. The Shareholders and FNEDC agree that (i) the
covenants, representations and warranties contained in this Agreement shall
survive for a period of two (2) years from the Closing Date, except that the
representations, warranties and covenants contained in Section 2.2(i) shall
survive until the applicable tax statutes of limitations relating thereto shall
have run, (ii) the representations, warranties and covenants contained in
Section 2.2(m) shall survive indefinitely, (iii) the provisions of Article VII
shall survive the Closing Date for the period specified therein; and (iv) the
provisions of this Article VIII shall survive the Closing Date for an indefinite
period.
VIII.2. Indemnification of FNEDC. (a) Each Shareholder agrees to
jointly and severally indemnify and hold FNEDC and its affiliates and their
respective directors, officers and employees (collectively, "FNEDC Indemnitees")
from and against (a) any and all payments, damages, claims, demands, losses,
expenses, costs, obligations and liabilities, including reasonable attorneys'
fees, which may be asserted against or sustained or incurred by the FNEDC
Indemnitees in connection with, arising out of or related to: (i) any inaccuracy
in, misrepresentation or breach of any of the representations, warranties,
agreements, commitments, obligations, covenants or conditions made by the
Company or any Shareholder under this Agreement, including the Schedules hereto;
(ii) any actions of the Shareholders, the Company or its employees or agents
taken prior to the Closing Date (with the exception of liabilities of the
Company incurred by the Company in the ordinary course of business); (iii) the
establishment or administration of any Plan prior to the Closing Date; (iv) the
Shareholders' failure to fulfill their post-Closing duties under Section 6.2
above; (v) any audit of a Plan performed by any governmental unit, including but
not limited to the Internal Revenue Service and the U.S. Department of Labor,
relating to periods prior to the Closing Date; or (vi) the failure of the
transfer and assignment of the Stock, the trademarks and the Other Documents
from the Shareholders to FNEDC to cause FNEDC to acquire good and marketable
title to the Stock, the trademarks and the Other Documents, free and clear of
any liens, encumbrances, restrictions on transfer, charges or claims unless such
failure is caused by the action of FNEDC or its affiliates and agents; and (b)
any and all costs and expenses (including, but not limited to, reasonable legal
expenses) incurred by the FNEDC Indemnitees in connection with the enforcement
of their respective rights hereunder.
VIII.3. Indemnification of the Shareholders. FNEDC and, from and after
the Closing Date, each of First Dental and the P.C., jointly and severally agree
to indemnify and hold the Shareholders and their employees and agents
(collectively, "Shareholder Indemnitees") from and against (a) any and all
payments, damages, claims, demands, losses, expenses, costs, obligations and
liabilities, including reasonable attorneys' fees, which may be asserted against
or sustained or incurred by
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the Shareholder Indemnitees: (i) in connection with, arising out of or related
to any inaccuracy in, misrepresentation or breach of any of the representations,
warranties, agreements, commitments, obligations, covenants or conditions made
by FNEDC hereunder; or (ii) arising or resulting from any actions of FNEDC
(including acts or omissions by any Shareholder that are committed at the
direction of FNEDC and/or the P.C. or are required pursuant to such
Shareholder's respective arrangement with FNEDC) taken after the Closing Date;
and (b) any and all costs and expenses (including, but not limited to,
reasonable legal expenses) incurred by the Shareholder Indemnitees in connection
with the enforcement of their respective rights hereunder.
VIII.4. Procedure for Indemnification. Any party making a claim for
indemnification hereunder (the "Indemnitee") shall notify the indemnifying party
(the "Indemnifying Party") of the claim in writing, describing the claim, the
amount thereof, and the basis therefor. The Indemnifying Party shall respond to
each such claim within 30 days of receipt of such notice. No action shall be
taken pursuant to the provisions of this Agreement or otherwise by the
Indemnitee until the later of (a) the expiration of the 30-day response period
(unless reasonably necessary to protect the rights of the Indemnitee), or (b) 30
days following the receipt of a response within such 30-day period by the
Indemnitee requesting an opportunity to cure the matter giving rise to
indemnification (and, in such event, the amount of such claim for
indemnification shall be reduced to the extent so cured within such 30-day cure
period). If such demand is based on a claim by a third party, the Indemnifying
Party shall have the right to assume the entire control of the defense,
compromise or settlement thereof, including at its own expense, employment of
counsel reasonably satisfactory to the Indemnitee, and, in connection therewith,
the Indemnitee shall cooperate fully to make available to the Indemnifying Party
all pertinent information under its control. No claim for indemnification
resulting from the breach or falsity or any of the representations or warranties
set forth herein or in any certificate or other instrument delivered pursuant
hereto shall be made after a date on which such representation, warranty or
agreement shall have expired under the provisions of Section 10.1 hereof.
VIII.5. Limitations on Indemnity Obligations. The Indemnifying Party
shall have no obligation to pay any claim for indemnification hereunder unless
and until the aggregate amount of all such claims arising under both this
Agreement and the Stock Purchase Agreement exceeds Fifty Thousand Dollars
($50,000) (the "Threshold Indemnity Amount"). In the event the aggregate amount
of all claims for which an Indemnified Party seeks indemnification hereunder
exceeds the Threshold Indemnity Amount, the Indemnifying Party shall be liable
for the entire indemnity amount with respect to such aggregated claims,
including the Threshold Indemnity Amount. Notwithstanding any other provision of
this Article VIII, the maximum aggregate amount that either
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FNEDC, on the one hand, or the Shareholders, on the other hand, shall be
obligated to pay as indemnity under this Agreement and the Stock Purchase
Agreement shall be the product of Four Million Dollars ($4,000,000) and a
fraction the numerator of which is the sum of the Purchase Price or the Adjusted
Purchase Price, if any, for each of this Agreement and the Stock Purchase
Agreement and the denominator of which is Five Million Seven Hundred Thousand
Dollars ($5,700,000).
VIII.6. Exclusive Remedy for Certain Indemnity Claims. Each Party
acknowledges and agrees that its sole and exclusive remedy with respect to any
and all claims relating to the subject matter of this Agreement and the
Schedules hereto, shall be pursuant to the indemnification provisions set forth
in this Article VIII; provided, however, that the Shareholders acknowledge and
agree that FNEDC shall be entitled to obtain injunctive relief with respect to
the enforcement of the non-competition and non-solicitation covenants set forth
in Article VII; and further provided that nothing in this Article VIII shall
prevent the Parties from obtaining any remedy specifically provided for in this
Agreement including arbitration of purchase price adjustments, refund or partial
refund of the Deposit, indemnification by the Shareholders for any tax liability
of the Company as set forth in Section 2.2(i), liquidated damages during the
Break-Up Fee Period and certain provisions as set forth in Article IX below.
VIII.7. Indemnity Payments by the Shareholders to be Treated as
Purchase Price Adjustments. The Parties agree that indemnity payments made by
the Shareholders in respect of their indemnity obligations under this Article
VIII, if any, shall be treated as proportional purchase price adjustments under
this Agreement and the DPO Stock Purchase Agreement.
ARTICLE IX
TERMINATION OF AGREEMENT
Notwithstanding anything in this Agreement to the contrary, this
Agreement and the obligations of the parties hereunder may be terminated
immediately upon written notice given on or prior to Closing Date as follows:
(a) by written consent of FNEDC and the Shareholders;
(b) by FNEDC if (i) any Shareholder has breached or violated any
material provision of this Agreement or failed to perform any material covenant
or agreement to be performed by such Shareholder under this Agreement, and (ii)
FNEDC has given such Shareholder reasonably specific written notice of such
breach or violation, and (iii) such Shareholder has failed to cure such breach
or violation within a reasonable period time (not to exceed 30 days) after the
giving of notice;
(c) by the Shareholders if (i) FNEDC has breached or
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violated any material provision of this Agreement or failed to perform any
material covenant or agreement to be performed by FNEDC under the terms of this
Agreement, and (ii) the Shareholders have given FNEDC reasonably specific
written notice of such breach or violation, and (iii) FNEDC has failed to cure
such breach or violation within a reasonable period of time (not to exceed 30
days) after the giving of notice; and
(d) by either Party if this Agreement and the Stock Purchase
Agreement do not both close by December 15, 1997.
In the event this Agreement shall be terminated pursuant to the
provisions of this Article IX, all rights and obligations of the Parties
hereunder shall terminate without any liability of the Shareholders, on the one
hand, and FNEDC, on the other, except for (i) any liability of any Party then in
breach, (ii) the respective obligations of the Parties pursuant to Article X
herein, (iii) in accordance with the provisions of Section 1.2 hereof, the
Shareholders may be required to return all or a portion of the Deposit to FNEDC,
and (iv) in the event that the Shareholders shall be required to deliver the
Deposit to FNEDC by wire transfer of immediately available funds no later than
ten (10) days following the date of notice of termination and the Shareholders'
obligations pursuant to Sections 3.14 hereof shall survive.
ARTICLE X
CONFIDENTIAL INFORMATION
The Parties hereby acknowledge the confidential nature of this
Agreement and the transactions contemplated hereby. Neither any Shareholder on
the one hand, nor FNEDC, on the other hand, shall at any time from and after the
execution of this Agreement, directly or indirectly, without the prior written
consent of the Shareholders or FNEDC, as the case may be, disclose or use, in
any way harmful to the business, operations, assets, prospects or condition of
the Shareholders or FNEDC, as the case may be, or any of their affiliates, or
otherwise contrary to the interests of such other party or their affiliates, any
confidential information involving or relating to the Company or FNEDC, as the
case may be, or any of their affiliates or any business, venture or other
activity of the Company or FNEDC, as the case may be, past, present or future,
actual or prospective; provided, however, that such confidential information
shall not include any information which (A) is already in a party's possession,
or (B) becomes generally available to the public other than as a result of
disclosure in violation hereof by the receiving party or its directors,
officers, employees, agents or advisors; or (C) becomes available to a party on
a non-confidential basis from a source other than another party or its
affiliates, directors,
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<PAGE> 41
officers, employees or agents; and provided, further, that the provisions of
this Article X shall not prohibit any disclosure required by law in connection
with any Governmental Approval or judicial or administrative proceeding or
inquiry, pursuant to any applicable regulatory requirements including disclosure
required by any statute, rule or regulation, by generally accepted accounting
principles, or for purposes of correcting any information contained in any
public medium. This Article X shall survive the Closing or termination of this
Agreement for any reason whatsoever, as applicable, for an unlimited period of
time.
ARTICLE XI
MISCELLANEOUS
XI.1. Notices. All notices to a Party hereunder shall be deemed to have
been adequately given if delivered in person or mailed, certified mail, return
receipt requested, to such Party at its address set forth below (or such other
address as it may from time to time designate in writing to the other parties
hereto):
To the Shareholders: Saul Herman, D.D.S.
35 Vanderbilt Drive
Livingston, NJ 07039
Robert Armento, D.D.S.
31 Oak Place
North Caldwell, NJ 07006
with a copy to: Cole, Schotz, Meisel, Forman,
Leonard, P.C.
Court Plaza North, 25 Main Street
P.O. Box 800
Hackensack, NJ 07602-0800
Attention: Alan Rubin, Esq.
To FNEDC: FNEDC of New Jersey, Inc.
85 Devonshire Street, 2nd Floor
Boston, MA 02109
Attention: President
with a copy to: Michael L. Blau, Esq.
McDermott, Will & Emery
75 State Street, 17th Floor
Boston, MA 02109
XI.2. No Waiver. No failure to exercise and no delay in exercising, on
the part of FNEDC or the Shareholders, any right, power or remedy hereunder
shall operate as a waiver thereof; nor
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<PAGE> 42
shall any single or partial exercise of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. The rights provided are cumulative and not exclusive of
any rights provided by law.
XI.3. Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by each Party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the Party
waiving such term or provision.
XI.4. Governing Law; Headings. This Agreement shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to the conflict of law principles thereof. The
descriptive headings of the several Articles and Sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
XI.5. No Assignment. None of the parties hereto may assign this
Agreement or any of their respective rights or obligations hereunder without
first obtaining the prior written consent of the other parties hereto; provided,
however, that FNEDC may (i) assign any or all of its rights and interests
hereunder to one or more of its affiliates, including First Dental, or to the
P.C., and (ii) designate one or more of its affiliates or the P.C. to perform
its obligations hereunder.
XI.6. Binding Effect and Benefits; Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
heirs, successors and assigns. FNEDC agrees to cause any entity that acquires
all or substantially all of FNEDC's assets to assume FNEDC's obligations
hereunder, unless assumption of such obligations is expressly waived in writing
by the Shareholders, and further agrees that in the event of a merger,
consolidation or change of control between FNEDC and a third party FNEDC will
not exclude its obligations hereunder from such merger, consolidation or change
of control.
XI.7. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior discussions, understandings and agreements concerning
the matters covered hereby.
XI.8. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
XI.9. Transfer Taxes. All stock transfer taxes, if any, incident to the
sale of the Stock shall be paid by the Shareholders.
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<PAGE> 43
XI.10. Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of New Jersey
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on the other Party by sending or delivering a copy of the
process to the Party to be served at the address for the giving of notices in
Section 11.1 above. Nothing in this Section 11.10, however, shall affect the
right of any Party to serve legal process in any other manner permitted by law
or in equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or in equity.
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IN WITNESS WHEREOF, the undersigned have set their hands and seals as
of the date first set forth above.
FNEDC OF NEW JERSEY, INC.
By:
-----------------------------------------
Jerald R. Robbins
Executive Vice President
-----------------------------------------
Saul H. Herman, D.D.S.
-----------------------------------------
Robert Armento, D.D.S.
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<PAGE> 45
SCHEDULES AND EXHIBITS
Schedules
Schedule 1.1 Allocation of Purchase Price
Schedule 2.1(d) FNEDC Required Consents
Schedule 2.1(f) FNEDC Litigation
Schedule 2.1(h) FNEDC Compliance
Schedule 2.2(d) Capitalization
Schedule 2.2(e) Debts, Liabilities
Schedule 2.2(f) Unfunded Liabilities
Schedule 2.2(g) Title Exceptions and Lease
Schedule 2.2(h) Compensation
Schedule 2.2(i) Tax Deficiencies and/or Claims
Schedule 2.2(j) Permits
Schedule 2.2(k) Insurance
Schedule 2.2(l) Employees and Compensation
Schedule 2.2(m) Employee Benefits
Schedule 2.2(n) Material Contracts
Schedule 2.2(o) Books and Records
Schedule 2.2(p) Banking Relationships
Schedule 2.2(q) Company's Required Consents
Schedule 2.2(r) Bad Debt Reserve
Schedule 2.2(s) Company Litigation
Schedule 2.3(f) Litigation (Shareholders)
Schedule 3.11 Automobile Leases
Exhibits
Exhibit A Escrow Agreement
Exhibit B Legal Opinion of Cole, Schotz, Meisel, Forman
and Leonard, P.C.
<PAGE> 1
EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
BETWEEN
FIRST NEW ENGLAND DENTAL CENTERS, INC.,
AND
THE OWNERS OF THE ISSUED AND OUTSTANDING
CAPITAL STOCK OF
INGOLDSBY & BERGMAN, P.C.:
CLARK INGOLDSBY, D.D.S.
STEVEN BERGMAN, D.M.D.
Dated as of November 12, 1996
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of November 12,
1996, by and among FIRST NEW ENGLAND DENTAL CENTERS, INC., a Delaware
corporation ("FNEDC") and CLARK INGOLDSBY, D.D.S. ("Ingoldsby") and STEVEN
BERGMAN, D.M.D., P.C. ("Bergman"), the undersigned shareholders (the
"Shareholders") of INGOLDSBY & BERGMAN, P.C. (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of the management of
dental services (the "Business");
WHEREAS, FNEDC intends to acquire all of the outstanding common stock
of the Company at the Closing (defined in Section 5.1);
WHEREAS, immediately prior to the Closing, the Company intends to amend
its Articles of Organization to become a general business corporation under
Massachusetts General Laws, Chapter 156B.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
GENERAL TERMS
I.1. Consideration. On the Closing Date and subject to Section 1.2
hereof, each issued and outstanding share of common stock of the Company
("Company Stock") shall be converted into and exchanged for the right to receive
Eight Hundred Sixty-Four Thousand Eight Hundred Forty-Three Dollars ($864,843),
to be paid to the Shareholders as follows:
(i) convertible promissory notes, each substantially in the
form set forth in Exhibit 1.1(i), in the principal aggregate amount of
Two Hundred Thousand Dollars ($200,000), as follows: (A) One Hundred
Thousand Dollars ($100,000) to Ingoldsby, and (B) One Hundred Thousand
Dollars ($100,000) to Bergman (the "Convertible Notes");
(ii) the aggregate sum of One Hundred Eighty-Seven Thousand
Five Hundred Dollars ($187,500), to be paid by FNEDC on the Closing
Date, by bank check or wire transfer, as follows: (A) Ninety Three
Thousand Seven Hundred Fifty Dollars ($93,750) to Ingoldsby, and (B)
Ninety Three Thousand Seven Hundred Fifty Dollars ($93,750) to Bergman
(collectively, the "Funds");
(iii) promissory notes (the "Promissory Notes"), each
substantially in the form set forth at Exhibit 1.1(iii), in the
principal aggregate amount
<PAGE> 3
of One Hundred Eighty-Seven Thousand Five Hundred Dollars ($187,500),
as follows: (A) Ninety-Three Thousand Seven Hundred and Fifty Dollars
($93,750) to Ingoldsby, and (B) Ninety-Three Thousand Seven Hundred and
Fifty Dollars ($93,750) to Bergman;
(iv) the aggregate sum of Two Hundred and Twenty-Five Thousand
Dollars ($225,000), to be paid by FNEDC on behalf of the Company to
Bank of Braintree on the Closing Date, by wire transfer, which,
together with the amounts paid to Bank of Braintree by the Shareholders
on or before the Closing Date, shall be in full satisfaction of the
Company's obligations to Bank of Braintree (the "Bank of Braintree
Loan"); and
(v) the aggregate sum of Sixty-Four Thousand Eight Hundred
Forty-Three Dollars ($64,843) as reimbursement of Shareholders by FNEDC
for trade payables assumed, to be paid by bank check, as follows: (A)
Thirty-Two Thousand Four Hundred Twenty-One and Fifty Cents Dollars
($32,421.50) to Ingoldsby, and (B) Thirty-Two Thousand Four Hundred
Twenty-One and Fifty Cents Dollars ($32,421.50) to Bergman (such amount
together with the Promissory Notes, the Convertible Notes and the
Funds, the "Cash Component")
I.2. Delivery of Certificates and Consideration.
(a) Delivery of Company Stock Certificates. At the Closing, the
Shareholders shall deliver to FNEDC all certificates which represent shares of
Company Stock.
(b) Delivery of Closing Consideration. At the Closing, FNEDC shall
issue and deliver to the Shareholders the Convertible Notes and Promissory Notes
to which the Shareholders shall be entitled pursuant to Section 1.1 hereof.
FNEDC shall also pay the Cash Component to the Shareholders as provided in
Section 1.1(b) above.
I.3. Tax Liability. If the Company has a liability with respect to any
taxes for any period prior to the Closing Date, then the amount of such tax
liability (the "Tax Liability") shall be added to the Group Productivity Target
set forth at Exhibit B in the Shareholders' Dental Employment Agreements
(defined below) for the first full contract year of such agreement. The Parties
agree that, in accordance with APB Opinion 16 and for accounting purposes only,
the Closing shall be deemed to have occurred and take effect on October 1, 1996.
I.4. Pre-paid Expenses. At the Closing, FNEDC shall reimburse the
Shareholders for the pre-paid expenses set forth on Schedule 1.4 attached
hereto.
I.5. Withdrawal of Cash. Except for amounts necessary to pay any
outstanding checks of the Company drawn upon the Company's bank accounts, the
Shareholders shall be entitled to withdraw the remainder of all funds from said
accounts on the Closing Date.
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<PAGE> 4
I.6. Accounts Payable. The Shareholders shall assume the responsibility
for timely payment of all of the accounts payable of the Company accruing prior
to the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
II.1. Representations and Warranties of FNEDC.
FNEDC hereby represents and warrants to the Shareholders that
each of the statements contained in this Section 2.1 is true and correct in all
respects as of the date hereof and will be true and correct at and as of the
Closing.
(a) Organization, Power and Standing. FNEDC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to own its properties
and to carry on its business as such business is now conducted and presently
proposed to be conducted. The copies of FNEDC's Certificate of Incorporation and
by-laws, as amended through the date hereof, that have been delivered to the
Shareholders by FNEDC, are complete and correct as of the date of this Agreement
and will continue in effect without further amendment through the Closing.
(b) Power and Authority Relative to Transaction. FNEDC has full
corporate power and authority and has taken all required action necessary to
permit it to execute and deliver this Agreement and to perform all of the
obligations contained herein, and to execute, deliver and perform all of the
obligations contained in all other instruments or agreements required hereby or
incident or collateral hereto, and none of such actions conflicts with or
violates any provision of law known to FNEDC or of the Certificate of
Incorporation or Bylaws of FNEDC, or violates or constitutes a default under or
will result in any breach of any agreement, indenture, deed of trust, mortgage,
instrument, lease, order, judgment, writ, injunction, decree, license or permit
of any court or governmental or regulatory body applicable to FNEDC or by which
FNEDC or its assets may be bound.
(c) Valid and Binding Obligation. This Agreement constitutes, and
each other instrument or agreement to be executed and delivered by FNEDC under
this Agreement will constitute, the valid and legally binding obligation of
FNEDC, enforceable against it in accordance with their respective terms, subject
to applicable bankruptcy, insolvency and other general laws affecting the rights
and remedies of creditors, except that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(d) Required Consents. No consent, order, approval,
authorization, declaration or filing including, without limitation, any consent,
approval or authorization of or declaration or filing with any governmental
authority, is required on the part of FNEDC for or in connection with the
execution and delivery of this Agreement.
(e) No Brokers. FNEDC has not dealt with any broker, finder or
similar
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<PAGE> 5
agent with respect to the transactions contemplated by this Agreement and FNEDC
is not under any obligation to pay any broker's fee, finder's fee or commission
in connection with the transactions contemplated by this Agreement.
(f) Litigation. Except as described on the attached Schedule
2.1(f), there is no litigation, proceeding or investigation pending or, to the
best of FNEDC's knowledge, threatened (nor, to the best of FNEDC's knowledge, is
there any basis therefor) against FNEDC or affecting any of its properties,
rights or assets or against any officer or employee which relates to the affairs
of FNEDC or the right of any officer or employee to participate in the business
of FNEDC and which is reasonably likely to result in any material adverse change
in the business or condition (financial or otherwise), prospects, assets or
liabilities of FNEDC or which relates to the FNEDC Stock or the transactions
contemplated by this Agreement, in any court or before any authority or
governmental entity including, without limitation, actions, proceedings or
investigations with respect to any alleged violation by FNEDC of any law,
statute, ordinance, regulation, order, policy or guideline of any governmental
entity.
(g) Capitalization. FNEDC's entire authorized capital stock
consists of 10,000,000 shares of FNEDC Common Stock, $.01 par value per share.
As of the date of execution of this Agreement, an aggregate total of 4,773,588
shares of FNEDC Common Stock are issued and presently outstanding. Subject to
the accuracy and completeness of the representations made, and the information
provided by others in connection with the issuance of FNEDC Common Stock, all of
the outstanding FNEDC Common Stock has been issued in full compliance with all
applicable securities laws. FNEDC has no outstanding options, warrants,
conversion rights, exchange privileges or other commitments to issue or to
acquire any shares of its capital stock or any securities or obligations
convertible or exchangeable into shares of its capital stock except as set forth
in Schedule 2.1(g).
(h) Qualification to Do Business. FNEDC is duly qualified to do
business in Massachusetts and in all other jurisdictions in which failure to so
qualify would have a material adverse effect on FNEDC.
(i) Compliance with Laws. FNEDC is not in material violation of
any Federal, state or local statute, ordinance, judgment, decree, order or
governmental rule, regulation, policy or guideline applicable to FNEDC in a
manner which could materially and adversely affect its condition (financial or
otherwise) or the transactions contemplated by this Agreement.
(j) Financial Statements. The unaudited financial statements of
FNEDC which have been provided to the Shareholders in connection with the
transactions contemplated by this Agreement (a) fairly present the financial
position and results of operations of FNEDC as of the respective dates thereof,
subject to the absence of year end adjustments and footnotes; (b) are in
accordance with the books and records of FNEDC; and (c) are prepared in
accordance with a modified cash basis of accounting consistently applied. FNEDC
has no debts, liabilities or obligations of any nature whatsoever which are not
disclosed on such financial statements.
(k) Investigation. The Shareholders have made available to FNEDC
written
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<PAGE> 6
information which they have requested and have answered to FNEDC's satisfaction
all inquiries made by them; provided, however, that no such information or
answers shall in any way mitigate, limit or qualify the Shareholders'
representations and warranties set forth in, respectively, Sections 2.2 and 2.3
hereof, nor minimize FNEDC's reliance on such representations and warranties as
a condition to entering into this Agreement.
(l) Disclosure. Neither the representations and warranties of
FNEDC contained in this Agreement nor the financial or other information
included in the Schedules hereto, nor any other document, certificate or written
statement furnished to the Shareholders by FNEDC in connection herewith contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein complete
and not misleading as of the dates thereof in light of the circumstances in
which they were made. There is no fact presently known to FNEDC which may (so
far as FNEDC can now reasonably foresee) materially adversely affect the
business, operations, affairs, prospects or condition of FNEDC or its property
or assets which has not been set forth in this Agreement or in a document,
certificate or written statement furnished to the Shareholders by FNEDC pursuant
hereto.
II.2. Representations and Warranties Concerning the Company.
The Shareholders hereby represent and warrant to FNEDC that each
of the statements contained in this Section 2.2 (including the Schedules hereto)
is true and correct as of the date of this Agreement and will be true and
correct at and as of the Closing.
(a) Organization, Power and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts with all requisite corporate power and
authority to own its properties and engage in the business in which it is
currently engaged (except that upon conversion to a general business corporation
under M.G.L. 156B, the Company shall no longer be authorized to engage in the
practice of dentistry). The copies of the Company's Articles of Organization and
by-laws, as amended through the date hereof, that have been delivered to FNEDC
by the Company are complete and correct as of the date of this Agreement and
will continue in effect without further amendment (except to convert the Company
to a general business corporation) through the Closing.
(b) Subsidiaries and Interest in Other Entities. The Company has
no subsidiaries nor does it, directly or indirectly, own or have the right to
acquire any equity interest in any other corporation, partnership, joint venture
or other business organization, except as provided herein. The Company has not
made any investment in or advance of cash or other extension of credit to any
company, entity or individual.
(c) Capitalization. The Company's entire authorized capital stock
consists of 20,000 shares of common stock, no par value per share (the "Company
Stock"), of which 1,000 shares are issued and presently outstanding and held by
Clark Ingoldsby, D.D.S. and 1,000 shares are issued and presently outstanding
and held by Steven Bergman, D.M.D.
All of the outstanding stock of the Company has been issued in
full compliance
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<PAGE> 7
with all applicable securities laws. The Company has no outstanding options,
warrants, conversion rights, exchange privileges or other commitments to issue
or to acquire any shares of its capital stock or any securities or obligations
convertible or exchangeable into shares of its capital stock except as set forth
in Schedule 2.2(c).
(d) Qualification to do Business. The Company is duly qualified
to do business in Massachusetts and in all other jurisdictions in which the
failure to so qualify would have a material adverse effect on the Company.
(e) Financial Statements. Schedule 2.2(e) hereto includes: the
unaudited 1995 financial statements of the Company and the Profit and Loss and
Balance Sheets as of September 30, 1996. The financial information included in
Schedule 2.2(e) is collectively referred to as the "Financial Information." The
Financial Information is complete and accurate and fairly presents the financial
condition of the Company at the dates indicated and the results of its operation
for the periods indicated, subject to year-end adjustments and footnote
disclosures, and was prepared in accordance with the books and records of the
Company and in conformity with an accrual basis of accounting, consistently
applied.
(f) Absence of Undisclosed Liabilities. Except for current
liabilities incurred in the ordinary and usual course of business since
September 30, 1996, the costs incurred in connection with the transactions
contemplated hereby, and liabilities reflected in the Schedules to this
Agreement, the Company has no liabilities, whether absolute, accrued, contingent
or otherwise and whether due or to become due, except as and to the extent
reflected or reserved against in the Financial Information. Except for those
liabilities set forth in Schedule 2.2(f) and accounts payable incurred in the
ordinary and usual course of business since September 30, 1996, the Company
shall not have any liabilities as of the Closing Date.
(g) Title to Properties, Etc.. Except as set forth in the
Financial Information or as listed on Schedule 2.2(g), the Company is the sole
owner of, and has good, valid and marketable title to, all of its properties and
assets, real and personal, including all those reflected in the Financial
Information (except for such assets as may have been since sold or otherwise
disposed of in the ordinary course of business), and all trademarks, copyrights,
and service marks used in connection with the Business. None of such properties
is subject to any mortgage, pledge, lien, conditional sale agreement, security
interest, encumbrance or other charge except:
(i) liens, encumbrances and leases incurred or made in the
ordinary course of business which do not materially impair the
usefulness of such properties and assets in the conduct of the business
of the Company (but excluding liens securing payment of indebtedness);
(ii) liens from nondelinquent taxes, assessments or
governmental charges or levies; and
(iii) as specifically set forth on Schedule 2.2(g).
The Company enjoys peaceful and undisturbed possession under the leases set
forth on
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<PAGE> 8
Schedule 2.2(g). All such leases are valid, subsisting and in full
force and effect, and there are no uncured defaults of the Company under such
leases. The assets and properties of the Company, including those obtained
pursuant to said leases, are adequate to conduct the operations currently
conducted and presently proposed to be conducted by the Company. Except as set
forth in Schedule 2.2(g), all machinery, equipment and other assets of the
Company are in good repair, reasonable wear and tear excepted, have been well
maintained and, to the best of the Shareholders' knowledge, conform in all
material respects to all applicable ordinances, regulations and zoning or other
laws, and such machinery and equipment is in good working order. There is no
pending or, to the best of the Shareholders' knowledge, threatened condemnation
of any such property. Except as set forth in Schedule 2.2(g), the leasehold or
other interest of the Company in such real property is not subject or
subordinate to any security interest, lien or mortgage, except with respect to
liens described in Subsections 2.2(g)(i) and (ii) above. The lease for the
Company's premises has not been amended and neither the landlord nor the Company
is in default thereunder. To the best of the Shareholders' knowledge, the use of
the Company's premises by the Company and the occupancy and operation thereof by
the Company are in compliance in all material respects with all applicable
Federal, state and local laws, ordinances and regulations, including without
limitation Federal and state safety, health, environmental protection and
hazardous waste laws, regulations, standards and ordinances.
(h) Conduct of Business; Absence of Material Adverse Changes.
Since October 1, 1996, except as otherwise required pursuant to this Agreement,
the Business has been conducted only in the usual and ordinary course, and there
has been (i) no sale, transfer or other disposition of any of the Company's
material assets or capital stock; (ii) no encumbrance placed upon the Company's
assets or stock; (iii) no other event or condition known to the Shareholders
which materially and adversely affects, or which is reasonably likely to
materially and adversely affect, the Business or the condition (financial or
other), prospects, assets or liabilities of the Company; and (iv) no free
service, premium or gift offered as an inducement to existing or prospective
patients (other than charitable care provided in accordance with the Company's
policy regarding uncompensated care).
In particular, and without limiting the generality of the foregoing,
since October 1, 1996 the Shareholders have not permitted the Company to do any
of the following, except as otherwise contemplated herein:
(i) change its method of management or operations;
(ii) amend its Articles of Organization or By-Laws;
(iii) terminate the services of any employee, consultant or
agent of the Company;
(iv) 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, except as
disclosed in Schedule 2.2(l) or in connection with the transactions
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<PAGE> 9
contemplated hereunder;
(v) directly or indirectly redeem, purchase or otherwise
acquire or dispose of any properties or assets except in the ordinary
course of business;
(vi) subject any of its properties or assets to any mortgage,
pledge, security interest or lien;
(vii) directly or indirectly redeem, purchase or otherwise
acquire any of its outstanding capital stock;
(viii) 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;
(ix) 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;
(x) 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;
(xi) enter into any contract or commitment involving in any
instance aggregate payment by the Company of more than $1,000 or
extending beyond the Closing Date, except in connection with the
transactions contemplated hereby or in the usual and ordinary course of
business consistent with past practice;
(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 stock;
(xiii) take any other action which would materially adversely
affect or detract from the value of the Company or the Company Stock,
including without limitation cancelling any debts or claims;
(xiv) waive any rights of material value or modify, amend,
alter or terminate any Material Contract; and/or
(xv) directly or indirectly offer, solicit or entertain offers
for or take any other action with a view to the sale of all or any
substantial part of the assets, capital stock or business of the
Company.
(i) Tax Returns and Payments. The Company has prepared in good
faith and filed when due, or timely obtained extensions of time for filing, all
tax returns required by
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<PAGE> 10
law to be filed, and has paid when due all taxes, assessments and other
governmental charges (whether or not shown on any tax return), including without
limitation, all estimated tax payments imposed upon any of its properties,
assets or income. To the best of the Shareholders' knowledge, the Company has no
liability for any Federal, state or local taxes not yet paid which relate to
prior taxable years, except the 1995 tax year and the portion of the 1996 tax
year preceding the Closing. To the best of the Shareholders' knowledge, all such
tax returns are correct and complete in all material respects and no income tax
return nor any corporation excise tax return of the Company has ever been
audited. The Company has never filed a consent under Section 341(f) of the Code.
The Company has not executed any waiver or consent that would have the effect of
extending any applicable statute of limitations in respect of any of its tax
liabilities. To the best of the Shareholders' knowledge, the charges, accruals
and reserves on the books of the Company in respect of taxes for all fiscal
periods are adequate, and there is no unpaid assessment or any basis for the
assessment of any material amount of additional taxes for any period or partial
period preceding the Closing. Except as set forth on Schedule 2.2(i), neither
the Internal Revenue Service nor any other taxing authority has asserted or
threatened to assert, or is now asserting or threatening to assert, against the
Company any deficiency or claim for additional taxes or interest thereon or
penalties in connection therewith. The Company has withheld from its employees'
or its other payees' gross compensation and has paid over to appropriate
governmental authorities all tax and other withholdings required by applicable
law.
(j) Compliance with Laws. The Company is not in material
violation of any Federal, state or local statute, ordinance, judgment, decree,
order or governmental rule, regulation, policy or guideline applicable to the
Company in a manner which could materially and adversely affect its condition
(financial or otherwise), the transactions contemplated by this Agreement or the
Business.
(k) Insurance. The Company is insured under the insurance
policies listed in Schedule 2.2(k), all of which are valid and in full force.
Except as otherwise indicated on Schedule 2.2(k), all liability insurance
policies are on an "occurrence" basis. All premiums due to date under such
policies have been paid, and no default exists thereunder. To the best of the
Shareholders' knowledge, the insurance listed in Schedule 2.2(k) is in amounts
adequate to cover losses on physical assets.
(l) Employees and Compensation.
(i) The Company is not in violation of any applicable Federal,
state or local laws or regulations with respect to employment,
employment practices, or the terms and conditions of employment, wages
and hours in a manner which could materially and adversely affect its
condition (financial or otherwise). None of the Company's employees is
represented by any union, and there is no labor strike, slowdown,
stoppage, organizational effort, dispute or proceeding by or with any
employee or former employee of the Company or any labor union pending
or threatened against the Company.
(ii) There are no employment or consulting contracts or
arrangements (other than those terminable at will) with any employees
or consultants of or associated
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with the Company, except as described on Schedule 2.2(l) hereto.
Schedule 2.2(l) also sets forth a true and complete list of all
employees of and consultants to the Company, showing date of hire,
hourly rate or salary or other basis of compensation, each bonus,
hourly rate increase and/or salary increase granted since November 1,
1996 (or committed to be granted in connection with the transactions
contemplated hereunder), and job function.
(m) Employee Benefits. Schedule 2.2(m) contains a complete and accurate
list of each plan, arrangement, understanding, practice or commitment, formal or
informal, firm or contingent, written or oral, currently sponsored, maintained
or contributed to by the Company which covers, or which at any time prior to the
Closing Date covered, any of the current or former officers, employees or
independent contractors of the Company or its predecessors and providing any of
the following benefits: bonus, stock bonus, profit sharing, pension, retirement,
life insurance, medical, hospitalization, dental, vision, disability, vacation,
workers' compensation, deferred or incentive compensation, severance benefits
and including, without limitation, each "employee pension benefit plan" (within
the meaning of Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended (hereinafter "ERISA")) and "employee welfare benefit plan"
(within the meaning of Section 3(1) of ERISA) (collectively, the "Plans").
Except as disclosed on Schedule 2.2(m):
(i) The Company and the Shareholders have not engaged in any
transactions which would, directly or indirectly, subject any Plan, its
related trust or the Company to a tax or penalty imposed under Section
4975 of the Code or Section 502(i) of ERISA;
(ii) The Company and the Shareholders have performed all their
material obligations under the Plans and have not violated the
provisions of any of the Plans and, to the best knowledge of the
Company and the Shareholders, no other party is in violation thereof;
(iii) Each Plan is in compliance in all material respects with
all applicable requirements prescribed by all statutes (including,
without limitation, ERISA and the Code), orders, governmental rules and
regulations;
(iv) All payments required to be made to each Plan as of the
Closing Date have been timely and completely made;
(v) There is no suit, action, dispute, claim, arbitration or
legal, administrative or other proceeding or governmental investigation
pending, or to the best knowledge of the Company, threatened, alleging
any breach of the terms of any Plan or of any fiduciary duties
thereunder or violation of any applicable law with respect to any Plan;
(vi) Subject to applicable requirements of ERISA, neither any
provision of any Plan nor any agreement with any employee nor any
representation or course of conduct by or on behalf of the Company
would prevent the amendment or termination after the Closing Date of
any Plan without liability to the Company;
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<PAGE> 12
(vii) There are no benefits or severance obligations of the
Company that will arise as a result of the transactions contemplated
hereunder;
(viii) No Plan which is an "employee welfare benefit plan"
provides for continuing benefits or coverage, including but not limited
to medical, health or life insurance, to an employee or former employee
following termination of employment with the Company other than that
either required by Section 4980B of the Code and Sections 601 through
609 of ERISA (or similar provisions of state law), or provided in
accordance with the conversion feature of the Plan.
(ix) Each Plan which is a "group health plan" (within the
meaning of Section 4980(B)(a)(2) of the Code) is in material compliance
with the applicable requirements under Section 4980B of the Code and
Sections 601 through 609 of ERISA;
(x) No Plan is, or forms part of, a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of
ERISA) or a "voluntary employees' beneficiary association" (within the
meaning of Section 501(c)(9) of the Code);
(xi) With respect to each Plan which is a self-insured
"employee welfare benefit plan," no claims have been made pursuant to
any such Plan that have not yet been paid and, to the best knowledge of
the Company, no injury, sickness or other medical condition has been
incurred with respect to which claims may be made pursuant to any such
Plan; and
(xii) All reports, forms and other documents with respect to
any Plan required to be filed with any government entity or to be
disclosed to Plan participants and their beneficiaries have been timely
filed or disclosed, as the case may be, and are accurate in all
material respects.
(n) Material Contracts. Schedule 2.2(n) hereto sets forth a complete
and accurate list and compilation of all material:
(i) Contracts with respect to the provision of health care
services, including all contracts between third party payors and the
Company or the Shareholders;
(ii) Licenses, leases, contracts and other arrangements with
respect to any material property of the Company;
(iii) Contracts (written or unwritten) with respect to which
the Company has any liability or obligation, contingent or otherwise,
involving more than $1,000 or which may otherwise have any continuing
effect after the Closing Date, or which place any material limitation
on the method of conducting or the scope of the Business;
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<PAGE> 13
(iv) Contracts of the Company with directors, officers,
employees, agents and/or consultants of the Company or the spouses or
relatives of such persons;
(v) Compensation arrangements for all employees and
consultants including rates of pay and other benefits and the amounts
of compensation and other benefits accrued as of a recent date;
(vi) Agreements, contracts or instruments relating to the
borrowing of money, or the guaranty of any obligation for the borrowing
of money;
(vii) Contracts between officers, directors or employees of
the Company and any other person or entity which purport to restrict
the Company's business activities or use of information in the
Business, including without limitation any covenant not to compete;
(viii) All agreements relating to any securities of the
Company or rights in connection therewith; and
(ix) Any contracts, leases or other agreements referred to in
any other Schedule hereunder, and any other material contracts,
instruments, commitments, plans or arrangements of the Company.
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<PAGE> 14
All the foregoing are herein called "Material Contracts." Schedule 2.2(n)
includes with respect to each Material Contract the names of the parties, the
date thereof, its title or other general description. Copies of all written
Material Contracts have been delivered to FNEDC or FNEDC's counsel. Each
Material Contract sets forth the entire arrangement and understanding between
the Company and the respective third parties with respect to the subject matter
thereof and, except as indicated in such Schedule, there have been no amendments
or side or supplemental arrangements to or in respect of any Material Contract.
The Company has furnished to FNEDC true and correct copies of all Material
Contracts as currently in effect, and will furnish any further information that
FNEDC may reasonably request in connection therewith. Each Material Contract is
valid and in full force and effect, and the Company has performed all material
obligations required to be performed by it thereunder. The Company is not in
material default under or in material breach or material violation of (x) its
Articles of Organization or Bylaws, or (y) any Material Contract, or (z) any
other agreement, decree, order, statute or governmental rule or regulation
applicable to it in a manner which would materially and adversely affect its
condition, the transactions contemplated by this Agreement or the Business, and
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in the violation of any law,
decree or order known to the Company or in any default, breach or violation of
the Company's Articles of Organization or Bylaws, or any Material Contract to
which the Company is a party or by which it is bound. To the best of the
Shareholders' knowledge, there is no event which has occurred or existing
condition which constitutes, or with notice or lapse of time or both, would
constitute a default under any Material Contract or would cause the acceleration
of any obligation of any party thereto, or give rise to any right of termination
or cancellation or cause the creation of any lien or encumbrance on any asset of
the Company. To the best of the Shareholders' knowledge, no third party is in
default under any material provision of any Material Contract. The Shareholders
have no knowledge that the parties to any Material Contract will not fulfill
their obligations thereunder in all material respects. There is no term of any
Material Contract which now or in the future may, so far as the Shareholders can
now reasonably foresee, materially adversely affect the Business or the
business, operations, affairs, prospects or condition of the Company.
(o) Books and Records. All corporate actions of the Company's
board of directors and the Shareholders have been duly authorized in accordance
in all material respects with applicable law and the Articles of Organization
and Bylaws of the Company, and has been duly and accurately recorded in the
Company's minute books in all material respects. The general ledgers and books
of the Company and all of its other books, accounts and records are in all
material respects complete and correct and have been maintained in accordance in
all material respects with good business practice and all applicable laws and
regulations.
(p) Banking Relationships. All of the arrangements which the
Company has with any banking institution are completely and accurately described
in Schedule 2.2(p) indicating with respect to each such arrangement the type of
arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereto. The
Company has no outstanding powers of attorney of any kind.
(q) Required Consents, Etc. Except as described in Schedule
2.2(q) hereto,
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<PAGE> 15
to the best of the Shareholders' knowledge, no consent, approval, authorization,
declaration or filing, including without limitation any consent, approval or
authorization of or declaration or filing with any governmental authority, is
required on the part of the Company in connection with the execution and
delivery of this Agreement or exchange of Company Stock pursuant hereto.
(r) Licenses and Permits. Schedule 2.2(r) hereto sets forth a
complete and accurate list of all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities held by
the Company which are in effect and which in any way relate to the Business
(collectively, the "Authorizations"). To the best of the Shareholders'
knowledge, the Authorizations constitute all licenses, permits, consents,
approvals and authorizations required for the conduct of the Business, and no
suspension or cancellation of any Authorization is threatened. To the best of
the Shareholders' knowledge, all of the Authorizations are in full force and
effect and are valid and enforceable in accordance with their terms. To the best
of the Shareholders' knowledge, there exists no fact or circumstance which
constitutes, or with the passage of time or giving of notice or both would
constitute, a default under any Authorization or permit any governmental or
other authority to cancel or terminate any Authorization.
(s) Accounts Receivable. Except as set forth on Schedule
2.2(s), the accounts receivable of the Company as of the Closing will be valid
and enforceable claims, collectible in the ordinary course of business (subject
to (i) allowances set forth in the subject contracts, (ii) non-collectible
accounts in the ordinary course, and (iii) the reserves for bad debts reflected
in the Financial Information) and, to the best of the Shareholders' knowledge,
subject to no set-off or counterclaim. Notwithstanding the foregoing,
Shareholders represent and warrant that at least $150,000 of the Company's
accounts receivable are fully collectible. The Company has no accounts or loans
receivable from any person, firm or corporation which is affiliated with the
Company or from any director, officer or employee of the Company. All accounts
receivable arose out of bona fide transactions in the ordinary course of
business.
(t) Litigation. Except as set forth on Schedule 2.2(t), there
is no litigation, proceeding or investigation pending or, to the best of the
Shareholders' knowledge, threatened (nor, to the best of the Shareholders'
knowledge, is there any basis therefor) against the Company or affecting any of
its properties, rights or assets or against any officer or employee which
relates to the affairs of the Company or the right of any officer or employee to
participate in the business of the Company and which is reasonably likely to
result in any material adverse change in the Business or in the business or
condition (financial or otherwise), prospects, assets or liabilities of the
Company or which relates to the Company Stock or the transactions contemplated
by this Agreement, in any court or before any authority or governmental entity
including, without limitation, actions, proceedings or investigations with
respect to any alleged violation by the Company of any law, statute, ordinance,
regulation, order, policy or guideline of any governmental entity.
(u) No Brokers. The Company has not dealt with any broker,
finder or similar agent with respect to the transactions contemplated by the
Agreement and the Company is not under any obligation to pay any broker's fee,
finder's fee or commission in connection with the transactions contemplated by
this Agreement.
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<PAGE> 16
(v) Disclosure. Neither the representations and warranties of
the Shareholders contained in this Agreement nor the financial or other
information included in the Schedules hereto, nor any other document,
certificate or written statement furnished to FNEDC by or on behalf of the
Shareholders or the Company in connection herewith contains any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein complete and not misleading as of
the dates thereof in light of the circumstances in which they were made. There
is no fact presently known to the Shareholders which may (so far as the
Shareholders or the Company can now reasonably foresee) materially adversely
affect the Business or the business, operations, affairs, prospects or condition
of the Company or its property or assets which has not been set forth in this
Agreement or in a document, certificate or written statement furnished to FNEDC
by the Shareholders or by the Company pursuant hereto.
(w) No Offer. Neither of the Shareholders has not, directly or
indirectly, offered, solicited offers for or sold, assigned, pledged or
otherwise transferred any Company Stock prior to the Closing. Neither the
Shareholders nor the Company have, directly or indirectly, through any officer,
director, agent or otherwise, (i) solicited, initiated or encouraged submission
of proposals or offers from any person other than FNEDC relating to any
acquisition or purchase of any of the Company Stock and/or the assets of the
Company, or any equity interest in the Company or any equity investment, merger,
consolidation or business combination with the Company, or (ii) participated in
any discussions or negotiations regarding, or furnished to any other person, any
non-public information with respect to, or otherwise cooperated in any way with,
or assisted or participated, facilitated or encouraged, any effort or attempt by
any other person to do or seek any of the foregoing.
II.3. Representations and Warranties Concerning the Shareholders.
The Shareholders hereby represent and warrant to FNEDC that
each of the statements contained in this Section 2.3 is true and correct as of
the date of this Agreement and will be true and correct at and as of the
Closing:
(a) Title. The Shareholders have good, marketable and
unencumbered title to, and full right, power and authority to sell, transfer,
assign and deliver such Company Stock as herein agreed subject only to pledges
of said stock which will be satisfied on the Closing Date; and FNEDC will on the
Closing Date, acquire good and marketable title to such Company Stock, free and
clear of any liens, encumbrances, restrictions on transfer, charges or claims.
(b) Due Issuance. The shares of Company Stock owned by the
Shareholders are validly issued, fully paid and nonassessable.
(c) Validity and Enforceability. This Agreement is, and each
of the other agreements and instruments of the Shareholders contemplated hereby
are the valid and binding obligations of the Shareholders, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency and
other general laws affecting the rights and remedies of creditors, except that
the remedy of specific performance and injunctive and other forms of
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<PAGE> 17
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought; and the execution
and performance of this Agreement and such other agreements and instruments
including, without limitation, the Shareholders' Dental Employment Agreements
(defined in Section 4.1(d) below), will not result in any violation of or be in
conflict with or constitute a default under any contract, agreement, instrument,
judgment, decree or order to which either Shareholder is a party or by which
either Shareholder may be bound.
(d) No Brokers. The Shareholders have not dealt with any
broker, finder or similar agent with respect to the transactions contemplated by
the Agreement and the Shareholders are not under any obligation to pay any
broker's fee, finder's fee or commission in connection with the transactions
contemplated by this Agreement.
(e) Dental Practice. The Shareholders conduct their dental
practice exclusively through the Company, and the Company has good, marketable
and, subject to any exceptions set forth in Section 2.2(g), unencumbered title
to all assets used by the Shareholders in connection with their dental practice.
(f) Experience. Each Shareholder has carefully reviewed the
representations concerning FNEDC contained in this Agreement, and have made
detailed inquiry concerning FNEDC, its business and its personnel; the officers
of FNEDC have made available to each Shareholder any and all written information
which he has requested and has answered to each Shareholder's satisfaction all
inquiries made by him; each Shareholder has such knowledge and experience in
financial and business matters and in the affairs of FNEDC that he is capable of
evaluating the risks and merits of his investment in FNEDC and is able
financially to bear the risks thereof.
(g) Authority. The Shareholders have full power and authority
to enter into and to perform this Agreement in accordance with its terms.
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<PAGE> 18
ARTICLE III
ADDITIONAL COVENANTS AND AGREEMENTS
III.1. FNEDC's Access to Information. The Shareholders shall cause the
Company to permit FNEDC and its counsel, accountants and other representatives
full and free access, upon reasonable notice and during normal business hours,
throughout the period prior to the Closing, to all of the properties, books,
contracts, commitments, records, officers and personnel of the Company and shall
furnish FNEDC during such period all such information concerning the business
activities of the Company as FNEDC or its counsel, accountants or other
representatives may reasonably request. If the transactions contemplated by this
Agreement are not consummated, all confidential or proprietary information
furnished by the Shareholders or the Company shall be kept in strict confidence
and shall not be used or disclosed by any recipient, and FNEDC shall cause each
such recipient to return to the Company all copies of documents or records
furnished hereunder. No investigation or findings of FNEDC shall diminish or
affect the representations and warranties of the Shareholders in this Agreement
or relieve the Shareholders of any of their obligations hereunder.
III.2. Shareholders' Consents and Approvals. The Shareholders shall use
their best efforts to obtain all governmental and regulatory approvals and
actions necessary to consummate the transactions contemplated hereby which are
required to be obtained by applicable law or regulations.
III.3. Assignment of Intellectual Property and Other Documents. In the
event that Shareholder has ownership rights, title or interest in any
intellectual property, or is a party in his individual capacity to any
contracts, agreements, or other documents ("Other Documents") intended to be
transferred to FNEDC pursuant to the Closing, Shareholder hereby conveys,
transfers and assigns any and all of such right, title and interest in and to
said intellectual property and Other Documents and will take whatever action
necessary for FNEDC to effect transfer or assignment of the same as of the
Closing or as soon as possible thereafter.
III.4. Employee Stock Options. To the extent permitted by law, FNEDC
will grant options, to those persons identified in Schedule 3.4, to purchase
such amounts of FNEDC Common Stock and on such terms as set forth in Schedule
3.4 (the "Options").
ARTICLE IV
CONDITIONS TO CLOSING
IV.1. Conditions Precedent to FNEDC's Obligations. The obligation of
FNEDC to consummate the transactions contemplated by this Agreement is expressly
subject to the fulfillment or express written waiver of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations and warranties contained in Sections 2.2
and 2.3 of this Agreement shall be
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<PAGE> 19
true and correct in all material respects at and as of the Closing Date, except
as otherwise specifically provided for herein. The Shareholders shall have
performed, on or before the Closing Date, all obligations under this Agreement
which by the terms hereof are to be performed by the Shareholders on or before
the Closing Date.
(b) Delivery of Certificates. The Shareholders shall have
delivered to FNEDC certificates representing the Company Stock, duly endorsed
for transfer or with duly executed stock powers attached.
(c) Required Consents. All consents and waivers, in form and
substance satisfactory to FNEDC and its counsel, necessary to consummate the
Closing and the other transactions contemplated hereby shall have been obtained
by the Shareholders.
(d) Dental Employment Agreements. Each of the Shareholders
shall have executed and delivered an employment agreement between himself and
Osorio and Watkin, D.M.D., P.C. (together with any successor thereto, the
"P.C.") in the form attached hereto as Exhibit 4.1(d) (the "Dental Employment
Agreements").
(e) Filing of Restated Articles of Organization. The
Shareholders shall have caused to be filed Restated Articles of Organization of
the Company in the form attached hereto as Exhibit 4.1(e).
(f) Lease(s). The Company shall have delivered a fully
executed Assignment and Assumption Agreement attached hereto as Exhibit 4.1(f)
with respect to the lease attached as Exhibit 4.1(f) (the "Lease") of the real
property located at 10 Forbes Road West, Braintree, MA 02184 (the "Location"),
dated as of the Closing Date, by and among the Company, FNEDC and Ten Forbes
Associates, L.P. (the "Assumption Agreement"), in form reasonably satisfactory
to FNEDC and its counsel.
(g) Legal Opinion from Counsel for the Shareholders. FNEDC
shall have received the written opinion of Choate, Hall & Stewart, counsel for
the Company, dated the Closing Date and in a form reasonably satisfactory to
FNEDC's counsel.
(h) Delivery of Other Instruments. The Shareholders shall have
delivered instruments of conveyance for the Other Documents and such other
certificates, consents, instruments or agreements as may be reasonably requested
by FNEDC or its counsel.
(i) Termination of Plan. The Company shall terminate the Plans
listed in Schedule 4.1(i) effective on or before the Closing Date.
IV.2. Conditions Precedent to the Company's Obligations. The obligation
of the Company to consummate the transactions contemplated by this Agreement is
expressly subject to the fulfillment or written waiver of the following
conditions on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations and warranties of FNEDC contained in
Section 2.1 shall be true and correct in all material respects at and as of the
Closing, except as otherwise specifically provided for
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herein. FNEDC shall have performed, on or before the Closing Date, all
obligations under this Agreement which by the terms hereof are to be performed
by FNEDC on or before the Closing Date.
(b) Required Consents. All consents and waivers, in form and
substance satisfactory to the Shareholders and their counsel, necessary to
consummate the Closing and the other transactions contemplated hereby, shall
have been obtained by FNEDC.
(c) Employment. The P.C. shall have executed and delivered to
the Shareholders their Dental Employment Agreement. The P.C. shall have offered
employment or independent contractor arrangements as of the Closing Date, on the
terms set forth on Schedule 4.2(c), to all of the Company's dentists who are not
Shareholders.
(d) Legal Opinion from Counsel to FNEDC. The Shareholders
shall have received the written opinion of Lyne, Woodworth & Evarts, counsel to
FNEDC, dated the Closing Date and in a form reasonably satisfactory to
Shareholders' counsel.
(e) Discharge of Guarantees. The Shareholders shall have
received written evidence of the discharge of all of their obligations as
guarantors of the Company's obligations under the Lease, effective as of the
Closing Date (the "Discharge").
ARTICLE V
CLOSING AND DELIVERIES
V.1. Date and Place of Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall be held at 10:00 a.m. on November 12,
1996 at the offices of McDermott, Will & Emery, or at such other time and place
as the parties may mutually agree in writing (the "Closing Date").
V.2. Deliveries at Closing by the Shareholders. At the Closing,
provided FNEDC has duly performed its obligations hereunder, the Shareholders
shall deliver or cause to be delivered to FNEDC the following:
(a) Certificates representing the Company Stock, duly endorsed
for transfer or with duly executed stock powers attached, and free of any liens,
encumbrances, restrictions on transfer, charges or claims;
(b) Certified copies of resolutions duly adopted by (i) the
Company's Board of Directors, and (ii) the Shareholders, approving and
authorizing the transactions provided for in this Agreement, the execution
hereof and the performance of all acts required to be performed by the Company
hereunder, accompanied by an appropriate certificate of incumbency;
(c) Instruments of transfer, in form reasonably satisfactory
to FNEDC and its counsel, to convey all the Shareholders' right, title and
interest in and to any trademarks
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and Other Documents; and
(d) All consents of any person or entity, whether or not a
party to this Agreement, which are necessary to effectuate the transfer of the
Company Stock, the assignment of the Other Documents, and the consummation of
the transactions contemplated by this Agreement.
V.3. Deliveries by FNEDC. At the Closing, provided the Shareholders and
the Company have fully performed all of their respective obligations hereunder,
FNEDC shall deliver or cause to be delivered to or on behalf of the Shareholders
the following:
(a) The Convertible Notes;
(b) Certified or bank checks in the amount of Ninety Three
Thousand Seven Hundred Fifty ($93,750) each to Ingoldsby and Bergman;
(c) The Promissory Notes;
(d) A certified copy of resolutions duly adopted by FNEDC's
Board of Directors approving and authorizing the transactions provided for in
this Agreement, the execution hereof and the performance of all acts required to
be performed by FNEDC hereunder, accompanied by an appropriate certificate of
incumbency;
(e) All consents of any person or any entity, whether or not a
party to this Agreement, which are necessary to effectuate the issuance of the
Convertible Notes and Promissory Notes and the consummation of the transactions
contemplated by this Agreement; and
(f) Certified or bank checks each payable to Ingoldsby and
Bergman, in the amount of $32,421.50, as reimbursement for trade payables of
Seller assumed by the Shareholders as set forth on Schedule 2.2(f).
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(g) Certified or bank checks each payable to Ingoldsby and
Bergman, in the amount of $12,557, as reimbursement for the pre-paid expenses
set forth on Schedule 1.4.
(h) The Discharge.
ARTICLE VI
POST-CLOSING MATTERS
VI.1. Further Assurances. Following the Closing Date, the Shareholders
will execute and deliver to FNEDC such documents and take such other actions, at
the Shareholders' expense, as FNEDC may reasonably request in order to vest in
FNEDC good, valid and marketable title to the Company Stock.
VI.2. Employment and Benefits-Related Matters.
(a) FNEDC shall retain the right to amend in any respect or to
terminate in whole or in part any Plan in accordance with the provisions of such
Plan and applicable law.
(b) Nothing contained in this Agreement shall obligate or commit FNEDC
or the P.C. to continue any Plan with respect to services after the Closing Date
or to maintain in effect any such Plan or any similar plan or any level or type
of benefit except as may be provided to the contrary in this Section 6.2.
(c) The Shareholders shall cooperate and remain responsible financially
for fulfilling all reporting, disclosure and other administrative duties for the
Plans that relate to periods prior to the Closing Date. Any failure by the
Shareholders to fulfill these duties shall be subject to the indemnification
provisions under Section 8.2(b) below.
(d) The Shareholders shall provide to FNEDC copies of any
correspondence relating to the Plans and shall inform FNEDC of any
communications with a government agency, including but not limited to the
Internal Revenue Service and the U.S. Department of Labor, regarding the Plans.
(e) Upon the Closing, employees of the Company who are not dentists
shall become employees of FNEDC and employees of the Company who are dentists
and who accept the P.C.'s offer of employment shall become employees of the P.C.
Employees of FNEDC and dentists who do not have separate employment contracts
shall be employed at a rate of base compensation equal to their base
compensation, and with the same employee benefits as they have, with the Company
immediately prior to the Closing Date, such benefits to be maintained for one
year after the Closing Date, at which time such employees shall receive standard
FNEDC employee benefits, provided, however, that such employees shall have the
option to immediately receive those FNEDC benefits which are comparable or
better, than their current benefits. FNEDC and the P.C. shall be entitled in the
ordinary course of their businesses to prospectively alter the compensation, and
benefit programs they offer to their respective employees. The terms and
conditions of the employment of dentists with separate written employment
contracts with the P.C. shall be governed by the provisions of such contracts.
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Service by Company employees prior to the Closing Date shall be considered
service with the P.C. or FNEDC, as applicable, for all relevant purposes under
compensation and benefit plans and programs provided by FNEDC or the P.C.,
including, without limitation, credit for eligibility, vesting, benefit accrual,
participation, level of benefits and optional forms of payment. During the first
year of employment following the Closing Date, the employment of Company
employees at FNEDC and dentists without written employment contracts at the P.C.
may not be terminated except for cause. For purposes of this Section 6.2(e),
"for cause" shall mean the commission of any act of embezzlement, fraud, larceny
or theft, substantial and continuing neglect or inattention to duties, willful
misconduct, gross negligence or incompetence, moral turpitude or abuse of
alcohol or drugs, permanent disability so as to be unable to perform duties, or
conviction of a felony.
(f) Accrued Payroll obligations and related pre-paid expenses to be
allocated to the parties as set forth in Schedule 2.2(f) hereto.
(g) Each Plan of the Company listed in Schedule 2.2(m) in force
immediately prior to the Closing Date and not to be terminated pursuant to
Section 4.1(i) shall be continued by FNEDC (and participated in by the P.C.)
after the Closing Date until such time as FNEDC may amend, replace or terminate
the Plan in the ordinary course of its business. With regard to any change in
insured medical benefits, to the extent that replacement medical insurance
cannot be obtained for certain employees for any reason, FNEDC shall make
reasonable arrangements for continued insured medical coverage under existing
arrangements or individual policies issued to such employees at an employee cost
(as a percentage of insurance premiums) not greater than the cost of insured
medical benefits (as a percentage of insurance premiums) immediately prior to
the Closing Date. Any new medical insurance provided by FNEDC during the current
policy term shall take into account amounts paid by employees toward any
deductible and maximum out-of-pocket limitations under the Company's prior
medical insurance coverage.
(h) Any former employees of the Company or their dependents receiving
health continuation coverage under a Company Plan as of the Closing, or becoming
eligible for such coverage due to a qualifying event occurring on or before the
Closing, shall continue to receive such coverage (including coverage for
pre-existing conditions to the same extent available under the Company's
existing plan) after the Closing Date through health benefit plans maintained by
FNEDC (or its affiliates) as set forth in their original election notice except
if such coverage has been terminated for all FNEDC employees.
(i) Employees of the Company (other than the Shareholders) who accept
employment with the FNEDC shall be entitled to cash in accrued but unused
vacation days, in a manner consistent with the Company's customary practice,
which have accrued prior to the Closing Date or are earned through the first
anniversary thereof.
(j) All decisions concerning the hiring, termination and/or salary
levels of FNEDC and P.C. employees at the Location, as well as all material
changes in operations, including UCR fees and hours of operation at the Location
shall be subject to mutual agreement of FNEDC and the Shareholders.
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VI.3. Medicare/Medicaid. Until such time as the Promissory Note is paid
in full, the Shareholders shall not refer any Medicare or Medicaid beneficiaries
to FNEDC, the P.C. or any of their affiliates for any dental services, x-rays,
laboratory services, prosthetic devices or other designated health services (as
that term is defined in the 42 U.S.C. Section 1395nn) covered by Medicare or
Medicaid.
VI.4. Computer Equipment. Notwithstanding anything to the contrary in
this Agreement, the Shareholders shall receive title to and ownership of the
computer equipment currently used at the Location, as described on the attached
Schedule 6.4 (the "Computer Equipment"). Shareholders agree to the extent
permitted by any applicable agreements and licenses, to permit FNEDC and/or the
P.C. to use on a royalty-free basis, and to use their good faith efforts to
obtain, at the expense of FNEDC, any required consents for such use, of any
software and data currently used by Shareholders in connection with the
Practice. Shareholders agree to leave such Computer Equipment at the Location
rent-free until May 30, 1997. For so long as FNEDC or the P.C. uses the Computer
Equipment, FNEDC and the P.C. agree to maintain such Computer Equipment in good
condition and pay all reasonable maintenance and repair costs and to pay for all
licensing costs.
VI.5. Marketing. For so long as each Shareholder is employed at the
Location, all marketing and promotional activities of FNEDC or the P.C. in
connection with the Location shall be subject to mutual agreement of FNEDC or
the P.C., as the case may be, and the Shareholders, shall be comparable with the
Company's historical level of such activities and shall conform to FNEDC's plans
to promote reasonable growth. Not in limitation of the foregoing, FNEDC shall
not erect or otherwise place any signage or other materials referring to "First
New England Dental Centers, Inc.", "Osorio and Watkin, D.M.D., P.C." or any
abbreviations or variations thereof at the Location except with the
Shareholders' consent, such consent not to be unreasonably withheld.
VI.6. P.C.'s Obligations. FNEDC guarantees to the Shareholders the
prompt and complete payment or performance by the P.C., when and as due, of the
P.C.'s obligations to the Shareholders arising from the transactions
contemplated by this Agreement, including without limitation the terms of the
Shareholders' Dental Employment Agreements.
VI.7. Shareholders' Obligations. The Shareholders shall assume and pay
all accounts payable incurred by the Company through the Closing Date.
VI.8. Access to Records. Shareholders agree to provide FNEDC and its
auditors with access to all of Company's books and records for fiscal years 1993
through and including 1996.
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VI.9. No Other Locations. FNEDC and the P.C. shall not employ any
former employee of the Company outside the Location or relocate the practice
from the Location without the prior written consent of the Shareholders, which
consent shall not be unreasonably withheld.
VI.10. Location of Assets. FNEDC and the P.C. shall not remove from the
Location any assets owned by the Company as of the Closing Date without the
Shareholders' prior written consent, which consent shall not be unreasonably
withheld.
VI.11. Insurance. FNEDC shall maintain property and business insurance
coverage on the Location's premises, contents, operations and other assets with
reputable, licensed insurers and in amounts not less than those maintained by
the Company as of the Closing Date. FNEDC shall promptly replace or restore any
Location assets damaged or destroyed after the Closing Date.
VI.12. Right of First Refusal. (a) For so long as either Shareholder is
employed at the Location, in the event that FNEDC shall decide to sell, transfer
or otherwise dispose of the assets formerly owned or leased by the Company
(except for a sale or transfer to an affiliate of FNEDC or the P.C.), alone,
apart and separate from any other assets of FNEDC, then Shareholders shall have
a right of first refusal to purchase such assets in accordance with this Section
6.12. Shareholders shall have seven (7) days from the date of written notice by
FNEDC to notify FNEDC of their election to exercise the right to purchase the
assets pursuant to this Section 6.12 (the "Notice"). Subject to the
determination of Fair Market Value in accordance with Subsection (b),
Shareholders shall have twenty (20) days from the date of the Notice to enter
into a purchase and sale agreement, at Fair Market Value and upon customary and
commercially reasonable terms. "Fair Market Value" shall mean the fair market
value of the assets of the Company as of the date of the Notice.
(b) Notwithstanding anything to the contrary in Subsection (a), if
Shareholders and FNEDC cannot agree upon the Fair Market Value within twenty
(20) days of delivery of the Notice, Shareholders or FNEDC may refer the matter
to appraisal in accordance with the following:
(i) The parties shall endeavor in good faith to agree, within
seven (7) days of the last day of the 20-day period, upon a sole
appraiser to conduct the appraisal. Such appraiser shall conduct an
appraisal of the Fair Market Value of the assets within twenty (20)
days of his/her selection, which appraisal shall be binding on the
parties.
(ii) If the parties cannot agree upon a sole appraiser within
seven (7) days of the last day of the 20-day period referred to above,
each of the Shareholders and FNEDC will select an appraiser and the two
appraisers will select a third appraiser. The three appraisers shall be
known as the "Appraisal Panel". If either FNEDC or Shareholders fail to
elect an appraiser within the aforementioned 7-day period, the
appraiser selected by the other party shall perform the appraisal
within twenty (20) days, and said appraisal shall be binding upon all
of the parties.
(iii) Each appraiser will be qualified by education,
experience or training to
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render a decision in the matters submitted.
(iv) If an Appraisal Panel is selected, within twenty (20)
days of the selection of the third appraiser, each of FNEDC's appraiser
and Shareholders' appraiser having conducted such investigation as they
deem necessary regarding the valuation of the assets, will submit the
Fair Market Value which it believes is accurate (the "Submitted
Valuation"), to the third appraiser.
(v) Within ten (10) days after the third appraiser has
received the Submitted Valuations (or immediately if the Submitted
Valuations are within 10% of the Submitted Valuation which is greater),
such appraiser will render a decision determining the Fair Market
Value, as follows: if the Submitted Valuations are within ten percent
(10%) of the Submitted Valuation which is the greater of the two, then
the Fair Market Value shall be the average of the Submitted Valuations.
If the Submitted Valuations diverge by more than ten percent (10%) of
the Submitted Valuation which is the greater of the two, then the third
appraiser shall determine the Fair Market Value by selecting one of the
Submitted Valuations. The appraiser's decision shall be binding on the
parties.
(vi) Once Fair Market Value has been established by appraisal,
Shareholders shall have fifteen (15) days to enter into a purchase and
sale agreement, at Fair Market Value and upon other customary and
commercially reasonable terms.
The Closing on such purchase and sale agreement shall take
place within fifteen (15) days of the date of execution of the purchase
and sale agreement, unless otherwise agreed to by the parties, which
agreement shall not be unreasonably withheld by the parties.
(c) If the assets to be transferred or sold include the Lease and
Shareholders exercise their right of first refusal hereunder, at their option
FNEDC shall assign the Lease for the Location to the Shareholders, and the
amount of any accrued but unpaid lease payments, through the date of assignment
to Shareholders, shall be deducted from the purchase price for the assets. The
amount of any accrued but unmade payments under the Lease, Promissory Notes,
Convertible Notes and Dental Employment Agreements shall be deducted from the
purchase price for the assets.
(d) If: (a) Shareholders do not exercise their right of first refusal
hereunder, or (b) the purchase and sale agreement is not executed or the Closing
does not occur within the specified time periods through no fault of FNEDC, then
FNEDC may sell, transfer or otherwise dispose of such assets to a third party at
FNEDC's discretion.
ARTICLE VII
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT
VII.1. Non-Solicitation. Subject to the provisions set forth in Article
IX hereof, during the term of the Dental Employment Agreement, and for a period
of three (3) years after the
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date of termination or expiration thereof, the Shareholders shall not, without
the express written consent of FNEDC or the P.C., (a) solicit for employment,
verbally or in writing, or otherwise seek to hire, any employee of the FNEDC or
the P.C., nor (b) solicit business or attempt to solicit business from any
patient or former patient of the Company, FNEDC or the P.C. at the Location.
VII.2. Non-Compete. Subject to the provisions set forth in Article IX
hereof, the parties shall be bound by the following non-competition covenants:
(a) During the term of the Dental Employment Agreement and for
a period of three (3) years after the date of termination or expiration thereof,
neither of the Shareholders shall, without the express written consent of the
FNEDC or P.C., (i) engage in any dental practice or activity within a five (5)
mile radius of the Location that competes with FNEDC or the P.C.; or (ii)
directly or indirectly own, manage, operate, control or participate either
directly or indirectly in the ownership, management, operation or control of any
dental practice or specialty dental care facility, however organized, which has
any location within five (5) miles of the Location radius and which competes
with the FNEDC or the P.C. in the provision of dental and/or other health care
services. Notwithstanding the foregoing, in the event either Shareholder
terminates his Dental Employment Agreement due to Qualifying Breach, as defined
in Section 10 thereof, then this Section 7.2 shall, from and after such
termination, be of no force and effect with respect to the terminating
Shareholder.
(b) During the term of either Shareholder's Dental Employment
Agreement, FNEDC and P.C. shall not, without the prior written consent of the
Shareholders, own, manage, operate, control or participate in the ownership,
management, operation or control of any dental practice within a five (5) mile
radius of the Location.
(c) If any part of this Section 7.2 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.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
VIII.1. Survival. The Shareholders and FNEDC agree that (i) the
covenants, representations and warranties contained in this Agreement shall
survive for a period of one year from the Closing Date, except that the
representations, warranties and covenants contained in Section 2.2(i) shall
survive until the applicable tax statutes of limitations relating thereto shall
have run, (ii) the representations, warranties and covenants contained in
Section 2.2(m) shall survive indefinitely, (iii) the provisions of Article VII
shall survive the Closing Date for the period specified therein; (iv) the
provisions of this Article VIII shall survive the Closing Date for an indefinite
period, and (v) the provisions of Article IX shall survive for so long as the
Shareholders are employed by the P.C.
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VIII.2. Indemnification of FNEDC. (a) The Shareholders agree to
indemnify FNEDC and hold it harmless against and in respect of any and all
payments, damages, claims, demands, losses, expenses, costs, obligations and
liabilities, including reasonable attorneys' fees (i) which arise or result from
or are related to any breach or failure of the Shareholders to perform any of
their representations and warranties, commitments, obligations, covenants or
conditions hereunder, (ii) which result from the operations of the Company or
any actions of the Shareholders, the Company or its employees or agents taken
prior to the Closing Date and which become known to FNEDC or the P.C. any time
prior to the second anniversary of the Closing Date; or (iii) which result from
the failure of the transfer and assignment of the Company Stock, the trademarks
and the Other Documents from the Shareholders to FNEDC to cause FNEDC to acquire
good and marketable title to all of the issued and outstanding Company Stock,
the trademarks and the Other Documents, free and clear of any liens,
encumbrances, restrictions on transfer, charges or claims unless such failure is
caused by the action of FNEDC.
(b) The Shareholders shall indemnify and hold harmless FNEDC, the P.C.,
and each of their respective affiliates, directors, officers, employees and
agents, and each of the heirs, executors, successors and assigns of any of the
foregoing, from and against any and all losses, liabilities, claims, damages,
obligations, payments, costs and expenses including, without limitation,
attorneys' fees, arising out of or relating in any manner to (i) the
establishment or administration of any Plan prior to the Closing Date; (ii) the
Shareholders' failure to fulfill their post-Closing duties under Section 6.2
above; or (iii) any audit of a Plan performed by any governmental unit,
including but not limited to the Internal Revenue Service and the U.S.
Department of Labor, relating to periods prior to the Closing Date.
(c) Shareholders' aggregate liability under Subsections 8.2 (a) and (b)
shall be limited to $400,000.
VIII.3. Indemnification of the Shareholders. FNEDC agrees to indemnify,
defend and hold harmless the Shareholders against and in respect of any and all
payments, damages, claims, demands, losses, expenses, costs, obligations and
liabilities (including reasonable attorneys' fees) which (a) arise or result
from or are related to any breach or failure of FNEDC to perform any of its
representations and warranties, commitments, obligations, covenants or
conditions hereunder, or (b) arise or result from any actions of FNEDC, its
employees, directors, officers, or agents (other than the Shareholders) taken
after the Closing Date, or (c) arise or result from the inability of the
Shareholders to obtain consents to assignment and release of personal guarantees
of, the agreements, obligations and leases set forth on Schedule 8.3 hereto;
including but not limited to any penalty, charge or assessment against the
Shareholders; provided, that (i) the Shareholders shall use their best efforts
to obtain such consents; (ii) FNEDC's obligation hereunder shall exclude claims
by the Shareholders based on lost time or profit; and (iii) in the event that
the Shareholders still have been unable to obtain the consent(s) with respect to
any such lease(s) as of the thirtieth day following the Effective Time, then
FNEDC shall promptly pay all of the outstanding amounts due through the
expiration date(s) thereof under the lease(s) for which a consent (including
release of personal guarantees) has not been obtained.
VIII.4. Procedure for Indemnification. Any party making a claim for
indemnification
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hereunder (the "Indemnitee") shall notify the indemnifying party
(the "Indemnifying Party") of the claim in writing, describing the claim, the
amount thereof, and the basis therefor. The Indemnifying Party shall respond to
each such claim within 30 days of receipt of such notice. No action shall be
taken pursuant to the provisions of this Agreement or otherwise by the
Indemnitee until the later of (a) the expiration of the 30-day response period
(unless reasonably necessary to protect the rights of the Indemnitee), or (b) 30
days following the receipt of a response within such 30-day period by the
Indemnitee requesting an opportunity to cure the matter giving rise to
indemnification (and, in such event, the amount of such claim for
indemnification shall be reduced to the extent so cured within such 30-day cure
period). If such demand is based on a claim by a third party, the Indemnifying
Party shall have the right to assume the entire control of the defense,
compromise or settlement thereof, including at its own expense, employment of
counsel reasonably satisfactory to the Indemnitee, and, in connection therewith,
the Indemnitee shall cooperate fully to make available to the Indemnifying Party
all pertinent information under its control. No claim for indemnification
resulting from the breach or falsity or any of the representations or warranties
set forth herein or in any certificate or other instrument delivered pursuant
hereto shall be made after a date on which such representation, warranty or
agreement shall have expired under the provisions of Section 10.1 hereof.
ARTICLE IX
TERMINATION OF AGREEMENT
(a) The post-Closing occurrence of any of the following conditions or
events shall be deemed a "Termination Event":
(i) FNEDC or P.C. ceases all of its operations for more than
thirty (30) consecutive days; or
(ii) FNEDC or P.C. fails generally to pay its debts as they become
due ("Insolvency") and such Insolvency is not cured within
forty-five (45) days following the earlier of its occurrence
or the filing of a petition for debtor's relief or a
confession of Insolvency made by FNEDC in any administrative,
judicial or regulatory proceeding; or
(iii) FNEDC or the P.C. makes an assignment for the benefit of its
creditors, or voluntarily files a petition in bankruptcy which
is not dismissed within sixty (60) days following the filing
thereof; or
(iv) an involuntary filing of a petition in bankruptcy with respect
to FNEDC or the P.C. is made and not dismissed within sixty
(60) days following notice thereof to FNEDC or the P.C., as
the case may be; or
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(v) the net book value (including goodwill) of FNEDC, determined
in accordance with generally accepted accounting principles
and as reflected in any financial statements of FNEDC, is less
than $250,000; or
(vi) the accounts payable at the location of FNEDC or the P.C. at
which the Shareholders provide services are more than
forty-five (45) days old or FNEDC or the P.C. has failed to
meet timely its payroll commitments with respect to the
employees at such location; provided, however, that FNEDC
shall have forty-five (45) days from the date of receipt of
written notice to cure such Termination Event; or
(vii) FNEDC fails to make payments when due under the Convertible
Notes or Promissory Notes, and such failure is not cured
within fifteen (15) days of written notice thereof.
(b) Upon the occurrence of a Termination Event, Shareholders (assuming
that they are employed by the P.C. at such time), at the Shareholders' option,
may require that within seven (7) business days following the occurrence of a
Termination Event, FNEDC and the P.C. shall vacate and surrender the Location,
and the rights of FNEDC under the Assumption Agreement shall be deemed
terminated or, as applicable, shall be assigned to the Shareholders. FNEDC shall
also give or cause the P.C. to give, each former employee of the Company who is
then employed by FNEDC or the P.C. an option to terminate his/her employment
with FNEDC or the P.C. without penalty, and shall permit the Shareholders to
recruit such individual(s) for employment by the Shareholders. FNEDC shall, at
the Shareholders' option, transfer, or cause the P.C. or any affiliate of FNEDC
to transfer, to the Shareholders or their designees all of the assets formerly
owned and/or leased by the Company which are then owned and/or leased by FNEDC,
the P.C. or any such affiliate, for the depreciated book value of all fixed
assets, excluding intangible assets, at such time; provided, however, that if
the Shareholders are eligible to elect, and so elect, to cause FNEDC to assign
the lease for the Location to the Shareholders, then the amount of any accrued
but unpaid lease payments, through the date of assignment to the Shareholders,
shall be offset from such purchase price; and provided further, that if the
Termination Event is for the reason set forth in paragraph (a)(vii) above, the
amount of any accrued but unmade payments under the Promissory Notes,
Convertible Notes and Dental Employment Agreements shall be offset from such
purchase price; and provided further, if the Termination Event is for reasons
set forth in paragraphs (a)(iii) or (a)(iv) above, the Shareholders may
repurchase the tangible assets only. FNEDC shall cause the P.C. to transfer to
the Shareholders copies of the dental records of any patient who authorizes
transfer of his/her dental records to the Shareholders. Upon the election by the
Shareholders to exercise their rights under this Article IX, Shareholders'
Dental Employment Agreements will be deemed terminated, and without limiting the
foregoing, the Shareholders shall be released from the non-competition and
non-solicitation covenants set forth at Sections 7 and 8 of the Dental
Employment Agreements and Article VII hereof.
-29-
<PAGE> 31
ARTICLE X
CONFIDENTIAL INFORMATION
The parties hereby acknowledge the confidential nature of this
Agreement and the transactions contemplated hereby. Except as otherwise required
by law, the parties agree to hold in confidence all financial information and
other confidential data and information acquired from one another, and shall not
use or divulge to third parties any such data or information. No party shall
make any announcement or otherwise disclose any information concerning the
transactions contemplated by this Agreement to any person (other than such
party's employees, attorneys and consultants on a need-to-know basis) without
the consent of the other party. This Article X shall survive the termination of
this Agreement for any reason.
ARTICLE XI
MISCELLANEOUS
XI.1. Notices. All notices to a party hereunder shall be deemed to have
been adequately given if delivered in person or mailed, certified mail, return
receipt requested, to such party at its address set forth below (or such other
address as it may from time to time designate in writing to the other parties
hereto):
To the Shareholders:
Clark Ingoldsby, D.D.S.
10 Forbes Road West
Braintree, MA 02184
and/or
Steven Bergman, D.M.D.
10 Forbes Road West
Braintree, MA 02184
with a copy to:
Judith Johnson, Esq.
Choate, Hall & Stewart
Exchange Place
Boston, MA 02109
-30-
<PAGE> 32
To FNEDC:
First New England Dental Centers, Inc.
85 Devonshire Street, 2nd Floor
Boston, MA 02109
Attention: President
with a copy to:
Michael L. Blau, Esq.
McDermott, Will & Emery
75 State Street, 17th Floor
Boston, MA 02109
XI.2. No Waiver. No failure to exercise and no delay in exercising, on
the part of FNEDC or the Shareholders, any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or remedy hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. The rights provided
are cumulative and not exclusive of any rights provided by law.
XI.3. Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by each party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the party
waiving such term or provision.
XI.4. Governing Law; Headings. This Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of Massachusetts. The
descriptive headings of the several Articles and Sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
XI.5. No Assignment. None of the parties hereto may assign this
Agreement or any of their respective rights or obligations hereunder without
first obtaining the prior written consent of the other parties hereto.
XI.6. Binding Effect and Benefits; Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
heirs, successors and assigns. FNEDC agrees to cause any entity that acquires
all or substantially all of FNEDC's assets to assume FNEDC's obligations
hereunder, unless assumption of such obligations is expressly waived in writing
by the Shareholders, and further agrees that in the event of a merger,
consolidation or change of control between FNEDC and a third party FNEDC will
not exclude its obligations hereunder from such merger, consolidation or change
of control.
XI.7. Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior discussions, understandings and agreements concerning
the matters covered hereby.
XI.8. Counterparts. This Agreement may be executed in two or more
counterparts,
-31-
<PAGE> 33
all of which taken together shall constitute one and the same instrument, and
any of the parties hereto may execute this Agreement by signing any such
counterpart.
XI.9. Transfer Taxes. All stock transfer taxes, if any, incident to the
sale of the Company Stock shall be paid by the Shareholders.
XI.10. Arbitration. Any disputes arising among the parties to this
Agreement shall be settled by binding arbitration in accordance with the
Arbitration Rules of the American Arbitration Association. In the event that a
dispute arises which requires arbitration under this Section 11.10, the parties
shall attempt to agree upon one arbitrator to resolve such dispute. In the event
that the parties are unable to agree upon an arbitrator within 14 days, then
each party shall choose one arbitrator and the arbitrators chosen by the parties
shall choose a single arbitrator who shall resolve such dispute. Each party
shall bear its respective costs of the arbitration. The award so rendered shall
be final and the prevailing party in any such arbitration shall be entitled to
have the arbitrators' award enforced by any court of competent jurisdiction.
-32-
<PAGE> 34
IN WITNESS WHEREOF, the undersigned have set their hands and seals as
of the date first set forth above.
------------------------------
CLARK INGOLDSBY, D.D.S.
------------------------------
STEVEN BERGMAN, D.M.D.
FIRST NEW ENGLAND DENTAL CENTERS,
INC.
By: ------------------------------
Jerald Robbins, President
-33-
<PAGE> 35
SCHEDULES AND EXHIBITS
----------------------
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule 1.4 Pre-paid Expenses
Schedule 2.1(f) FNEDC Litigation
Schedule 2.1(g) Capitalization
Schedule 2.2(c) Company Commitments with Respect to Capital Stock
Schedule 2.2(e) Financial Information
Schedule 2.2(f) Company Liabilities
Schedule 2.2(g) Title Exceptions
Schedule 2.2(i) Tax Deficiencies and/or Claims
Schedule 2.2(k) Insurance
Schedule 2.2(l) Employees and Compensation
Schedule 2.2(m) Employee Benefits
Schedule 2.2(n) Material Contracts
Schedule 2.2(p) Banking Relationships
Schedule 2.2(q) Consents
Schedule 2.2(r) Authorizations
Schedule 2.2(s) Exceptions to Accounts Receivable
Schedule 2.2(t) Company Litigation
Schedule 3.4 Stock Options
Schedule 4.1(i) Termination of Plans
Schedule 4.2(c) Employment Terms for non-Shareholders Dentists
Schedule 6.4 Computer Equipment to be Retained by Shareholders
Schedule 8.3 Consents to Assignment
Exhibits
- --------
Exhibit 1.1(i) Convertible Promissory Notes
Exhibit 1.1(iii) Promissory Notes
Exhibit 4.1(d) Dental Employment Agreements
Exhibit 4.1(e) Restated Articles of Organization
Exhibit 4.1(f) Assignment and Assumption Agreement/Lease
</TABLE>
<PAGE> 36
SCHEDULE 1.4
Prepaid Expenses
See attached.
<PAGE> 37
SCHEDULE 2.1(g)
Capitalization
As of November 12, 1996, there were outstanding options and warrants to
purchase 724,800 shares of FNEDC Common Stock.
-36-
<PAGE> 38
SCHEDULE 2.1(f)
FNEDC Litigation
1. On October 29, 1996, Periodontology Associates, Ltd.
("Periodontology") and Richard L. Glick, D.D.S. (collectively, the "Plaintiffs")
commenced an action in the State of Rhode Island Superior Court against First
New England Dental Centers, Inc. ("First Dental") and Osorio and Watkin, D.M.D.,
P.C. ("Osorio and Watkin") seeking unspecified damages. In Count One, the
complaint alleges that Periodontology and First Dental entered into a valid and
enforceable contract whereby First Dental would purchase Periodontology, and
that First Dental has breached the contract by refusing to proceed with the
purchase under the terms of the contract. In Count Two, the complaint further
alleges that on June 18, 1996, Dr. Glick and Osorio and Watkin entered into a
valid and enforceable employment agreement under which Osorio and Watkin agreed
to employ Dr. Glick. Moreover, the complaint alleges that Osorio and Watkin has
failed and refused to employ Dr. Glick under the terms of their agreement. The
defendants will file an answer denying the material allegations of the complaint
and raising appropriate affirmative defenses. Alternatively, the defendants may
move to dismiss the complaint for failure to state a claim upon which relief can
be granted.
2. Crow and Casey, P.C. former counsel to FNEDC, brought an action
against FNEDC seeking damages in the amount of $39,510.25 for legal services
rendered. The matter is still pending.
<PAGE> 39
SCHEDULE 2.2(c)
Commitments with Respect to Capital Stock
None.
<PAGE> 40
SCHEDULE 2.2(e)
Financial Information
The following were previously provided by the Shareholders to FNEDC::
1. 1995 year end Balance Sheet of the Company
2. 1995 year end Profit and Loss of the Company
3. Balance Sheet of the Company as of September 30, 1996
4. Profit and Loss of the Company as of September 30, 1996
5. 1994 Mass and Federal Corporate Tax return of the Company
6. 1993 Mass and Federal Corporate Tax return of the Company
7. 1995 year end Payroll Service tax and payroll records of the Company
<PAGE> 41
SCHEDULE 2.2(f)
Company Liabilities
1. Accounts Payable as of the Closing Date to be assumed by the Shareholders.
2. Accrued Payroll for the non-dentist employees through November 1, 1996 to
be assumed by the Shareholders. All Accrued Payroll for non-dentist
employees after November 1, 1996 will be assumed by FNEDC.
3. Accrued Payroll (less prepaid draws, if any) and related prepaid expenses
for all dentists and specialists employed by the Company from October 1,
1996 through the Closing Date to be assumed by FNEDC and paid on or before
November 15, 1996.
<PAGE> 42
SCHEDULE 2.2(g)
Title Exceptions
1. The Company leases its principal office space in Braintree, MA under a
Lease Agreement with Ten Forbes Associates, L.P. which space is also
subject to a mortgage between Ten Forbes Associates, L.P. and the lenders.
2. The Braintree Savings Bank holds a security interest in certain of the
Company's assets in connection with the indebtedness described below. This
Security interest will be released at Closing.
3. The computer equipment listed on Schedule 6.4 hereto will be owned by the
shareholders as of the Closing.
Long Term Debt
The Company has guaranteed the obligations of the Shareholders under a
Promissory Note dated October 6, 1994 to Braintree Savings Bank in the principal
amount of $160,000 pursuant to the terms of a Loan and Security Agreement of
such date and under a Promissory Note dated February 22, 1993 to Braintree
Savings Bank in the principal amount of $170,000 pursuant to the terms of a Loan
and Security Agreement of such date. All such indebtedness will be repaid at
closing.
<PAGE> 43
SCHEDULE 2.2(i)
Tax Deficiencies and/or Claims
To the best of the Company's knowledge, the Internal Revenue Service has not
asserted, nor has it threatened to assert, any deficiency or claim for
additional taxes, interest, or penalties against the Company.
<PAGE> 44
SCHEDULE 2.2(k)
Insurance
See attached.
<PAGE> 45
SCHEDULE 2.2(l)
Employees and Compensation
See attached.
See Schedule 2.2(f) with respect to accrued payroll and prepaid
expense obligations.
See also Schedule 2.2(c)
Consultants: Choate, Hall & Stewart
John de Barros & Co.
Frank Conrad, Esq.
<PAGE> 46
SCHEDULE 2.2(m)
Benefit Plans
Section 125 Pro Plan (Cafeteria Plan)
Medical Insurance (Major Medical and Hospitalization)
Dental Benefits (Professional Treatment Services)
Childcare Benefits
Sick Leave Policy
Leaves of Absence Policy
Vacation Policy
Holiday Policy
Workers' Compensation Plan
Pay in Lieu of Notice Policy
Educational Benefits
2.2(m)(iii) Formal summary plan descriptions may not have been prepared,
distributed and filed for plans subject to ERISA.
2.2(m)(xii) Formal summary plan descriptions may not have been prepared,
distributed and filed for plans subject to ERISA.
<PAGE> 47
SCHEDULE 2.2(n)
Material Contracts
1. Lease with Ten Forbes Associates, L.P. dated 12/23/92.
2. Service Agreement with Technical and Logistical Consultants, Inc. dated
8.1.96.
3. NEIC Electronic Insurance Submission Agreement dated 1/93.
4. Agreements for indebtedness listed on Schedule 2.2(g) hereto.
5. Catering Agreement for holiday party (approximately $1,000).
6. Copier Maintenance Agreement with Konica dated 10/96.
7. BRS Computing, Inc. Software Subscription Service Agreement dated
10/28/96.
8. Health Insurance contract with Blue Cross Blue Shield of Massachusetts for
employee health benefits.
9. National Waste Management, Inc. contract dated 8/1/96 for disposal of
medical waste.
10. License for software with BRS Computing, Inc. dated August 18, 1988.
11. See Schedule 2.2(l).
12. Water cooler lease with Magic Mountain Water Coolers, Inc.
13. Agreement with employees for closing of office between December 24, 1996
and December 29, 1996 and for vacation time for certain employees from
November 25-27, 1996.
14. Other contracts.
- Pager: current contract expires May 1997 $195.81 per year.
- Nynex Call Answering: $12.00/mo. No obligation
- Holiday Party: December 14, 1996.
- Canali Catering approx. $1,000.00
- Full Time Staff $200.00
- Part Time Staff $100.00
- Dr. Zonghetti $500.00
- Staff Holiday Bonus: $2,200.00
- Magic Mountain Water Coolers, Inc.: $36.65/mo. (invoice attached)
- Yankee Dental Convention
- Office Closed January 23, 24, and 25 to attend Convention
- Staff to be reimbursed per Employee Manual
<PAGE> 48
SCHEDULE 2.2(n)
Material Contracts (continued)
- Vacation Time Approved
- Dr. Bergman: November 25, 26, and 27, 1996
- Judith Bergman: November 25, 26, and 27, 1996
- Annual Summer Cook Out: Approximately $700.00
15. Nynex Information Resources dated 8/9/96.
<PAGE> 49
SCHEDULE 2.2(p)
Banking Arrangements
The Company has two checking accounts with Braintree Savings Bank
(Account Nos. 25003440 and 25003015).
<PAGE> 50
SCHEDULE 2.2(q)
Consents
1. Technical and Logistical Consultants contract listed on Schedule 2.2(n).
2. Lease with Ten Forbes Associates, L.P. listed on Schedule 2.2(n).
3. Software license with BRS Computing, Inc. listed on Schedule 2.2(n).
<PAGE> 51
SCHEDULE 2.2(r)
Authorizations
Licenses
See attached.
<PAGE> 52
SCHEDULE 2.2(s)
Exceptions to Accounts Receivable
None.
<PAGE> 53
SCHEDULE 2.2(t)
Litigation
None.
<PAGE> 54
SCHEDULE 3.4
Stock Options
<TABLE>
<CAPTION>
Number of Exercisable
Exercise Price Option Shares Until
-------------- ------------- -----
<S> <C> <C> <C>
James Zonghetti $10.00 per share 8,000 November 12, 2006
Stephen Brown $10.00 per share 2,500 November 12, 2006
Judy Bergman $10.00 per share 4,500 November 12, 2006
</TABLE>
<PAGE> 55
SCHEDULE 4.1(i)
Termination of Plans
None.
<PAGE> 56
SCHEDULE 4.2(c)
Employment Terms for non-Shareholder Dentists
See attached.
The dentists listed on the attached page are not entitled to those
benefits listed on Schedule 2.2(m).
<PAGE> 57
SCHEDULE 6.4
Computer Equipment to be Retained by Shareholders
See attached.
<PAGE> 58
SCHEDULE 8.3
Consents to Assignment
1. Guaranties and mortgages relating to the indebtedness listed on Schedule
2.2(g) hereto.
2. Guaranties and other obligations relating to the Lease with Ten Forbes
Associates, L.P. listed on Schedule 2.2(n) hereto.
<PAGE> 59
EXHIBIT 1.1(i)
Convertible Promissory Notes
<PAGE> 60
EXHIBIT 1.1(iii)
Promissory Notes
-59-
<PAGE> 61
EXHIBIT 4.1(d)
Dental Employment Agreements
<PAGE> 62
EXHIBIT 4.1(e)
Restated Articles of Organization
<PAGE> 63
EXHIBIT 4.1(f)
Assignment and Assumption Agreement/Lease
<PAGE> 64
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - GENERAL TERMS..................................................................... 1
1.1. Consideration........................................................... 1
1.2. Delivery of Certificates and Consideration.............................. 2
1.3. Tax Liability........................................................... 2
1.4. Pre-paid Expenses....................................................... 2
1.5. Withdrawal of Cash...................................................... 3
1.6. Accounts Payable........................................................ 3
ARTICLE II - REPRESENTATIONS AND WARRANTIES................................................... 3
2.1. Representations and Warranties of FNEDC ................................ 3
(a) Organization, Power and Standing .................................. 3
(b) Power and Authority Relative to Transaction........................ 3
(c) Valid and Binding Obligation ...................................... 3
(d) Required Consents ................................................. 4
(e) No Brokers ........................................................ 4
(f) Litigation ........................................................ 4
(g) Capitalization .................................................... 4
(h) Qualification to Do Business ...................................... 4
(i) Compliance with Laws .............................................. 4
(j) Financial Statements .............................................. 5
(k) Investigation ..................................................... 5
(l) Disclosure ........................................................ 5
2.2. Representations and Warranties Concerning the Company................... 5
(a) Organization, Power and Standing .................................. 5
(b) Subsidiaries and Interest in Other Entities ....................... 6
(c) Capitalization ................................................... 6
(d) Qualification to do Business ..................................... 6
(e) Financial Statements .............................................. 6
(f) Absence of Undisclosed Liabilities ................................ 6
(g) Title to Properties, Etc .......................................... 6
(h) Conduct of Business; Absence of Material Adverse Changes ......... 7
(i) Tax Returns and Payments .......................................... 9
(j) Compliance with Laws .............................................. 9
(k) Insurance ......................................................... 10
(l) Employees and Compensation ........................................ 10
(m) Employee Benefits ................................................. 10
(n) Material Contracts ................................................ 12
(o) Books and Records ................................................. 13
(p) Banking Relationships ............................................. 14
(q) Required Consents, Etc ............................................ 14
(r) Licenses and Permits .............................................. 14
(s) Accounts Receivable ............................................... 14
(t) Litigation ........................................................ 14
</TABLE>
-i-
<PAGE> 65
<TABLE>
<S> <C>
(u) No Brokers ........................................................ 15
(v) Disclosure ........................................................ 15
(w) No Offer .......................................................... 15
2.3. Representations and Warranties Concerning the Shareholders.............. 15
(a) Title ............................................................. 15
(b) Due Issuance ...................................................... 16
(c) Validity and Enforceability ....................................... 16
(d) No Brokers ........................................................ 16
(e) Dental Practice ................................................... 16
(f) Experience ........................................................ 16
(g) Authority ......................................................... 16
ARTICLE III - ADDITIONAL COVENANTS AND AGREEMENTS ............................................ 17
3.1. FNEDC's Access to Information........................................... 17
3.2. Shareholders' Consents and Approvals.................................... 17
3.3. Assignment of Intellectual Property and Other Documents................. 17
3.4. Employee Stock Options.................................................. 17
ARTICLE IV - CONDITIONS TO CLOSING............................................................ 17
4.1. Conditions Precedent to FNEDC's Obligations............................. 17
(a) Representations and Warranties True; Obligations Performed ........ 18
(b) Delivery of Certificates .......................................... 18
(c) Required Consents ................................................. 18
(d) Dental Employment Agreements ...................................... 18
(e) Filing of Restated Articles of Organization ....................... 18
(f) Lease(s) .......................................................... 18
(g) Legal Opinion from Counsel for the Shareholders ................... 18
(h) Delivery of Other Instruments ..................................... 18
4.2. Conditions Precedent to the Company's Obligations....................... 19
(a) Representations and Warranties True; Obligations Performed ........ 19
(b) Required Consents ................................................. 19
(c) Employment ........................................................ 19
(d) Legal Opinion from Counsel to FNEDC ............................... 19
(e) Discharge of Guarantees ........................................... 19
ARTICLE V - CLOSING AND DELIVERIES............................................................ 19
5.1. Date and Place of Closing............................................... 19
5.2. Deliveries at Closing by the Shareholders............................... 19
5.3. Deliveries by FNEDC..................................................... 20
ARTICLE VI - POST-CLOSING MATTERS............................................................. 21
6.1. Further Assurances...................................................... 21
6.2. Employment and Benefits-Related Matters................................. 21
6.3. Medicare/Medicaid....................................................... 23
6.4. Computer Equipment...................................................... 23
6.5. Marketing............................................................... 23
6.6. P.C.'s Obligations...................................................... 23
</TABLE>
-ii-
<PAGE> 66
<TABLE>
<CAPTION>
<S> <C>
6.7. Shareholders' Obligations............................................... 23
6.8. Access to Records....................................................... 23
6.9. No Other Locations...................................................... 24
6.10. Location of Assets...................................................... 24
6.11. Insurance............................................................... 24
6.12. Right of First Refusal.................................................. 24
ARTICLE VII - NON-COMPETITION AGREEMENT AND NON-SOLICITATION
AGREEMENT............................................................................ 26
7.1. Non-Solicitation........................................................ 26
7.2. Non-Compete............................................................. 26
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 26
8.1. Survival................................................................ 26
8.2. Indemnification of FNEDC................................................ 27
8.3. Indemnification of the Shareholders..................................... 27
8.4. Procedure for Indemnification........................................... 28
ARTICLE IX.................................................................................... 28
TERMINATION OF AGREEMENT...................................................................... 28
ARTICLE X..................................................................................... 30
CONFIDENTIAL INFORMATION...................................................................... 30
ARTICLE XI - MISCELLANEOUS ................................................................... 30
11.1. Notices................................................................. 30
11.2. No Waiver............................................................... 31
11.3. Amendments and Waivers.................................................. 31
11.4. Governing Law; Headings................................................. 31
11.5. No Assignment........................................................... 31
11.6. Binding Effect and Benefits; Assigns.................................... 31
11.7. Entire Agreement........................................................ 32
11.8. Counterparts............................................................ 32
11.9. Transfer Taxes.......................................................... 32
11.10. Arbitration............................................................. 32
</TABLE>
-iii-
<PAGE> 1
EXHIBIT 10.21
ASSET PURCHASE AND SALE AGREEMENT
BY AND AMONG
MARK E. ELLICSON, D.M.D., P.C.,
MARK E. ELLICSON, D.M.D.
AND
FIRST NEW ENGLAND DENTAL CENTERS, INC.
<PAGE> 2
TABLE OF CONTENTS
Page Number
1. TERMS OF PURCHASE AND SALE.......................................... 1
1.1 Purchase and Sale of Assets................................ 1
1.2 Purchase Price and Payment................................. 2
1.3 Excluded Liabilities....................................... 2
1.4 Business Valuation......................................... 3
1.5 Allocation of Purchase Price............................... 3
1.6 Information................................................ 3
1.7 Instruments of Transfer and Conveyance..................... 3
1.8 Lease of Premises.......................................... 4
2. MEDICAL RECORDS..................................................... 4
3. TRANSITION OBLIGATIONS.............................................. 4
4. REPRESENTATIONS AND WARRANTIES OF SELLER............................ 5
4.1 Organization, Power and Standing........................... 5
4.2 Qualification to do Business............................... 5
4.3 Valid and Binding Agreement; No Defaults................... 5
4.4 Title and Authority........................................ 5
4.5 Financial Statements; No Material Adverse Changes.......... 6
4.6 Litigation................................................. 6
4.7 Payment Programs........................................... 6
4.8 Taxes...................................................... 6
4.9 Authorization and Compliance with Laws..................... 7
4.10 Insurance.................................................. 7
4.11 Employee Benefits.......................................... 7
4.12 No Untrue or Inaccurate Representation or Warranty......... 9
4.13 Finder's Fee............................................... 9
5. REPRESENTATIONS AND WARRANTIES OF BUYER............................. 10
5.1 Corporate Organization..................................... 10
5.2 Valid and Binding Agreement................................ 10
5.3 Finder's Fee............................................... 10
5.4 Financial Statements....................................... 10
5.5 Litigation................................................. 10
5.6 No Untrue or Inaccurate Representation or Warranty......... 10
6. COVENANTS........................................................... 11
6.1 Buyer's Access to Information.............................. 11
6.2 Seller's Consents and Approvals............................ 11
6.3 Covenant With Respect to Seller's Employees................ 11
i
<PAGE> 3
7. CONDITIONS TO CLOSING............................................... 11
7.1 Conditions Precedent to Buyer's Obligations................ 11
7.2 Conditions Precedent to Seller's Obligations............... 12
8. CLOSING AND DELIVERIES.............................................. 13
8.1 Date and Place of Closing.................................. 13
8.2 Deliveries at Closing by the Selling Parties............... 13
8.3 Deliveries by Buyer........................................ 13
9. POST-CLOSING MATTERS................................................ 13
9.1 Further Assurances......................................... 13
9.2 Medicare/Medicaid.......................................... 14
10. NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT............ 14
10.1 Non-Competition............................................ 14
10.2 Non-Solicitation........................................... 14
11. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION........................ 15
11.1 Survival................................................... 15
11.2 Indemnification of Buyer................................... 15
11.3 Indemnification of Selling Parties......................... 15
11.4 Procedure for Indemnification.............................. 15
12. TERMINATION OF AGREEMENT............................................ 16
13. CONFIDENTIAL INFORMATION............................................ 17
14. MISCELLANEOUS....................................................... 17
14.1 Notices.................................................... 17
14.2 No Waiver.................................................. 18
14.3 Amendments and Waivers..................................... 18
14.4 Construction............................................... 18
14.5 Binding Effect and Benefits; Assignment.................... 19
14.6 Prior Agreements........................................... 19
14.7 Counterparts............................................... 19
14.8 Arbitration................................................ 19
ii
<PAGE> 4
SCHEDULES AND EXHIBITS
Schedules
Schedule 1.1 List of Excluded Assets
Schedule 1.1(a) Asset Inventory
Schedule 1.1(b) Contracts and Agreements
Schedule 1.1(c) Trade Names, Etc.
Schedule 1.1(e) Accounts Receivable and Cash on Hand
Schedule 1.3 Long Term Debt
Schedule 1.5 Allocation of Purchase Price
Schedule 4.1 Required Consents
Schedule 4.3 Financial Statements
Schedule 4.4 Encumbered Assets
Schedule 4.5 Payment Programs
Schedule 4.6 Pending/Threatened Litigation
Schedule 4.7 Permits
Schedule 4.8 Insurance Policies
Schedule 4.9 Benefit Plans
Schedule 4.12 Accounts Receivable
Schedule 5.5 Buyer Litigation
Exhibits
Exhibit 1.2(b) Form of Promissory Note
Exhibit 1.2(c) Form of Promissory Note
Exhibit 1.8 Form of Lease
Exhibit 7.1(c) Form of Employment Agreement
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ASSET PURCHASE AND SALE AGREEMENT
ASSET PURCHASE AND SALE AGREEMENT (the "Agreement"), made as of the
30th day of September, 1996, by and among FIRST NEW ENGLAND DENTAL CENTERS,
INC., a Delaware corporation ("Buyer"), MARK E. Ellicson, D.M.D., P.C.
("Seller") and MARK E. ELLICSON, D.M.D. ("Ellicson", and together with Seller
referred to hereinafter as the "Selling Parties").
W I T N E S S E T H:
WHEREAS, Seller operates a dental practice (the "Practice") located at
227 Main Street, Dalton, Massachusetts 01226 (the "Premises"); and
WHEREAS, Buyer desires to acquire the assets of the Practice subject to
the terms set forth herein.
NOW, THEREFORE, in consideration of the covenants, agreements and
conditions set forth herein, the parties hereto hereby agree as follows:
1. TERMS OF PURCHASE AND SALE.
1.1 Purchase and Sale of Assets. Subject to the terms and conditions of
this Agreement, the Selling Parties each agree to sell, convey, transfer, assign
and deliver to Buyer the Assets (as defined below), and Buyer agrees to purchase
and acquire all right, title and interest in and to the Assets, free and clear
of any pledge, claim, lien, charge, option, security interest, mortgage or other
encumbrance (collectively, "Encumbrances"), in consideration of the Purchase
Price as defined in Section 1.2 below.
The term "Assets" shall mean all of the assets of each of the Selling
Parties used or useful in the Practice excepting only those assets listed on the
"List of Excluded Assets" attached hereto as Schedule 1.1, and shall include,
without limitation:
(a) All of each of the Selling Parties' right, title and interest in
and to all of the inventory, equipment, furniture, fixtures, office and
business equipment and other tangible, intangible and personal property
used by Seller in the Practice, including, but not limited to, the
assets shown on the list attached hereto as Schedule 1.1(a) (the "Asset
Inventory"). The Selling Parties shall also transfer to Buyer to the
extent transferable any and all rights each of the Selling Parties may
have pursuant to manufacturers' warranties with respect to any of the
equipment or tangible personal property transferred pursuant to this
Agreement;
(b) Subject to the terms and conditions herein, the contracts and
agreements listed on Schedule 1.1(b) attached hereto entered into by
either or both of the Selling Parties regarding the Practice and/or in
respect of the Assets, but only to the extent related thereto (the
"Contracts and Rights");
<PAGE> 6
(c) All of Seller's copyrights, trademarks, service marks and trade
names used in the Practice, as set forth on Schedule 1.1(c) attached
hereto;
(d) All of Seller's patient, supplier and vendor lists relating to the
Practice; and
(e) All of Seller's cash on hand and accounts receivable with respect
to the Practice, as set forth in the attached Schedule 1.1(e); and
(f) All transferable Permits (as defined in Section 4.7 below) and
other rights granted by governmental authorities that are used or
necessary for the lawful operation of the Practice or ownership of the
Assets.
1.2 Purchase Price and Payment. Subject to the conditions precedent set
forth in Article 7 below, based upon the representations and warranties made
herein, and in full consideration of the Selling Parties' performance of this
Agreement and the sale, assignment, transfer, conveyance and delivery to Buyer
of the Assets, Buyer shall perform its obligations pursuant to this Agreement
and shall deliver and pay to or on behalf of Seller in accordance with Seller's
instructions TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000.00) plus the Accounts
Receivable Payment (defined below):
(a) ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($125,000.00), to be paid
by Buyer on the Closing Date (defined in Section 8.1), by bank check;
(b) a promissory note in the form of Exhibit 1.2(b) attached hereto in
the principal sum of ONE HUNDRED TWENTY-FIVE THOUSAND DOLLARS
($125,000.00); and
(c) payment (the "Accounts Receivable Payment") consisting of a bank
check for FIVE THOUSAND DOLLARS ($5,000) and a promissory note in the
form set forth in Exhibit 1.2(c) hereto, in the principal amount of
FORTY-EIGHT THOUSAND, SEVEN HUNDRED AND EIGHTY-ONE DOLLARS AND 28/100
($48,781.28), together representing (i) 50% of the accounts receivables
outstanding for no more than 120 days and (ii) 25% of the accounts
receivables outstanding for more than 120 days (this promissory note
together with the promissory note described in Section 1.2(b), the
"Promissory Notes").
1.3 Excluded Liabilities. Buyer does not assume and shall not be or
become liable by virtue of this Agreement or the transactions contemplated by
this Agreement for any debt, contract, agreement, demand, action, cause of
action, suit, settlement, judgment, liability, obligation, loss, injury, damage,
cost or expense (including, without limitation, reasonable attorneys' and
consultancy fees and court costs) of either or both of the Selling Parties,
matured or unmatured, fixed or contingent, discovered or undiscovered, accrued
or otherwise and whether or not due and payable, arising from or relating to the
period on and prior to the Closing Date including, without limitation, any act
or omission of either or both of the Selling Parties' or of agents, employees or
independent contractors, but excluding a limited amount of follow-up and
warranty dental work performed by Seller in the ordinary course of business, for
which Seller
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<PAGE> 7
would not typically charge the patient (collectively, the "Excluded
Liabilities"). The Selling Parties each hereby agree to pay, perform and
discharge when and as due, all Excluded Liabilities.
1.4 Business Valuation. The parties agree that the Purchase Price paid
pursuant to Section 1.2 was based upon a valuation of the Practice of
$250,000.00 plus 50% of the book value at Closing of the accounts receivable
outstanding for no more than 120 days. It is the understanding of Buyer that (i)
as of September 1, 1996, the Seller has outstanding long term debt of no more
than as set forth on Schedule 1.3, trade payables, as set forth on Schedule 1.4
hereto, of no more than $_____________ and accounts receivable worth at least
$145,000, and (ii) as of the Closing Date, Seller shall nave no long term
outstanding debt, no trade payables and shall have accounts receivable worth at
least $149,367.10 (collectively, the "Balance Sheet Factors"). If following the
Closing Date, any of the Balance Sheet Factors is determined to have changed to
the detriment of Buyer, then the Purchase Price shall be reduced on a
dollar-for-dollar basis to the extent of such variance. In the event such
determination is made after the Closing, Seller shall pay the amount of such
reduction in the Purchase Price to Buyer in cash no later than fifteen (15) days
after the earlier of (i) notice to Seller, and (ii) the date on which Seller
becomes aware of such variance. Buyer reserves the right to offset amounts owed
by Seller pursuant to this Section 1.4 against amounts Buyer owes under the
Promissory Note. The parties agree that, in accordance with APB Opinion 16 and
for accounting purposes only, the purchase and sale of the Assets shall be
deemed to have occurred and take effect as of September 1, 1996. This Section
1.4 shall survive the Closing.
1.5 Allocation of Purchase Price. The Selling Parties and Buyer agree
that the Purchase Price shall be allocated among the Assets in the manner set
forth in the attached Schedule 1.5, and that each party shall report this
transaction on all applicable federal and state income tax returns in accordance
with such allocation.
1.6 Information. The Selling Parties and Buyer shall each cooperate
with the other after the Closing Date by providing without additional
consideration (except as set forth below) and promptly upon request, copies of
such records and other information regarding the Practice and the Assets as may
reasonably be requested from time to time by either the Selling Parties or
Buyer, and in particular as necessary for the preparation or audit of federal,
state and local income and other tax returns, third party reimbursement filings,
audits (including those by third party payors), third party disputes, refund
claims and other valid business purposes. The party requesting such information
shall pay the reasonable out-of-pocket expenses of the party providing such
information.
1.7 Instruments of Transfer and Conveyance. Subject to the conditions
precedent set forth in Article 7 below, based upon the representations and
warranties made herein, and in full consideration of Buyer's performance of this
Agreement and the payment of the Purchase Price, each of the Selling Parties
shall perform its obligations under this Agreement and the sale, conveyance,
transfer, assignment and delivery of the Assets, as herein provided, shall be
effected by delivery by Seller at the Closing (defined in Section 8.1 below) of
such deeds, bills of sale, endorsements, assignments, certificates, drafts,
checks or other instruments of transfer and
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<PAGE> 8
conveyance (collectively, the "Transfer Documents") as Buyer and its counsel
shall reasonably deem appropriate or desirable. The Selling Parties agree that
from time to time on or after the Closing Date the Selling Parties shall, at
Buyer's reasonable cost and expense, promptly execute, acknowledge and deliver,
and will cause to be executed, acknowledged and delivered, all such further
acts, deeds, certificates, assignments, transfers, conveyances, powers of
attorney, assurances and other documents as may reasonably be requested by Buyer
to perfect the transfer of the Assets and to carry out the terms of this
Agreement, provided that they are consistent with this Agreement.
1.8 Lease of Premises. Seller shall (i) deliver a fully executed lease
agreement with Mark E. Ellicson, D.M.D. d/b/a/ 227 Main Street Associates
("Lessor"), to lease the Premises for a term of five (5) years at a rental rate
equal to $3,000 per month, with an option to renew for an additional five (5)
year term at the same rental rate (the "Lease") in the form set forth at Exhibit
1.8.
2. MEDICAL RECORDS.
From and after the Closing Date, Buyer, as custodian for the Selling
Parties, shall hold all patient records acquired by it at the Closing until such
time as (i) a patient executes a written consent to the transfer of his/her
medical records to Buyer, or (ii) all such medical records which have not been
transferred to Buyer (or to such other transferee as a patient may request in
writing) may be disposed of under applicable laws, rules and regulations.
3. TRANSITION OBLIGATIONS.
(a) As of the Closing Date, the Selling Parties agree to
transfer, or to cause to be transferred, to the name of Buyer or its designee,
all active telephone and facsimile numbers used in connection with the Practice
at any time during the one year period immediately preceding the Closing Date.
The Selling Parties further agree not to change, establish or re-establish any
telephone or facsimile number(s) for the Practice at any time after the Closing
Date, except with Buyer's prior written consent.
(b) The Selling Parties agree not to request the United States
Postal Service to forward any mail addressed to either of the Selling Parties at
the Practice to any other location. The Selling Parties agree to forward
promptly to Buyer, unopened, any mail relating to the Practice.
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4. REPRESENTATIONS AND WARRANTIES OF SELLER.
The Selling Parties each hereby represent and warrant to Buyer as of
the Closing as follows:
4.1 Organization, Power and Standing. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts with all requisite corporate power and authority
to own its properties and engage in the business in which it is currently
engaged. The copies of the Seller's Articles of Organization and By-laws, as
amended through the date hereof, that have been delivered to Buyer by Seller are
complete and correct as of the date of this Agreement and will continue in
effect without further amendment through Closing.
4.2 Qualification to do Business. Seller is duly qualified to do
business in Massachusetts and in all other jurisdictions in which failure to so
qualify would have a material adverse effect on Seller.
4.3 Valid and Binding Agreement; No Defaults. The Selling Parties each
have the right, power, and authority to execute, deliver, and perform this
Agreement, and this Agreement constitutes the legal, valid and binding agreement
of the Selling Parties, enforceable in accordance with its terms. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions herein contemplated, nor fulfillment of or compliance with the
terms and provisions hereof will conflict with, or result in or constitute a
default under or breach or violation of or grounds for termination of, or an
event which with notice or the lapse of time, or both, would constitute a
default under or breach or violation of or grounds for termination of, or result
in the creation or imposition of any Encumbrance upon any of the Assets pursuant
to, any agreement or instrument or any license, permit or governmental
authorization relating to or affecting either or both of the Selling Parties or
to which either or both of the Selling Parties are a party or by which any of
the Assets may be bound, or result in the violation by either of the Selling
Parties of any law, statute, rule, regulation, judgment, writ, injunction,
decree or order. Except as set forth in Schedule 4.3 hereto, no consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority, or other third party is required for the
consummation, fulfillment and performance by the Selling Parties of the
transactions and obligations contemplated by this Agreement.
4.4 Title and Authority. Except as set forth in Schedule 4.4 hereto,
the Selling Parties have good and marketable title to the Assets and full legal
right, power, and authority to sell, assign, transfer and deliver the Assets
hereunder free and clear of all Encumbrances. All of the Assets used in the
operation and management of the Practice are owned exclusively by the Selling
Parties, except for those assets listed on Schedule 4.4. The Assets are in good
condition and working order, ordinary wear and tear excepted. Except as set
forth in the attached Schedule 4.4, all of the Assets are free and clear of all
Encumbrances.
4.5 Financial Statements; No Material Adverse Changes. The financial
statements relating to the Practice which have been supplied by Seller to Buyer
(a) are true, correct and
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<PAGE> 10
complete in all material respects and fairly present the financial position and
results of operations of Seller as at the respective dates thereof; (b) are in
accordance with the books and records of Seller; and (c) are prepared in
accordance with the cash basis of accounting consistently applied. Seller has no
debts, liabilities or obligations of any nature whatsoever which are related to
the Practice and are not disclosed on such financial statements or set forth on
Schedule 4.5 hereto. Since December 31, 1995 there has not been any event or
condition of any character materially adversely affecting the business or
properties of Seller.
4.6 Litigation. Except as set forth on Schedule 4.6 hereto, there are
no legal actions, suits, proceedings or claims or, to Selling Parties'
knowledge, investigations pending or, to Selling Parties' knowledge, threatened
against Seller and, to either Selling Parties' knowledge, there is no basis
therefor. Neither Selling Party is a party to or subject to any judgment, order,
writ, injunction or decree affecting him which relates to the Assets or the
Practice, or which otherwise affects the Assets.
4.7 Payment Programs. The Selling Parties are each a participating
provider in the payment programs set forth in Schedule 4.7 (collectively, the
"Payment Programs"). To the Selling Parties' knowledge, there is no
investigation or civil, administrative, or criminal proceeding, threatened or
pending, relating to the Selling Parties' participation in any of the Payment
Programs. To the Selling Parties' knowledge, the Selling Parties are not subject
to any non-routine prepayment utilization review or other non-routine
utilization review by any Payment Program, and no Payment Program has requested
or threatened any recoupment, refund, or set-off from the Selling Parties, or
imposed any fine, penalty or other sanction on the Selling Parties, nor have the
Selling Parties been excluded from participation in any Payment Program. The
Selling Parties have not submitted to any Payment Program any false or
fraudulent claim for payment, nor have the Selling Parties at any time violated
any condition for participation, or any published rule, regulation, policy or
standard of any Payment Program. The Selling Parties have complied, or will
comply, in a timely manner with any notice provisions of the Payment Programs
and of the Selling Parties' provider agreements with the Payment Programs,
regarding provision of notice of the transactions contemplated by this
Agreement.
4.8 Taxes. The Selling Parties have filed all federal, state and local
income, excise and franchise tax returns, real estate and property tax returns,
sales and use tax returns and other tax returns required to be filed by each of
them in respect of the Practice, and have duly paid or made appropriate accruals
for the payment of all taxes, assessments, fees and other governmental charges
required to have been paid or accrued to the date hereof, including, without
limitation, all income, withholding, excise, unemployment, Social Security,
occupation, franchise, property, use, sales and import taxes, duties or charges
and all deficiency assessments, penalties and interest in respect thereof. The
Selling Parties shall be liable for and shall pay all such taxes, fees and
charges which are due or which have accrued for the period through and including
the Closing Date.
4.9 Authorization and Compliance with Laws. Except as set forth on
Schedule 4.9 hereto, the Selling Parties presently hold all permits, licenses,
certificates, approvals, registrations and authorizations (collectively,
"Permits") necessary for the conduct of the
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<PAGE> 11
business and the ownership of the Assets, and all such Permits are listed on
Schedule 4.9. Neither of the Selling Parties has received notice from any
federal, state or local governmental agency, nor does either of the Selling
Parties have any knowledge or reason to believe, that the Selling Parties'
ownership or use of the Assets or the Selling Parties' operation of the Practice
violate any federal, state or local law, regulation, order or restriction. The
Selling Parties have operated the Practice in full compliance with all
applicable laws, including all laws and regulations relating to payment and
claims for health care services, employment, occupational safety and health, and
environmental matters.
4.10 Insurance. Seller has continuously maintained for the entire
period of time the Practice has been in existence, and continues to maintain,
property, general liability, professional liability and workers' compensation
insurance covering the operations of the Practice through the policies listed in
Schedule 4.10 hereto. Such policies are in full force and effect, all premiums
due thereon have been paid, and Seller has complied in all material respects
with the provisions of such policies. Seller and each dentist-employee of Seller
currently maintains and will continue to maintain in full force and effect an
individual professional liability insurance policy with liability limits of at
least $1 million per occurrence and $3 million aggregate. If any of the
foregoing insurance is on a "claims-made" basis, Seller shall also purchase a
reporting endorsement (so-called "tail" coverage) satisfactory to Buyer.
4.11 Employee Benefits. Except as disclosed in Schedule 4.11, there is
no plan, arrangement, understanding, practice or commitment, formal or informal,
firm or contingent, written or oral, currently sponsored, maintained or
contributed to by Seller which covers, or which at any time prior to the Closing
Date covered, any of the current or former employees or independent contractors
of the Seller and providing any of the following benefits: bonus, stock bonus,
profit sharing, pension, retirement, life insurance, medical, hospitalization,
dental, vision, disability, vacation, workers' compensation, deferred or
incentive compensation, severance benefits and including, without limitation,
each "employee pension benefit plan" (within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended (hereinafter
"ERISA")) and "employee welfare benefit plan" (within the meaning of Section
3(1) of ERISA) (collectively, the "Plans"). With respect to each Plan disclosed
in Schedule 4.11:
i) all payments required to be made to each Plan as of the Closing Date
have been timely and completely made, all deductions for such payments have not
been challenged or disallowed by any government entity (nor does the Seller have
any reason to believe that such deductions are not allowable), and all amounts
properly accrued as unpaid liabilities of the Seller with respect to each Plan
for the current plan year have been recorded on the Seller's books;
ii) no liability to the Pension Benefit Guaranty Corporation has been
incurred by the Seller with respect to any Plan on or before the Closing Date;
iii) the Seller and its affiliates have not engaged in any transactions
which would, directly or indirectly, subject any Plan, its related trust or the
Seller to a tax or penalty imposed under Section 4975 of the Code or Section
502(i) of ERISA, or any other liability;
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<PAGE> 12
iv) there has been no event or condition, nor is any event or condition
expected, that would constitute a "reportable event" (within the meaning of
Section 4043 of ERISA);
v) the Seller and its affiliates have performed all material
obligations and have not violated the provisions of any of the Plans and, to the
best knowledge of the Selling Parties, no other party is in violation thereof;
vi) each Plan is in compliance in all material respects with all
applicable requirements prescribed by all statutes (including, without
limitation, ERISA and the Code), orders, governmental rules or regulations;
vii) each Plan intended to meet the requirements under Section 401(a)
of the Code has received a favorable, unrevoked determination letter from the
Internal Revenue Service with respect to the Tax Reform Act of 1986 and
subsequent legislative changes to the Code (with its related trust having been
determined by the Internal Revenue Service to be exempt from taxation under
Section 501(a) of the Code), which determination letter may still be relied upon
as to such tax qualified status, and to the best of the Selling Parties'
knowledge no circumstances have occurred that would adversely affect the tax
qualified status of any such Plan;
viii) there is no suit, action, dispute, claim, arbitration or legal,
administrative or other proceeding or governmental investigation pending, or, to
the best knowledge of the Seller, threatened, alleging any breach of the terms
of any Plan or of any fiduciary duties thereunder or violation of any applicable
law with respect to any Plan, nor, to the best knowledge of the Seller, any
arbitration, proceeding or investigation;
ix) subject to applicable requirements of ERISA, neither any provision
of any Plan nor any agreement with any employee nor any representation or course
of conduct by or on behalf of the Seller would prevent the amendment or
termination after the Closing Date of any Plan without liability to the Seller;
x) there are not any benefits or severance obligations of the Seller
that will arise as a result of the transactions provided for herein;
xi) no Plan which is an "employee welfare benefit plan" provides for
continuing benefits or coverage, including but not limited to medical, health or
life insurance, to an employee or former employee following termination of
employment with the Seller other than that required by Section 4980B of the Code
and Sections 601 through 609 of ERISA;
xii) each Plan which is a "group health plan" (within the meaning of
Section 5000(b)(1) of ERISA) is in material compliance with the requirements
under Section 4980B of the Code and Sections 601 through 609 of ERISA;
xiii) no Plan is, or forms part of, a "multiple employer welfare
arrangement" (within the meaning of Section 3(40) of ERISA), a "multiemployer
plan" (within the meaning of Section 4001(a)(3) of ERISA) or a "voluntary
employees' beneficiary association (within the meaning of
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<PAGE> 13
Section 501(c)(9) of the Code);
xiv) with respect to each Plan which is self-insured "employee welfare
benefit plan," no claims have been made pursuant to any such Plan that have not
yet been paid and, to the best knowledge of the Selling Parties, no injury,
sickness or other medical condition has been incurred with respect to which
claims may be made pursuant to any such Plan; and
xv) all reports, forms and other documents with respect to any Plan
required to be filed with any government entity or to be disclosed to Plan
participants and their beneficiaries have been timely filed or disclosed, as the
case may be, and are accurate.
4.12 No Untrue or Inaccurate Representation or Warranty. No
representation or warranty by either of the Selling Parties, nor any statement,
schedule or exhibit furnished or to be furnished to Buyer pursuant hereto,
contains or will contain any untrue statement of material fact, or omits or will
omit to state a material fact necessary to make the statements therein not
misleading.
4.13 Finder's Fee. The Selling Parties have not incurred, become liable
for or created any liability on behalf of Buyer for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
4.14 Accounts Receivable. Except as set forth on Schedule 4.14, all of
the accounts receivable of the Seller as of the Closing Date will be valid and
enforceable claims, fully collectible in the ordinary course of business
(subject to allowances and reserves for bad debts) and subject to no set-off or
counterclaim. Seller has no accounts or loans receivable from any person, firm
or corporation which is affiliated with the Seller or from any director, officer
or employee of the Seller. All such accounts receivable arose out of bona fide
transactions in the ordinary course of business. The Selling Parties hereby
represent and warrant that Seller has collected ___ percent of its accounts
receivable over the last twelve (12) months.
5. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to the Selling Parties as of the
Closing as follows:
5.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the power to own and operate its properties and carry on its business as
now conducted.
5.2 Valid and Binding Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all requisite corporate action of Buyer and no other
corporate action on the part of Buyer is necessary to authorize this Agreement
or to carry out the transactions contemplated hereby. Buyer has the right, power
and authority to execute, deliver and perform this Agreement, and this Agreement
constitutes the valid and binding agreement of Buyer, enforceable in accordance
with its terms.
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5.3 Finder's Fee. Buyer has not incurred, become liable for or created
any liability on behalf of Seller for any broker's commission or finder's fee
relating to or in connection with the transactions contemplated by this
Agreement.
5.4 Financial Statements. The unaudited financial statements of Buyer
which have been provided to Seller in connection with the transactions
contemplated by this Agreement (a) fairly present the financial position and
results of operations of Buyer as at the respective dates thereof, subject to
the absence of year end adjustments and footnotes; (b) are in accordance with
the books and records of Buyer; and (c) are prepared in accordance with a
modified cash basis of accounting consistently applied. As of the Closing Date,
Buyer has not incurred debts, liabilities or obligations other than those in the
ordinary course of business or in connection with the acquisition of other
practices.
5.5 Litigation. Except as set forth on Schedule 5.5 hereto, there are
no legal actions, suits, proceedings or claims or, to Buyer's knowledge,
investigations pending or, to Buyer's knowledge, threatened against Buyer and,
to Buyer's knowledge, there is no basis therefor. Buyer is neither party nor
subject to any judgment, order, writ, injunction or decree affecting the conduct
of its business.
5.6 No Untrue or Inaccurate Representation or Warranty. No
representation or warranty by Buyer, nor any statement, schedule or exhibit
furnished or to be furnished to Seller pursuant hereto, contains or will contain
any untrue statement of material fact, or omits or will omit to state a material
fact necessary to make the statements therein not misleading.
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6. COVENANTS.
6.1 Buyer's Access to Information. The Selling Parties shall permit
Buyer and its counsel, accountants and other representatives full and free
access, upon reasonable notice and during normal business hours, throughout the
period prior to the Closing, to all of the properties, books, contracts,
commitments, records, officers and personnel of the Practice and shall furnish
Buyer during such period all such information concerning the business affairs of
the Practice as Buyer or its counsel, accountants and other representatives may
reasonably request. If the transactions contemplated by this Agreement are not
consummated, all information furnished by the Selling Parties shall be kept in
strict confidence and shall not be used or disclosed by any recipient, and Buyer
shall cause each such recipient to return to the Selling Parties all copies of
documents or records furnished hereunder. No investigation or findings of Buyer
shall diminish or affect the representations and warranties of the Selling
Parties in this Agreement or relieve the Selling Parties of any of their
obligations hereunder.
6.2 Seller's Consents and Approvals. The Selling Parties shall use
their best efforts to obtain all governmental and regulatory approvals and
actions necessary to consummate the transactions contemplated hereby which are
required to be obtained by applicable law or regulations or otherwise.
6.3 Covenant With Respect to Seller's Employees. Buyer agrees to offer
employment to Seller's employees as of the Closing Date.
7. CONDITIONS TO CLOSING.
7.1 Conditions Precedent to Buyer's Obligations. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is
expressly subject to the fulfillment or express written waiver of the following
conditions on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations and warranties contained in
Article 4 shall be true and correct in all material respects at and as
of the Closing Date, except as otherwise specifically provided for
herein. The Selling Parties shall have performed, on or before the
Closing Date, all obligations under this Agreement which by the terms
hereof are to be performed by the Selling Parties on or before the
Closing Date.
(b) Required Consents. All consents and waivers, in form and
substance satisfactory to Buyer and its counsel, necessary to
consummate the transactions contemplated hereby and for the transfer of
the Assets shall have been obtained by the Selling Parties.
(c) Dental Employment Agreement. Ellicson shall have executed
and delivered a dental employment agreement between himself and Osorio
and Watkin, D.M.D., P.C. (the "P.C.") in the form attached hereto as
Exhibit 7.1(c) (the "Employment Agreement").
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(d) Lease. The Selling Parties shall have delivered the Lease.
(e) [Intentionally Omitted].
(f) Termination of Employment Agreements. Seller shall have
delivered evidence reasonably satisfactory to Buyer of the termination
of the employment of Ellicson and any other dentists employed by it,
such termination to include a waiver of any non-competition or
non-solicitation covenant in its favor and to be effective immediately
prior to Closing.
(g) Delivery of Other Instruments. The Selling Parties shall
have delivered such other certificates, consents, instruments or
agreements as may be reasonably requested by Buyer or its counsel,
including a Bill of Sale and Assignment and Assumption Agreement with
respect to the Assets.
(h) Removal of Liens. Any and all encumbrances upon the Assets
shall have been removed or released to Buyer's satisfaction.
7.2 Conditions Precedent to Seller's Obligations. The obligation of the
Selling Parties to consummate the transactions contemplated by this Agreement is
subject to the fulfillment or express written waiver of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations of Buyer contained in Article 5
shall be true and correct in all material respects at and as of the
Closing except as otherwise specifically provided for herein. Buyer
shall have performed, on or before the Closing Date, all obligations
under this Agreement which by the terms hereof are to be performed by
Buyer on or before the Closing Date.
(b) Employment Agreement. The P.C. shall have executed and
delivered the Employment Agreement.
(c) Lease. Seller shall have executed and delivered the Lease.
(d) Delivery of Other Instruments. Buyer shall have executed
and delivered a Bill of Sale and Assignment and Assumption Agreement
with respect to the Assets.
12
<PAGE> 17
8. CLOSING AND DELIVERIES.
8.1 Date and Place of Closing. The consummation of the transactions
contemplated hereby (the "Closing") shall be held on September 30, 1996 at the
offices of McDermott, Will & Emery, 75 State Street, Suite 1700, Boston,
Massachusetts or at such other time and place as the parties may mutually agree
in writing (the "Closing Date").
8.2 Deliveries at Closing by the Selling Parties. At the Closing,
provided Buyer has duly performed its obligations hereunder, the Selling Parties
shall deliver or cause to be delivered to Buyer the Assets and all consents of
any person or any entity, whether or not a party to this Agreement, which are
necessary to effectuate the transfer of the Assets to Buyer.
8.3 Deliveries by Buyer. At the Closing, provided each of the Selling
Parties has fully performed all of his obligations hereunder, Buyer shall
deliver or cause to be delivered to the Selling Parties the following:
(a) a bank check or wire transfer in the amount of
$125,000.00;
(b) the Promissory Notes;
(c) a certified copy of resolutions duly adopted by Buyer's
Board of Directors approving and authorizing the transactions provided
for in this Agreement, the execution hereof and the performance of all
acts required herein, accompanied by an appropriate certificate of
incumbency; and
(d) a copy of Buyer's (i) Certificate of Incorporation, as
amended, and (ii) by-laws, each as certified by the Secretary of Buyer,
and a Certificate of Good Standing of Buyer issued as of a recent date
by the Secretary of State of the State of Delaware.
9. POST-CLOSING MATTERS.
9.1 Further Assurances. Following the Closing Date, Seller will execute
and deliver to Buyer such documents and take such other actions at Buyer's
expense as Buyer may reasonably request in order to vest in Buyer good, valid
and marketable title to the Assets.
9.2 Medicare/Medicaid. Until such time as the Promissory Note is paid
in full, the Selling Parties shall not refer any Medicare or Medicaid
beneficiaries to Buyer, the P.C. or any of their affiliates for any dental
services, x-rays, laboratory services, prosthetic devices or other designated
health services (as that term defined in 42 U.S.C. Section 1395nn) covered by
Medicare or Medicaid.
10. NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT.
10.1 Non-Competition. Subject to the provisions set forth in this
Section 10.1 and
13
<PAGE> 18
Article 12 and for a period of three (3) years following the date Ellicson
ceases to be an employee of the P.C. or of Buyer for any reason, each of the
Selling Parties agrees that he or it (as the case may be) shall not, directly or
indirectly, in whole or in part: (a) engage in any dental practice activity
within a twenty (20) mile radius of any of the P.C.'s or Buyer's practice sites;
or (b) own, manage, operate, control or participate in the ownership,
management, operation or control of any dental practice or health care facility,
however organized, which has any location within a ten (10) mile radius of any
of the P.C.'s or Buyer's practice sites and which competes directly or
indirectly with the P.C. or Buyer in the provision of dental and/or other health
care services. For purposes of this Section 10.1 the term "control" shall
include, but not be limited to, being part of management or having input into
managerial decisions.
10.2 Non-Solicitation. The Selling Parties recognize that the success
of Buyer's business both with respect to the quality and availability of patient
care depends upon the loyalty to Buyer and P.C. of their respective employees
and patients. Accordingly, the Selling Parties each agree that subject to
Article 12, they will not, for any purpose, for a period of three (3) years
following the date when Ellicson ceases to be an employee of Buyer or the P.C.
for any reason:
(a) solicit any persons who are at any time patients or former
patients of the P.C., nor suggest, request or direct that any such
patients request that medical records be copied or otherwise removed or
transferred from Buyer's office, nor remove or copy any medical records
or patient or mailing lists; or
(b) hire, seek to hire or assist in hiring any employee, agent
or independent contractor of the P.C. or Buyer or induce or seek to
induce, or take action which results in the termination of employment
or other arrangements between the P.C. or Buyer and such employee,
agent or independent contractor or otherwise interferes with such
employment or arrangements.
If any part of this Article 10 should be determined by a court of
competent jurisdiction to be unreasonable in nature, duration, geographic area,
or scope, then the Selling Parties' covenants hereunder are 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. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
11.1 Survival. Each of the Selling Parties and Buyer agree that the
representations and warranties contained in this Agreement shall survive for a
period of three (3) years from the Closing Date, except that (a) the
representations and warranties contained in Section 4.8 shall survive until the
applicable tax statutes of limitations relating thereto shall have run, (b) the
provisions of Article 10 shall survive as specified therein, (c) the provisions
of this Article 11 shall survive the Closing Date for an indefinite period, and
(d) the provisions of Article 12 shall survive for so long as Ellicson is
employed by the P.C.
11.2 Indemnification of Buyer. The Selling Parties each agree to
indemnify Buyer and hold it harmless against and in respect of any and all
payments, damages, claims, demands,
14
<PAGE> 19
losses, expenses, costs, obligations and liabilities, including reasonable
attorneys' fees which (a) arise or result from or are related to any breach or
failure of either of the Selling Parties to perform any of their respective
representations, warranties, commitments, obligations, covenants or conditions
hereunder, (b) result from any actions of either of the Selling Parties agents
taken prior to the Closing Date or the operations of the Practice prior to the
Closing Date; or (c) result from the failure of the transfer and delivery of
either of the Selling Parties to Buyer to cause Buyer to acquire good and
marketable title to all of the Assets, free and clear of any liens,
encumbrances, restrictions on transfer, charges or claims unless such failure is
caused by the action of Buyer.
11.3 Indemnification of Selling Parties. Buyer agrees to indemnify the
Selling Parties and hold them harmless against and in respect of any and all
payments, damages, claims, demands, losses, expenses, costs, obligations and
liabilities, including reasonable attorneys' fees which arise or result from or
are related to any breach or failure of Buyer to perform any of its
representations, warranties or covenants hereunder, or any actions of Buyer, its
employees or agents (other than Ellicson) taken after the Closing Date.
11.4 Procedure for Indemnification. Any party making a claim for
indemnification hereunder shall notify the indemnifying party of the claim in
writing, describing the claim, the amount thereof, and the basis therefor. The
party from whom indemnification is sought shall respond to each such claim
within 30 days of receipt of such notice. No action shall be taken pursuant to
the provisions of this Agreement or otherwise by the party seeking
indemnification until the later of (a) the expiration of the 30-day response
period (unless reasonably necessary to protect the rights of the party seeking
indemnification), or (b) 30 days following the termination of the 30-day
response period if a response received within such 30-day period by the party
seeking indemnification requested an opportunity to cure the matter giving rise
to indemnification (and, in such event, the amount of such claim for
indemnification shall be reduced to the extent so cured within such 30-day cure
period). If such demand is based on a claim by a third party, the indemnifying
party shall have the right to assume the entire control of the defense,
compromise or settlement thereof, including at its own expense, employment of
counsel reasonably satisfactory to the indemnified party, and, in connection
therewith, the party claiming indemnification shall cooperate fully to make
available to the defending party all pertinent information under its control. No
claim for indemnification resulting from the breach or falsity or any of the
representations or warranties set forth herein or in any certificate or other
instrument delivered pursuant hereto shall be made after a date on which such
representation or warranty shall have expired under the provisions of Section
10.1 hereof.
12. TERMINATION OF AGREEMENT.
(a) Default Provisions. The post-Closing occurrence of any of the
following conditions or events shall be deemed a "Termination Event":
(i) Buyer ceases all of its operations for more than thirty (30)
consecutive days; or
(ii) Buyer fails generally to pay its debts as they become due
("Insolvency") and such
15
<PAGE> 20
Insolvency is not cured within forty-five (45) days following
the earlier of its occurrence or the filing of a petition for
debtor's relief or a confession of Insolvency made by Buyer in
any administrative, judicial or regulatory proceeding; or
(iii) Buyer or the P.C. makes an assignment for the benefit of its
creditors or voluntarily files a petition in bankruptcy which
petition is not dismissed within sixty (60) days following the
filing thereof; or
(iv) an involuntary filing of a petition in bankruptcy with respect
to Buyer or the P.C. is made and not dismissed within sixty
(60) days following notice thereof to Buyer or the P.C., as
the case may be; or
(v) the net book value (including goodwill) of Buyer, determined
in accordance with modified cash accounting basis and as
reflected in any financial statements of Buyer, is less than
$250,000; or
(vi) Buyer fails to make payments when due under the Promissory
Notes, and such failure is not cured within forty-five (45)
days of written notice thereof.
(b) Upon the occurrence of a Termination Event, Ellicson (assuming that
he remains employed by the P.C. at such time), at Ellicson's option, may require
the parties hereto to take the actions specified in this Article 12.
Specifically, if Ellicson so elects, within thirty (30) days following the
occurrence of a Termination Event, Buyer shall assign to Ellicson its rights and
obligations under the Lease Agreement and the Assignment and Assumption
Agreement from and after the date of such assignment. Buyer shall also give or
cause the P.C., as appropriate, to give each former employee of the Seller who
is then employed by Buyer or the P.C. an option to terminate his/her employment
with Buyer or the P.C. without penalty, and shall permit Ellicson to recruit
such individual(s) for employment by Ellicson. Buyer shall, at Ellicson's
option, transfer or cause the P.C. or any affiliate of Buyer which then holds
such assets to transfer, to Ellicson or his designee, all of the assets formerly
owned and/or leased by the Selling Parties which are then owned and/or leased by
Buyer, the P.C. or any of their affiliates, for the fair market value of those
assets at such time, assuming that such assets were in a stand alone practice
which was a going concern, as determined by appraisal in accordance with the
procedures set forth in paragraph 12(c) below; provided, however, that if the
Termination Event is for reasons set forth in paragraphs (a)(iii) or (a)(iv)
above, Ellicson may repurchase the tangible assets only. At Ellicson's option,
any amounts of principal and/or interest under the Promissory Notes may be
offset from such purchase price. Subject to the foregoing, Ellicson's election
hereunder shall in no way affect Buyer's obligations under the Promissory Notes.
Buyer shall cause the P.C. to transfer to Ellicson copies of the dental records
of any patient who authorizes transfer of his/her dental records to Ellicson.
Upon the election by Ellicson to exercise his rights under this Article 12, the
Dental Employment Agreement will be deemed terminated.
(c) Buyer and Ellicson shall use their best efforts to mutually select
an appraiser. In the
16
<PAGE> 21
event Buyer and Ellicson fail to agree upon the name of an appraiser within ten
(10) days following Ellicson's notification to Buyer of Ellicson's election to
exercise his rights pursuant to this Article 12, each of Buyer and Ellicson
shall select one appraiser and the two selected appraisers shall, in turn,
appoint a third independent and impartial appraiser (the "Third Appraiser"). The
appraisal of the assets by the Third Appraiser shall be binding upon the parties
thereto, and the actual, documented and reasonable expenses of such Third
Appraiser's appraisal shall be equally borne by Buyer and Ellicson.
13. CONFIDENTIAL INFORMATION.
The parties hereby acknowledge the confidential nature of this
Agreement and the transactions contemplated hereby. Except as otherwise required
by law, the parties agree to hold in confidence all financial information and
other confidential data and information acquired from one another, and shall not
use or divulge to third parties any such data or information. No party shall
make any announcement or otherwise disclose any information concerning the
transaction contemplated by this Agreement to any person (other than such
party's employees and professional advisors on a need-to-know basis) without the
consent of the other party. This Article 13 shall survive the termination of
this Agreement for any reason.
14. MISCELLANEOUS.
14.1 Notices. All notices to a party hereunder shall be deemed to have
been adequately given if delivered in person or mailed, certified mail, return
receipt requested, to such party at its address set forth below (or such other
address as it may from time to time designate in writing to the other parties
hereto):
To Seller and Ellicson:
Mark E. Ellicson, D.M.D.
227 Main Street
Dalton, Massachusetts 01226
with a copy to:
Sean D. Clancy, Esq.
Santerre & Vande Krol, Ltd.
733 East Doubletree Ranch Road
Suite Two Hundred
Scottsdale, Arizona 85258
To Buyer:
First New England Dental Centers, Inc.
85 Devonshire Street - 2nd Floor
Boston, Massachusetts 02109
17
<PAGE> 22
Attention: President
with a copy to:
Michael L. Blau, Esq.
McDermott, Will & Emery
75 State Street
Boston, Massachusetts 02109
14.2 No Waiver. No failure to exercise and no delay in exercising, on
the part of Buyer or Seller, any right, power or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The rights provided are cumulative
and not exclusive of any rights provided by law.
14.3 Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by each party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the party
waiving such term or provision.
14.4 Construction. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts. The descriptive
headings of the several Articles and Sections hereof are for convenience only
and shall not control or affect the meaning or construction of any of the
provisions hereof.
14.5 Binding Effect and Benefits; Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
heirs, successors and assigns.
14.6 Prior Agreements. This Agreement embodies the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior discussions, understandings and agreements concerning the
matters covered hereby.
14.7 Counterparts. This Agreement may be executed in counterparts, all
of which taken together shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing any such counterpart.
14.8 Arbitration. Any disputes arising among the parties to this
Agreement shall be settled by binding arbitration in accordance with the
Arbitration Rules of the American Arbitration Association. In the event that a
dispute arises which requires arbitration under this Section 14.8, the parties
shall attempt to agree upon one arbitrator to resolve such dispute. In the event
that the parties are unable to agree upon an arbitrator within 14 days then each
party shall choose one arbitrator and the arbitrators chosen by the parties
shall choose a single arbitrator who shall resolve such dispute. Each party
shall bear its respective costs of the arbitration. The award rendered by the
arbitrator(s) shall be final and the prevailing party in any such arbitration
shall be entitled to have the arbitrators' award enforced by any court of
competent jurisdiction.
*
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<PAGE> 23
*
*
*
*
*
*
*
*
*
*
19
<PAGE> 24
IN WITNESS WHEREOF, the undersigned have set their hands and seals as
of the date first set forth above.
MARK E. ELLICSON, D.M.D., P.C.
By: __________________________
Mark E. Ellicson, D.M.D.
______________________________
Mark E. Ellicson, D.M.D.
FIRST NEW ENGLAND DENTAL CENTERS,
INC.
By:___________________________
Jerald Robbins, President
<PAGE> 25
SCHEDULE 1.1
List of Excluded Assets
Personal Certificates
Oil Painting at Front Desk
<PAGE> 26
SCHEDULE 1.1(a)
Asset Inventory
See attached.
<PAGE> 27
SCHEDULE 1.1(b)
Contracts and Agreements
No warranties on any equipment.
Regular garbage pick up.
N(2)O(2) supplied by Merriam Graves Co.
<PAGE> 28
SCHEDULE 1.1(c)
Trade Names, Etc.
None
<PAGE> 29
SCHEDULE 1.1(e)
Accounts Receivable and Cash on Hand
See attached list of accounts receivable at Schedule 4.12.
<PAGE> 30
SCHEDULE 1.3
Long Term Debt
$206,000.00 - Berkshire County Savings Bank.
<PAGE> 31
SCHEDULE 1.5
Allocation of Purchase Price
$125,000 -- Furniture, fixtures and equipment
$125,000 -- Patient Lists, Non-Compete, Good Will
<PAGE> 32
SCHEDULE 4.1
Required Consents
Will transfer phone, gas and electric on 10/1/96.
<PAGE> 33
SCHEDULE 4.3
Financial Statements
On file at McDermott, Will & Emery.
<PAGE> 34
SCHEDULE 4.4
Encumbered Assets
Equipment lease to be paid off at Closing.
<PAGE> 35
SCHEDULE 4.5
Payment Programs
Visa/MasterCard/Dencharge
<PAGE> 36
SCHEDULE 4.6
Pending/Threatened Litigation
Carol Strzpek pending settlement - complaint four years ago. St. Paul has made a
settlement offer of $150,000.00 which she rejected. St. Paul will make one
further offer before proceeding to trial. Dental Board ordered in reprimand that
Dr. Ellicson pay attention to informed consent.
Michael Cebula - St. Paul is covering.
<PAGE> 37
SCHEDULE 4.7
Permits
N(2)O(2) permits and x-ray permits.
<PAGE> 38
SCHEDULE 4.8
Insurance Policies
See attached.
<PAGE> 39
SCHEDULE 4.9
Benefit Plans
No deals with employees.
Dental work (approximately 5 hours) remains to be done on all employees. The
work will be performed after office hours.
<PAGE> 40
SCHEDULE 4.12
Accounts Receivable
See listing.
<PAGE> 41
SCHEDULE 5.5
Buyer Litigation
None.
<PAGE> 42
EXHIBIT 1.2(b)
Form of Promissory Note
See attached.
<PAGE> 43
EXHIBIT 1.2(c)
Form of Promissory Note
See attached.
<PAGE> 44
EXHIBIT 1.8
Form of Lease
See attached.
<PAGE> 45
EXHIBIT 7.1(c)
Form of Employment Agreement
See attached.
<PAGE> 1
EXHIBIT 10.22
PLAN OF REORGANIZATION AND
AGREEMENT OF MERGER
AMONG
FIRST NEW ENGLAND DENTAL CENTERS, INC.,
FRANK WEISNER, D.M.D., ORTHODONTIST, P.C.
AND
FRANK WEISNER, D.M.D. AS
THE SOLE OWNER OF THE
ISSUED AND OUTSTANDING
CAPITAL STOCK OF
FRANK WEISNER, D.M.D., ORTHODONTIST, P.C.
Dated as of November 6, 1996
<PAGE> 2
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER (this "Agreement"),
dated as of November 6, 1996, by and among FIRST NEW ENGLAND DENTAL CENTERS,
INC., a Delaware corporation ("FNEDC"), FRANK WEISNER, D.M.D., ORTHODONTIST,
P.C. (the "Company"; FNEDC and the Company being sometimes referred to
collectively below as the "Constituent Corporations"), and the undersigned
shareholder of the Company (the "Shareholder").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of the management of
dental services (the "Business");
WHEREAS, FNEDC intends to acquire all of the outstanding common stock
of the Company at the Closing (defined in Section 7.1 below);
WHEREAS, the respective Boards of Directors of FNEDC and the Company
and the Shareholder have approved the acquisition of the Company by FNEDC
through the merger of the Company into FNEDC (the "Merger"), upon the terms and
subject to the conditions set forth herein and in accordance with applicable
provisions of the statutes of the State of Delaware and the Commonwealth of
Massachusetts, which permit such Merger; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
<PAGE> 3
ARTICLE I
THE MERGER
I.1. The Merger. Subject to and in accordance with the terms and
conditions of this Agreement and in accordance with the applicable provisions of
the Delaware General Corporation Law (the "DGCL") and the Massachusetts Business
Corporation Law (the "MBCL"), at the Effective Time (as defined in Section 1.2
below), the Company shall be merged with and into FNEDC and the separate
existence of the Company shall thereupon cease. FNEDC will be the surviving
corporation in the Merger (sometimes referred to herein as the "Surviving
Corporation"), shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of FNEDC and all of its rights,
privileges, immunities and franchises, public and private, and all its duties
and liabilities as a corporation organized under the DGCL, will continue
unaffected by the Merger.
I.2. Effective Time of the Merger. As soon as practicable following
fulfillment or waiver of the conditions specified in Article VI hereof, the
Constituent Corporations will cause (i) duly executed Articles of Merger to be
filed with the office of the Secretary of State of the Commonwealth of
Massachusetts as provided in Section 79 of the MBCL (the "Massachusetts Articles
of Merger"), and (ii) a duly executed Certificate of Merger to be filed with the
office of the Secretary of State of the State of Delaware (the "Delaware
Certificate of Merger"), as required by Section 252 of the DGCL. Subject to and
in accordance with the laws of the Commonwealth of Massachusetts and the State
of Delaware, the Merger will become effective at the later of the date and time
the Massachusetts Articles of Merger are filed with the office of the Secretary
of State of the Commonwealth of Massachusetts and the Delaware Certificate of
Merger is filed with the office of the Secretary of State of the State of
Delaware, or at such later time or date as may be specified in the Massachusetts
Articles of Merger and the Delaware Certificate of Merger (the "Effective
Time"). Each of the parties will use its best efforts to cause the Merger to be
consummated as soon as practicable following the fulfillment or waiver of the
conditions specified in Article VI hereof.
ARTICLE II
THE SURVIVING CORPORATION
II.1. Certificate of Incorporation. The Certificate of Incorporation
of FNEDC as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation after the Effective
Time.
II.2. By-Laws. The By-Laws of FNEDC as in effect immediately prior
to the Effective Time shall be the By-Laws of the Surviving Corporation after
the Effective Time.
II.3. Board of Directors and Officers. From and after the Effective
Time, the Board of
-2-
<PAGE> 4
Directors and Officers of FNEDC shall be the Board of Directors and Officers of
the Surviving Corporation.
-3-
<PAGE> 5
ARTICLE III
CONVERSION OF SHARES
III.1. Consideration. At the Effective Time, by virtue of the Merger
and without any action on the part of Shareholder, and subject to Section 3.3
hereof, each issued and outstanding share of common stock of the Company
("Company Stock") shall be converted into and exchanged for (i) 41.67 fully paid
and non-assessable shares of FNEDC Common Stock (defined below), and (ii) the
right to receive the Cash Component (defined below).
(a) FNEDC Common Stock. As used herein, "FNEDC Common
Stock" means validly issued, fully paid and non-assessable shares of common
stock, par value $.01 per share, of FNEDC.
(b) Closing Consideration. As used herein, "Closing
Consideration" means: (i) a total of 12,500 shares of FNEDC Common Stock to be
issued to Shareholder at Closing; and (ii) the aggregate sum of $162,000.00 (the
"Cash Component") to be paid to Shareholder by check on the Closing Date
(defined in Section 7.1 below).
III.2. Status of FNEDC Common Stock. Each issued and outstanding
share of FNEDC Common Stock shall continue unchanged and remain outstanding
after the Merger as a share of common stock of the Surviving Corporation.
III.3. Delivery of Certificates and Consideration.
(a) Delivery of Company Stock Certificates. At the
Closing, Shareholder shall deliver to FNEDC all certificates which immediately
prior to the Effective Time represented shares of Company Stock.
(b) Delivery of Closing Consideration. At the Closing,
FNEDC shall issue and deliver to Shareholder the certificates representing those
shares of FNEDC Common Stock to which Shareholder shall be entitled pursuant to
Section 3.1 hereof. FNEDC shall also pay to Shareholder the Cash Component as
provided in Section 3.1(b) above.
III.4. Business Valuation. It is the understanding of FNEDC that as
of the Closing Date, the Company has no outstanding long-term debt or trade
payables (collectively, the "Balance Sheet Factors"). If, following the Closing
Date, it is determined that any of the Balance Sheet Factors changed to the
detriment of FNEDC as of the Closing Date, then the Closing Consideration shall
be reduced on a dollar-for-dollar basis to the extent of such variance and FNEDC
shall be paid the amount of such reduction by Shareholder no later than fifteen
(15) days after the earlier of (i) notice to Shareholder, or (ii) the date on
which Shareholder becomes aware of such variance. The parties agree that, in
accordance with APB Opinion 16 and for accounting purposes only, the Merger
shall be deemed to have occurred and take effect on October 1, 1996. In that
regard, the Company shall furnish to FNEDC, within thirty (30) days following
the
-4-
<PAGE> 6
Closing Date, an accounting of the accounts receivable, the trade payables,
and cash on hand from October 1, 1996 up to the Closing Date (the "Accounting").
III.5. Closing of Transfer Books. From and after the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Stock shall thereafter be made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
IV.1. Representations and Warranties of FNEDC.
FNEDC hereby represents and warrants to Shareholder that each
of the statements contained in this Section 4.1 is true and correct in all
material respects as of the date hereof and will be true and correct at and as
of the Closing.
(a) Organization, Power and Standing. FNEDC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware with all requisite corporate power and authority to own
its properties and to carry on its business as such business is now conducted
and presently proposed to be conducted.
(b) Power and Authority Relative to Transaction. FNEDC
has full corporate power and authority and has taken all required action
necessary to permit it to execute and deliver this Agreement and to perform all
of the obligations contained herein, and to execute, deliver and perform all of
the obligations contained in all other instruments or agreements required hereby
or incident or collateral hereto, and none of such actions conflicts with or
violates any provision of law known to FNEDC or of the Certificate of
Incorporation or Bylaws of FNEDC, or violates or constitutes a default under or
will result in any breach of any agreement, indenture, deed of trust, mortgage,
instrument, lease, order, judgment, writ, injunction, decree, license or permit
of any court or governmental or regulatory body applicable to FNEDC or by which
FNEDC or its assets may be bound.
(c) Valid and Binding Obligation. This Agreement
constitutes, and each other instrument or agreement to be executed and delivered
by FNEDC under this Agreement will constitute, the valid and legally binding
obligation of FNEDC, enforceable against it in accordance with their respective
terms, subject to applicable bankruptcy, insolvency and other general laws
affecting the rights and remedies of creditors, except that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(d) Required Consents. No consent, order, approval,
authorization, declaration or filing including, without limitation, any consent,
approval or authorization of or
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<PAGE> 7
declaration or filing with any governmental authority, is required on the part
of FNEDC for or in connection with the execution and delivery of this Agreement.
(e) No Brokers. FNEDC has not dealt with any broker,
finder or similar agent with respect to the transactions contemplated by this
Agreement and FNEDC is not under any obligation to pay any broker's fee,
finder's fee or commission in connection with the transactions contemplated by
this Agreement.
(f) Litigation. Except as set forth on Schedule 4.1(f) to
this Agreement, there is no litigation, proceeding or investigation pending or,
to the best of FNEDC's knowledge, threatened (nor, to the best of FNEDC's
knowledge, is there any basis therefor) against FNEDC or affecting any of its
properties, rights or assets, which is reasonably likely to materially and
adversely affect the ability of FNEDC to consummate the transactions set forth
in this Agreement.
(g) Due Issuance. On the Effective Date, the FNEDC Common
Stock will be validly issued, fully paid and nonassessable.
(h) Continuity of Business Enterprise. It is the present
intention of FNEDC to continue at least one significant historic business line
of the Company or to use at least a significant portion of the Company's
historic business assets in a business, each within the meaning of Treasury
Regulations Section 1.368.1(d).
(i) Capitalization. FNEDC's entire authorized capital
stock consists of 10,000,000 shares of FNEDC Common Stock, $.01 par value per
share. As of the date of execution of this Agreement, and assuming the
consummation of the transactions contemplated hereby, an aggregate total of
4,708,513 shares of FNEDC Common Stock are issued and presently outstanding.
(j) Qualification to Do Business. FNEDC is duly qualified
to do business in Massachusetts and in all other jurisdictions in which failure
to so qualify would have a material adverse effect on FNEDC.
(k) Financial Statements. The unaudited financial
statements of FNEDC which have been provided to Shareholder in connection with
the transactions contemplated by this Agreement (a) fairly present the financial
position and results of operations of FNEDC as at the respective dates thereof,
subject to the absence of year end adjustments and footnotes; (b) are in
accordance with the books and records of FNEDC; and (c) are prepared in
accordance with a modified cash basis of accounting consistently applied. FNEDC
has no debts, liabilities or obligations of any nature whatsoever which are not
disclosed on such financial statements.
(l) Disclosure. None of the representations or warranties
made by FNEDC herein or in any information provided to Shareholder contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein
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<PAGE> 8
or therein, in the light of the circumstances under which made, not misleading.
IV.2. Representations and Warranties Concerning the Company.
Shareholder hereby represents and warrant to FNEDC that each
of the statements contained in this Section 4.2 (including the Schedules hereto)
is true and correct as of the date hereof.
(a) Organization, Power and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts with all requisite corporate power and
authority to own its properties and engage in the business in which it is
currently engaged. The copies of the Company's Articles of Organization and
by-laws, as amended through the date hereof, that have been delivered to FNEDC
by the Company are complete and correct as of the date of this Agreement and
will continue in effect without further amendment through the Closing.
(b) Subsidiaries and Interest in Other Entities. The
Company has no subsidiaries nor does it, directly or indirectly, own or have the
right to acquire any equity interest in any other corporation, partnership,
joint venture or other business organization. The Company has not made any
investment in or advance of cash or other extension of credit to any company,
entity or individual.
(c) Capitalization. The Company's entire authorized
capital stock consists of 12,500 shares of common stock, $.00 par value per
share (the "Company Stock"), of which 300 shares are issued and presently
outstanding and held by Frank Weisner, D.M.D.
All of the outstanding stock of the Company has been issued in
full compliance with all applicable securities laws. The Company has no
outstanding options, warrants, conversion rights, exchange privileges or other
commitments to issue or to acquire any shares of its capital stock or any
securities or obligations convertible or exchangeable into shares of its capital
stock except as set forth in Schedule 4.2(c).
(d) Qualification to do Business. The Company is duly
qualified to do business in Massachusetts and in all other jurisdictions in
which the failure to so qualify would have a material adverse effect on the
Company.
(e) Financial Statements. Schedule 4.2(e) hereto
includes: Statement of Income & Expenses for the periods ending 1993, 1994 and
1995 and Statement of Revenue and Expenses - Cash Basis - for three months
ending May 31, 1996 and May 31, 1995 and 12 months ended May 31, 1996 and May
31, 1995. The financial information included in Schedule 4.2(e) is collectively
referred to as the "Financial Information." The Financial Information is
complete and accurate and fairly presents the financial condition of the Company
at the dates indicated and the results of its operation for the periods
indicated, and was prepared in accordance with the books and records of the
Company and in conformity with a modified cash basis of accounting
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<PAGE> 9
consistently applied.
(f) Absence of Undisclosed Liabilities. Except for
current liabilities incurred in the ordinary and usual course of business since
the Closing Date, and liabilities reflected in the Schedules to this Agreement,
the Company has no liabilities, whether absolute, accrued, contingent or
otherwise and whether due or to become due, except as and to the extent
reflected or reserved against in the Financial Information. Except for those
liabilities set forth in Schedule 4.2(f) and current liabilities incurred in the
ordinary and usual course of business since the Closing Date, which liabilities
are estimated by Shareholder to equal approximately $0.00 Dollars, the Company
shall not have any liabilities as of the Closing Date.
(g) Title to Properties, Etc.. Except as set forth in the
Financial Information or as listed on Schedule 4.2(g), the Company is the sole
owner of, and has good, valid and marketable title to, all of its properties and
assets, real and personal, including all those reflected in the Financial
Information (except for such assets as may have been since sold or otherwise
disposed of in the ordinary course of business), and all trademarks, copyrights
and service marks used in connection with the Business (the "Trademarks") and
all assets set forth on Schedule 4.2(g). None of such properties is subject to
any mortgage, pledge, lien, conditional sale agreement, security interest,
encumbrance or other charge except:
(i) liens, encumbrances and leases incurred or made in
the ordinary course of business which do not materially impair the
usefulness of such properties and assets in the conduct of the business
of the Company (but excluding liens securing payment of indebtedness);
(ii) liens from nondelinquent taxes, assessments or
governmental charges or levies; and
(iii) as specifically set forth on Schedule 4.2(g).
The Company enjoys peaceful and undisturbed possession under all material leases
under which it operates. All such leases are valid, subsisting and in full force
and effect, and there are no uncured defaults of the Company under such leases.
The assets and properties of the Company are adequate to conduct the operations
currently conducted and presently proposed to be conducted by the Company. All
machinery, equipment and other assets of the Company are in good repair, have
been well maintained and conform to all applicable ordinances, regulations and
zoning or other laws, and such machinery and equipment is in good working order.
There is no pending or, to the best of Shareholder's knowledge, threatened
condemnation of any such property. Except as set forth in Schedule 4.2(g), the
leasehold or other interest of the Company in such real property is not subject
or subordinate to any security interest, lien or mortgage except with respect to
liens for taxes not yet due and payable. To the best of Shareholder's knowledge,
the use of the Company's premises by the Company and the occupancy and operation
thereof by the Company are in compliance with all applicable Federal, state and
local laws, ordinances and regulations, including without limitation Federal and
state safety, health,
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<PAGE> 10
environmental protection and hazardous waste laws, regulations, standards and
ordinances.
(h) Conduct of Business; Absence of Material Adverse
Changes. Since the Closing Date, except as otherwise required pursuant to this
Agreement, the Business has been conducted only in the usual and ordinary
course, and there has been (i) no sale, transfer or other disposition of any of
the Company's material assets or stock; (ii) no encumbrance placed upon the
Company's assets or stock; (iii) no other event or condition known to
Shareholder which materially and adversely affects, or which is reasonably
likely to materially and adversely affect, the Business or the condition
(financial or other), prospects, assets or liabilities of the Company; and (iv)
no free service, premium or gift offered as an inducement to existing or
prospective patients (other than charitable care provided in accordance with the
Company's policy regarding uncompensated care).
In particular, and without limiting the generality of the foregoing,
since the Closing Date Shareholder has not permitted the Company to do any of
the following:
(i) change its method of management or operations;
(ii) except as required under this Agreement, amend its
Articles of Organization or By-Laws;
(iii) terminate the services of any employee, consultant or
agent of the Company;
(iv) except as disclosed on Schedule 4.2(l), 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;
(v) directly or indirectly redeem, purchase or otherwise
acquire or dispose of any properties or assets except in the ordinary
course of business;
(vi) subject any of its properties or assets to any
mortgage, pledge, security interest or lien;
(vii) directly or indirectly redeem, purchase or otherwise
acquire any of its outstanding capital stock;
(viii) 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;
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<PAGE> 11
(ix) 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;
(x) 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;
(xi) enter into any contract or commitment involving in
any instance aggregate payment by the Company of more than $1,000 or
extending beyond the Closing Date, other than in the usual and ordinary
course of business consistent with past practice;
(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 stock;
(xiii) take any other action which would adversely affect or
detract from the value of the Company or the Company Stock, including
without limitation cancelling any debts or claims;
(xiv) waive any rights of material value or modify, amend,
alter or terminate any Material Contract; and/or
(xv) directly or indirectly offer, solicit or entertain
offers for or take any other action with a view to the sale of all or
any substantial part of the assets, stock or business of the Company.
(i) Tax Returns and Payments. The Company has prepared in
good faith and filed when due all tax returns required by law to be filed and
has paid when due all taxes, assessments and other governmental charges (whether
or not shown on any tax return) including, without limitation, all estimated tax
payments imposed upon any of its properties, assets or income, and the Company
has no liability for any Federal, state or local taxes not yet paid which relate
either to prior taxable years or to the portion of taxable year 1996 preceding
the Closing. To the best of Shareholder's knowledge, all such tax returns are
correct and complete in all material respects and neither the Federal income tax
returns of the Company nor any state income or corporation excise tax returns of
the Company have ever been audited. The Company has never filed a consent under
Section 341(f) of the Internal Revenue Code. The Company has not executed any
waiver or consent that would have the effect of extending any applicable statute
of limitations in respect of any of its tax liabilities. The charges, accruals
and reserves on the books of the Company in respect of taxes for all fiscal
periods are adequate and there is no unpaid assessment or any basis for the
assessment of any material amount of additional taxes for any period or partial
period preceding the Closing. Except as set forth on Schedule 4.2(i), neither
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<PAGE> 12
the Internal Revenue Service nor any other taxing authority has asserted or
threatened to assert, or is now asserting or threatening to assert, against the
Company any deficiency or claim for additional taxes or interest thereon or
penalties in connection therewith. The Company has withheld from its employees,
or its other payees, gross compensation and has paid over to appropriate
governmental authorities all tax and other withholdings required by applicable
law.
(j) Compliance with Laws. The Company is not in material
violation of any Federal, state or local statute, ordinance, judgment, decree,
order or governmental rule, regulation, policy or guideline applicable to the
Company in a manner which could materially and adversely affect its condition
(financial or otherwise), the transactions contemplated by this Agreement or the
Business.
(k) Insurance. The Company is insured under the insurance
policies listed in Schedule 4.2(k), all of which are valid and in full force.
Except as otherwise indicated on Schedule 4.2(k), all liability insurance
policies are on an "occurrence" basis. All premiums due to date under such
policies have been paid, and no default exists thereunder. To the best of
Shareholder's knowledge, the insurance listed in Schedule 4.2(k) is in amounts
adequate to cover losses on physical assets.
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<PAGE> 13
(l) Employees and Compensation.
(i) The Company is not in violation of any
applicable Federal, state and local laws and regulations respecting
employment and employment practices, and terms and conditions of
employment and wages and hours in a manner which could materially and
adversely affect its condition (financial or otherwise). None of the
Company's employees are represented by any union and there is no labor
strike, dispute, slowdown, stoppage, organizational effort, dispute or
proceeding by or with any employee or former employee of the Company or
any labor union pending or threatened against the Company.
(ii) There are no employment or consulting
contracts or arrangements (other than those terminable at will) with
any employees or consultants of or associated with the Company other
than as described on Schedule 4.2(l) hereto. Schedule 4.2(l) also sets
forth a true and complete list of all employees of and consultants to
the Company, showing date of hire, hourly rate or salary or other basis
of compensation, each bonus, hourly rate increase and/or salary
increase granted since December 31, 1995 (or committed to be granted in
connection with the transactions contemplated hereunder), and job
function.
(m) Employee Benefits. Schedule 4.2(m) contains a complete and
accurate list of each plan, arrangement, understanding, practice or commitment,
formal or informal, firm or contingent, written or oral, currently sponsored,
maintained or contributed to by the Company which covers, or which at any time
prior to the Closing Date covered, any of the current or former officers,
employees or independent contractors of the Company or its predecessors and
providing any of the following benefits: bonus, stock bonus, profit sharing,
pension, retirement, life insurance, medical, hospitalization, dental, vision,
disability, vacation, workers' compensation, deferred or incentive compensation,
severance benefits and including, without limitation, each "employee pension
benefit plan" (within the meaning of Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended (hereinafter "ERISA")) and "employee
welfare benefit plan" (within the meaning of Section 3(1) of ERISA)
(collectively, the "Plans"). Except as disclosed on Schedule 4.2(m):
(A) The Company and Shareholder have not engaged in any
transactions which would, directly or indirectly, subject any Plan, its related
trust or the Company to a tax or penalty imposed under Section 4975 of the Code
or Section 502(i) of ERISA, or any other liability;
(B) The Company and Shareholder have performed all
material obligations and have not violated the provisions of any of the Plans
and, to the best knowledge of the Company and Shareholder, no other party is in
violation thereof;
(C) each Plan is in compliance in all material respects
with all applicable requirements prescribed by all statutes (including, without
limitation, ERISA and the Code),
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<PAGE> 14
orders, governmental rules or regulations;
(D) all payments required to be made to each Plan as of
the Closing Date have been timely and completely made, all deductions for such
payments have not been challenged or disallowed by any government entity (nor do
Shareholder or the Company have any reason to believe that such deductions are
not allowable), all amounts properly accrued as unpaid liabilities of the
Company with respect to each Plan for the current plan year have been recorded
on the Company's books, and all contributions for benefits with respect to the
1995 plan year have been contributed to the Frank Weisner, D.M.D., P.C.
Profit-Sharing Plan & Trust as of the Closing Date;
(E) each Plan intended to meet the requirements under
Section 401(a) of the Code has received a favorable, unrevoked determination
letter from the Internal Revenue Service with respect to the Tax Reform Act of
1986 and subsequent legislative changes to the Code (with its related trust
having been determined by the Internal Revenue Service to be exempt from
taxation under Section 501(a) of the Code), which determination letter may still
be relied upon as to such tax qualified status, and to the best of Shareholder's
knowledge no circumstances have occurred that would adversely affect the tax
qualified status of any such Plan;
(F) there is no suit, action, dispute, claim, arbitration
or legal, administrative or other proceeding or governmental investigation
pending, or, to the best knowledge of the Company, threatened, alleging any
breach of the terms of any Plan or of any fiduciary duties thereunder or
violation of any applicable law with respect to any Plan, nor, to the best
knowledge of the Company, any arbitration, proceeding or investigation;
(G) subject to applicable requirements of ERISA, neither
any provision of any Plan nor any agreement with any employee nor any
representation or course of conduct by or on behalf of the Company would prevent
the amendment or termination after the Closing Date of any Plan without
liability to Company;
(H) there are not any benefits or severance obligations
of the Company that will arise as a result of the transactions provided for
herein;
(I) no Plan which is an "employee welfare benefit plan"
provides for continuing benefits or coverage, including but not limited to
medical, health or life insurance, to an employee or former employee following
termination of employment with the Company other than that required by Section
4980B of the Code and Sections 601 through 609 of ERISA;
(J) each Plan which is a "group health plan" (within the
meaning of Section 5000(b)(1) of ERISA) is in material compliance with the
requirements under Section 4980B of the Code and Sections 601 through 609 of
ERISA;
(K) no Plan is, or forms part of, a "multiple employer
welfare arrangement" (within the meaning of Section 3(40) of ERISA), a
"multiemployer plan" (within the meaning of
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<PAGE> 15
Section 4001(a)(3) of ERISA) or a "voluntary employees" beneficiary association
(within the meaning of Section 501(c)(9) of the Code);
(L) with respect to each Plan which is a self-insured
"employee welfare benefit plan," no claims have been made pursuant to any such
Plan that have not yet been paid and, to the best knowledge of the Company, no
injury, sickness or other medical condition has been incurred with respect to
which claims may be made pursuant to any such Plan; and
(M) all reports, forms and other documents with respect
to any Plan required to be filed with any government entity or to be disclosed
to Plan participants and their beneficiaries have been timely filed or
disclosed, as the case may be, and are accurate.
(n) Material Contracts. Schedule 4.2(n) hereto sets forth a
complete and accurate list and compilation of all material:
(i) contracts with respect to the provision of health
care services, including all contracts with third party payors with the
Company or the Shareholder;
(ii) licenses, leases, contracts and other arrangements
with respect to any material property of the Company;
(iii) contracts (written or unwritten) with respect to
which the Company has any liability or obligation, contingent or
otherwise, involving more than $1,000 or which may otherwise have any
continuing effect after the Closing Date, or which place any material
limitation on the method of conducting or the scope of the Company's
business;
(iv) contracts of the Company with directors, officers,
employees, agents and/or consultants of the Company or the spouses or
relatives of such persons;
(v) compensation arrangements for all employees and
consultants including rates of pay and other benefits and the amounts
of compensation and other benefits accrued as of a recent date;
(vi) agreements, contracts or instruments relating to the
borrowing of money, or the guaranty of any obligation for the borrowing
of money;
(vii) contracts between officers, directors or employees of
the Company and any other person or entity which purport to restrict
the Company's business activities or use of information in its
business, including without limitation any covenant not to compete;
(viii) any other material contracts, instruments,
commitments, plans or arrangements of the Company; and
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<PAGE> 16
(ix) all agreements relating to any securities of the
Company or rights in connection therewith.
All the foregoing, together with any other contracts, leases or other agreements
referred to herein or in any Schedule hereto, are herein called "Material
Contracts." Such list includes with respect to each Material Contract the names
of the parties, the date thereof, its title or other general description. Copies
of all Material Contracts have been delivered to FNEDC or FNEDC's counsel. The
Material Contracts listed on Schedule 4.2(n) set forth the entire arrangement
and understanding between the Company and the respective third parties with
respect to the subject matter thereof and, except as indicated in such Schedule,
there have been no amendments or side or supplemental arrangements to or in
respect of any Material Contract. The Company has furnished to FNEDC true and
correct copies of all Material Contracts as currently in effect, and will
furnish any further information that FNEDC may reasonably request in connection
therewith. Each Material Contract is valid and in full force and effect, and the
Company has performed all material obligations required to be performed by it
thereunder. The Company is not in material default under or in material breach
or material violation of (x) its Articles of Organization or Bylaws, or (y) any
Material Contract, or (z) any other agreement, decree, order, statute or
governmental rule or regulation applicable to it, and the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
will not result in any such default, breach or violation of the Company's
Articles of Organization or Bylaws, any Material Contract or any other
agreement, law, decree or order to which the Company is a party or by which it
is bound. To the best of Shareholder's knowledge, there is no event which has
occurred or existing condition which, with notice, the happening of an event
and/or the passage of time, would constitute a default under any Material
Contract or would cause the acceleration of any obligation of any party thereto,
give rise to any right of termination or cancellation or cause the creation of
any lien or encumbrance on any asset of the Company. To the best of
Shareholder's knowledge, no third party is in default under any material
provision of any Material Contract. Shareholder has no knowledge that the
parties to any Material Contract will not fulfill their obligations thereunder
in all material respects. There is no term of any Material Contract which now or
in the future may, so far as Shareholder can now reasonably foresee, materially
adversely affect the Business or the business, operations, affairs, prospects or
condition of the Company.
(o) Books and Records. All corporate action of the Company's board
of directors and shareholders has been duly authorized in accordance in all
material respects with applicable law and the Articles of Organization and
by-laws of the Company, and has been duly and accurately recorded in the
Company's minute books in all material respects. The general ledgers and books
of the Company and all of its other books, accounts and records are in all
material respects complete and correct and have been maintained in accordance in
all material respects with good business practice and all applicable laws and
regulations.
(p) Banking Relationships. All of the arrangements which the
Company has with any banking institution are completely and accurately described
in Schedule 4.2(p)
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indicating with respect to each such arrangement the type of arrangement
maintained (such as checking account, borrowing arrangements, safe deposit box,
etc.) and the person or persons authorized in respect thereto. The Company has
no outstanding powers of attorney of any kind.
(q) Required Consents, Etc. Except as described in Schedule 4.2(q)
hereto, to the best of Shareholder's knowledge, no consent, approval,
authorization, declaration or filing, including, without limitation, any
consent, approval or authorization of or declaration or filing with any
governmental authority, is required on the part of the Company in connection
with the execution and delivery of this Agreement or exchange of Company Stock
pursuant hereto.
(r) Licenses and Permits. Schedule 4.2(r) hereto sets forth a
complete and accurate list of all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities held by
the Company which are in effect and which in any way relate to the Company's
business (collectively, the "Authorizations"). To the best of Shareholder's
knowledge, the Authorizations constitute all licenses, permits, consents,
approvals and authorizations required for the conduct of the Business, and no
suspension or cancellation of any Authorization is threatened. To the best of
Shareholder's knowledge, all of the Authorizations are in full force and effect
and are valid and enforceable in accordance with their terms. To the best of
Shareholder's knowledge, there exists no fact or circumstance which constitutes,
or with the passage of time or giving of notice or both would constitute, a
default under any Authorization or permit any governmental or other authority to
cancel or terminate any Authorization.
(s) Accounts Receivable. Except as set forth on Schedule 4.2(s),
all of the accounts receivable of the Company as of the Closing will be valid
and enforceable claims, fully collectible in the ordinary course of business
(subject to allowances set forth in the subject contracts and to the reserves
for bad debts reflected in the Financial Information) and, to the best of
Shareholder's knowledge, subject to no set-off or counterclaim. The Company has
no accounts or loans receivable from any person, firm or corporation which is
affiliated with the Company or from any director, officer or employee of the
Company. All accounts receivable arose out of bona fide transactions in the
ordinary course of business.
(t) Litigation. Except as set forth on Schedule 4.2(t), there is
no litigation, proceeding or investigation pending or, to the best of
Shareholder's knowledge, threatened (nor, to the best of Shareholder's
knowledge, is there any basis therefor) against the Company or affecting any of
its properties, rights or assets or against any officer or employee which
relates to the affairs of the Company or the right of any officer or employee to
participate in the business of the Company and which is reasonably likely to
result in any material adverse change in the Business or in the business or
condition (financial or otherwise), prospects, assets or liabilities of the
Company or which relates to the Company Stock or the transactions contemplated
by this Agreement, in any court or before any authority or governmental entity
including, without limitation, actions, proceedings or investigations with
respect to any alleged violation by the Company of any law, statute, ordinance,
regulation, order, policy or guideline of any governmental entity.
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(u) No Brokers. The Company has not dealt with any broker, finder
or similar agent with respect to the transactions contemplated by the Agreement
and the Company is not under any obligation to pay any broker's fee, finder's
fee or commission in connection with the transactions contemplated by this
Agreement.
(v) Disclosure. Neither the representations and warranties of the
Shareholder contained in this Agreement nor the financial or other information
included in the Schedules hereto, nor any other document, certificate or written
statement furnished to FNEDC by or on behalf of Shareholder or the Company in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein complete and not misleading as of the dates thereof in light of the
circumstances in which they were made. There is no fact presently known to
Shareholder which may (so far as Shareholder or the Company can now reasonably
foresee) materially adversely affect the Business or the business, operations,
affairs, prospects or condition of the Company or its property or assets which
has not been set forth in this Agreement or in a document, certificate or
written statement furnished to FNEDC by Shareholder or by the Company pursuant
hereto.
(w) No Offer. Shareholder have not, directly or indirectly,
offered, solicited offers for or sold, assigned, pledged or otherwise
transferred any Company Stock prior to the Closing. Neither Shareholder nor the
Company has, directly or indirectly, through any officer, director, agent or
otherwise, (i) solicited, initiated or encouraged submission of proposals or
offers from any person other than FNEDC relating to any acquisition or purchase
of any of the Company Stock and/or the assets of the Company, or any equity
interest in the Company or any equity investment, merger, consolidation or
business combination with the Company, or (ii) participated in any discussions
or negotiations regarding, or furnished to any other person, any non-public
information with respect to, or otherwise cooperated in any way with, or
assisted or participated, facilitated or encouraged, any effort or attempt by
any other person to do or seek any of the foregoing.
IV.3. Representations and Warranties Concerning Shareholder.
Shareholder hereby represents and warrants to FNEDC that each
of the statements contained in this Section 4.3 are true and correct as of the
date hereof and will be true and correct at and as of the Closing:
(a) Title. Shareholder has and at the Closing will have
good, marketable and unencumbered title to, and full right, power and authority
to sell, transfer, assign and deliver such Company Stock as herein agreed
subject only to pledges of said stock which will be satisfied on the Closing
Date; and FNEDC will on the Closing Date, acquire good and marketable title to
such Company Stock, free and clear of any liens, encumbrances, restrictions on
transfer, charges or claims.
(b) Due Issuance. The shares of Company Stock owned by
Shareholder are
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and as of the Closing will be validly issued, fully paid and nonassessable.
(c) Validity and Enforceability. This Agreement is, and
each of the other agreements and instruments of Shareholder contemplated hereby
are and will be at the Closing, the valid and binding obligations of
Shareholder, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency and other general laws affecting the rights and remedies
of creditors, except that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought; and
the execution and performance of this Agreement and such other agreements and
instruments including, without limitation, Shareholder's Dental Employment
Agreement (defined in Section 6.1(d) below), will not result in any violation of
or be in conflict with or constitute a default under any contract, agreement,
instrument, judgment, decree or order to which either Shareholder is a party or
by which either Shareholder may be bound.
(d) No Brokers. Shareholder has not dealt with any
broker, finder or similar agent with respect to the transactions contemplated by
the Agreement and Shareholder is not under any obligation to pay any broker's
fee, finder's fee or commission in connection with the transactions contemplated
by this Agreement.
(e) Dental Practice. Shareholder represents and warrants
that he conducts his dental practice exclusively through the Company, and that
the Company has good, marketable and, subject to any exceptions set forth in
Section 4.2(g), unencumbered title to all assets used by such Shareholder in
connection with his dental practice.
(f) Purchase For Own Account. Shareholder is acquiring
the shares of FNEDC Common Stock to be acquired at the Closing for investment
for his own account, and not with a view to selling or otherwise distributing
the FNEDC Common Stock in violation of the Securities Act of 1933, as amended
(the "Securities Act"). By executing this Agreement, Shareholder further
represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the FNEDC Common Stock.
(g) Reliance Upon Shareholder's Representations.
Shareholder understands that none of the shares of FNEDC Common Stock hereby
acquired are registered under the Securities Act on the ground that the sale
provided for in this Agreement and the issuance of the FNEDC Common Stock
hereunder is exempt from registration under the Securities Act pursuant to
Section 4(2) thereof, and that FNEDC's reliance on such exemption is predicated
upon Shareholder's representations set forth herein.
(h) Experience. Shareholder has carefully reviewed the
representations concerning FNEDC contained in this Agreement, and have made
detailed inquiry concerning FNEDC, its business and its personnel; the officers
of FNEDC have made available to Shareholder any and all written information
which they have requested and have answered to
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Shareholder's satisfaction all inquiries made by them; Shareholder has
sufficient knowledge and experience in investing in companies similar to FNEDC
so as to be able to evaluate the risks and merits of their respective
investments in FNEDC and are able financially to bear the risks thereof.
(i) Accredited Investors. Shareholder represents to FNEDC
that he is an Accredited Investor, as defined in Rule 501(a) under the
Securities Act.
(j) Restricted Securities. Shareholder understands that
none of the FNEDC Common Stock issued hereby may be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the FNEDC Common Stock or an available exemption from
registration under the Securities Act, the FNEDC Common Stock must be held
indefinitely. In particular, Shareholder is aware that none of the FNEDC Common
Stock may be sold pursuant to Rule 144 promulgated under the Securities Act
unless all of the conditions of that Rule are met. Among the conditions for use
of Rule 144 may be the availability of current information to the public about
the Company.
(k) Illiquidity; Value of Shares. Shareholder understands
that: (i) Prior to the date of this Agreement, there has been no public market
for the FNEDC Common Stock, and no assurance can be given that an active public
market for the FNEDC Common Stock will develop or, if developed, that it will be
sustained after a public offering; (ii) The per share price of the FNEDC Common
Stock is determined by the Board of Directors of FNEDC, and the per share sale
or exchange price for transactions which have been consummated during the past
six months have ranged from $6.50 to $10.00; and (iii) In the future, the FNEDC
Common Stock could be subject to wide fluctuations in value in response to
FNEDC's operating results, announcements by FNEDC or others of developments
affecting FNEDC or its competitors or customers and other events or factors. In
addition, the stock market has experienced extreme price and volume fluctuations
in recent years. These fluctuations have had a substantial effect on the market
prices for the capital stock of many companies, often unrelated to the operating
performance of the specific companies. Similar events in the future may
adversely affect the market prices of the FNEDC Common Stock.
(l) Legend. Each certificate representing FNEDC Common
Stock shall bear a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES
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UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL FOR
THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH
ACT."
(m) Authority. Shareholder has full power and authority
to enter into and to perform this Agreement in accordance with its terms.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
V.1. FNEDC's Access to Information. Shareholder shall cause the
Company to permit FNEDC and its counsel, accountants and other representatives
full and free access, upon reasonable notice and during normal business hours,
throughout the period prior to the Closing, to all of the properties, books,
contracts, commitments, records, officers and personnel of the Company and shall
furnish FNEDC during such period all such information concerning the business
affairs of the Company as FNEDC or its counsel, accountants and other
representatives may reasonably request. If the transactions contemplated by this
Agreement are not consummated, all confidential or proprietary information
furnished by Shareholder or the Company shall be kept in strict confidence and
shall not be used or disclosed by any recipient, and FNEDC shall cause each such
recipient to return to the Company all copies of documents or records furnished
hereunder. No investigation or findings of FNEDC shall diminish or affect the
representations and warranties of Shareholder in this Agreement or relieve
Shareholder of any of their obligations hereunder.
V.2. Shareholder's Consents and Approvals. Shareholder shall use
his best efforts to obtain all governmental and regulatory approvals and actions
necessary to consummate the transactions contemplated hereby which are required
to be obtained by applicable law or regulations.
V.3. Registration Rights.
(a) For purposes of this Section 5.3, "Registrable
Securities" shall mean all issued and outstanding FNEDC Common 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, or sold pursuant to Rule 144
promulgated thereunder.
(b) If FNEDC 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 which 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), FNEDC will include that portion of Shareholder's Registrable
Securities as he shall
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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 Shareholder'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 said offering, and FNEDC 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 Shareholder disapproves of the terms of any FNEDC
underwriting in which his shares are to be included under this Section 5.3, he
may elect to withdraw therefrom by written notice to FNEDC and to the
underwriter, delivered at least seven (7) days prior to the effective date of
the registration statement therefor.
V.4. Assignment of Trademarks and Other Agreements. If Shareholder
has ownership rights, title or interest in the Trademarks, or is a party in his
individual capacity to any contracts, agreements, or other documents ("Other
Documents") intended to be transferred to FNEDC pursuant to the Merger,
Shareholder hereby conveys, transfers and assigns any and all of such right,
title and interest in and to said Trademarks and Other Documents and will take
whatever action necessary for FNEDC to effect transfer or assignment of the same
subsequent to the Closing.
ARTICLE VI
CONDITIONS TO CLOSING
VI.1. Conditions Precedent to FNEDC's Obligations. The obligation of
FNEDC to consummate the transactions contemplated by this Agreement is expressly
subject to the fulfillment or express written waiver of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the representations and warranties contained in Sections 4.2
and 4.3 of this Agreement shall be true and correct in all material respects at
and as of the Closing Date, except as otherwise specifically provided for
herein. Shareholder shall have performed, on or before the Closing Date, all
obligations under this Agreement which by the terms hereof are to be performed
by Shareholder on or before the Closing Date.
(b) Delivery of Certificates. Shareholder shall have
delivered to FNEDC certificates representing the Company Stock, duly endorsed
for transfer or with duly executed stock powers attached.
(c) Required Consents. All consents and waivers, in form
and substance satisfactory to FNEDC and its counsel, necessary to consummate the
transactions contemplated
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hereby and for the Merger shall have been obtained by Shareholder.
(d) Dental Employment Agreement. Shareholder shall have
executed and delivered an employment agreement between himself and Osorio and
Watkin, D.M.D., P.C. (the "P.C.") in the form attached hereto as Exhibit 6.1(d)
(the "Dental Employment Agreement").
(e) Filing of Restated Articles of Organization.
Shareholder shall have caused to be filed Restated Articles of Organization of
the Company in the form attached hereto as Exhibit 6.1(e).
(f) Lease(s). The Company shall have delivered a fully
executed (i) First Amendment to Lease by and between Frank Weisner, D.M.D., and
the Company relating to the real property located at 104 Whalon Street,
Fitchburg, Massachusetts 01420 and used until the date of execution hereof by
the Company for the conduct of its business (the "Lease Amendment Agreement"),
(ii) an Assignment and Assumption Agreement with respect to the lease for the
real property located at 1534 Main Street, Athol, Massachusetts 01331, (the
"Assumption Agreement") in substantially the form set forth as Exhibit
6.1(f)(2), and (iii) a Landlord Consent and Estoppel Certificate in
substantially the form attached hereto as Exhibit 6.1(f)(3) with respect to each
of the leases for the real property located at 34 Parker Street, Gardner,
Massachusetts 01440 and 1534 Main Street, Athol, Massachusetts 01331 and 104
Whalon Street, Fitchburg, Massachusetts 01440, respectively (the "Consents"). In
the case of each of (i), (ii) and/or (iii) above, the agreements shall be in
form(s) reasonably satisfactory to FNEDC and its counsel.
(g) Legal Opinion from Counsel for Shareholder. FNEDC
shall have received the written opinion of Goldstein & Goldstein, counsel for
the Company, dated the Closing Date and in a form satisfactory to FNEDC's
counsel.
(h) Employment Agreements. Shareholder shall have
delivered evidence reasonably satisfactory to FNEDC of the termination of
employment of any persons employed by the Company, such termination to be
effective immediately prior to the Closing.
(i) Consulting Agreement. Shareholder shall have executed
and delivered a Consulting Agreement (the "Consulting Agreement") between
himself and the P.C. in the form attached hereto as Exhibit 6.1(i).
(j) Delivery of Other Instruments. Shareholder shall have
delivered such other certificates, consents, instruments or agreements as may be
reasonably requested by FNEDC or its counsel.
VI.2. Conditions Precedent to Company's Obligations. The obligation
of the Company to consummate the transactions contemplated by this Agreement is
subject to the fulfillment or express written waiver of the following conditions
on or prior to the Closing Date:
(a) Representations and Warranties True; Obligations
Performed. Each of the
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representations of FNEDC contained in Section 4.1 shall be true and correct in
all material respects at and as of the Closing except as otherwise specifically
provided for herein. FNEDC shall have performed, on or before the Closing Date,
all obligations under this Agreement which by the terms hereof are to be
performed by FNEDC on or before the Closing Date.
(b) Dental Employment Agreement and Consulting Agreement.
The P.C. shall have executed and delivered to Shareholder his Dental Employment
Agreement and Consulting Agreement.
(c) FNEDC's Covenant With Respect To The Company's
Employees. FNEDC agrees to offer employment to all of the Company's employees as
of the Closing Date at their current salary levels and with FNEDC's standard
benefits.
(d) Legal Opinion from Counsel to FNEDC. Shareholder
shall have received the written opinion of Lyne, Woodworth & Evarts, counsel to
FNEDC, dated the Closing Date and in a form reasonably satisfactory to
Shareholder' counsel.
(e) Unaudited Financial Statements. FNEDC shall have
provided Shareholder with the most recent copies of its unaudited financial
statements.
ARTICLE VII
CLOSING AND DELIVERIES
VII.1. Date and Place of Closing. The consummation of the
transactions contemplated hereby (the "Closing") shall be held at 10:00 a.m. on
November 6, 1996 at the offices of McDermott, Will & Emery, or at such other
time and place as the parties may mutually agree in writing (the "Closing
Date").
VII.2. Deliveries at Closing by Shareholder. At the Closing, provided
FNEDC has duly performed its obligations hereunder, Shareholder shall deliver or
cause to be delivered to FNEDC the following:
(a) certificates representing the Company Stock, duly
endorsed for transfer or with duly executed stock powers attached, and free of
any liens, encumbrances, restrictions on transfer, charges or claims;
(b) certified copies of resolutions duly adopted by (i)
the Company's Board of Directors, and (ii) Shareholder, approving and
authorizing the transactions provided for in this Agreement, the execution
hereof and the performance of all acts required to be performed by the Company
hereunder, accompanied by an appropriate certificate of incumbency;
(c) duly executed Articles of Merger for filing with the
Massachusetts Secretary of the Commonwealth and Certificate of Merger for filing
with the Delaware Secretary
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of State;
(d) the Lease Amendment Agreement, Assumption Agreement
and the Consents, as applicable;
(e) Instruments of transfer, in form reasonably
satisfactory to FNEDC and its counsel, to convey all of the Company's rights,
title and interest in and to the Other Documents; and
(f) all consents of any person or any entity, whether or
not a party to this Agreement, which are necessary to effectuate the transfer of
the Company Stock and the assignment of the Other Documents, if any, and the
consummation of the transactions contemplated by this Agreement.
VII.3. Deliveries by FNEDC. At the Closing, provided Shareholder and
the Company have fully performed all of their respective obligations hereunder,
FNEDC shall deliver or cause to be delivered to Shareholder the following:
(a) certificates for the FNEDC Common Stock;
(b) a check in the amount of $162,000;
(c) a certified copy of resolutions duly adopted by
FNEDC's Board of Directors approving and authorizing the transactions provided
for in this Agreement, the execution hereof and the performance of all acts
required to be performed by FNEDC hereunder, accompanied by an appropriate
certificate of incumbency; and
(d) duly executed Articles of Merger for filing with the
Massachusetts Secretary of the Commonwealth and Certificate of Merger for filing
with the Delaware Secretary of State.
ARTICLE VIII
POST-CLOSING MATTERS
VIII.1. Further Assurances. Following the Closing Date, Shareholder
will execute and deliver to FNEDC such documents and take such other actions, at
Shareholder's expense, as FNEDC may reasonably request in order to vest in FNEDC
good, valid and marketable title to the Company Stock.
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<PAGE> 26
VIII.2. Benefits-Related Matters.
(a) FNEDC shall retain the right, subject to Shareholder's
approval, to amend in any respect or to terminate in whole or in part any Plan
in accordance with the provisions of such Plan and applicable law.
(b) Nothing contained in this Agreement shall obligate or commit
FNEDC to continue any Plan with respect to services after the Closing Date or to
maintain in effect any such Plan or any similar plan or any level or type of
benefit.
(c) Shareholder shall be responsible to fulfill all reporting,
disclosure and other administrative duties as plan administrator and named
fiduciary for each of the Plans, such duties to include but not be limited to
the filing of all IRS Form 5500s, the distribution of summary annual reports to
Plan participants and beneficiaries and responding to IRS inquiries regarding
any Plan year prior to the Closing Date any failure by Shareholder to fulfill
these duties shall be subject to the indemnification provisions under Section
10.2(b) below.
(d) Shareholder agrees to be personally and individually liable
for any contribution obligations under all Plans.
(e) Shareholder shall provide to FNEDC copies of any
correspondence relating to the Plans and shall inform FNEDC of any
communications with a government agency, including but not limited to the
Internal Revenue Service and the U.S. Department of Labor, regarding the Plans.
VIII.3. Access to Records. Shareholder agrees to provide FNEDC and its
auditors with access to all of Company's books and records for fiscal years 1993
through and including 1996.
ARTICLE IX
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT
IX.1. Non-Competition. Subject to the provisions set forth in this
Section 9.1 and in Article XI below, and for a period of two (2) years following
the date each Shareholder ceases to be an employee of the P.C. or of FNEDC for
any reason, such Shareholder agrees that he shall not, directly or indirectly,
in whole or in part: (a) own, manage, operate, control, or participate in the
ownership, management, operation or control of any dental practice or health
care facility, however organized, which has any location within six (6) miles of
any location of FNEDC or the P.C. and which competes directly or indirectly with
FNEDC or the P.C. in the provision of dental and/or other health care services;
or (b) practice dentistry at any location within six (6) miles of any location
of FNEDC or the P.C. at which such Shareholder provide services at any time.
If any part of the this Section 9.1 should be determined by a court of
competent jurisdiction to be unreasonable in nature, duration, geographic area,
or scope, then this
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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.
IX.2. Non-Solicitation. Shareholder recognizes that the success of
FNEDC's business both with respect to the quality and availability of patient
care depends upon the loyalty to the P.C. and FNEDC of its employees and
patients. Accordingly, Shareholder agrees that, subject to the provisions set
forth in Article XI below, Shareholder will not, for any purpose, for a period
of two (2) years following the date he ceases to be an employee of FNEDC or the
P.C. for any reason:
(a) solicit any persons who are at any time patients of
the P.C., nor suggest, request or direct that any such patients request that
medical records be copied or otherwise removed or transferred from the P.C.
office, nor remove or copy any medical records or patient or mailing lists; or
(b) hire, seek to hire or assist in hiring any employee,
agent or independent contractor of the P.C. or FNEDC or induce or seek to
induce, or take action which results in the termination of employment or other
arrangements between FNEDC or the P.C. and such employee, agent or independent
contractor or otherwise interferes with such employment or arrangements.
ARTICLE X
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
X.1. Survival. Shareholder and FNEDC agree that (i) the covenants,
representations and warranties contained in this Agreement shall survive for a
period of three years from the Closing Date, except that the representations,
warranties and covenants contained in Section 4.2(i) shall survive until the
applicable tax statutes of limitations relating thereto shall have run, (ii) the
representations, warranties and covenants contained in Section 4.2(m) shall
survive indefinitely, (iii) the provisions of Article IX shall survive the
Closing Date for the period specified therein; (iv) the provisions of this
Article X shall survive the Closing Date for an indefinite period, and (v) the
provisions of Article XI shall survive for so long as Shareholder is employed by
the P.C.
X.2. Indemnification of FNEDC. (a) Shareholder agrees to indemnify
FNEDC and hold it harmless against and in respect of any and all payments,
damages, claims, demands, losses, expenses, costs, obligations and liabilities,
including reasonable attorneys' fees (i) which arise or result from or are
related to any breach or failure of Shareholder to perform any of his
representations and warranties, commitments, obligations, covenants or
conditions hereunder, (ii) which result from any actions of Shareholder, the
Company or its employees or agents taken prior to the Closing Date or the
operations of the Company prior to the Closing Date; and (iii) which result from
the failure of the transfer and delivery of the Company Stock, the Trademarks
and the Other Documents from Shareholder to FNEDC to cause FNEDC to acquire good
and
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marketable title to all of the issued and outstanding Company Stock, the
Trademarks and the Other Documents, free and clear of any liens, encumbrances,
restrictions on transfer, charges or claims unless such failure is caused by the
action of FNEDC.
(b) Shareholder shall indemnify, defend and hold harmless FNEDC,
the P.C., and each of their respective affiliates, directors, officers,
employees and agents, and each of the heirs, executors, successors and assigns
of any of the foregoing, from and against any and all taxes (including, without
limitation, additional taxes resulting from disallowed deductions under Section
404 of the Code) losses, liabilities, claims, damages, obligations, payments,
costs and expenses including, without limitation, attorneys' fees, arising out
of or relating in any manner to (i) the establishment or administration of any
Plan to the Closing Date; and (ii) failure by Shareholder to fulfill his
post-Closing duties under Section 8.4 above, or (iii) any audit of a Plan
performed by any governmental unit, including but not limited to the Internal
Revenue Service and the U.S. Department of Labor, after the Closing Date.
X.3. Indemnification of Shareholder. FNEDC agrees to indemnify
Shareholder and hold him harmless against and in respect of any and all
payments, damages, claims, demands, losses, expenses, costs, obligations and
liabilities (including reasonable attorneys' fees) which (a) arise or result
from or are related to any breach or failure of FNEDC to perform any of its
representations and warranties, commitments, obligations, covenants or
conditions hereunder, or (b) arise or result from any actions of FNEDC, its
employees or agents (other than Shareholder) taken after the Closing Date.
X.4. Procedure for Indemnification. Any party making a claim for
indemnification hereunder shall notify the indemnifying party of the claim in
writing, describing the claim, the amount thereof, and the basis therefor. The
party from whom indemnification is sought shall respond to each such claim
within 30 days of receipt of such notice. No action shall be taken pursuant to
the provisions of this Agreement or otherwise by the party seeking
indemnification until the later of (a) the expiration of the 30-day response
period (unless reasonably necessary to protect the rights of the party seeking
indemnification), or (b) 30 days following the termination of the 30-day
response period if a response received within such 30-day period by the party
seeking indemnification requested an opportunity to cure the matter giving rise
to indemnification (and, in such event, the amount of such claim for
indemnification shall be reduced to the extent so cured within such 30-day cure
period). If such demand is based on a claim by a third party, the indemnifying
party shall have the right to assume the entire control of the defense,
compromise or settlement thereof, including at its own expense, employment of
counsel reasonably satisfactory to the indemnified party, and, in connection
therewith, the party claiming indemnification shall cooperate fully to make
available to the defending party all pertinent information under its control. No
claim for indemnification resulting from the breach or falsity or any of the
representations or warranties set forth herein or in any certificate or other
instrument delivered pursuant hereto shall be made after a date on which such
representation, warranty or agreement shall have expired under the provisions of
Article XI hereof.
ARTICLE XI
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TERMINATION OF AGREEMENT
(a) The post-Closing occurrence of any of the following conditions
or events shall be deemed a "Termination Event":
(i) FNEDC ceases all of its operations for more than thirty (30)
consecutive days; or
(ii) FNEDC fails generally to pay its debts as they become due
("Insolvency") and such Insolvency is not cured within
forty-five (45) days following the earlier of its occurrence
or the filing of a petition for debtor's relief or a
confession of Insolvency made by FNEDC in any administrative,
judicial or regulatory proceeding; or
(iii) FNEDC or the P.C. makes an assignment for the benefit of its
creditors or voluntarily files a petition in bankruptcy which
petition is not dismissed within sixty (60) days following the
filing thereof; or
(iv) an involuntary filing of a petition in bankruptcy with respect
to FNEDC or the P.C. is made and not dismissed within sixty
(60) days following notice thereof to FNEDC or the P.C., as
the case may be;
(v) the net book value (including goodwill) of FNEDC, determined
in accordance with generally accepted accounting principles
and as reflected in any financial statements of FNEDC, is less
than $250,000; or
(vi) FNEDC or P.C. fails, after opportunity to cure as set forth in
this Agreement and/or the Dental Employment Agreement, to pay
any of its and/or their payment obligations to Shareholder set
forth herein or in the Dental Employment Agreement.
(b) Upon the occurrence of a Termination Event, Shareholder
(assuming that he remains employed by the P.C. at such time), at Shareholder's
option, may require the parties hereto to take the actions specified in this
Article XI. Specifically, if Shareholder so elects, within thirty (30) days
following the occurrence of a Termination Event, FNEDC shall vacate and
surrender the Premises (as such term is defined in the Lease Agreement) and such
Lease Agreement shall be deemed terminated. FNEDC shall also give or cause the
P.C., as appropriate, to give each former employee of the Company who is then
employed by FNEDC or the P.C. an option to terminate his/her employment with
FNEDC or the P.C. without penalty, and shall permit Shareholder to recruit such
individual(s) for employment by Shareholder. FNEDC shall, at Shareholder's
option, transfer or cause the P.C. or any affiliate of FNEDC which then holds
such assets to transfer, to Shareholder or his designees, all of the assets
formerly owned and/or leased by the Company which are then owned and/or leased
by FNEDC, the P.C. or any of their affiliates, for the fair market value of
those assets at such time as determined by appraisal in accordance with the
procedures set forth in paragraph (c) below; provided, however, that if the
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Termination Event is for reasons set forth in paragraphs (a)(iii) or (a)(iv)
above, Shareholder may repurchase the tangible assets only. FNEDC shall cause
the P.C. to transfer to Shareholder copies of the dental records of any patient
who authorizes transfer of his/her dental records to Shareholder. Upon the
election by Shareholder to exercise his rights under this Article XI, the
Shareholder's Dental Employment Agreement will be deemed terminated.
(c) FNEDC and Shareholder shall use their best efforts to mutually
select an appraiser. In the event FNEDC and Shareholder fail to agree upon the
name of an appraiser within ten (10) days following Shareholder's notification
to FNEDC of Shareholder's election to exercise his rights pursuant to this
Article XI, each of FNEDC and Shareholder shall select one appraiser and the two
selected appraisers shall, in turn, appoint a third independent and impartial
appraiser (the "Third Appraiser"). The appraisal of the assets by the Third
Appraiser shall be binding upon the parties thereto, and the actual, documented
and reasonable expenses of such Third Appraiser's appraisal shall be equally
borne by FNEDC and Shareholder.
ARTICLE XII
CONFIDENTIAL INFORMATION
The parties hereby acknowledge the confidential nature of this
Agreement and the transactions contemplated hereby. Except as otherwise required
by law, the parties agree to hold in confidence all financial information and
other confidential data and information acquired from one another, and shall not
use or divulge to third parties any such data or information. No party shall
make any announcement or otherwise disclose any information concerning the
transaction contemplated by this Agreement to any person (other than such
party's employees and professional advisors on a need-to-know basis) without the
consent of the other party. This Article XII shall survive the termination of
this Agreement for any reason.
ARTICLE XIII
MISCELLANEOUS
XIII.1. Notices. All notices to a party hereunder shall be deemed to
have been adequately given if delivered in person or mailed, certified mail,
return receipt requested, to such party at its address set forth below (or such
other address as it may from time to time designate in writing to the other
parties hereto):
To Shareholder:
Frank Weisner, D.M.D., P.C.
844 West Street
Leominister, Massachusetts 01453
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<PAGE> 31
with a copy to:
Harvey Goldstein, Esq.
Goldstein & Goldstein, Esqs.
1622A Beacon Street
Brookline, Massachusetts 02146
To FNEDC:
First New England Dental Centers, Inc.
85 Devonshire Street, 2nd Floor
Boston, Massachusetts 02109
Attention: President
with a copy to:
Michael L. Blau, Esq.
McDermott, Will & Emery
75 State Street, 17th Floor
Boston, Massachusetts 02109
XIII.2. No Waiver. No failure to exercise and no delay in exercising,
on the part of FNEDC or Shareholder, any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or remedy hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The rights provided are
cumulative and not exclusive of any rights provided by law.
XIII.3. Amendments and Waivers. This Agreement may be modified or
amended only by a writing signed by each party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the party
waiving such term or provision.
XIII.4. Governing Law; Headings. This Agreement shall be governed by
and construed in accordance with the laws of The Commonwealth of Massachusetts.
The descriptive headings of the several Articles and Sections hereof are for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
XIII.5. No Assignment. None of the parties hereto may assign this
Agreement or any of their respective rights or obligations hereunder without
first obtaining the prior written consent of the other parties hereto.
XIII.6. Binding Effect and Benefits; Assignment. This Agreement shall
be binding upon and shall inure to the benefit of the parties and their
respective heirs, successors and assigns.
XIII.7. Entire Agreement. This Agreement embodies the entire agreement
and
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<PAGE> 32
understanding between the parties with respect to the subject matter hereof
and supersedes all prior discussions, understandings and agreements concerning
the matters covered hereby.
XIII.8. Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
XIII.9. Transfer Taxes. All stock transfer taxes, if any, incident to
the sale of the Shares shall be paid by Shareholder.
XIII.10. Arbitration. Any disputes arising among the parties to this
Agreement shall be settled by binding arbitration in accordance with the
Arbitration Rules of the American Arbitration Association. In the event that a
dispute arises which requires arbitration under this Section 13.10, the parties
shall attempt to agree upon one arbitrator to resolve such dispute. In the event
that the parties are unable to agree upon an arbitrator within 14 days, then
each party shall choose one arbitrator and the arbitrators chosen by the parties
shall choose a single arbitrator who shall resolve such dispute. Each party
shall bear its respective costs of the arbitration. The award so rendered shall
be final and the prevailing party in any such arbitration shall be entitled to
have the arbitrators' award enforced by any court of competent jurisdiction.
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<PAGE> 33
IN WITNESS WHEREOF, the undersigned have set their hands and seals as
of the date first set forth above.
FRANK WEISNER, D.M.D., ORTHODONTIST, P.C.
By: _________________________________
Frank Weisner, D.M.D.
President
_________________________________
FRANK WEISNER, D.M.D.
FIRST NEW ENGLAND DENTAL CENTERS, INC.
By: _________________________________
Jerald Robbins, President
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<PAGE> 34
SCHEDULES
AND
EXHIBITS
Schedule 4.1(f) FNEDC Litigation Matters
Schedule 4.2(c) Company Commitments with Respect to Capital Stock
Schedule 4.2(e) Financial Information
Schedule 4.2(f) Company Liabilities
Schedule 4.2(g) Title Exceptions
Schedule 4.2(i) Tax Deficiencies and/or Claims
Schedule 4.2(k) Insurance
Schedule 4.2(l) Employment and Consulting Agreements
Schedule 4.2(m) Benefit Plans
Schedule 4.2(n) Material Contracts
Schedule 4.2(p) Banking Relationships
Schedule 4.2(q) Consents
Schedule 4.2(r) Authorizations
Schedule 4.2(s) Exception to Accounts Receivable
Schedule 4.2(t) Company Litigation
Exhibit 6.1(d) Dental Employment Agreement
Exhibit 6.1(e) Restated Articles of Organization
Exhibit 6.1(f)(1) Lease Amendment
Exhibit 6.1(f)(2) Assignment and Assumption Agreement
Exhibit 6.1(f)(3) Lease Consent
Exhibit 6.1(i) Consulting Agreement
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<PAGE> 35
SCHEDULE 4.1(f)
FNEDC Litigation
On October 29, 1996, Periodontology Associates, Ltd. ("Periodontology")
and Richard L. Glick, D.D.S. (collectively, the "Plaintiffs") commenced an
action in the State of Rhode Island Superior Court against FNEDC and the P.C.
seeking unspecified damages. In Count One, the complaint alleges that
Periodontology and FNEDC entered into a valid and enforceable contract whereby
FNEDC would purchase Periodontology, and that FNEDC has breached the contract by
refusing to proceed with the purchase under the terms of the contract. In Count
Two, the complaint further alleges that on June 18, 1996, Dr. Glick and the P.C.
entered into a valid and enforceable employment agreement under which the P.C.
agreed to employ Dr. Glick. Moreover, the complaint alleges that the P.C. has
failed and refused to employ Dr. Glick under the terms of their agreement. The
defendants will file an answer denying the material allegations of the complaint
and raising appropriate affirmative defenses. Alternatively, the defendants may
move to dismiss the complaint for failure to state a claim upon which relief can
be granted.
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<PAGE> 36
SCHEDULE 4.2(c)
Commitments with Respect to Capital Stock
None
-35-
<PAGE> 37
SCHEDULE 4.2(e)
Financial Information
See Attached
-36-
<PAGE> 38
SCHEDULE 4.2(f)
Company Liabilities
None
-37-
<PAGE> 39
SCHEDULE 4.2(g)
Title Exceptions
None
-38-
<PAGE> 40
SCHEDULE 4.2(i)
Tax Deficiencies and/or Claims
None
-39-
<PAGE> 41
SCHEDULE 4.2(k)
Insurance
1. Professional Malpractice Liability - See Attached.
2. Eastern Dental Insurance Company - general office liability.
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<PAGE> 42
SCHEDULE 4.2(l)
Employees and Compensation
None
-41-
<PAGE> 43
SCHEDULE 4.2(m)
Benefit Plans
1. Profit-Sharing Plan (see copy attached).
2. HMO Blue Health Insurance for Shareholder, Judy Tappley and
Sharon Goodgion.
3. All Company employees are entitled to three weeks paid
vacation (full-time equivalent) other than Elizabeth Mooney,
who is entitled to one week paid vacation.
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<PAGE> 44
SCHEDULE 4.2(n)
Material Contracts
1. Lease between Gardner Showplace Realty Trust and Company made
as of June 1, 1996 (see copy attached).
2. Lease between Company and Shareholder dated as of March 1,
1996 (see copy attached).
3. Lease between Mary Calagione and Cynthia Wadman as lessors and
Shareholder dated as of September 1, 1994 (see copy attached).
4. Blue Cross/Blue Shield
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<PAGE> 45
SCHEDULE 4.2(p)
Banking Arrangements
1. Frank Weisner, D.M.D., Orthodontist, P.C., Bank of Boston,
Acct. #5112503954507957.
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<PAGE> 46
SCHEDULE 4.2(q)
Consents
1. Department of Public Health, Radiation Control Program,
Certificate of Registration, Radiation Control No. 6441,
Expires 12/31/96. (See copy attached).
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<PAGE> 47
SCHEDULE 4.2(r)
Authorizations
1. Commonwealth of Massachusetts, Dental License No. 12154,
Expires 3/31/98. (See copy attached).
2. Department of Public Health, Radiation Control Program,
Certificate of Registration, Radiation Control No. 6441,
Expires 12/31/96. (See copy attached).
3. Controlled Substances Registration Certificate, Drug
Enforcement Administration, DEA #AW9790090, Expires 5/31/96.
(See copy attached).
-46-
<PAGE> 48
SCHEDULE 4.2(s)
Exceptions to Accounts Receivable
None
-47-
<PAGE> 49
SCHEDULE 4.2(t)
Litigation
None
-48-
<PAGE> 50
EXHIBIT 6.1(d)
Dental Employment Agreement
-49-
<PAGE> 51
EXHIBIT 6.1(e)
Restated Articles of Organization
-50-
<PAGE> 52
EXHIBIT 6.1(f)(1)
Lease Amendment
-51-
<PAGE> 53
EXHIBIT 6.1(f)(2)
Assignment and Assumption Agreement
-52-
<PAGE> 54
EXHIBIT 6.1(f)(3)
Lease Consent
-53-
<PAGE> 55
EXHIBIT 6.1(i)
Consulting Agreement
-54-
<PAGE> 56
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I............................................................................................................... 1
THE MERGER .................................................................................................... 1
1.1. The Merger........................................................................................ 1
1.2. Effective Time of the Merger...................................................................... 2
ARTICLE II.............................................................................................................. 2
THE SURVIVING CORPORATION...................................................................................... 2
2.1. Certificate of Incorporation...................................................................... 2
2.2. By-Laws........................................................................................... 2
2.3. Board of Directors and Officers................................................................... 2
ARTICLE III............................................................................................................. 3
CONVERSION OF SHARES........................................................................................... 3
3.1. Consideration..................................................................................... 3
3.2. Status of FNEDC Common Stock...................................................................... 3
3.3. Delivery of Certificates and Consideration........................................................ 3
3.4. Business Valuation................................................................................ 3
3.5. Closing of Transfer Books......................................................................... 4
ARTICLE IV.............................................................................................................. 4
REPRESENTATIONS AND WARRANTIES................................................................................. 4
4.1. Representations and Warranties of FNEDC........................................................... 4
(a) Organization, Power and Standing............................................................. 4
(b) Power and Authority Relative to Transaction.................................................. 4
(c) Valid and Binding Obligation................................................................. 4
(d) Required Consents............................................................................ 5
(e) No Brokers................................................................................... 5
(f) Litigation................................................................................... 5
(g) Due Issuance................................................................................. 5
(h) Continuity of Business Enterprise............................................................ 5
(i) Capitalization............................................................................... 5
(j) Qualification to Do Business................................................................. 5
(k) Financial Statements......................................................................... 5
(l) Disclosure................................................................................... 6
4.2. Representations and Warranties Concerning the Company............................................. 6
(a) Organization, Power and Standing............................................................. 6
(b) Subsidiaries and Interest in Other Entities.................................................. 6
(c) Capitalization............................................................................... 6
(d) Qualification to do Business................................................................. 7
(e) Financial Statements......................................................................... 7
(f) Absence of Undisclosed Liabilities........................................................... 7
(g) Title to Properties, Etc..................................................................... 7
(h) Conduct of Business; Absence of Material Adverse Changes..................................... 8
(i) Tax Returns and Payments..................................................................... 10
</TABLE>
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<PAGE> 57
<TABLE>
<S> <C>
(j) Compliance with Laws......................................................................... 10
(k) Insurance.................................................................................... 10
(l) Employees and Compensation................................................................... 11
(m) Employee Benefits............................................................................ 11
(n) Material Contracts........................................................................... 13
(o) Books and Records............................................................................ 15
(p) Banking Relationships........................................................................ 15
(q) Required Consents, Etc....................................................................... 15
(r) Licenses and Permits......................................................................... 15
(s) Accounts Receivable.......................................................................... 15
(t) Litigation................................................................................... 16
(u) No Brokers................................................................................... 16
(v) Disclosure................................................................................... 16
(w) No Offer..................................................................................... 16
4.3. Representations and Warranties Concerning Shareholder............................................. 17
(a) Title........................................................................................ 17
(b) Due Issuance................................................................................. 17
(c) Validity and Enforceability.................................................................. 17
(d) No Brokers................................................................................... 17
(e) Dental Practice.............................................................................. 17
(f) Purchase For Own Account..................................................................... 18
(g) Reliance Upon Shareholder's Representations.................................................. 18
(h) Experience................................................................................... 18
(i) Accredited Investor.......................................................................... 18
(j) Restricted Securities........................................................................ 18
(k) Illiquidity; Value of Shares................................................................. 18
(l) Legend....................................................................................... 19
(m) Authority.................................................................................... 19
ARTICLE V............................................................................................................... 19
ADDITIONAL COVENANTS AND AGREEMENTS............................................................................ 19
5.1. FNEDC's Access to Information..................................................................... 19
5.2. Shareholder's Consents and Approvals.............................................................. 20
5.3. Registration Rights............................................................................... 20
5.4. Assignment of Trademarks and Other Agreements..................................................... 21
ARTICLE VI.............................................................................................................. 21
CONDITIONS TO CLOSING.......................................................................................... 21
6.1. Conditions Precedent to FNEDC's Obligations....................................................... 21
(a) Representations and Warranties True; Obligations Performed................................... 21
(b) Delivery of Certificates..................................................................... 21
(c) Required Consents............................................................................ 21
(d) Dental Employment Agreement.................................................................. 21
(e) Filing of Restated Articles of Organization.................................................. 21
(f) Lease(s)..................................................................................... 22
(g) Legal Opinion from Counsel for Shareholder................................................... 22
(h) Employment Agreements........................................................................ 22
</TABLE>
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<PAGE> 58
<TABLE>
<S> <C>
(i) Consulting Agreement......................................................................... 22
6.2. Conditions Precedent to Company's Obligations..................................................... 22
(a) Representations and Warranties True; Obligations Performed................................... 22
(b) Dental Employment Agreement.................................................................. 23
(c) FNEDC's Covenant With Respect To The Company's Employees..................................... 23
(d) Legal Opinion from Counsel to FNEDC.......................................................... 23
(e) Unaudited Financial Statements............................................................... 23
ARTICLE VII............................................................................................................. 23
CLOSING AND DELIVERIES......................................................................................... 23
7.1. Date and Place of Closing......................................................................... 23
7.2. Deliveries at Closing by Shareholder.............................................................. 23
7.3. Deliveries by FNEDC............................................................................... 24
ARTICLE VIII............................................................................................................ 24
POST-CLOSING MATTERS........................................................................................... 24
8.1. Further Assurances................................................................................ 24
8.2. Benefits-Related Matters.......................................................................... 25
8.3. Access to Records................................................................................. 25
ARTICLE IX.............................................................................................................. 25
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT....................................................... 25
9.1. Non-Competition................................................................................... 25
9.2. Non-Solicitation.................................................................................. 26
ARTICLE X............................................................................................................... 26
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION................................................................... 26
10.1. Survival.......................................................................................... 26
10.2. Indemnification of FNEDC.......................................................................... 26
10.3. Indemnification of Shareholder.................................................................... 27
10.4. Procedure for Indemnification..................................................................... 27
ARTICLE XI.............................................................................................................. 28
TERMINATION OF AGREEMENT....................................................................................... 28
ARTICLE XII............................................................................................................. 29
CONFIDENTIAL INFORMATION....................................................................................... 29
ARTICLE XIII............................................................................................................ 30
MISCELLANEOUS.................................................................................................. 30
13.1. Notices........................................................................................... 30
13.2. No Waiver......................................................................................... 30
13.3. Amendments and Waivers............................................................................ 31
13.4. Governing Law; Headings........................................................................... 31
13.5. No Assignment..................................................................................... 31
13.6. Binding Effect and Benefits; Assignment........................................................... 31
</TABLE>
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<PAGE> 59
<TABLE>
<S> <C>
13.7. Entire Agreement.................................................................................. 31
13.8. Counterparts...................................................................................... 31
13.9. Transfer Taxes.................................................................................... 31
13.10. Arbitration....................................................................................... 31
</TABLE>
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<PAGE> 1
EXHIBIT 10.23
MCDERMOTT, WILL & EMERY
75 State Street
Boston, Massachusetts 02109
617-345-5000
M E M O R A N D U M
CONFIDENTIAL
TO: Mark Stein DATE: October 16, 1997
FROM: William O. Fabbri and John L. Garrison
RE: Material Differences of First Dental Asset Acquisitions from the
"Model" Asset Purchase Agreement; Material Differences of First
Dental Mergers from the "Model" Merger Agreement; and the
Consideration for each of the Agreements.
----------------------------------------------------------------
This memorandum notes: (i) the material differences between the Asset
Purchase and Sale Agreement for the acquisition of Dr. Ellicson's practice,
included as Exhibit 10.21, and each other Asset Purchase and Sale Agreement that
First Dental has consummated; and (ii) the material differences between the
Merger Agreement between First Dental and Dr. Weisner's P.C., included as
Exhibit 10.22, and each other Merger Agreement that First Dental has
consummated. The memo also includes the Purchase Price and Form of Payment for
each asset acquisition and merger.
ASSET PURCHASE
Listed below are all variations in material terms, particularly as they
relate to issues of control between First Dental and the Selling Dentist, of all
First Dental Asset Purchase Agreements from the Ellicson Asset Purchase
Agreement.
L. ELIZABETH BURNS ASSET ACQUISITIONS
1. The non-compete covenant extends for a 15-mile radius.
2. The acquisition unwind provisions are NOT triggered by the
failure of First Dental to make payments under the promissory notes.
<PAGE> 2
Memorandum To: Mark Stein
October 16, 1997
Page 2
3. Purchase Price: $167,458.50
(c) $33,500.00 paid directly;
(d) $13,500.00 paid to Jim Kasper & Associates,
NCCD Consultants;
(e) $3,000.00) paid to Doyle & Mansfield;
(f) $17,458.50 paid in three consecutive and equal
monthly installments of 5,819.50 each to Dr. Burns on July 22,
1996, August 20, 1996 and September 20, 1996; and
(g) A "Promissory Note" of $100,000.00, with interest
thereon payable at the rate of 7% per annum, to be paid in two
consecutive annual installment of $50,000.00 each plus all
accrued interest.
DAVID I. PECK ASSET ACQUISITION
1. First Dental agrees to consult with Dr. Peck before establishing
additional Dental Facilities within two miles of this Dental Facility.
2. The non-competition covenant extends for a 5-mile radius.
3. The acquisition unwind provisions are triggered by Dr. Peck's
termination of his Employment Agreement pursuant to the provision thereof.
4. Purchase Price: $394,500 consisting of:
(a) a convertible promissory note in the principal amount
of $192,000 to be paid at the option of the Seller either in cash
or 19,200 shares of Common Stock to be paid or issued and
delivered to Seller on the earlier to occur of either (i) a
public offering of Buyer in which Seller may sell all or some of
the Shares, or (ii) ten (10) years from the Closing Date;
(b) $115,000 to be paid to Seller on the Closing Date;
and
(c) A promissory note in the principal amount of $87,500.
GEOFFREY PARRILLO ASSET ACQUISITION
1. There is no provision prohibiting Dr. Parillo from referring
Medicare or Medicaid beneficiaries to First Dental or the P.C. for any
"designated health services," as defined under Medicare or Medicaid.
<PAGE> 3
Memorandum To: Mark Stein
October 16, 1997
Page 3
2. The non-competition covenant extends for a 10-mile radius.
3. The acquisition unwind provisions are NOT triggered by failure of
First Dental to make payments under the promissory note.
4. Purchase Price: $250,000 consisting of:
(a) $100,000 to be paid on the Closing Date; and
(b) A promissory note in the principal aggregate amount
of $150,000.
ROBERT W. SENIFF ASSET ACQUISITION
1. Until the promissory note is paid in full, First Dental agrees to
provide Dr. Seniff copies of First Dental's and the P.C.'s quarterly and annual
financial statements.
2. First Dental guarantees to Dr. Seniff the prompt and complete
payment by the P.C. of the P.C.'s obligations to Dr. Seniff under his Employment
Agreement.
3. The non-competition covenant extends for a five mile radius.
4. The acquisition unwind provisions are triggered if First Dental
or the P.C. are in breach of a material term of the Asset Purchase Agreement or
Dr. Seniff's Employment Agreement.
5. Purchase Price: $201,223 consisting of:
(a) $101,223 at Closing by certified bank check; and
(b) A promissory note for $100,000.
EDWARD S. KOLLAR ASSET ACQUISITION
1. The non-compete covenant extends for a 15-mile radius.
2. The acquisition unwind provisions are NOT triggered by First
Dental's failure to make payments when due under the promissory note.
3. Purchase Price: $202,613.78 consisting of:
(a) $25,000 at Closing;
(b) A Promissory Note of $150,000 at Closing;
<PAGE> 4
Memorandum To: Mark Stein
October 16, 1997
Page 4
(c) A Promissory Note of $27,613.78 representing 50% of
accounts receivable
EDWARD P. SZLYK ASSET ACQUISITION
1. The non-competition covenant extends for a 10-mile radius from
the Dental Facility.
2. The acquisition unwind provisions are NOT triggered by the
failure of First Dental to make payments when due under the promissory notes.
3. Purchase Price: $396,000 consisting of:
(a) $150,000 at Closing Date by check or wire;
(b) A Promissory Note for $32,406.55 representing 50% of
the face value of the Accounts Receivable as of Closing and
payable on or before six months from the Closing Date.
(c) 30,750 shares of Common Stock at $8.50/share, to be
issued on the earlier to occur of either (i) an initial public
offering by FNEDC or (ii) five (5) years from the Closing Date.
GERALD J. MAHER ASSET ACQUISITION
1. All decisions concerning the hiring, termination and/or salary
level of employees at the Dental Facility shall be subject to the mutual
agreement of First Dental and Dr. Maher.
2. First Dental guarantees payment to Dr. Maher of the P.C.'s
obligations to Dr. Maher pursuant to his Employment Agreement.
3. The non-competition covenant extends for a ten mile radius.
4. The acquisition unwind provisions are NOT triggered by First
Dental's failure to make payments when due under the promissory note.
5. Purchase Price: $250,000 comprising of:
(a) $125,000 at Closing bank check or wire transfer; and
(b) A Promissory Note of $125,000 to be delivered at
Closing.
<PAGE> 5
Memorandum To: Mark Stein
October 16, 1997
Page 5
JAMES F. SCHIPANI ASSET ACQUISITION
1. The non-competition covenant extends for a 15-mile radius from
any Dental Facilities at which Dr. Schipani has rendered professional dental
services during the prior year.
2. The acquisition unwind provisions are NOT triggered by First
Dental's failure to pay the promissory note when due.
3. Purchase Price: $432,000.00 comprising:
(a) 49,846 shares of Common Stock at $6.50/share, to be
issued at Closing Date; and
(b) $70,001.00 at Closing Date by bank check or wire
transfer, representing the difference between (i) $108,001.00,
approximately 25% of the Purchase Price, and (ii) $38,000.00 paid
to Laurence E. Vienneau, D.M.D. at Closing to clear title to
Assets.
(c) 14,471 shares of Common Stock at $6.50/share, to
cover Seller's capital gains tax liability.
KNUDSON, KNIGHTS AND PREDMORE ASSET ACQUISITION
1. The non-competition covenant extends for a 5-mile radius and
terminates if Drs. Knudson or Knights terminate their Employment Agreements.
2. The acquisition unwind provisions are triggered by First Dental
or the P.C.'s failure to cure a material breach of the Asset Purchase or
Employment Agreement.
3. Purchase Price: $1,074,444, consisting of:
(a) The aggregate sum of $752,500 to be paid as follows:
(i) $160,549 to Knudson; (ii) $160,549 to Knights; (iii)
$284,736 to Predmore; and (iv) $146,666 to their partnership;
and
(b) Promissory notes in the principal aggregate amount of
$321,944, as follows: (i) $160,972 to Knudson, and (ii) $160,972
to Knights.
<PAGE> 6
Memorandum To: Mark Stein
October 16, 1997
Page 6
HOWARD MARKOWITZ ASSET ACQUISITION
1. The non-competition covenant extends for a 10-mile radius.
The non-competition covenant terminates if the P.C. fails to cure a material
breach of the Employment Agreement or Dr. Markowitz exercises his acquisition
unwind rights.
2. The acquisition unwind provisions are NOT triggered by the
failure of First Dental to make payments under the promissory note.
3. Purchase Price: $720,000.00 comprising:
(a) $180,000.00 less any amounts required to be paid by
First Dental directly to third parties holding liens on the
assets of Seller in order to allow Seller clear title to Assets;
(b) $50,000.00, as an "Expenses Reimbursement" to be paid
in 5 monthly installments of $10,000.00 each, commencing at the
end of the first calendar month following Closing;
(c) 120,000 shares of Common Stock at $4.50/share to be
issued to Seller as of January 5, 1996;
(d) 34,839 shares of Common Stock at $4.50/share, to
cover Seller's capital gains tax liability.
WAFID W. KIZY ASSET ACQUISITION
1. The non-competition covenant extends for a 3-mile radius.
2. There are no acquisition unwind provisions in the Asset Purchase
Agreement.
3. Purchase Price: $160,000 at Closing.
NATHAN L. DUBIN ASSET ACQUISITION
1. The non-competition covenant extends for a 15-mile radius.
2. There are no acquisition unwind provisions in the Asset Purchase
Agreement.
3. Purchase Price: $150,000 at Closing.
<PAGE> 7
Memorandum To: Mark Stein
October 16, 1997
Page 7
MARK S. FERRIERO ASSET ACQUISITION
1. The non-competition covenant lasts for 1 1/2 years and extends
for a 10-mile radius from any Dental Facility.
2. Purchase Price: $144,600.00 plus 50% of the value of the
accounts receivable at Closing, consisting of:
(a) $87,300.00 at Closing by check or wire transfer;
(b) A Promissory Note for $57,300.00; and
(c) A Promissory Note for $21,791.53, representing 50% of
the value of the accounts receivables.
MERGERS
Listed below are all the variations in material terms, particularly as
they relate to issues of control between First Dental and the Selling Dentist,
of all First Dental Merger Agreements from the "Model" Merger Agreement.
BUCHWALTER & PAPUGA MERGER.
1. First Dental is required to obtain the prior approval of
Drs. Buchwalter and Papuga to undertake any advertising with respect to them.
2. Until the promissory notes are paid in full, Drs. Buchwalter and
Papuga shall not refer any Medicare or Medicaid beneficiaries to First Dental or
the P.C. for any "designated health services," as defined under Medicare or
Medicaid.
3. The non-compete covenant lasts for three years and extends for a
10-mile radius. The non-compete provisions are inapplicable if Drs. Buchwalter
or Papuga terminate their Employment Agreements.
4. The acquisition unwind provisions are triggered if
Drs. Buchwalter and Papuga terminate their Employment Agreements pursuant to the
provisions thereof, but are NOT triggered by the failure of First Dental or the
P.C. to meet its payment obligations to Drs. Buchwalter and Papuga under the
Merger or Employment Agreements.
5. Closing Consideration: $425,000.00 plus 50% of the value of the
accounts receivable at Closing, consisting of:
(a) a total of 39,230 shares of Common Stock at $6.50/share to be
issued at Closing;
<PAGE> 8
Memorandum To: Mark Stein
October 16, 1997
Page 8
(b) The aggregate sum of $106,250.00 to be paid by check at
Closing;
(c) Two Promissory Notes in the aggregate principal amount of
$63,755.00; and
(d) Two Promissory Notes in the aggregate principal amount of
$50,239.04, representing 50% of the value of the accounts receivables.
FEINGOLD AND RAPPAPORT MERGER.
1. Until the promissory notes are paid in full, Drs. Feingold and
Rappaport shall not refer any Medicare or Medicaid beneficiaries to First Dental
or the P.C. for any "designated health services," as defined under Medicare or
Medicaid.
2. The non-compete covenant lasts for three years and extends for a
10-mile radius.
3. The acquisition unwind provisions are triggered if First Dental
fails to pay the promissory notes, but are NOT triggered by the failure of First
Dental or the P.C. to meet their respective payment obligations to Drs. Feingold
and Rappaport under the Merger or Employment Agreements.
4. Closing Consideration: $400,071.84, to be paid as follows:
(a) 30,745 shares of Common Stock at $6.50/share;
(b) $100,017.96 by certified check; and
(c) Promissory Notes in the aggregate amount of
$100,017.97.
BELKNAP DENTAL ASSOCIATES MERGER
1. First Dental shall provide Dr. Chaikin financial information
regarding his production and the production of the Dental Facility where Dr.
Chaikin practices.
2. The non-competition covenant lasts for three years and extends
for a 10-mile radius.
3. The acquisition unwind provisions are triggered by Dr. Chaikin
terminating his Employment Agreement, but are NOT triggered by the failure of
First Dental or the P.C. to meet their respective payment obligations under the
Merger or Employment Agreements.
4. Closing Consideration: $1,074,000
(a) 55,575 shares of Common Stock at $8.06/share at
Closing;
(b) $215,500 at Closing;
(c) $215,500 Promissory Note;
<PAGE> 9
Memorandum To: Mark Stein
October 16, 1997
Page 9
(d) $195,000 for the accounts receivable, consisting of a
$100,000 promissory note and 9,500 shares of Common Stock at
$10.00/share.
BADER/SHUMAN DENTAL GROUP MERGER
1. Drs. Bader and Shuman have assigned to First Dental certain
copyrighted intellectual property, in return for which First Dental agrees to
pay development and marketing costs and to grant a license back to the dentists.
2. All decisions concerning the hiring, termination and/or salary
levels of First Dental's and the P.C.'s employees at the Dental Facility, and
all marketing and promotional activities, (including signage) are subject to
mutual agreement of First Dental and Drs. Bader and Shuman.
3. Until the promissory notes are paid in full, Drs. Bader and
Shuman shall not refer any Medicare or Medicaid beneficiaries to First Dental or
the P.C. for any "designated health services" as defined under the Medicare or
Medicaid.
4. So long as either Dr. Bader or Shuman is employed at the Dental
Facility, they will have a right of first refusal if First Dental decides to
sell or otherwise dispose of the assets formerly owned or leased by the Bader
Shuman Dental Group.
5. First Dental guarantees to Drs. Bader and Shuman the prompt and
complete payment or performance by the P.C. of the P.C.'s obligations under the
Employment Agreements.
6. The non-compete covenant lasts for three years and extends for a
10-mile radius.
7. Drs. Bader and Shuman's aggregate liability under the
indemnification provisions is limited to $100,000.
8. The acquisition unwind provisions are triggered if (i) the
accounts payable at the Dental Facility at which Drs. Bader and Shuman provide
services are more than 60 days old, (ii) First Dental or the P.C. fails to meet
its payroll commitments at the Dental Facility or (iii) First Dental fails to
make payments when due under the promissory notes.
9. Closing Consideration: $1,600,000 paid as follows:
(a) 92,307 shares of Common Stock at $6.50/share;
(b) 500,004.50 by certified check;
(c) Two promissory notes, $250,000 each.
<PAGE> 10
Memorandum To: Mark Stein
October 16, 1997
Page 10
INGOLDSBY AND BERGMAN MERGER
1. All decisions concerning the hiring, termination and/or salary
levels of First Dental's or the P.C.'s employees at the Dental Facility, as well
as material changes in operations, shall be subject to mutual agreement of First
Dental and Drs. Ingoldsby and Bergman.
2. So long as each Drs. Ingoldsby and Bergman are employed at the
Dental Facility, all marketing and promotion activities of First Dental or the
P.C. in connection with the Dental Facility shall be subject to mutual
agreement, and shall be comparable with historical levels. First Dental shall
not place any signage at the Dental Facility except with Drs. Ingoldsby and
Bergman's consent, not to be unreasonably withheld.
3. First Dental guarantees to Drs. Ingoldsby and Bergman the prompt
and complete payment or performance by the P.C., of the P.C.'s obligations under
the Employment Agreements.
4. First Dental and the P.C. agree not to employ any former employee
of the Ingoldsby and Bergman, P.C. outside the Dental Facility or relocate the
practice without the prior consent of Drs. Ingoldsby and Bergman, not to be
unreasonably withheld.
5. Neither First Dental nor the P.C. shall remove from the Dental
Facility any assets owned by the Ingoldsby and Bergman, P.C. as of the Closing
Date without the prior consent of Drs. Ingoldsby and Bergman, not to be
unreasonably withheld.
6. For so long as either Dr. Ingoldsby or Bergman is employed at the
Dental Facility, they have a right of first refusal if First Dental decides to
sell, or otherwise dispose of the assets formerly owned or leased by the
Ingoldsby and Bergman, P.C.
7. The non-competition covenant lasts for three years and extends
for a 5-mile radius.
8. During the employment of either Dr. Ingoldsby or Dr. Bergman,
First Dental shall not, without prior written consent of Drs. Ingoldsby and
Bergman, own or operate any dental practice within a 5-mile radius of the Dental
Facility.
9. Drs. Ingoldsby and Bergman's aggregate liability under the
indemnification provision shall be limited to $400,000.
10. The acquisition unwind provisions are triggered if (i) the
accounts payable at the Dental Facility are more than 45 days old, (ii) First
Dental or the P.C. has failed to meet its
<PAGE> 11
Memorandum To: Mark Stein
October 16, 1997
Page 11
payroll commitments at the Dental Facility, or (iii) First Dental has failed to
make payments when due under the promissory notes.
11. Closing Consideration: $864,843 to be paid as follows:
(a) $200,000 in convertible promissory notes as follows:
$100,000 to Ingoldsby, and $100,000 to Bergman each convertible
into 32,305 shares of Common Stock;
(b) $187,500 to be paid by FNEDC at Closing as follows:
$93,750 to Ingoldsby, and $93,750 to Bergman;
(c) $187,500 promissory notes as follows: $93,750 to
Ingoldsby, and $93,750 to Bergman;
(d) $225,000 to be paid by FNEDC on behalf of the Company
to Bank of Braintree at Closing (the "Bank of Braintree Loan");
and
(e) $64,843 as reimbursement of Shareholders by FNEDC for
trade payables assumed, $32,421.50 to Ingoldsby, and $32,421.50
to Bergman.
CRAM-CHEMA PROFESSIONAL ASSOCIATION MERGER
1. Until the promissory notes are paid in full, Drs. Cram Chema and
Chema shall not refer any Medicare or Medicaid beneficiaries to First Dental or
the P.C. for any "designated health services" as defined under Medicare or
Medicaid.
2. The non-competition covenant lasts for one year and extends for a
10-mile radius.
3. The acquisition unwind provisions are NOT triggered by the
failure of First Dental or the P.C. to meet their respective payment obligations
to Drs. Cram Chema and Chema.
4. Closing Consideration: $358,026 to be paid as follows:
(a) 20,812 shares of Common Stock at $8.00/share;
(b) $83,250 payable by certified or bank checks;
(c) $83,250 Promissory Note; and
(d) $25,026 Promissory Note, representing 50% of the
value of the accounts receivable as of the Closing Date and the
sum of $6,774.84 to Dr. Hewlett.
<PAGE> 12
Memorandum To: Mark Stein
October 16, 1997
Page 12
PAUL D. SILVER MERGER
1. First Dental will provide copies of its year end financial
statements and financial information regarding Dr. Silver's production and the
production of the Dental Facility where Dr. Silver practices dentistry.
2. The non-competition covenant lasts three years and extends for a
10-mile radius of the Dental Facility or of any Dental Facility which existed as
of the Closing Date.
3. First Dental and the P.C. will not own or operate a dental
practice or health care facility within a 10-mile radius of the Dental Facility.
Doing so gives Dr. Silver a right to terminate his Employment Agreement with the
P.C.
4. The acquisition unwind provisions are triggered by Dr. Silver's
termination of his Employment Agreement, but are NOT triggered by the failure of
First Dental or the P.C. to meet its payment obligations to Dr. Silver under the
Merger or Employment Agreements.
5. Closing Consideration: $350,461.50 consisting of:
(a) 17,715 shares of Common Stock at $10.00/share;
(b) $86,655.75 by check at Closing;
(c) $86,655.75 on first anniversary of the Closing Date.
ARTHUR P. WEIN MERGER
1. First Dental agrees that it shall use Dr. Wein's name in
advertising only with his prior approval.
2. The non-competition consent lasts for three years and extends for
a 10-mile radius. The covenant terminates if he terminates his Employment
Agreement or if the P.C. elects not to renew his Employment Agreement following
the initial term for certain reasons.
3. First Dental and the P.C. agree not to own or operate a dental
practice or health care facility within a 10-mile radius of the Dental Facility.
4. Closing Consideration: $270,436.89, consisting of:
(a) 38,077 shares of Common Stock at $6.50/share; and
(b) $22,936.39 in next day available funds at Closing.
<PAGE> 13
Memorandum To: Mark Stein
October 16, 1997
Page 13
WILLIAM H. GRASS MERGER
1. The non-competition covenant lasts for three years and extends
for a 10-mile radius. The non-competition covenant shall not apply to Dr. Grass
if he or the P.C. terminate his Employment Agreement for specified reasons.
2. The unwind provisions are NOT triggered by the failure of First
Dental or the P.C. to meet their respective payment obligations under the Merger
or Employment Agreements.
3. Closing Consideration: $480,000, consisting of:
(a) 80,000 Shares of Common Stock at $4.50/share at
Closing;
(b) $120,000 to Shareholder in next day available funds
at Closing.
RICHARD S. HAROLD MERGER
1. First Dental agrees to maintain the Dental Facility at its
present location through the term of the lease for the Dental Facility and any
extension or renewal thereof.
2. Until the promissory note is paid in full, Dr. Harold shall not
refer any Medicare or Medicaid beneficiaries to First Dental or the P.C. for any
"designated health services" as defined under Medicare or Medicaid.
3. The non-competition covenant lasts for three year and extends for
a 10-mile radius; however, Dr. Harold is only prohibited from owning or
operating any dental practice or healthcare facility and is NOT prohibited from
practicing dentistry under the non-competition covenant. If Dr. Harold completes
the full, initial term of his Employment Agreement, the duration of the
non-competition covenant is reduced to one year. 4. The acquisition unwind
provisions are triggered by a material breach by First Dental or the P.C. of
their respective obligations under the Merger Agreement, the Lease and the
Employment Agreement which is not cured.
5. Closing Consideration: $354,190.18 consisting of:
(a) 70,000 Shares of Common Stock at $4.50/share at
Closing;
(b) $39,190.18 to Shareholder in next day available funds
at Closing.
<PAGE> 14
Memorandum To: Mark Stein
October 16, 1997
Page 14
OSORIO AND WATKIN MERGER
1. Until the promissory note is paid in full, Drs. Osorio and Watkin
shall not refer any Medicare or Medicaid beneficiaries to First Dental or the
P.C. for any "designated health services" as defined under Medicare or Medicaid.
2. The non-competition covenant lasts for three years and extends
for a 10-mile radius. The covenant shall not apply in the event of a termination
of a dentist's Employment Agreement for certain specified reasons.
3. Closing Consideration: $1,537,500, consisting of:
(a) 137,500 Shares of Common Stock at $4.50/share at
Closing;
(b) $150,000 payable to each Shareholder on Jan. 16,
1996.
RAMIRO BLANCO MERGER
1. Until the promissory is paid in full, Dr. Blanco shall not refer
any Medicare or Medicaid beneficiaries to First Dental or the P.C. for
"designated health services" as defined under Medicare or Medicaid.
2. The non-competition covenant lasts for three years and extends
for a 10-mile radius from any Dental Facility at which Dr. Blanco has provided
professional dental services within the year preceding termination.
3. The acquisition unwind provisions are NOT triggered by the
failure of First Dental or the P.C. to meet their respective payment obligations
to Dr. Blanco under the Merger or Employment Agreement.
4. Closing Consideration: $194,000, consisting of:
(a) 5,000 Shares of FNEDC Common Stock at $10.00/share at
Closing;
(b) $25,000 to Shareholder by check at Closing; and
(c) $119,000 to Shareholder pursuant to terms of
Promissory Note.
<PAGE> 1
Exhibit 23.1
The Board of Directors
First New England Dental Centers, Inc:
The audits referred to in our report dated March 28, 1997, except as to
paragraph 4 of Note 11, which is as of July 25, 1997 and except as to Note 12,
which is as of October 22, 1997, included the related financial statement
schedule as of December 31, 1995 and 1996 and for the years ended December 31,
1995 and 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 combined 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 included herein and to the reference to our
firm under the heading "Selected Combined Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
October 23, 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.
October 21, 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
October 21, 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.
October 21, 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.
October 21, 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 October 22, 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
October 21, 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.
October 21, 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
October 20, 1997
<PAGE> 1
Exhibit 23.10
[deBAIROS & COMPANY, P.C. Letterhead]
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
October 21, 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.
October 21, 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
October 20, 1997
<PAGE> 1
Exhibit 23.13
[DePaola, Begg & Associates Letterhead]
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
October 21, 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
October 20, 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
October 22, 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
October 21, 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.
October 21, 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
October 21, 1997
<PAGE> 1
EXHIBIT 23.19
[CARLIN, CHARRON & ROSEN LLP LETTERHEAD]
To 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/ CARLIN, CHARRON & ROSEN, LLP
CARLIN, CHARRON & ROSEN, LLP
(Successor to Goff, Carlin & Cagan LLP)
October 21, 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.
October 21, 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.
----------------------------
October 21, 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
October 21, 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.
October 21, 1997
Boston, Massachusetts
<PAGE> 1
Exhibit 23.24
[BARRETT & DATTILIO, P.C. LETTERHEAD]
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.
October 23, 1997 Barrett & Dattilio, P.C.
Quechee, Vermont Certified Public Accountants
Registration #440
<PAGE> 1
Exhibit 23.25
[BARRETT & DATTILIO, P.C. LETTERHEAD]
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.
October 23, 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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<CASH> 141,214 42,558
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